By Jerry Carter. The Washoe County Business Court recently entered an Order in which it refused to dismiss a shareholder derivative action. One of the defendants is an attorney who moved to dismiss the claims against him on the ground that his role as counsel to the defendant corporation and the attendant attorney-client privilege renders him unable to mount a viable defense.

The court stated it could not dismiss the claims against the attorney unless the following  four factors were satisfied: (1) the evidence at issue must be the client’s confidential information, and the client must be insisting that the information remain confidential; (2) the confidential information at issue must be highly material to the defendants’ defenses; (3) the trial court is unable to effectively use ad hoc measures from its equitable arsenal, including techniques such as sealing and protective orders, limited admissibility of evidence, orders restricting the use of testimony in successive proceedings, and, where appropriate, in camera proceedings, so as to permit the action to proceed; and (4) it would be fundamentally unfair to allow the action to proceed.

The Business Court determined that the four factors could not be met at this early stage of the proceeding, reasoning: “It is unknown what evidence or information necessary to Mr. Paul’s defense, if any, will be subject to the attorney-client privilege. It is unknown what portion of the privileged information, if any, may still be admissible due to an exception to the privilege. It is also unknown whether the privilege may be waived by BRI in the future. These are issues best left for later determination and can be addressed when they ripen, using ‘ad hoc measures from [the court’s] equitable arsenal.'”