Excerpted from a Fasken blog by Gesta Abols and Matthew Downer
If the Hillary Clinton email scandal wasn’t a clear enough lesson that one should not conduct official work using personal electronic communication tools (be it email or texts), several recent court decisions have required executives to produce communications from personal devices. Executives should not assume communications using methods other than corporate email will be protected in the event of an investigation.
John Schnatter v. Papa John’s International, Inc.
During a call in 2017, John Schnatter, the founder of Papa John’s International, Inc., criticized the National Football League’s handling of the players’ dispute regarding national anthem protests. Some months later, Schnatter used a racial slur during company diversity training. Schnatter subsequently resigned as chairman of the board of directors at the board’s request, though declined to resign as director. The board then established a special committee which decided to terminate agreements the company had with Schnatter.
In the wake of these events, Schnatter requested books and records from Papa John’s, including emails and texts from personal accounts and devices of company executives.
On Jan. 15, 2019, the court ordered Papa John’s to permit Schnatter to inspect the personal accounts of certain executives. The court stated executives should expect to provide such information in litigation if they choose those mediums to discuss corporate matters. Although there is no bright-line rule with respect to the inspection of executive’s personal accounts and devices, the court noted several factors that influenced the court’s decision, including:
In re Appraisal of Kate Spade & Co.
In 2017, former shareholders of Kate Spade & Co. sought appraisal of their securities following Coach Inc.’s acquisition. In response to interrogatories, Kate Spade asserted that none of its executives engaged in communications over email or text from their personal accounts or devices concerning the negotiation of the transaction. However, documents produced by Kate Spade indicated the possible existence of text messages between two executives. The former shareholders then moved to compel the production of such communication arguing that some of the executives had prior social relationships that could have given Coach, Inc. an advantage in negotiations.
In a transcript ruling, the court ordered Kate Spade to produce the relevant text messages. The court took the opportunity to discuss the value that can be derived from text messages: “Text messages can be the source of a lot of probative information in cases, particularly when they’re covered with emojis and other things of that nature. Maybe a text message will show a personal relationship. Maybe it won’t. But, frankly, just the precision of timing of exactly when certain things happened is extremely important in cases. And so, I have found text messages to be probative in that regard.”
Takeaways
These cases should serve as a useful reminder that directors, officers and advisors should endeavor to conduct company business only on company accounts rather than personal accounts and devices. Once it’s established that an executive uses a personal email or device to conduct company business, those accounts will likely be subject to discovery. This could result in sensitive or embarrassing personal information being produced.
In order to protect information on an executive’s personal accounts, companies should consider: (1) providing company email addresses and devices to the executive to communicate regarding company business; and (2) adopting a policy restricting the communication of company business on personal accounts.