Nevada, like California, has codified the attorney-client privilege:
A client has a privilege to refuse to disclose, and to prevent any other person from disclosing, confidential communications:
- Between the client or the client’s representative and the client’s lawyer or the representative of the client’s lawyer
- Between the client’s lawyer and the lawyer’s representative.
- Made for the purpose of facilitating the rendition of professional legal services to the client, by the client or the client’s lawyer to a lawyer representing another in a matter of common interest.
NRS 49.095. Nevada has also codified the business judgment rule in NRS 78.138. Yesterday, the Nevada Supreme Court addressed the interplay of these statutes. Wynn Resorts, Limited v. Eight Jud. Dist. Ct., 41 Nev. Adv. Op. 52 (2017).
The case arose after the board of Wynn Resorts decided to redeem the shares owned by certain of the company’s shareholders (referred to in the opinion as the “Okada Parties”) in exchange for a promissory note with a principal value of $1.9 billion, which the Okada Parties alleged is only a fraction of the value of the redeemed stock. The authority for the redemption was Article VII, § 2(a) of the company’s Articles of Incorporation. In making the decision to redeem the shares, the board received a report of investigation by former federal judge and FBI director Louis Freeh and his firm as well as advice from two law firms. In the ensuing litigation, the board asserted a business judgment rule defense. The Okada Parties then sought to compel disclosure of the legal advice. The trial court agreed, stating:
“[t]o the extent that information was provided to the members of the board of directors for their consideration in the decision-making process and their defense related to the business judgment rule the Okada [P]arties are entitled to test whether the director or officer had knowledge concerning the matter in question that would cause reliance thereon to be unwarranted.”
Sitting en banc, the Nevada Supreme Court disagreed:
NRS 78.138 is unambiguous. The plain language of the statute is clear as to two vital contentions in this case: (1) the Board is “presumed to act in good faith, on an informed basis and with a view to the interests of the corporation,” and (2) the Board can establish that it meets that presumption by relying on “reports” and “[c]ounsel,” as long as the Board did not have “knowledge concerning the matter in question that would cause reliance thereon to be unwarranted.” NRS 78.138(2)-(3). Nothing in the statute’s plain language indicates that in meeting the requirements of Nevada’s business judgment rule as codified in NRS 78.138, the Board waives attorney-client privilege. Rather, Wynn Resorts is entitled to the presumption that it acted in good faith, such as by receiving outside counsel in reaching a decision.
In support of this conclusion, the Supreme Court cited several Delaware decisions: Minn. Invco of RSA # 7, Inc. v. Midwest Wireless Holdings LLC, 903 A.2d 786, 797-98 (Del. Ch. 2006), In re Walt Disney Co. Derivative Litig., 907 A.2d 693, 778 (Del. Ch. 2005), and In re Comverge, Inc. Shareholders Litig., No. 7368-VCP, 2013 WL 1455827 at *3 (Del. Ch. April 10, 2013).
In a separately docketed case, the Nevada Supreme Court also decided whether Wynn Resorts waived attorney-client privilege by placing the Freeh report at issue in the initial litigation. That question will be the subject of a future post.