Plaintiff, who held a default judgment against a North Carolina corporation, sued its directors to collect from them personally. The claims included breach of fiduciary duty, fraudulent conveyance, failure to give notice of dissolution, and piercing the corporate veil.
The directors served discovery aimed at the validity of the amount of the judgment, which potentially reached privileged material. The plaintiffs objected, and before the Court was plaintiff’s Motion to Compel. The Court discussed the scope of discovery, the historic strength of the attorney client privilege, and denied the motion. It held that defendants were not entitled to information regarding plaintiffs’ analysis of the value of their claims and their discussions with counsel.
In reaching this conclusion, the Court noted that a director of a company in dissolution mode has fiduciary duties to creditors, and an obligation to treat all creditors of the same class equally.
Furthermore, the plaintiffs’ communications on the value of their claim were not relevant, as the issue of the damages to be recovered had already been adjudicated.
Also, if the plaintiff managed to pierce the veil of the corporation, they would have established that the directors thoroughly dominated the affairs of the corporation. The directors would then be collaterally estopped from contesting the amount of the judgment. A default judgment is entitled to preclusive effect if the party against whom judgment is entered had a full and fair opportunity to contest it.