Courts are increasingly faced with claims that the “joint client” exception bars application of the attorney-client privilege. The joint client exception may come into play when an individual litigant, who was an officer or director of the business to which he is adverse in litigation, demands production of privileged material that he reviewed or had access to while affiliated with the company. The exception is based on the theory that a corporation is, in fact, one collective client that includes the corporation and each individual member of the board of directors and each officer of the company. As evidenced by the three decisions described below, courts are surprisingly receptive to application of the joint client exception. The practical implication of greater acceptance of the exception is the need for businesses and in-house lawyers to be particularly careful to limit access to privileged information only to those with a true need to know the information.
a. Montgomery v. eTreppid Technologies, LLC, 2008 U.S. Dist. LEXIS 35561
In this action, the individual plaintiff was a member and former manager of the defendant LLC, eTreppid. The plaintiff demanded production of relevant, but privileged, communications created during the time he was a manager and member of the LLC. The LLC argued that the client for purposes of determining who had authority to claim or waive the privilege was solely the LLC. The plaintiff countered that he, too, was the client, having been a member and a manager of the LLC, and claimed that eTreppid could therefore not assert the privilege against him.
The district court first determined that the LLC should be treated as a corporation, as opposed to a partnership, for purposes of the privilege. It then noted the split of authority regarding acceptance of the joint client exception and determined that the more persuasive view was that directors and officers are not joint clients with the corporation such that the plaintiff could discover privileged information merely on the basis that it was accessible to him when he was affiliated with the defendant LLC. The court observed: “It makes sense that the corporation is the sole client. While the corporation can only communicate with its attorneys through human representatives, those representatives are communicating on behalf of the corporation, not on behalf of themselves as corporate managers or directors.” Because the plaintiff brought suit to benefit himself individually, he was not entitled to discover the LLC’s privileged information. His prior access to such information took place as a consequence of his capacity as a member in the entity, not in an individual capacity.
eTreppid squarely adopts the “sole client,” as opposed to the joint client, approach to control over the attorney-client privilege.
b. Barr v. Harrah’s Entertainment, Inc., 2008 U.S. Dist. LEXIS 26018
Similar to eTreppid, the New Jersey district court in Barr faced a demand for access to privileged information by a plaintiff who previously served as CEO and board member of the defendant’s predecessor. The plaintiff, serving as the named representative in this class action suit, sought application of the joint client exception and discovery of communications between the defendant and its in-house and outside counsel during the time the plaintiff served as CEO.
The defendant argued that application of the joint client exception was inappropriate in the class action context. It maintained that disclosure of the privileged information to the plaintiff/class representative would inevitably result in disclosure of the privileged documents to the remaining class members, the majority of whom had never been officers or directors of the defendant and could not be said to be in a joint client relationship with the defendant.
Applying Delaware law and the substantial authority supporting application of the joint client exception, the court keyed its holding to the contemplated use of the privileged materials sought by the former director seeking application of the joint client exception. Unlike the Delaware cases that allow individual former officers and directors access to privileged information, the Barr court reasoned that the plaintiff/class representative actually asserted a right to discover the defendant’s privileged communications on behalf of a class of individuals who would not otherwise have access to the privileged information under Delaware law. Indeed, the plaintiff/class representative owed a fiduciary duty to the class he represented. Thus, the court acknowledged the vitality of the joint client exception, but simply declined to apply it in the class action setting.
c. Rush v. Sunrise Senior Living, 2008 Va. Cir. LEXIS 12
Again, in Rush, a court was confronted with the claim by a former officer of the defendant that he should have access in discovery to privileged information to which he was privy while employed by the defendant. The plaintiff claimed that his termination as CFO of defendant was retaliatory because of his disclosure of certain of defendant’s alleged accounting practices to the SEC. The defendant claimed the former CFO was terminated because of violation of company policies. The plaintiff sought disclosure of privileged information based on the joint client exception.
Rather than directly evaluating the merits of the joint client exception, the Virginia court applied a rigorous and narrow standard to the defendant’s threshold burden in claiming privilege over the disputed communications. The court determined that “the public policy of furthering [defendant’s] ‘full and frank communication’” with its counsel was outweighed by the plaintiff’s right of access to the privileged documents to which he was privy while employed with the defendant. The court simply declined to apply the attorney-client privilege to the withheld communications between client and counsel, and did so on the basis that the disputed communications had not been “kept confidential in relation to [the plaintiff].”
The Rush court’s ruling amounts to a pragmatic acceptance of the joint client exception. The court ordered production of privileged material to which the plaintiff had access while in the defendant’s employ, based on the fact that such materials had not been kept confidential from the plaintiff. The court did not address the question of the capacity (individual, corporate, or both) in which the plaintiff had, or was given, access to the privileged materials at the time of disclosure. Thus, under Rush, the attorney-client privilege may in some circumstances simply not be applicable when privileged communications are made to an officer or director in that person’s capacity as such, and are later sought in discovery when the individual and corporation are adversaries.