Clients should understand that their communications with their attorneys are privileged, to the extent those communications were made for the purpose of giving or receiving legal advice.  This means that such attorney-client communications will not be revealed to third-parties in litigation, whether via the discovery process or via witness testimony at trial.  The purpose of the privilege is to allow “a person to give complete and confidential information to an attorney, so that the attorney may be fully advised in his services to the client. At the same time, it assures the client that these confidences will not be violated.” TP Orthodontics, Inc. v. Kesling, 15 N.E.3d 985, 995 (Ind. 2014).   As between the client and the attorney, the privilege belongs to the client.  Accordingly, the communication remains privileged unless and until the client consents to its disclosure.  See Mayberry v. State, 670 N.E.2d 1262, 1267 (Ind. 1996). 

When the client is a person, it is not difficult to determine the identity of the client, whether a particular communication between the client and her counsel is privileged, and when the client has consented to the disclosure of the privileged communication.  But when the client is a business entity—such as a corporation or a limited liability company—the answers to those questions become more complex. Because they are inanimate, business entities cannot speak directly to their lawyers, nor can they directly waive the privilege when disclosure is in their best interests. Each of those actions must be undertaken by people authorized to act on behalf of the entity. See Commodity Futures Trading Comm. v. Weintraub, 471 U.S. 343, 348 (1985).  When communicating with counsel for the entity, the entity’s constituents—its owners, directors, managers, officers, and employees—should consider whether their communications with the entity’s counsel are privileged.

Generally, the affairs of a corporation are run by its board of directors.  When there is a dispute between directors, the majority decision of the directors who are entitled to vote on the matter will govern what the entity will or will not do, unless the bylaws or a shareholder agreement provides otherwise. The privilege extends to those communications between the directors who are entitled to vote on the matter, on the one hand, and the corporation’s attorney, on the other hand, for the purpose of giving or receiving legal advice for the benefit of the corporation.  If the communication is not made for the purpose of giving or receiving legal advice for the corporation’s benefit, the communication is not protected by the corporation’s attorney-client privilege and may be discovered by adversaries in litigation.

The fact that a corporation is a separate legal entity run by a majority of the directors entitled to vote on the matter in question has two important consequences for the application of attorney-client privilege to a corporation.  First, there are circumstances in which a director’s interests will conflict with that of the corporation—e.g., when the corporation is negotiating with the director to purchase real estate owned by the director.  A director should not expect that her communications with the corporation’s counsel concerning such matters will be privileged.  Under those circumstances, the director is the corporation’s adversary, and as such, the communication between the director and the corporation’s counsel was not made for the purpose of seeking or receiving legal advice on behalf of the corporation and therefore that communication could not be protected by the corporation’s attorney-client privilege.  However, the communications between the other directors and the corporation’s attorney concerning that real estate purchase could be protected by the corporation’s attorney-client privilege, to the extent those communications were made for the purpose of giving or receiving legal advice benefitting the corporation.

Second, generally speaking, like other corporate business decisions, the decision whether a corporation will invoke or waive its attorney-client privilege is governed by the majority vote of the directors of the corporation.  And because the power to assert or waive the corporation’s attorney-client privilege ultimately rests with the corporation’s directors, when the corporation appoints new directors, the authority to assert and waive the corporation’s privilege passes as well. See Weintraub, 471 U.S. at 349.  As a result, a former director cannot invoke the corporation’s attorney-client privilege to protect the communications between the corporation’s counsel and that director which occurred during the director’s tenure with the corporation.  That decision rests with the corporation’s current directors.

Special problems arise when the party seeking to discover communications between a corporation and its counsel is (or was) a director of the corporation.  There is disagreement between the courts in different states as to whether, and under what circumstances, a present director of a corporation can discover communications between other directors and the corporation’s counsel, when the dissident director is suing the corporation.  Some courts have held that a dissident former director can discover otherwise privileged communications between the corporation’s counsel and directors that the dissident director would have been entitled to receive during his tenure as a director.  See, e.g., Gottlieb v. Wiles, 143 F.R.D. 241, 252 (D. Colo. 1992).  Other courts have held a dissident director suing the corporation cannot discover such communications if the corporation—acting through a majority vote of the directors—invokes the privilege against the dissident director, particularly where the director is suing for his own individual benefit, and not for the benefit of the entity. See, e.g., Milroy v. Hanson, 875 F. Supp. 646, 651-52 (D. Neb. 1995).  Indiana appellate courts have not squarely addressed this issue.

A corporation’s attorney-client privilege is not limited to communications between the corporation’s counsel and those who have the authority to control the corporation’s conduct, such as the corporation’s officers and directors.  It extends to the communications between a corporation’s counsel and those corporate employees who have information that the attorney needs to render legal advice for the benefit of the corporation.  See Upjohn v. U.S., 449 U.S. 383 (1981).

In sum, not all communications between a business entity’s constituents and the entity’s counsel will be protected by the entity’s attorney-client privilege.  Such communications will generally be protected if they were made for the purpose of giving or receiving legal advice for the benefit of the entity.  The decision whether to waive the entity’s privilege generally rests with majority vote of the entity’s then-current management.

© Riley Bennett Egloff LLP

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Posted on Jul. 18 2017, by Kevin N. Tharp