So you were just retained on what could become a high-profile case.  The stakes are high, and it’s unclear how this will play in the media.  The issue may arise based on the parties to the case, the nature of the claims, or both.  Either way, as part of your litigation strategy, you decide that the assistance and guidance of a public relations or media crisis management firm is wise and necessary to render effective counsel.  You prepare your standard Kovel letter, and retain the PR consultant to assist.  As part of that engagement, you advise both consultant and client that it is essential that  you — as counsel — be copied on all communications so as to ensure the protection of privileged communications.  Is this enough protection to guard against the PR consultant from being compelled to disclose communications?  Maybe not.

In Gottwald v. Sebert, a case involving singer-songwriter and recording artist Kesha, Justice Shirley Kornreich ordered non-party Sunshine Sachs (the PR consultant) to produce certain documents identified on its privilege log.  The court held that the communications with the PR agency were not necessary for the rendering of legal advice.  Simply copying an attorney on the communication is not enough to invoke the attorney client privilege.  In footnote 7, the court raised an issue with respect to draft complaints logged and whether they were protected by the work product doctrine, which the court noted “is less likely to result in a waiver than with the attorney-client privilege.”  Following the court’s decision, counsel for defendant submitted a letter addressing the work product issue and why it prevented disclosure of certain materials.  The parties have been ordered to address this issue at an upcoming court conference in December.

Hiring a PR consultant to assist counsel navigate the media minefield, although wise, can be risky.  The court in Gottwald  analyzed the growing body of case law in this area, particularly in the federal courts within the Second Circuit, which seem to lean toward not finding “necessity” for the PR consultant’s involvement, but they are more apt consider application of the attorney work product doctrine.  Of course, unlike privilege, work product may, under certain circumstances be invaded, see Fed. R. Civ. P. 26(b)(3)(A).

There are several key decisions from the federal courts on this issue, namely, In re Chevron (SDNY; Kaplan, J.), Calvin Klein Trademark Trust v. Wachner (SDNY; Rakoff, J.), and Bloomingburg Jewish Educ. Ctr. v. Vill. of Bloomingburg (SDNY; Forrest, J.), that are a “must read” before engaging a PR consultant.  In New York, there is a scarcity of decisions, but the First Department in 2014 ruled in Pecile v. Titan Cap. Group, LLC that communications with a PR consultant do not per se waive the privilege.   The common thread in all of these authorities is to determine whether the particular communications with the PR consultant are necessary in order for counsel to render informed legal advice to the client.

 

Under Delaware law, the decision to commence litigation on behalf of a corporation is, of course,  a fundamental exercise of business judgment, which decision rests with the Board of Directors.  A shareholder, therefore, cannot bring a derivative action without pleading that a demand on the corporation to do so had been made, or that such demand would have been “futile.”  The shareholder, therefore, has an initial decision to make:  make the demand, or plead futility. 

Recently, in Reese v. Andreotti, Justice O. Peter Sherwood dismissed a derivative action brought by a shareholder who made the demand, which was rejected by the Board.    Relying on Delaware law, the court noted that the mere making of a demand is a tacit acknowledgment by the shareholder that there is an absence of facts that would support a “futility” argument (citing Spiegel v. Buntrock).  Mere disagreement with the Board’s conclusion is simply not sufficient to raise doubts about the Board’s good faith and whether it acted on an informed basis.  Similarly, the court held that by making a demand, a shareholder is effectively conceding that his demand can be fairly assessed and thereby waives any later claim that the Board members were conflicted.

How about the availability of discovery to determine the reasonableness of the Board’s rejection of the demand?  “No” says the court, relying on both Delaware law and New York law, which come to the same conclusion:  plaintiffs are not entitled to discovery to assess the reasonableness of the Board’s rejection.

Making a demand or pleading futility becomes an important, strategic first step in any derivative action.  There are presumptions and ramifications that must be considered before the chosen course is charted and demand is made.