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Shareholders, not the Corporation, Holds Attorney-Client Privilege for Communications Between the Shareholders and Counsel

On August 7, 2014, the Western District of Pennsylvania’s Judge Maurice B. Cohill, Jr. entered an order preliminary denying plaintiff’s motion to compel compliance with subpoena on counsel. In the case of Gary Miller Imports, Inc. v. Carter Dolittle, et al., plaintiff sought to compel the law firm of Macdonad Illig Jones & Britton, LLP to produce eight documents they felt did not fall under attorney-client privilege.

As a brief background, plaintiff, Gary Miller Imports, Inc., filed the action alleging that the defendants, brothers Carter, Brent, and Kevin Dolittle, who were minority shareholders of plaintiff, had been embezzling extra pay, vacation pay, and bonus payments, stealing cars, and engaging in racketeering activity. Before the lawsuit, the Dolittle brothers had formerly retained the Macdonald Illig firm as corporate counsel for Gary Miller Imports, Inc., to assist in the company’s next steps arising out of a failed deal with Mazda and Chevrolet.

Upon the start of this present action, the Dolittle brothers once again engaged the Macdonald Illig firm. The motion to compel arose after plaintiff sought from the firm communications under the belief that these communications pertained to the corporation. The plaintiff believed that the information the communications contained related to the defendants acting as corporate agents. Also, plaintiff argued that the law firm had even billed the corporation for its services for this action.

In order for a corporate officer to assert his or her claim of attorney-client privilege with communications with corporate counsel, five steps set forth in In re: Bevill, Bressler & Schulman Asset Management Corp. must apply. Summed up, this test enables the determination of whether there exists a clear distinction as to communications related to the corporation and to the individual.

In the opinion by Judge Cohill, he states that there is no reason to doubt that the firm’s representation of the minority shareholders, the Dolittle brothers, was in the capacity of representing them as individuals. Concurrently, the Judge agreed with defendants’ argument that there does in fact exist a distinction between the communications, for after review of the eight documents, the legal counsel sought were as individuals and not acting for the corporation. As such, the Bevil test applies, and the communications are considered privileged.

2014 has been a staple year in Pennsylvania in determining the level of privilege extended to attorney communications with experts and clients. As noted in our two past blog entries, the courts have leaned towards more protection towards attorney-expert communications (read here and here), and now it has truly defined further the limits of what corporations can seek from shareholders in the event of a dispute.

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