Court Rejects “Corporate Privilege” for LLC and its Members—Waiver Ensues

Potential benefits arise when multiple clients retain one lawyer or one law firm to represent their common legal interests. But disadvantages exist, too, including the potential for privilege waiver—or privilege non-application—when joint clients later become adverse.  Throw in a joint representation that includes a corporate entity and its individual owners and you have the recipe for a legal quagmire.

The North Carolina Supreme Court disentangled this quagmire in an opinion, complete with practice pointers, in Howard v. IOMAXIS, LLC, 887 S.E.2d 853 (N.C. 2023). The high court, in an opinion available here, held that the privilege did not protect a recorded conference call between a lawyer and an LLC’s individual members when one of the members later became adverse to the others.  And the lawyer’s “corporate engagement letter” with the LLC did not save the day.  Let’s discuss.

Lawyer—LLC Engagement

IOMAXIS, LLC retained a law firm to provide it with general corporate representation to the legal entity.  The firm’s engagement letter, which may read in full here, identified the client and scope of legal services as follows:

Note that the sole client was IOMAXIS and the representation included “general corporate matters.”  The company’s CEO signed the letter.

Death, Disputes, and a Second Engagement Letter

IOMAXIS’s founder and majority owner died in 2017 and his ownership interests transferred to a trust.  In June 2018, the trustees sued IOMAXIS—the entity—and its remaining individual members asserting a host of corporate-governance claims, such as whether a valid operating agreement existed and the applicability of its buy-sell provision.  IOMAXIS returned to the law firm and asked it to represent the company and the individual-member defendants.

In a second engagement letter, which you may read in full here, the firm warned the multiple clients that “the best way to proceed in this matter would be for each of you to retain separate counsel.”  And it cautioned them that “there will be no way in this joint representation for you to pursue your individual interests through your common attorney.”  All true.

The firm’s second engagement letter also counselled the joint clients that it would share confidential information among them and that the attorney–client privilege would not shield that information if the members became adverse:

Opting out of the “best way to proceed,” the company and its individual clients instead became the firm’s joint clients.  After all, the divergence of interests was an “unlikely event.”

A Secret (Privileged) Recording

The “unlikely event” occurred two years later when one of the firm’s lawyers participated in a video call with the LLC’s CEO and the individual members—all clients.  One member, Hurysh, audio-recorded the meeting and, several months later, retained new counsel and filed cross-claims against the other individual members.

While the attorney–client privilege covered the discussions on the recording, Hurysh asserted that he held—and elected to waive—the privilege.  IOMAXIS countered that it exclusively owned the privilege disgorging Hurysh of any right to waive it.  The Business Court, in an opinion available here, held that Hurysh held the privilege—and could waive it—because the legal advice provided in the recorded video call fell under the second engagement letter—the one where the law firm represented the company and individual members as joint clients.

Joint Client Doctrine or the Bevill Test?

As we know, the joint-client doctrine permits multiple parties to retain a single lawyer or law firm to represent them.  The attorney–client privilege protects the joint clients’ communications with their common attorney from disclosure to third parties but does not protect the disclosure of otherwise confidential information if the joint clients later become adverse.  At the Supreme Court, IOMAXIS attempted to circumvent this well-known doctrine by arguing that the LLC held the privilege under the first, corporate engagement letter and the court should decide whether Hurysh nonetheless held a personal privilege under the test outlined in In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 122 (CA8 1986).

As explained in this post, the Bevill test typically comes into play when a corporate officer claims privilege protection for communications with the company’s lawyers regarding personal legal advice.  The five-factor test places the burden on the individual to show that he had an attorney–client relationship with the company’s lawyer separate from the company’s attorney–client relationship with that lawyer.  Often these decisions turn on verbal communications between the two and their respective understandings.

But here, Hurysh pointed to an actual engagement agreement where the law firm represented him along with the company.  In the court’s view, the question was whether the privileged discussion on the recorded video call arose under the corporate engagement agreement—where only IOMAXIS had the relationship and held the privilege—or under the second, litigation-related engagement agreement where Hurysh, his fellow owners, and IOMAXIS had a joint relationship with the firm.


The court followed the Business Court’s factual finding that, while the lawyer stated during the call that “our client is the company,” he also provided Hurysh with legal advice about defending the claims against him in the lawsuit.  The lawyer also provided legal advice to each member regarding whether to sign a proposed amended operating agreement in light of the pending litigation.

Based on this factual finding, the court saw no need to apply the Bevill test.  This was not a situation where an individual tried to wrangle a personal attorney–client privilege from a corporation–attorney relationship.  It was, rather, a lawyer providing advice to multiple joint clients.  The joint-client doctrine, therefore, permitted Hurysh to waive the privilege and use the recorded conversation in the prosecution of his cross-claims.

Court’s Practice Pointers

The court emphasized that its ruling was based on the facts before it and did not otherwise “diminish the ability of corporate counsel to preserve the corporation’s attorney–client privilege when communicating with corporate directors, officers, and employees.”  And in a somewhat unusual but helpful move, the court provided lawyers with three practice tips for avoiding this privilege-waiver situation.

First, the clients and lawyer can choose not to enter a joint-client situation.  If, as the law firm expressly recommended, the clients had retained separate counsel, this issue would never had surfaced.

Second, if clients choose a joint-client relationship, and the same firm also represents the corporation, then perhaps separate lawyers within the firm should handle separate and discreet tasks to avoid confusion and conflation of the issues about which those lawyers provide legal advice.

Third, lawyers solely representing the corporate entity should provide individuals, such as owners, officers, and directors, with a clear disclaimer that they represent the corporate entity and the individuals should retain separate counsel.

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