Chambers v. Gold Medal Bakery, Inc.
| Decision Date | 08 February 2013 |
| Docket Number | SJC–11231. |
| Citation | 983 N.E.2d 683,464 Mass. 383 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | Michele LeComte CHAMBERS & others v. GOLD MEDAL BAKERY, INC. & others. |
OPINION TEXT STARTS HERE
John N. Love (Anthony A. Froio with him), Boston, for the defendants.
Howard M. Cooper (Heidi A. Nadel & Kimberly E. Dean with him), Boston, for the plaintiffs.
Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, DUFFLY, & LENK, JJ.
The issue presented in this appeal is whether a closely-held corporation and its corporate counsel and accountants can assert attorney-client privilege or work product protection against director-shareholders asserting claims against the corporation and its directors. Because there is sufficient evidence that the plaintiffs' interests are adverse to the interests of the corporation as concerns the 2007 and present litigations, we conclude that the plaintiffs are not entitled to privileged or protected information relating to the two litigations.
Background and procedure. We recount the facts in particular detail because of their significance to the disposition of this case. The story leading to the present appeal begins with two brothers who were in the bakery business together. The brothers each owned fifty per cent of two closely-held companies 4 (collectively, Gold Medal), which have grown into major suppliers of wholesale bakery products in New England.
The individual parties to the present action are split along family lines, with each side of the litigation representing the legacy of one of the brothers. On one side are Georgette LeComte and Michele LeComte Chambers, respectively widow and daughter of one of the brothers, who together own fifty per cent of Gold Medal stock. Both joined Gold Medal's four-seat board of directors in 2008,5 assuming two of the four, or fifty per cent, of the seats. Georgette since has been replaced as director by her designee, Michael Kehoe.6 These three individuals are the plaintiffs.
On the other side of the dispute are Roland LeComte and Florine LeComte, who, as son and daughter-in-law respectively, represent the other brother's legacy. These individuals collectively own fifty per cent of Gold Medal stock and occupy the remaining two seats on the board. This side of the family tree has greater involvement in Gold Medal's day-to-day affairs: Roland serves as president and his son, Brian LeComte, serves as secretary and treasurer. Roland LeComte and Brian LeComte are individual defendants. 7 Gold Medal is also a defendant,8 as are an accounting firm, Kane and Kane, Inc., and its principals, Joel Kane and Joseph Cordeiro. The defendants joined the law firm of Robins, Kaplan, Miller & Cerisi LLP (RKMC), which serves as Gold Medal's corporate counsel, in this appeal. RKMC plays a central role in the present dispute as keeper of the documents the plaintiffs seek to discover.
The opposing branches of the family tree paint drastically different pictures of the dynamic within Gold Medal. The plaintiffs claim that they have been frozen out of Gold Medal affairs and denied access to basic information about Gold Medal. They assert that the individual defendants maintain secrecy to conceal wrongdoing. The defendants, on the other hand, assert that the plaintiffs distanced themselves from Gold Medal affairs. Of greatest significance, the defendants claim that the plaintiffs have been seeking a buyout from Gold Medal for years, and that any information they seek is only to advance their goal of maximizing the value of their shares.
Not surprisingly, this strained family dynamic prompted the parties to take legal action. In 2006, an attorney for the plaintiffs sent a request for various corporate and financial records to RKMC. When this request did not result in the production of requested information, the plaintiffs, in 2007, filed a direct action against Gold Medal seeking access to information. 9 One purpose of the 2007 suit was to investigate Gold Medal's financial status “for the purpose of ultimately arriving at a possible sale price for [the plaintiffs'] stock.” The lawsuit settled in 2008 10 pursuant to an agreement that included a promise that the plaintiffs could access certain corporate documents and audit Gold Medal. By the terms of the 2008 settlement agreement, the “[p]laintiffs intend to audit [Gold Medal] for the purpose of facilitating a sale of the [p]laintiffs' shares to [Gold Medal] and/or [Gold Medal's] other shareholders.” The settlement agreement also bound the parties to enter into good faith negotiations for a global buyout of all of the plaintiffs' interests in Gold Medal after the plaintiffs completed a valuation.
The instant lawsuit arose, in part, out of an alleged violation of the settlement agreement. In 2009, the plaintiffs, in their capacity as shareholders and directors instituted this action and asserted direct and derivative claims against the individual defendants and Gold Medal. The reason for the direct claims is that, according to the plaintiffs, the individual defendants intentionally kept basic financial information about Gold Medal from the plaintiffs in an effort to conceal wrongdoing and “to achieve a buy-out or redemption of the [p]laintiffs' shares on unfavorable terms that provide less than fair value for the shares.” The wrongdoing alleged in the derivative claims is mismanagement of Gold Medal amounting to breach of fiduciary duty. 11
A central point of disagreement between the parties concerns the motive underlying the present action. The plaintiffs contend that any discussion of a potential buyout is in the best interests of Gold Medal, and that they only sued Gold Medal as a necessary party in a predominately derivative lawsuit against the individual defendants for breach of fiduciary duty. The defendants allege that the plaintiffs' main purpose in pursuing this action, like the 2007 lawsuit, is to force Gold Medal to buy out their shares at a premium. A judge, ruling on a motion to remove confidentiality designations of the deposition testimony of one of Gold Medal's accountants, observed that “[v]aluation of the corporations so that various family members can obtain their due is the apparent ultimate goal of the litigation.”
Following the denial of the defendants' motion to dismiss, the plaintiffs pursued document discovery and served a subpoena duces tecum on RKMC as keeper of Gold Medal's corporate records. The discovery dispute that is the subject of the present appeal arose out of a challenge to an order requiring production of the requested documents. The subpoena listed thirteen categories of documents,12 and RKMC objected 13 to every request on the ground that it implicated documents protected as attorney-client privileged or attorney work product. RKMC moved for a protective order to quash the subpoena,14 and a discovery master was appointed to decide the motion. 15
The discovery master denied RKMC's motion for a protective order and ordered RKMC to produce nearly all requested documents 16 because he concluded that RKMC could not assert attorney-client privilege against the plaintiffs in their capacity either as directors or as shareholders. He first reasoned that, as two of four Gold Medal directors, the plaintiffs are an “integral and essential part” of Gold Medal management. See G.L. c. 156D, § 8.01( b ) (“[a]ll corporate power shall be exercised by or under the authority of ... its board of directors”); Gold Medal bylaws (“[t]he directors shall have and exercise full control and management of the affairs of the corporation”). Relying on Chronicle Pub. Co. v. Hantzis, 732 F.Supp. 270 (D.Mass.1990), the discovery master stated that as part of Gold Medal's managing control group, the plaintiffs have the “power to invoke or waive [Gold Medal's] attorney-client privilege ... in accordance with their fiduciary obligations.” Id. at 273, citing Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 348–349, 105 S.Ct. 1986, 85 L.Ed.2d 372 (1985). The discovery master also analogized to the joint client privilege exception, discussed in Federal Deposit Ins. Corp. v. Ogden Corp., 202 F.3d 454, 461 (1st Cir.2000), citing Beacon Oil Co. v. Perelis, 263 Mass. 288, 293, 160 N.E. 892 (1928), and determined that, because “directors are joint corporate managers, they stand in the same position with respect to communications with corporate counsel as they would be if they were the joint clients of corporate counsel.”
The discovery master also determined that the plaintiffs were entitled to privileged material as Gold Medal shareholders. He applied the nine-factor test set forth in Garner v. Wolfinbarger, 430 F.2d 1093, 1104 (5th Cir.1970), cert. denied sub nom. Garner v. First Am. Life Ins. Co., 401 U.S. 974, 91 S.Ct. 1191, 28 L.Ed.2d 323 (1971),17 to the facts and found that the plaintiffs made a showing of good cause that the attorney-client privilege should not be invoked to preclude their access to privileged communications.
RKMC moved for review of the discovery master's decision, and the reviewing judge affirmed the discovery master's production order. The judge stated that the “[a]ccess to attorney-client records [to which the plaintiffs were entitled] includes access to work product.”
The case comes before us on an interlocutory appeal from the order requiring RKMC to produce documents described in the plaintiffs' subpoena. We granted the plaintiffs' application for direct appellate review to consider whether their status as director-shareholders entitles them to access to the requested information, or whether the defendants and their counsel and accountants may assert attorney-client privilege or work product protection to prevent disclosure. We conclude, on the narrow facts of this case, that the plaintiffs' interests are adverse to Gold Medal for purposes of attorney-client privilege and work product protection as concerns documents generated in anticipation...
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