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PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

No. 06-2915

IN RE: TELEGLOBE COMMUNICATIONS CORPORATION, et al, Debtor TELEGLOBE USA INC.; OPTEL COMMUNICATIONS INC.; TELEGLOBE HOLDINGS (U.S.) CORPORATION; TELEGLOBE MARINE (U.S.) INC.; TELEGLOBE HOLDING CORP.; TELEGLOBE TELECOM CORPORATION; TELEGLOBE INVESTMENT CORP.; TELEGLOBE SUBMARINE, Teleglobe Submarine Inc.; OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF TELEGLOBE COMMUNICATIONS CORPORATION; TELEGLOBE COMMUNICATIONS CORPORATION; TELEGLOBE LUXEMBOURG, LLC; TELEGLOBE PUERTO RICO INC. v. BCE INC.; MICHAEL T. BOYCHUK; MARC A. BOUCHARD; SERGE FORTIN; TERENCE J. JARMAN;

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STEWART VERGE; JEAN C. MONTY; RICHARD J. CURRIE; THOMAS KIERANS; STEPHEN P. SKINNER; H. ARNOLD STEINBERG, Appellants VARTEC TELECOM, INC., Defendants/Intervenor in District Court

Appeal from the United States District Court for the District of Delaware (D.C. Civil Action No. 04-cv-01266) Chief District Judge: Honorable Sue L. Robinson

Argued January 8, 2007 Before: McKEE, AMBRO and FISHER, Circuit Judges (Opinion filed July 17, 2007) Pauline K. Morgan, Esquire John T. Dorsey, Esquire Margaret B. Whiteman, Esquire Young, Conaway, Stargatt & Taylor 1000 West Street, P.O. Box 391 17th Floor, Brandywine Building Wilmington, DE 19899-0391

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Stuart J. Baskin, Esquire Jaculin Aaron, Esquire Shearman & Sterling 599 Lexington Avenue New York, NY 10022 Stephen J. Marzen, Esquire (Argued) Shearman & Sterling 801 Pennsylvania Avenue, N.W., Suite 900 Washington, D.C. 20004 Counsel for Appellants Gregory V. Varallo, Esquire C. Malcom Cochran, IV, Esquire (Argued) Chad M. Shandler, Esquire Richards, Layton & Finger One Rodney Square P.O. Box 551 Wilmington, DE 19899 Philip A. Lacovara, Esquire Andrew Tauber, Esquire Mayer, Brown, Rowe & Maw 1909 K Street, N.W. Washington, D.C. 20006 Counsel for Appellees Mark I. Levy, Esquire Kilpatrick Stockton
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607 14th Street, N.W., Suite 900 Washington, D.C. 20005 Susan Hackett, Esquire Senior Vice President and General Counsel Association of Corporate Counsel 1025 Connecticut Avenue, N.W., Suite 200 Washington, D.C. 20036 David C. Frederick, Esquire Robert A. Klinck, Esquire Kellogg, Huber, Hansen, Todd, Evans & Figel 1615 M Street, N.W., Suite 400 Washington, D.C. 20036 Counsel for Amici-Appellants

OPINION OF THE COURT

TABLE OF CONTENTS I. Facts and Procedural History . . . . . . . . . . . . . . . . . . . 8 A. The Parties and Underlying Causes of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 B. The Privilege Dispute . . . . . . . . . . . . . . . . . . 11 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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II. III.

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IV.

Summary of the Law . . . . . . . . . . . . . . . . . . . . . . . . . 24 A. The Attorney-Client Privilege . . . . . . . . . . . . 25 B. The Disclosure Rule . . . . . . . . . . . . . . . . . . . 28 C. Privileged Information Sharing . . . . . . . . . . . 30 1. The Co-Client (or Joint-Client) Privilege . . . . . . . . . . . . . . . . . . . . . . . 30 2. The Community-of-Interest (or Common-Interest) Privilege . . . . . 35 D. The Exception for Adverse Litigation . . . . . . 42 E. When Joint Representation Goes Awry: The Eureka Principle . . . . . . . . . . . . . 46 F. Putting It All Together: Parents, Subsidiaries, and the Modern Corporate Counsel's Office . . . . . . . . . . . . . . 49 1. Intra-group Information Sharing: Parents and Subsidiaries as Joint Clients . . . . . . . . . . . . . . . . . . . 50 2. Keeping Control of the Privilege . . . . 57 3. When Conflicts Arise . . . . . . . . . . . . . 59 Issues on Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 A. Whether the Debtors Are Entitled to Documents Generated in the Course of a BCE/Teleglobe Joint Representation . . . . . . . . . . . . . . . . . . . 61 1. Whether BCE's Concession in the Bankruptcy Court Prevents it from Arguing that the Debtors are not Entitled to the Disputed Documents . . . . . . . . . . . . . 62
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V.

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B.

Background . . . . . . . . . . . . . . . 62 Merits . . . . . . . . . . . . . . . . . . . . 67 I. Issue Waiver . . . . . . . . . 67 ii. Judicial Admission . . . . 69 iii. Judicial Estoppel . . . . . . 70 iv. Implied Prospective Waiver of the Privilege . . . . . . . . . . . . 71 2. Whether the Communityof-Interest Privilege Entitles the Debtors to the Documents as a Matter of Law . . . . . . . . . . . . . . . . . . 72 3. Whether Teleglobe's Waiver of the Privilege for the Debtors' Benefit in the Canadian Insolvency Proceedings Entitles them to the Documents . . . . . . . . . . . . 74 4. Conclusion and Remand . . . . . . . . . . . 77 The Effect of Funneling Documents Through BCE's In-House Counsel . . . . . . . . 78

a. b.

VI.

Potential Alternate Sustaining Grounds . . . . . . . . . . 85 A. The Fiduciary Exception to the Attorney-Client Privilege . . . . . . . . . . . . . . . . 85 B. Affirming as a Discovery Sanction . . . . . . . . 92 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

VII.

AMBRO, Circuit Judge This is a twist on a classic corporate divorce story. It
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begins much as Judge Richard Cudahy's "classic corporate love story": "Company A meets Company B. They are attracted to each other and after a brief courtship, they merge." GSC Partners CDO Fund v. Washington, 368 F.3d 228, 232 (3d Cir. 2004). Sadly, it does not last. Not long after Company A acquires Company B, they start taking risks together, some of which go terribly wrong. After only a year or so, Company B is steeped in debt, and, not surprisingly, Company A begins to "los[e] that lovin' feelin'."1 It leaves Company B, explaining that it simply must do so in order to save itself. Jilted and out of money, Company B promptly turns to that shelter for abandoned corporations, the bankruptcy system. In bankruptcy, Company B's children (subsidiaries), also in the shelter of bankruptcy, become indignant, and they sue Company A for all manner of ills relating to the break-up. Here, we deal not with the merits of the action, but with a pre-trial dispute over corporate documents. Everyone agrees that the attorney-client privilege protects these documents against third parties. The wrinkle is that they were produced by and in communication with attorneys who represented the entire corporate family back when they all got along. The question, then, is whether Company A may assert the

Righteous Brothers, You've Lost That Lovin Feelin, on YOU'VE LOST THAT LOVIN FEELIN (Phillies 1965). 7

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privilege against its former family members. Because we conclude that the District Court's factual findings do not support setting aside the parent company's privilege in this case, we vacate its order compelling production and remand for further proceedings. I. Facts and Procedural History A. The Parties and Underlying Causes of Action

This action began with a complaint brought in a Chapter 11 bankruptcy case. The debtors ("Debtors") are the wholly owned United States subsidiaries of a Canadian telecommunications company formerly known as Teleglobe, Inc. ("Teleglobe"). Teleglobe and the Debtors are undergoing reorganization in Ontario in accordance with the Canadian Companies' Creditors Arrangement Act (the "Arrangement Act"), a form of bankruptcy protection similar to Chapter 11. In addition, the Debtors (but not Teleglobe), all but one2 of which are Delaware corporations, are simultaneously undergoing Chapter 11 reorganization in the District of Delaware. Until recently, Teleglobe was a wholly owned subsidiary of Bell Canada Enterprises, Inc. ("BCE"), Canada's largest

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One is a Puerto Rico corporation.
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telecommunications company.3 In 2000, BCE, which had previously owned a 23% minority stake in Teleglobe, purchased all its remaining shares (directly and indirectly through subsidiaries), thus taking control of the company. According to the Debtors, in late 2000 BCE directed Teleglobe to accelerate the development of a fiberoptic network called GlobeSystem. BCE pledged its financial support to the project and caused Teleglobe and its subsidiaries (the Debtors) to borrow some $2.4 billion from banks and bondholders. The bond debt was guaranteed by one of the Debtors. Teleglobe exhausted its funding in 2001, and in November of that year BCE approved an additional $850 million equity infusion for Teleglobe and its subsidiaries. These monies were to be disbursed at the sole discretion of Jean Monty, then Chairman and CEO of BCE as well as Chairman and CEO of Teleglobe. BCE announced its intention to continue funding Teleglobe in December 2001. About this time BCE began working on what personnel referred to as Project X--a comprehensive reassessment of BCE's plans for Teleglobe. Lurking in the background was

As a result of the Canadian reorganization process, Teleglobe, now known as VSNL International Canada, operates as a subsidiary of VSNL, a telecommunications company organized in India, which itself is owned by the Tata Group, an Indian conglomerate.
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BCE's declining confidence in GlobeSystem's ultimate potential.4 In the course of Project X, BCE considered a variety of options, including maintaining its funding in the hope that GlobeSystem would be profitable, restructuring Teleglobe in such a way that it could continue as a viable subsidiary, and simply cutting off funding (which would send Teleglobe and its subsidiaries into a liquidating bankruptcy). In early April 2001, BCE publicly announced that it was reassessing its funding of Teleglobe; just a few weeks later, it ceased its funding, effectively abandoning Teleglobe. GlobeSystem was not operational, and so Teleglobe had no means of paying back its multi-billion dollar debt. Consequently, within weeks Teleglobe and the Debtors filed for Arrangement Act relief in Canada, and the Debtors also filed for Chapter 11 relief in Delaware.

As stock market junkies may recall, Teleglobe was but one of many victims of the "telecom meltdown" of 2000­2001. In the late 1990s deregulation in the United States and Europe touched off a rush to build new telecom infrastructure. Like so many other companies in that period, Teleglobe spent much debt capital to build fiberoptic lines around the world. Because of the ensuing glut of infrastructure, prices tumbled, and Teleglobe, along with a host of other over-leveraged telecom firms, went bankrupt. See, e.g., Peter Elstrom & Heather Timmons, Telecom Meltdown, BUSINESSWEEK, Apr. 23, 2001, at 100; Gordon Pitts, When Friends Do Business with Each Other, GLOBE & MAIL (CANADA), Apr. 27, 2002, at B1.
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For BCE's role in funding and then abandoning the GlobeSystem project, the Debtors sued it in this adversary proceeding.5 They assert several causes of action, including breach of contract, breach of fiduciary duties, estoppel, and misrepresentation (whether fraudulent or negligent). All claims relate to the manner in which BCE ceased funding Teleglobe, the Debtors' corporate parent. Debtors' theme is that BCE reneged on binding commitments to fund Teleglobe and fraudulently or negligently induced Teleglobe and the Debtors to continue incurring debt in reliance on those commitments, thus harming, inter alia, Teleglobe, the Debtors, and the Debtors' creditors. Moreover, they allege that BCE, as the controlling shareholder of Teleglobe and the Debtors while those entities were insolvent, breached its fiduciary duties to the Debtors. B. The Privilege Dispute

In the District of Delaware Bankruptcy Court, the Debtors and the Creditors Committee began exploring through

At one time the committee of unsecured creditors (the "Creditors' Committee"), appointed under 11 U.S.C. § 1102(a)(1), was also a plaintiff; it, however, has been dissolved with the confirmation of the Debtors' plan of reorganization.
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Rule 20046 discovery the possibility of suing BCE for the manner in which it abandoned Teleglobe and the Debtors. In response to discovery requests, BCE marked 98 documents as protected by a "common interest privilege."7 When the creditors moved to compel production, BCE responded that the documents were privileged because "BCE attorneys consulted with attorneys, officers, or employees of Teleglobe, Inc. or its subsidiaries to discuss or provide legal advice in matters where BCE and Teleglobe, Inc. (or its subsidiaries) shared a common legal interest." App. at A01110. BCE further stated that the "privilege will continue to exist until the Debtors file a litigation against BCE." Id. At a hearing in the Bankruptcy Court, BCE--in keeping with the theme of its argument--agreed to produce (even without the filing of a suit) the "common interest" documents to the Debtors, seemingly agreeing that they fell within the scope of their shared interest, and the Bankruptcy Court entered an order to that effect. BCE did not specifically admit that it was required to produce the documents; it merely agreed to do so. It continued to maintain, however, that the rest of the documents

Federal Rule of Bankruptcy Procedure 2004 allows parties with an interest in the bankruptcy estate to conduct discovery into matters affecting the estate. 7 We assume that BCE meant to invoke the joint-client privilege, rather than the common-interest privilege. We explain the difference in Part IV.C, infra.
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designated as privileged represented advice provided solely to it and were not part of any joint representation with Teleglobe or the Debtors. It is unclear from the record exactly what the 98 "common interest" documents contained that BCE agreed to produce, but the privilege logs reflect that they primarily consisted of documents created by BCE's in-house counsel on the subject of Teleglobe's financing and restructuring. At the same time, the privilege log (exclusive of the 98 "common interest" documents) lists many other documents reflecting legal advice on Project X matters that BCE claimed--then and now--were intended as advice solely to it and not as part of any joint representation. See generally App. at A00967­A01091. Once the Debtors and Creditors' Committee filed their suit against BCE, the District Court withdrew its automatic reference to the Bankruptcy Court and began handling the suit itself. The District Court held an initial discovery conference at which BCE reasserted that it had produced all of the documents that it thought were generated as a result of a BCE/Teleglobe/Debtors joint representation and that the documents it was withholding reflected advice provided to and intended solely for BCE. App. at A00264­65. The Debtors did not press the joint representation/common interest point at that time, nor did they argue for a broader scope of the joint representation/common interest than BCE had admitted; rather, they focused on an extension of the "conflicted fiduciary" line

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of cases, see Part VI.A, infra.8 App. at A00262­63. The District Court ended up referring the discovery dispute to a Special Master--C.J. Seitz, Jr., Esquire. In its initial written response to the Debtors' motion to compel production before the Special Master, BCE stated that it had, in response to the Bankruptcy Court's Rule 2004 order, "produced to the Debtors all the documents that were protected by a common interest." App. at A0197. BCE further stated that it had reviewed all of the documents on the privilege log and that the only documents that remained designated as privileged were those "reflect[ing] the provision of legal work solely to BCE." Id.

In brief, these cases provide that when a corporation's shareholders attempt to bring a derivative suit on behalf of the corporation against its directors for breaching their fiduciary duties, the shareholders can invade the corporation's privilege upon showing "good cause." Garner v. Wolfinbarger, 430 F.2d 1093, 1103­04 (5th Cir. 1970). A more expansive view of the rule is phrased thus: "where a corporation seeks advice from legal counsel, and the information relates to the subject of a later suit by a minority shareholder in the corporation, the corporation is not entitled to claim the [lawyer-client] privilege as against its own shareholder, absent some special cause." Valente v. PepsiCo, Inc., 68 F.R.D. 361, 367 (D. Del. 1975). As detailed in Part VI.A, Delaware courts have followed Garner but declined broadly to apply Valente.
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The Debtors then expanded their argument by contending that the scope of the joint representation was broader than BCE admitted. Specifically, they claimed that various attorneys represented all of the entities on the matters of BCE's decision to cease funding Teleglobe and Teleglobe's resulting restructuring. BCE, on the other hand, claimed that it retained its own attorneys to advise it on those matters. The Special Master found that the Debtors had not met their burden of proving an exception to the attorney-client privilege. The evidence, he concluded initially, merely showed that BCE's inhouse counsel represented Teleglobe and the Debtors occasionally; it did not show a broad joint representation as to the abandonment of Teleglobe. Recognizing, however, that the Debtors did not trust BCE's representation that the documents marked as privileged reflected advice provided solely to BCE, the Special Master ordered a 50-document audit by his in camera review to ensure the accuracy of BCE's representations. The Special Master also rejected the Debtors' conflicted fiduciary argument, noting that the Delaware Court of Chancery has refused to adopt it in its broader form. Deutsch v. Cogan, 580 A.2d 100, 105 (Del. Ch. 1990) ("Although neither the Garner nor Valente case is binding on this Court, Delaware courts have consistently followed Garner and declined to broadly apply Valente.") (citations omitted). More importantly, the Special Master forestalled any further "conflicted fiduciary"style argument by ruling that neither Teleglobe nor the Debtors' boards were conflicted in any sense because all of their duties
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flowed back up to BCE (and not, as the Debtors argued, to their creditors). See Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171, 1174 (Del. 1988) ("[I]n a parent and wholly-owned subsidiary context, the directors of the subsidiary are obligated only to manage the affairs of the subsidiary in the best interests of the parent and its shareholders."). The Special Master, however, did not make an express finding of fact on when the Debtors became insolvent (or entered the amorphous9 "zone of insolvency"), reasoning instead that there was no way to get from the Debtors' directors owing fiduciary duties to creditors of the Debtors on one hand to BCE owing a duty to those creditors on the other. According to the Special Master, "[s]hortly after the Debtors made their selection of documents for in camera review, the wheels started coming off [BCE's] privilege wagon." App. at A0030. Before the review, BCE withdrew its privilege assertion for six of the 50 documents that the Debtors

A footnote from the Delaware Supreme Court's latest opinion on a related issue explains that this "zone" is yet illdefined: "In light of its ultimate ruling, the Court of Chancery did not attempt to set forth a precise definition of what constitutes the `zone of insolvency.' Our holding in this opinion also makes it unnecessary to precisely define a `zone of insolvency.'" N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, ___ A.2d ___, 2007 WL 1453705, at n.20 (Del. 2007).
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selected. Then, the Special Master determined that three of the documents did not involve the provision of legal advice at all, and three lent credence to the Debtors' argument that BCE attorneys jointly represented BCE and Teleglobe on the issue of BCE's abandonment. After the initial in camera review, BCE withdrew the privilege assertion for still more documents. Having reviewed 44 documents in camera, the Special Master issued a supplemental decision in which he concluded that BCE's revised privilege claims and his review of documents in camera "raised serious questions about" the reliability of the privilege log, whether BCE attorneys jointly represented BCE and Teleglobe on the abandonment issue, whether the documents withheld reflected legal advice provided solely to BCE, and whether the documents withheld were in fact privileged. App. at A0031. He ordered BCE to review and revise the privilege log and to submit all purportedly privileged documents to him for in camera review. BCE culled its privilege log to just over 1,000 documents. Then, between the submission of the revised privilege log and the submission of the actual documents, BCE withdrew the assertion of privilege for over 100 additional documents. BCE still wasn't finished; while the in camera review proceeded, it withdrew its assertion of privilege in four separate letters to the Special Master, covering well over 100 more documents.

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One of the issues raised by the Debtors in supplemental briefing was BCE's apparent over-designation of privileged documents. According to the Debtors, this was substantial enough to merit wholesale disclosure of the documents on BCE's privilege log as a discovery sanction. The Special Master agreed that BCE "failed the audit in multiple ways--withdrawing documents before in camera review, claiming privilege over documents that did not reflect legal advice, and claiming privilege over documents where it appeared that BCE in-house attorneys and outside counsel jointly represented BCE, Teleglobe, or the Debtors on matters of common interest." In his final decision, the Special Master declined to impose disclosure as a discovery sanction. But he nonetheless reversed himself and ordered the production of all of the documents on the privilege log. Having reviewed some 800 documents in camera, he found that they "revealed a broad legal representation of both BCE and Teleglobe by BCE's in-house attorneys relating to Teleglobe's restructuring alternatives." App. at A0047­48. He further found that all of the documents on the privilege log were disclosed to BCE's in-house counsel, which made them discoverable because those attorneys were jointly representing Teleglobe and could not, therefore, withhold the documents from it. Id. at A0055. He applied this reasoning even to documents produced by outside counsel hired only to

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work for BCE.10 The District Court affirmed the Special Master's decision and ordered BCE to turn over to the Debtors all of the documents. BCE argued that the Special Master's finding of a broad joint representation between it and Teleglobe was irrelevant because he had not found a joint representation between it and the Debtors. Unless the Debtors were a party to the joint representation, BCE argued, they could not invade its privilege. The Court rejected this argument on three grounds: (1) BCE made a binding agreement to disclose all communications generated as part of a BCE/Teleglobe joint representation, and so finding a joint representation between the two was all that was needed; (2) the Debtors, as wholly owned subsidiaries of Teleglobe, were parties to the joint representation as a matter of law, and (3) even the documents that fell outside of the joint representation (i.e., were produced by outside counsel) must be disclosed because they were shared with BCE's in-house attorneys, who jointly represented Teleglobe. II. Jurisdiction

Specifically, the Special Master concluded that the law firms Strikeman Elliot and Shearman & Sterling produced at least some documents for the sole benefit of BCE, but he ordered the production of those documents because they were shared with BCE's in-house attorneys, who were jointly representing it and Teleglobe.
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This is an appeal from an interlocutory order. Nevertheless, we have jurisdiction under the collateral order doctrine, which provides an exception to the finality requirement of 28 U.S.C. § 1291. Under it, an immediate appeal lies if the following elements are met: "(1) the order from which the appellant appeals conclusively determines the disputed question; (2) the order resolves an important issue that is completely separate from the merits of the dispute; and (3) the order is effectively unreviewable on appeal from a final judgment." In re Ford Motor Co., 110 F.3d 954, 958 (3d Cir. 1997) (citing Rhone-Poulenc Rorer, Inc. v. Home Indem. Co., 32 F.3d 851, 860 (3d Cir. 1994)). Here, the first and third prongs are clearly met, as the District Court ordered the production of some 800 documents currently in dispute. See In re Ford Motor Co., 110 F.3d at 958 (holding that the first prong is met when a district court orders the production of documents). Once documents are disclosed, any dispute over their privileged status is effectively moot and unreviewable, as the very purpose of the privilege is frustrated by compelled disclosure. Id. at 963 ("[T]he limited assurance that the protected material will not be disclosed at trial `will not suffice to ensure free and full communication by clients who do not rate highly a privilege that is operative only at the time of trial.'" (quoting Chase Manhattan Bank, N.A. v. Turner & Newall, PLC, 964 F.2d 159, 165 (2d Cir. 1992))). The only question, then, is whether the privilege issue is
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sufficiently separate from the merits of the suit. It is, as we have no occasion to consider the issues that lie at the heart of the case: the existence, content, and alleged breach of any contract between BCE, Teleglobe, and/or the Debtors; the content and fraudulent or negligent nature of any representations made by BCE; and the alleged breach by BCE of fiduciary duties it purportedly owed to the Debtors. Rather, we concern ourselves with the extent to which BCE, Teleglobe, and the Debtors were jointly represented by counsel and the effect any joint representation has on BCE's ability to shield documents from disclosure. In this context, we have little trouble concluding that we have jurisdiction over this appeal. III. Choice of Law

BCE argues that Canadian law should govern all aspects of this appeal; the Debtors, on the other hand, argue for Delaware law. As a federal court exercising jurisdiction over state-law claims, we apply the choice-of-law rules of Delaware, the forum state. Hammersmith v. TIG Ins. Co., 480 F.3d 220, 226 (3d Cir. 2007). "Delaware courts look to the Restatement (Second) of Conflict[s] of Laws for guidance in choice of law disputes." Gloucester Holding Corp. v. U.S. Tape & Sticky Prods., LLC, 832 A.2d 116, 124 (Del. Ch. 2003). Here, § 139 of the Restatement applies:

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(1) Evidence that is not privileged under the local law of the state which has the most significant relationship with the communication will be admitted, even though it would be privileged under the local law of the forum, unless the admission of such evidence would be contrary to the strong public policy of the forum. (2) Evidence that is privileged under the local law of the state which has the most significant relationship with the communication but which is not privileged under the local law of the forum will be admitted unless there is some special reason why the forum policy favoring admission should not be given effect. RESTATEMENT (SECOND) OF CONFLICTS OF LAWS § 139 (1971). These provisions presuppose a conflict between the law of the forum state and the law of the state with the most significant relationship. This is because courts typically wade into choice-of-law determinations when those laws truly conflict. See Huber v. Taylor, 469 F.3d 67, 74 (3d Cir. 2006) (citing On Air Entm't Corp. v. Nat'l Indem. Co., 210 F.3d 146, 149 (3d Cir. 2000)). While there are no reported Delaware cases on this point, we predict that Delaware would follow the practice of the federal system and most states, and decide a choice-of-law dispute only when the proffered legal regimes actually conflict on a relevant point.

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BCE argues for Canadian law here, but concedes that it has found no relevant conflict of Canadian with Delaware law.11 This undercuts BCE's argument, particularly given that the Restatement favors the admission of evidence when the law of the forum state so requires; thus, if applying Canadian law will safeguard the privilege, it is BCE's responsibility not only to highlight the legal conflict, but also to point to "some special reason" favoring protection. See RESTATEMENT (SECOND) OF CONFLICTS OF LAWS § 139 cmts. c & d. As BCE has not informed us of a conflict, cites Delaware law extensively (with comparatively few Canadian decisions noted), and concedes that the law in Canada is not materially different than Delaware, we rely on Delaware authority in reaching our conclusions. See Huber, 469 F.3d at 74. We recognize that BCE has informed us of a true conflict on an issue the Debtors raise as an alternate sustaining ground--namely, whether the Debtors are entitled to the disputed documents under the fiduciary exception to the attorney-client privilege. Though that exception is wellentrenched in Delaware law, it does not exist in Canada. We deal with this issue more fully in Part VI.A.

In oral argument before our Court, BCE's counsel stated that BCE and he "don't think there's a difference" between Delaware and Canadian law on the issues presented by this appeal.
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IV.

Summary of the Law

This appeal raises core questions about the proper operation of a corporate family's centralized in-house legal department. Because answering those questions requires delving into a variety of concepts related to the co-client (or joint-client) privilege, its exceptions, its scope, and a lawyer's ethical obligations, a summary of relevant law sets the backdrop. We begin with a basic review of the attorney-client privilege--and how it has been adapted to accommodate the corporate client. We continue with a discussion of how disclosing otherwise privileged communications to third parties waives the privilege. Next, we explore two oft-confused privileges: (1) the co-client (or joint-client) privilege, which applies when multiple clients hire the same counsel to represent them on a matter of common interest,12 and (2) the communityof-interest (or common-interest) privilege, which comes into play when clients with separate attorneys share otherwise privileged information in order to coordinate their legal activities. Neither the co-client nor community-of-interest privilege is effective in adverse litigation between the former clients, so we next discuss the contours of the adverse-litigation

Though the term "common interest" is used in describing both the co-client and community-of-interest privileges, these privileges are distinct. See Part IV.C.2, infra.
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exception. Then, we explore how courts deal with joint representations that go wrong because of impermissible attorney conflicts of interest. Finally, we put all of these doctrines together to address how they interact in the modern corporate inhouse counsel's office. A. The Attorney-Client Privilege

The attorney-client privilege protects communications between attorneys and clients from compelled disclosure. It applies to any communication that satisfies the following elements: it must be "(1) a communication (2) made between privileged persons (3) in confidence (4) for the purpose of obtaining or providing legal assistance for the client." RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 68 (2000). "Privileged persons" include the client, the attorney(s), and any of their agents that help facilitate attorney-client communications or the legal representation. Id. § 70. The attorney-client privilege is the oldest of the commonlaw privileges. Klitzman, Klitzman & Gallagher v. Krut, 744 F.2d 955, 960 (3d Cir. 1984). Like all privileges, it is an exception to the common-law maxim that the public has a right to "`every man's evidence.'" United States v. Bryan, 339 U.S. 323, 331 (1950) (quoting 8 J. WIGMORE, EVIDENCE § 2192 (3d ed. 1940)). Though initially confined to communications made in anticipation of litigation, American courts rejected that limitation at the outset. PAUL R. RICE, ATTORNEY-CLIENT
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PRIVILEGE IN THE UNITED STATES § 1:12 (2d ed. 1999) (hereinafter "RICE") (citing, e.g., Parker v. Carter, 4 Munf. 273, 1814 WL 667, at *9 (Va. 1814) ("The court is also of [the] opinion[] that [the privilege] is not confined to facts disclosed, in relation to suits actually depending at the time, but extends to all cases in which a client applies . . . to his counsel or attorney . . . for his aid in the line of his profession.")). This is because so confining the privilege would discourage clients from seeking the advice of counsel before problems arise. Parker, 1814 WL at *9. As the Supreme Court has noted more recently, the purpose of the attorney-client privilege is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client. Upjohn Co. v. United States, 449 U.S.383, 389 (1981); accord The Queen v. McClure, [2001] 1 S.C.R. 445, at ¶¶ 32­33 (Can. 2001); Deutsch v. Cogan, 580 A.2d at 104. Because the privilege carries through policy purposes--encouraging attorney-client communication to enhance compliance with the
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law and facilitating the administration of justice, the Supreme Court has not applied it mechanically. Upjohn, 449 U.S. at 392. It is essential that parties be able to determine in advance with a high degree of certainty whether communications will be protected by the privilege. Id. at 393; see also Deutsch, 580 A.2d at 106. As common-law courts developed the privilege in an age in which clients were almost exclusively natural persons, more modern courts sought to adapt it to the now ubiquitous corporate client. For more than a century, common-law courts have recognized that communications between corporate clients and their attorneys are indeed privileged. See Radiant Burners, Inc. v. Am. Gas Ass'n, 320 F.2d 314, 319 & n.7 (7th Cir. 1963) (citing English cases dated as early as 1833, and American cases as early as 1885, for the proposition that corporations can assert the attorney-client privilege). Because corporations act through human agents, the question of whose communications with the corporation's attorneys are entitled to protection comes up often. RICE § 4:11. In Upjohn the Supreme Court rejected the so-called "control group theory"--that only communications between high-level managers and corporate attorneys merit protection. 449 U.S. at 392. Instead, it held that when a corporation's managers require its employees to give information to its attorneys in the course of providing legal advice, those communications also are protected. Id. at 396. This serves the policy goals of the
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privilege--to enhance compliance with the law and facilitate the administration of justice--by encouraging open communication between attorneys and clients. Id. at 389, 394. The lesson for us is that it is important not to confuse these overarching policy goals with the means of achieving them. Communication between counsel and client is not, in and of itself, the purpose of the privilege; rather, it only protects the free flow of information because it promotes compliance with law and aids administration of the judicial system. Cf. United States v. Zolin, 491 U.S. 554, 563 (1989) (explaining that attorney-client communication facilitating fraud is not privileged because that sort of communication impedes the administration of justice). Thus, following Upjohn's lead in not applying the privilege mechanically does not counsel in favor of applying the privilege anytime it might increase the flow of information; rather, Upjohn counsels a more nuanced inquiry into whether according a type of communication protection is likely to encourage compliance-enhancing communication that makes our system for resolving disputes more operable. B. The Disclosure Rule

A communication is only privileged if it is made "in confidence." RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 68. In other words, if persons other than the client, its attorney, or their agents are present, the communication is not made in confidence, and the privilege does not attach. The
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disclosure rule operates as a corollary to this principle: if a client subsequently shares a privileged communication with a third party, then it is no longer confidential, and the privilege ceases to protect it. See DEL. R. EVID. 510. This is because the act of disclosing signals that the client does not intend to keep the communication secret. RICE § 9:28. In addition, it prevents clients from engaging in strategic selective disclosure. United States v. Bernard, 877 F.2d 1463, 1465 (10th Cir. 1989). The privilege does, after all, hinder the truth-seeking process, and so we carefully police its use. United States v. Doe, 429 F.3d 450, 453 (3d Cir. 2005).13 Disclosing a communication to a third party unquestionably waives the privilege. A harder question is whether the waiver also ends the privilege as to any related but not disclosed communications. In answering this question, our touchstone is fairness. See Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254, 259 (Del. 1995); see also Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1426 n.12 (3d Cir. 1991). When one party takes advantage of another by selectively disclosing otherwise privileged communications, courts broaden the waiver as necessary to eliminate the In stating that we construe the privilege strictly, we do not mean that it is disfavored. As Upjohn, McClure, and Deutsch indicate, the attorney-client privilege is integral to the functioning of our legal system. Recognizing, however, that it limits the truth-seeking process, we carefully monitor it to prevent its abuse.
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advantage. Zirn v. VLI Corp., 621 A.2d 773, 781­82 (Del. 1993) ("The purpose underlying the rule of partial disclosure is one of fairness to discourage the use of the privilege as a litigation weapon."); see also RICE § 9:31. Extending the waiver, however, is not a punitive measure, so courts do not imply a broader waiver than necessary to ensure that all parties are treated fairly.14 See RICE 9:31. Moreover, when the disclosure does not create an unfair advantage, courts typically limit the waiver to the communications actually disclosed. See In re Keeper of Records (Grand Jury Subpoena Addressed to XYZ Corp.), 348 F.3d 16, 24­25 (1st Cir. 2003); cf. Westinghouse, 951 F.2d at 1427 n.14. C. Privileged Information Sharing 1. The Co-Client Privilege (or Joint-Client)

It is often expedient for two or more people to consult a single attorney. The rules of professional conduct allow a lawyer to serve multiple clients on the same matter so long as all clients consent, and there is no substantial risk of the lawyer being unable to fulfill her duties to them all. RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §§ 128­31. Just as This is not to say that district courts may not separately impose disclosure as an sanction for improper behavior; it merely means that the scope of the waiver is only as broad as necessary to remedy any unfair advantage.
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in single-client representation, the lawyer and co-clients15 begin their relationship when the co-clients convey their desire for representation, and the lawyer consents. Id. § 14. Like singleclient representation, nothing prevents joint representation from arising by implication, but, as a District Court in Maryland recently noted, courts must be careful not to imply joint representations too readily: What the Court takes exception to is [the plaintiff's] effort to . . . argue, in effect, that a joint representation of Party A and Party B may somehow arise through the expectations of Party B alone, despite Party A's views to the contrary. This position is untenable, because it would . . . allow the mistaken (albeit reasonable) belief by one party that it was represented by an attorney . . . to serve to infiltrate the protections and privileges afforded to another client. Neighborhood Dev. Collaborative v. Murphy, 233 F.R.D. 436, 441­42 (D. Md. 2005) (internal citations and quotation marks deleted). Moreover, as the Restatement details, it is important to remember that

We use the terms "co-clients" and "joint clients" interchangeably. Both refer to multiple clients engaging one or more common attorneys to represent them on a matter of interest to all.
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clients of the same lawyer who share a common interest are not necessarily co-clients. Whether individuals have jointly consulted a lawyer or have merely entered concurrent but separate representations is determined by the understanding of the parties and the lawyer in light of the circumstances. Co-client representations must also be distinguished from situations in which a lawyer represents a single client, but another person with allied interests cooperates with the client and the client's lawyer. RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 75 cmt. c (internal cross-references omitted). Once begun, a co-client representation generally continues until a client discharges the lawyer or the lawyer withdraws. Id. § 31. In addition, numerous courts have recognized that the relationship may terminate by implication. Fed. Deposit Ins. Corp. v. Ogden Corp., 202 F.3d 454, 463 (1st Cir. 2000) ("A joint attorney-client relationship remains intact until it is expressly terminated or until circumstances arise that readily imply to all the joint clients that the relationship is over.") (emphasis in original); see also Flynt v. Brownfield, Bowen, & Bally, 882 F.2d 1048, 1051 (6th Cir. 1989) (holding that terminating attorney-client relationship requires "conduct
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dissolving the essential mutual confidence" between them); In re Dow, 132 B.R. 853, 858 (Bankr. S. D. Ohio 1991) (same). In particular, a joint representation terminates when it becomes clear to all parties that the clients' legal interests have diverged too much to justify using common attorneys. RICE § 2:4 (citing Mass. Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 167 F. Supp. 2d 128, 129 (D. Mass. 2001)). While it is permissible for lawyers and clients to limit the scope of representation in a single-client representation, see RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 19, it is particularly common in co-client situations because of the limited congruence of the clients' interests. As the Restatement notes, a co-client relationship is limited by "the extent of the legal matter of common interest." Id. § 75 cmt. c. While written agreements limiting the scope of a joint representation might be preferable, nothing requires this so long as the parties understand the limitations. The District Court for the Northern District of California noted in Sky Valley Ltd. P'ship v. ATX Sky Valley Ltd., 150 F.R.D. 648, 652­53 (N.D. Cal. 1993), that a wide variety of circumstances are relevant to the determination of whether two or more parties intend to create a joint-client relationship, particularly how the parties interact with the joint attorneys and with each other. These same circumstances are relevant to

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determining the scope of any joint representation.16 The keys to deciding the scope of a joint representation are the parties' intent and expectations, and so a district court should consider carefully (in addition to the content of the communications themselves) any testimony from the parties and their attorneys on those areas. As explained in section D of this Part, finding too broad the scope of a joint representation gives the parties more control over each other's ability to waive the privilege than they intended, and it subjects them to losing it in litigation with one another. When co-clients and their common attorneys communicate with one another, those communications are "in confidence" for privilege purposes. Hence the privilege protects those communications from compelled disclosure to persons outside the joint representation. Moreover, waiving the jointclient privilege requires the consent of all joint clients. RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 75(2). A wrinkle here is that a client may unilaterally waive the privilege as to its own communications with a joint attorney, so long as those communications concern only the waiving client; it may not, however, unilaterally waive the privilege as to any of the other joint clients' communications or as to any of

The Sky Valley Court's list of more than 20, often overlapping, factors strikes us as excessive; thus we do not repeat them here.
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its communications that relate to other joint clients.17 Id. at cmt. e. 2. The Community-of-Interest Common-Interest) Privilege18 (or

As the Reporter's Note in the Restatement laments, the caselaw on this point is not as uniform as one would hope. Id. § 75 Reporter's Note cmt. e. The divergence seems to rest on difficulties in understanding the following statement from Wigmore's treatise: "Where the consultation was had by several clients jointly, the waiver should be joint for joint statements, and neither could waive for the disclosure of the other's statements; yet neither should be able to obstruct the other in the disclosure of the latter's own statements." 8 J. WIGMORE, EVIDENCE § 2328 (J. McNaughton rev. 1961) (second emphasis added). Obtuse as this statement may seem, we believe that the Restatement's interpretation of it is sensible and, in any event, correctly states the law in Delaware. Cf. Interfaith Hous. Del., Inc. v. Town of Georgetown, 841 F. Supp. 1393, 1402 (D. Del. 1994) (predicting that one common-interest client's waiver of the privilege does not waive it on behalf of all common-interest clients). 18 Because the issues in our case involve clients of the same attorneys, not clients with separate counsel, which would call for a community-of-interest analysis, the rest of this section may seem surplusage. But because the District Court (erroneously) ruled that the Debtors and BCE were in a "community of interest," we examine the contours of that privilege. Indeed, much of the caselaw confuses the community-of-interest privilege (which is the same as the "common-interest privilege,"
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Recognizing that it is often preferable for co-defendants represented by different attorneys in criminal proceedings to coordinate their defense, courts developed the joint-defense privilege. In its original form, it allowed the attorneys of criminal co-defendants to share confidential information about defense strategies without waiving the privilege as against third parties. Moreover, one co-defendant could not waive the privilege that attached to the shared information without the consent of all others.19 Later, courts replaced the joint-defense privilege, which only applied to criminal co-defendants, with a broader one that protects all communications shared within a proper "community of interest." whether the context be criminal or civil.20 RICE § 4:35; see also Andrew R. Taggart, ParentSubsidiary Communications & the Attorney-Client Privilege, 65 see RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 76 Reporter's Note cmt.b.) with the co-client privilege. Thus it is important to detail the community-of-interest privilege for the purpose of explaining how it and the co-client privilege differ, and why only the latter applies in this case. 19 For a history of the joint-defense privilege, see generally Craig S. Lerner, Conspirators' Privilege & Innocents' Refuge: A New Approach to Joint Defense Agreements, 77 NOTRE DAME L. REV. 1449, 1480­90 (2002). 20 According to the Restatement, the community-of-interest privilege has completely replaced the old joint-defense privilege for information sharing among clients with different attorneys. Thus, courts should no longer purport to apply the joint-defense privilege. RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 76 Reporter's Note cmt. b.
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U. CHI. L. REV. 315 (1998). Thus, the community-of-interest privilege allows attorneys representing different clients with similar legal interests to share information without having to disclose it to others. It applies in civil and criminal litigation, and even in purely transactional contexts. RICE 4:35; RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 76. Two aspects of the modern community-of-interest privilege are noteworthy. First, to be eligible for continued protection, the communication must be shared with the attorney of the member of the community of interest. Cf. Ramada Inns, Inc. v. Dow Jones & Co., 523 A.2d 968, 972 (Del. Super. Ct. 1986) (emphasizing that the relevant Delaware evidentiary rule protects communications disclosed to an attorney). Sharing the communication directly with a member of the community may destroy the privilege.21 Second, all members of the community must share a common legal interest in the shared communication. RICE § 4:35. Delaware Rule of Evidence 502(b)(3), which sets out the State's version of the communityof-interest privilege, incorporates both requirements (that the clients' separate attorneys share information and that the clients have a common legal interest):

Neither the Restatement nor Professor Rice emphasize this requirement, though it appears in the plain text of the relevant Delaware evidentiary rule, and Professor Rice acknowledges it. See DEL R. EVID. 502(b)(3); RICE § 4:35 & n.44.1.
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A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications[,] made for the purpose of facilitating the rendition of professional legal services to the client . . .[,] by the client or the client's representative or the client's lawyer or a representative of the lawyer to a lawyer or a representative of a lawyer representing another in a matter of common interest. DEL. R. EVID. 502(b)(3). The requirement that the clients' separate attorneys share information (and not the clients themselves) derives from the community-of-interest privilege's roots in the old joint-defense privilege, which (to repeat) was developed to allow attorneys to coordinate their clients' criminal defense strategies. See Chahoon v. Commw., 21 Gratt. 822, 1871 WL 4931, at *11 (Va. 1871). Because the common-interest privilege is an exception to the disclosure rule, which exists to prevent abuse, the privilege should not be used as a post hoc justification for a client's impermissible disclosures. The attorney-sharing requirement helps prevent abuse by ensuring that the commoninterest privilege only supplants the disclosure rule when attorneys, not clients, decide to share information in order to coordinate legal strategies.

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Similarly, the congruence-of-legal-interests requirement ensures that the privilege is not misused to permit unnecessary information sharing. In a leading case, a District Court in South Carolina explained the contours of the requirement: A community of interest exists among different persons or separate corporations where they have an identical legal interest with respect to the subject matter of a communication between an attorney and a client concerning legal advice. The third parties receiving copies of the communication and claiming a community of interest may be distinct legal entities from the client receiving the legal advice and may be a non-party to any anticipated or pending litigation. The key consideration is that the nature of the interest be identical, not similar, and be legal, not solely commercial. The fact that there may be an overlap of a commercial and a legal interest for a third party does not negate the effect of the legal interest in establishing a community of interest. Duplan Corp. v. Deering Milliken, Inc., 397 F. Supp. 1146, 1172 (D.S.C. 1974). The Restatement takes a more flexible approach than Duplan toward the similarity and types of interests that qualify as "common": "[T]he common interest . . . may be either legal,
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factual, or strategic in character. The interests of the separately represented clients need not be entirely congruent." RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 76 cmt. e. Professor Rice criticizes Duplan's strictness and cites a few cases announcing that the interest need not be identical (though maintaining, contrary to the Restatement, that the interest must be legal, rather than "factual or strategic"). RICE § 4:36 (citing, e.g., SCM Corp. v. Xerox Corp., 70 F.R.D. 508, 524­25 (D. Conn. 1976) (Newman, J.) (holding that legal interests must be "demonstrably common" or the clients must have a "substantial" risk of shared exposure to justify privileged information-sharing)). Rice, however, still recognizes Duplan as the leading approach. Id. ("This . . . standard . . . coined in Duplan . . . has been widely followed."). The Delaware courts seem not to have taken a position on whether the common legal interest must be identical, and we need not resolve the congruence-of-legal-interests question here. For our purposes, it is sufficient to recognize that members of the community of interest must share at least a substantially similar legal interest. We conclude with two points of caution. First, the privilege only applies when clients are represented by separate counsel. Thus, it is largely inapplicable to disputes like this one that revolve around corporate family members' use of common attorneys (namely, centralized in-house counsel).22 Second, This means that BCE's invocation of the "common interest" privilege in the Bankruptcy Court was out of place, as BCE has never asserted that the parties were represented by
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while the Restatement (confusingly) uses the term "common interest" to describe the congruence of the parties' interests in both co-client and community-of-interest situations, the concepts are not the same. Compare RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 75(1) ("If two or more persons are jointly represented by the same lawyer in a matter, a communication of either co-client that . . . relates to matters of common interest is privileged as against third persons."), with id. § 76(1) ("If two or more clients with a common interest in a litigated or nonlitigated matter are represented by separate lawyers and they agree to exchange information concerning the matter, a communication of any such client . . . is privileged as against third persons."); cf. id. § 76 cmt. e & Reporter's Note cmt. b (explaining that co-client and community-of-interest situations differ). In particular, because co-clients agree to share all information related to the matter of common interest with each other and to employ the same attorney, their legal interests must be identical (or nearly so) in order that an attorney can represent them all with the candor, vigor, and loyalty that our ethics require. See Ogden, 202 F.3d at 461. In the communityof-interest context, on the other hand, because the clients have separate attorneys, courts can afford to relax the degree to which clients' interests must converge without worrying that their separate counsel who properly shared information. Confusing as this area of law is, parties asserting the privilege (who, incidentally, bear the burden of proving it applies) are expected to explain themselves with more precision than BCE has throughout this litigation.
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attorneys' ability to represent them zealously and singlemindedly will suffer. D. The Exception for Adverse Litigation

The great caveat of the joint-client privilege is that it only protects communications from compelled disclosure to parties outside the joint representation. When former co-clients sue one another, the default rule is that all communications made in the course of the joint representation are discoverable. DEL. R. EVID. § 502(d)(6); RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 75(2). This rule has two bases: (1) the presumed intent of the parties, and (2) the lawyer's fiduciary obligation of candor to both parties. Id. § 75 cmt. d. According to the Restatement, it is permissible for co-clients to agree in advance to shield information from one another in subsequent adverse litigation, though the drafters concede finding no direct authority for that proposition.23 Id. Reporter's Note cmt d. BCE argues that the default rule should be flipped when the joint clients are a parent company and its wholly owned subsidiary--i.e., courts should assume that communications Indeed, the only case we have found dealing with such an agreement is In re Mirant Corp., 326 B.R. 646, 652 (Bankr. N.D. Tex. 2005) (applying Georgia law), in which the Bankruptcy Court refused to give it effect. We have no occasion here to predict whether Delaware courts would enforce such agreements.
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generated in the course of the joint representation are not discoverable in adverse litigation. BCE's rationale is that no parent would want its subsidiary to be able to invade the privilege in subsequent litigation, and so courts should not presume that intent. Moreover, because parents and wholly owned subsidiaries share the same interests, the parent's intent (to shield information) effectively controls. Delaware courts have recognized that parents and their wholly owned subsidiaries have the same interests because all of the duties owed to the subsidiaries flow back up to the parent. Cf. Anadarko, 545 A.2d at 1174 ("[I]n a parent and whollyowned subsidiary context, the directors of the subsidiary are obligated only to manage the affairs of the subsidiary in the best interests of the parent and its shareholders."). While we normally assume that a corporation's primary interest is in maximizing its economic value, the only interest of a wholly owned subsidiary is in serving its parent. Id. at 1174. That doing so may not always involve maximizing the subsidiary's economic value is of little concern. Trenwick Am. Litig. Trust v. Ernst & Young LLP, 906 A.2d 168, 192 (Del. Ch. 2006).24 If As Vice Chancellor Strine noted in that case, there is nothing wrong (or even unusual) about a parent causing its solvent wholly owned subsidiary to act in a way that benefits the corporate family but harms the individual subsidiary. He explained: Assume for a moment that Trenwick [parent] itself never went bankrupt. Imagine further that it had bought another insurer and pledged a key
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the subsidiary is not wholly owned, however, in the interest of protecting minority shareholders we revert to requiring that whoever controls the subsidiary seek to maximize its economic value with requisite care and loyalty. See id. at 192 n.66. Similarly, if the subsidiary is insolvent, we require the same in the interest of protecting the subsidiary's creditors. Id. at 204 n.96 (approving In re Scott Acquisition Corp., 244 B.R. 283, 286 (Bankr. D. Del. 2006) (holding that the fiduciary duties of directors of an insolvent wholly owned subsidiary inure to the benefit of the subsidiary's creditors)); see also N. Am. Catholic asset of Trenwick America [subsidiary] as security for the purchase price. The purchase goes wrong and causes Trenwick to become less profitable, but not insolvent. To satisfy its creditors, Trenwick causes Trenwick America to sell the key pledged asset and uses the proceeds to pay off the acquisition debt. As a result, Trenwick America is less profitable and less valuable. In this scenario, even though the course of events posed no prospect of benefit for Trenwick America when it is conceived solely as an entity, there would be nothing troubling about it from a fiduciary perspective. Rather, the scenario would involve a garden-variety situation when a parent corporation used the asset value of one of its wholly-owned subsidiaries to help it finance and absorb the down-side of the parent's larger business strategy. Trenwick, 906 A.2d at 192 (emphasis added).
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Programming Found., ___ A.2d at ___, 2007 WL 1453705, at *7 ("[T]he creditors of an insolvent corporation have standing to maintain derivative claims against directors on behalf of the corporation for breaches of fiduciary duties. The corporation's insolvency makes the creditors the principal constituency injured by any fiduciary breaches that diminish the firm's value. Therefore, equitable considerations give creditors standing to pursue derivative claims against the directors of an insolvent corporation. Individual creditors of an insolvent corporation have the same incentive to pursue valid derivative claims on its behalf that shareholders have when the corporation is solvent.") (emphasis in original) (internal citations and quotation marks omitted). In the context of a joint attorney representing a parent and its solvent wholly owned subsidiary, BCE's argument that we should flip the normal default rule (that all information shared in the course of a joint representation is not privileged in subsequent adverse litigation between the former joint clients) has some appeal, as it probably is more in line with the typical parent company's intent. But because parent-subsidiary relationships often change, having opposite default rules for wholly owned, solvent subsidiaries, and not-wholly owned or insolvent subsidiaries, seems unwieldy. In the course of a joint representation, a subsidiary could go from being wholly owned and solvent to majority-owned or insolvent (or both). Under those circumstances, it is not clear which default rule BCE would have us apply. Because of the need for clarity and
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certainty in privilege law, see Upjohn, 449 U.S. at 393, creating multiple, ever-shifting default rules would be unwise. Simply following the default rule against information shielding creates simpler, and more predictable, ground rules. Moreover, BCE's argument o