It often happens that a company obtains information critical to its claim or defense from an entity with which it has a close business relationship. The question arises whether the attorney–client privilege protects the communications. Sure, some courts extend the privilege to a client or lawyer’s agent in various, restrictive situations.
But when a Texas company claimed privilege over its non-lawyer communications with its sole-source supplier, the court rejected the privilege, ruling that the company took this agency principle “entirely too far.” LL’s Magnetic Clay, Inc. v. Safer Med. of Montana, Inc., 2018 WL 5733178 (W.D. Tex. Aug. 2, 2018). You may read the decision here.
LL’s Magnetic Clay, Inc. sued Safer Medical for federal false advertising and various related state-law claims. Safer Medical’s employee—either before or during the lawsuit (it’s unclear)—contacted Tainio Biologicals, it sole source of product ingredients, to gather “technical documents” and “confirm key technical facts.”
Magnetic Clay subpoenaed—and Tainio produced—documents that included communications between Safer and Tainio regarding the relevant, technical information. Safer Medical saw these documents, and immediately sent a claw-back letter, claiming the privilege protected the documents from discovery because Tainio, its sole-source supplier, was functioning as its agent “whose assistance [was] necessary to enable the client’s attorneys to provide legal advice.”
Law and Ruling
The court correctly cited the privilege’s foundational elements—confidential communications for legal-advice purposes—but then said this: More…
Issues of relevance and privilege arise in answering the question whether common−interest agreements are discoverable. One federal court recently rejected discovery of three defendants’ common−interest agreement, and did so even though the three defendants had adverse interests that “may lead to future litigation between them.” Wausau Underwriters Ins. Co. v. Reliable Transp. Specialists, Inc., 2018 WL 4235077 (ED MI Sept. 6, 2018). You may read the Magistrate Judge’s opinion here, and the District Judge’s affirmance here.
Wausau Underwriters sued Reliable Transportation Specialists, Amarillo Ushe, and Burt Holt seeking a declaration that it did not have to pay a judgment arising from Holt’s lawsuit and ultimate $8.7M judgment against Reliable and Ushe. The three defendants entered into a “Common Interest Confidentiality Agreement” that contained “boilerplate terms” so that they could “safely share information.”
Wausau thought that the CIA contained provisions regarding tolling, settlement, indemnification, and related financial provisions. Wausau asked for the CIA, the defendants politely declined, and Wausau filed a motion to compel. The Court, without much explanation, required the defendants to submit the CIA for in camera review.
Are CIAs Privileged?
This is an interesting question, and one I will address in a future post. At oral argument, the defendants “insisted” that the “joint defense privilege” renders the CIA non-discoverable. The court sidestepped the inquiry, noting that “cases addressing the question of whether JDAs are privileged fall, quite frankly, all over the lot.” (Quoting Steuben Foods, Inc. v. GEA Process Eng’g, Inc., 2016 WL 1238785 (WDNY Mar. 30, 2016)).
The Court did not have to decide the privilege issue because the discovery of a CIA turned on relevance. More…
Two well-intentioned gentlemen, Stuart and Eric, want to open a restaurant, and need to form a business entity to do so. Eric says that his lawyer, Adam, can set up an LLC and draft the operating agreement. Stuart agrees, perhaps because Adam’s law firm represents him on other matters, and meets Lawyer Adam to sign the operating agreement.
You can guess what happens next. Stuart becomes unhappy with the restaurant’s business operations, and sues Eric and the LLC for breach of contract, breach of fiduciary duty, and an accounting. Stuart wants to depose Lawyer Adam, but Adam, citing the attorney–client privilege, refuses to testify about his communications with Eric regarding preparation of the operating agreement.
Several issues arise. Who is Lawyer Adam’s client—Eric? Stuart? The LLC? All of the above? Does the privilege for Adam’s communications with Eric preclude disclosure to Stuart? What level of proof is necessary to establish the privilege elements? The court’s decision in Hinerman v. The Grill on Twenty-First, LLC, 2018 WL 2230763 (Ohio Ct. App. May 11, 2018), available here, answers these questions. Let’s dissect the opinion, and heed its lessons. More…