Last week's Privilege Point focused on privilege ownership when corporations sell assets rather than stock. Privilege ownership issues can also arise when competing board factions claim to be acting on a corporation's behalf.
In Eagle Forum v. Phyllis Schlafly's American Eagles, two Eagle Forum board members retained lawyer Rohlf on behalf of that corporation "to provide … 'representation and counsel with respect to governance matters, Board disputes and litigation as necessary.'" Case No. 3:16-cv-946-DRH-RJD, 2018 U.S. Dist. LEXIS 53284 at *3 (S.D. Ill. Mar. 29, 2018) (internal citation omitted). Rohlf's firm even entered an appearance on Eagle Forum's behalf in an Illinois state court action filed by other Board members (which named Eagle Forum as a nominal defendant). Those other Board members soon exercised their power "as the majority of the Eagle Forum Board of Directors" to suspend Eagle Forum's President and Treasurer – and sought to depose Rohlf. Id. at *4. Not surprisingly, Plaintiffs (having a Board majority) argued that "Eagle Forum, not Joel Rohlf, controls its privilege and can waive it." Id. at *5. Rohlf resisted the deposition, contending that Eagle Forum's privilege "did not, and could not, pass to the individual Plaintiffs from the control group. . . who retained [Rohlf] for the purpose of preventing the individual Plaintiffs from taking control of the organization." Id. at *7. The court rejected Rohlf's argument that the "clear fissure in Eagle Forum's Board and management" was "an occurrence akin to an acquisition." Id. at *9-10. The court ultimately concluded that "at all relevant times hereto [Plaintiffs] constituted the majority of Eagle Forum's Board of Directors" – and therefore "have had control over Eagle Forum, and ultimately its privilege." Id. at *9.
Lawyers involved in corporate transactions and in corporate board disputes must keep track of who owns the corporation's attorney-client privilege and who can waive it.