Privilege Protects Indemnitor and Indemnitee’s Discussions—If You Prove It

An interesting privilege issue maneuvered through the NC court system—does a contract’s indemnification provision create an attorney–client relationship between a law firm, indemnitee, and a non-party indemnitor so that the privilege protects communications between the indemnitor and indemnitee?

In a decision that I profiled in this post, the NC Court of Appeals held that the indemnification clause created a business—not legal—interest between the indemnitor and indemnitee, and therefore the common–interest doctrine did not protect their communications from discovery.

But the NC Supreme Court reversed, ruling that an indemnification agreement creates a common legal interest between an indemnitor and indemnitee because “the indemnitor contractually shares in the indemnitee’s legal well-being.”  This common interest creates a tripartite attorney–client relationship between the indemnitee, indemnitor, and their defense counsel.  Friday Investments, LLC v. Bally Total Fitness of the Mid-Atlantic, Inc., 2017 WL 5016625 (N.C. Nov. 3, 2017).  You may read the decision here. More…

Indemnification Clause in Asset Purchase Agreement Does Not Invoke Common–Interest Doctrine 1

In a matter of first impression, a North Carolina appellate court ruled that an Asset Purchase Agreement’s indemnification provision did not create a “tripartite attorney–client relationship” Indemnificationamong the contracting parties and counsel sufficient to invoke the common-interest doctrine and protect attorney communications from disclosure.  Friday Investments, LLC v. Bally Total Fitness of the Mid-Atlantic, Inc., 2016 WL 3156239 (N.C. Ct. App. June 7, 2016).  You may read the decision here.

Background

Bally leased space for its health club operations, but later sold the health club and assigned the lease to Blast Fitness Group.  The Asset Purchase Agreement between Bally and Blast contained an indemnification provision.

The lessor later sued Bally (but not Blast) for unpaid rent, and Blast agreed to defend Bally pursuant to the Asset Purchase Agreement.  When the lessor requested post-suit correspondence between Bally and Blast, Bally sought a protective order claiming that the attorney–client privilege protected the correspondence from disclosure.

Tripartite Relationship

Bally claimed that the privilege covered the communications because Bally, Blast, and its lawyers held a “tripartite attorney–client relationship” sufficient to invoke the attorney–client privilege under the common–interest doctrine.  A tripartite relationship most commonly exists when an insurance company retains counsel to represent an insured. More…