Lack of Privilege Log Waives Accountant–Client Privilege 1

A Tennessee federal court ruled that a defendant’s failure to provide a privilege log waived its state-law accountant–client privilege.  In this diversity case, the court ruled that the procedural privilege-log rule governs waiver even though the defendant asserted a substantive state-law privilege.  Etheredge v. Etheredge, 2013 WL 4084642 (M.D. Tenn. Aug. 12, 2013).

The Etheredge case involved a minority shareholder asserting various state-law claims pertaining to the corporation’s financial mismanagement.  The minority shareholder subpoenaed Slide1records from the corporation’s accountants, but the corporate defendant filed a motion to quash, claiming that Tennessee’s accountant–client privilege, Tenn. Code Ann. § 62-1-116, barred production.

But the corporate defendant did not complete and serve a privilege log with the motion to quash.  The court held that FRCP 26(b)(5)(A)(ii) requires a party objecting to discovery to provide a privilege log to permit the opposing party—and the court—to determine the appropriateness of the privilege claim.  And, here, the corporate defendant did not provide a privilege log.

The Court ruled that the corporation’s failure to provide a privilege log with its motion to quash equaled a failure to comply with Rule 26(b)(5)(A)(ii).  And the failure to provide a privilege log constituted a waiver of its privilege objections, including the state-law accountant–client privilege.  The Court denied the motion to quash and ordered the accountant’s documents produced.

PoP Analysis.  The Etheredge decision represents another situation where the failure to provide a privilege log—or an adequate privilege log—resulted in privilege waiver.  The case raises a few interesting points.  First, the court ruled that failure to comply with Rule 26(b)(5)(A)(ii) results in automatic waiver rather than providing the corporate defendant with an opportunity to cure the deficiency.  Some courts provide parties with a second chance, particularly when a privilege log is simply inadequate rather than non-existent; the Etheredge case provided no second chance.  Second, this case involved a subpoena to a third party rather than a party-to-party document request, which shows that courts will impose the privilege log requirement to parties asserting privilege objections to a subpoena.  See FRCP 45(d)(2)(A)(ii).  And third, the case shows that federal procedure rules will control privilege waiver even where state substantive privilege law provides the rule of decision.

For an analysis of properly meeting the privilege log requirements, see my article, Ignoring Privilege Log Obligations May Prove Costly, accessible here.