Case Name: INTER-FLUVE, a Montana Corporation, Relator, v. MONTANA EIGHTEENTH JUDICIAL DISTRICT COURT, GALLATIN COUNTY, THE HONORABLE MIKE SALVAGNI, Presiding Judge, Respondent
Court: Montana Supreme Court
Jurisdiction: Montana
Decision Date: 2005-04-26
Citations: 327 Mont. 14
Docket Number: No. 04-699
Parties: INTER-FLUVE, a Montana Corporation, Relator, v. MONTANA EIGHTEENTH JUDICIAL DISTRICT COURT, GALLATIN COUNTY, THE HONORABLE MIKE SALVAGNI, Presiding Judge, Respondent.
Judges: CHIEF JUSTICE GRAY concurred in part and dissented in part.
Reporter: Montana Reports
Volume: 327
Pages: 14–29

Head Matter:
INTER-FLUVE, a Montana Corporation, Relator, v. MONTANA EIGHTEENTH JUDICIAL DISTRICT COURT, GALLATIN COUNTY, THE HONORABLE MIKE SALVAGNI, Presiding Judge, Respondent.
No. 04-699.
Decided April 26, 2005.
2005 MT 103.
327 Mont. 14.
112 P.3d 258.
CHIEF JUSTICE GRAY concurred in part and dissented in part.
JUSTICE RICE dissented.

Opinion:
OPINION AND ORDER
¶ 1 Inter-Fluve, Inc. (Inter-Fluve), seeks a writ of supervisory control, arguing that the District Court of the Eighteenth Judicial District, Gallatin County, is proceeding based on a mistake of law in controlling discovery proceedings with respect to the attorney-client privilege. 'Discovery of potentially-privileged material presents unique issues which we have, under certain circumstances, found sufficient to invoke original jurisdiction." Winslow v. Mont. Rail Link, Inc., 2001 MT 269, ¶ 2, 307 Mont. 269, ¶ 2, 38 P.3d 148, ¶ 2. Here, however, we decline to exercise supervisory control. Our resolution of Inter-Fluve's petition is patterned after that of Hegwood v. Mont. Fourth Judicial Dist. Ct., 2003 MT 200, 317 Mont. 30, 75 P.3d 308, another petition that arose from discovery proceedings, in that we set forth a legal analysis supporting our refusal to exercise supervisory control.
¶2 We address the following issues:
¶3 (1) Is this an appropriate case for the exercise of supervisory control?
¶4 (2) Is the confidentiality of the attorney-client privilege violated when a former director of a closely-held corporation, who has brought claims against the corporation, is allowed to discover communications between corporate counsel and other directors which occurred during his tenure as a director?
FACTUAL AND PROCEDURAL BACKGROUND
¶5 Inter-Fluve is a closely-held Montana corporation with its principal office in Hood River, Oregon. At the time of the conflict which spawned the lawsuit underlying this petition, Gregory Koonce (Koonce), Lon Mikkelsen (Mikkelsen) and Dale Miller (Miller) were the directors of the corporation, each holding a one-third interest therein as shareholders. Miller was employed as the manager of Inter-Fluve's Bozeman office, while Mikkelsen managed the Hood River office where he worked with Koonce. Ever since the incorporation of the business, Miller was a shareholder and a member of the Board of Directors. Additionally, Miller had previously served as Inter-Fluve's president.
¶6 On March 11, 2002, Mikkelsen and Koonce terminated Miller's employment with Inter-Fluve. Thereafter, Miller resigned his directorship and initiated the underlying litigation. In doing so, Miller brought a claim of wrongful discharge against Inter-Fluve and a claim of corporate oppression against Mikkelsen and Koonce. Subsequently, Inter-Fluve brought counterclaims against Miller, alleging conversion and violation of the Uniform Trade Secrets Act.
¶7 During discovery, Miller sought to depose Calvin Braaksma (Braaksma), who had served as corporate counsel for Inter-Fluve in Bozeman with the firm Landoe, Brown, Planalp, Braaksma & Reida. As part of the deposition, Miller wanted to inquire about the substance of certain communications between Braaksma and Inter-Fluve which occurred during Miller's tenure as a director.
¶8 Inter-Fluve filed a motion for a protective order pursuant to Rule 26(c), M.R.Civ.P., asking the District Court to prevent Miller from questioning Braaksma about the substance of attorney-client communications, including conversations related to the termination of Miller's employment with Inter-Fluve. In support of this request, Inter-Fluve asserted that the attorney-client privilege extends to corporations, and the privilege covers conversations which Mikkelsen and Koonce had with Braaksma because they had engaged Braaksma on behalf of Inter-Fluve. Hence, Inter-Fluve argued that Miller was not entitled to discover these conversations, regardless of his status as a director at that time the communications occurred, because the privilege belongs to the corporation, not the directors.
¶9 In response to Inter-Fluve's request for a protective order, Miller raised several arguments to support his contention that he was entitled to depose Braaksma regarding these communications. Miller argued that Mikkelsen and Koonce had conducted these communications in their respective capacities as directors of Inter-Fluve, that these communications occurred without his knowledge and that his status as a former director entitled him to access these communications which occurred during his tenure as a director. Additionally, Miller claimed that corporate funds were used to pay the fee for these communications. Consequently, Miller asserted that he, as a thirty-three percent shareholder, had effectively paid thirty-three percent of the bill for these communications. Finally, Miller claimed that Mikkelsen and Koonce had engaged Braaksma for the purpose of affecting Miller's relationship with Inter-Fluve, and that Braaksma's advice was used to the detriment of Miller. Inter-Fluve responded by arguing that a former director does not have the authority to waive the attorney-client privilege of a corporation.
¶10 Another point of contention arose when Miller's counsel deposed Mikkelsen and Koonce, asking them about the substance of communications with Inter-Fluve's corporate counsel prior to Miller's termination. Mikkelsen and Koonce declined to answer these questions, assertingthe attorney-client privilege. Consequently, Miller filed a motion to compel, asking the District Court to order Mikkelsen and Koonce to respond to these questions. In doing so, Miller asserted that Koonce and Mikkelsen had secretly consulted with corporate counsel in both Bozeman and Oregon to secure advice in furtherance of a conspiracy to terminate Miller's employment. Further, Miller asserted that these consultations were paid for with corporate funds. In response, Inter-Fluve restated the arguments made in its motion for a protective order.
¶11 Finally, Inter-Fluve filed a motion in limine, asking the District Court to limit the scope of Miller's questioning with respect to any legal advice sought by Mikkelsen and Koonce, either individually or on behalf of Inter-Fluve, regarding the termination of Miller's employment. Inter-Fluve requested this relief in limine so as to avoid any prejudice that might accompany the rightful invocation of the attorney-client privilege in front of the jury.
¶12 The District Court dealt with these motions in its Decision and Order of October 4, 2004 (Order). With respect to Inter-Fluve's motion for a protective order, the District Court determined that the defendants were not entitled to assert the attorney-client privilege against Miller as to communications between Inter-Fluve and Braaksma which occurred during Miller's tenure as director. In reaching this conclusion, the District Court stated that in order for Koonce and Mikkelsen to obtain legal advice regarding corporate matters and keep such advice from Miller, they would have had to retain separate counsel and pay for such with non-Inter-Fluve funds. As such, the District Court denied Inter-Fluve's motion for a protective order.
¶13 With regard to Miller's motion to compel, the District Court considered whether alleged communications between Inter-Fluve and corporate counsel other than Braaksma were privileged as against Miller. The District Court concluded that Miller was entitled to discover communications between Inter-Fluve and all other attorneys acting as counsel for Inter-Fluve, but specified that Miller was not entitled to access any such communications which occurred after his resignation as a director. Additionally, the District Court specified that Miller was not entitled to discover attorney-client communications made by or to Mikkelsen and/or Koonce when the client was not InterFluve. Hence, the District Court granted Miller's motion to compel in part, and denied it in part.
¶14 As for Inter-Fluve's motion in limine, the District Court first reiterated its conclusions regarding the previous motions. Then, the District Court partially granted the motion in that it specified that Miller could not ask questions regarding any attorney-client communications either: (1) made after his resignation as a director; or (2) made by or to counsel when Inter-Fluve was not the client. The District Court denied the motion as to communications made during Miller's tenure as director by or to any attorney who represented Inter-Fluve.
¶15 Inter-Fluve applied for a writ of supervisory control, arguing that the District Court is proceeding under a mistake of law with respect to its interpretation of the attorney-client privilege.
DISCUSSION ISSUE ONE
¶16 Is this an appropriate case for the exercise of supervisory control ?
¶17 This Court exercises supervisory control in appropriate cases pursuant to the authority granted in Article VII, Section 2(2) of the Montana Constitution, and Rule 17(a), M.R.App.P. Evans v. Mont. Eleventh Judicial Dist. Ct., 2000 MT 38, ¶ 16, 298 Mont. 279, ¶ 16, 995 P.2d 455, ¶ 16. The use of this power is appropriate where the district court is proceeding based on a mistake of law which, if uncorrected, would cause significant injustice for which an appeal is an inadequate remedy. Truman v. Mont. Eleventh Judicial Dist. Ct., 2003 MT 91, ¶ 13, 315 Mont. 165, ¶ 13, 68 P.3d 654, ¶ 13 (citing Park v. Mont. Sixth Judicial Dist. Ct., 1998 MT 164, ¶ 13, 289 Mont. 367, ¶ 13, 961 P.2d 1267 ¶ 13). In determining the propriety of supervisory control for a particular case, we are mindful that it is an extraordinary remedy. Evans, ¶ 15. Consequently, we have followed the practice of proceeding on a case-by-case basis while taking care not to substitute the power of supervisory control for an appeal. Preston v. Mont. Eighteenth Judicial Dist. Ct. (1997), 282 Mont. 200, 204, 936 P.2d 814, 816 (citing Plumb v. Fourth Judicial Dist. Ct. (1996), 279 Mont. 363, 370, 927 P.2d 1011, 1015).
¶18 Inter-Fluve's request for supervisory control arises out of that part of the District Court's Order which allows Miller to discover communications between the corporation's current directors and its corporate counsel that were conducted while Miller was a director. Inter-Fluve asserts that the District Court is proceeding under a mistake of law in its interpretation of the attorney-client privilege, and that this mistake constitutes a significant injustice. Upon these contentions, Inter-Fluve argues that supervisory control is necessary because the discovery allowed by the District Court's Order will permanently foreclose the opportunity to properly protect the privileged communications, and thus no adequate remedy can be achieved through a normal appeal.
¶19 We conclude that this is not an appropriate case for our exercise of supervisory control because, as explained below, the District Court's Order is not premised on a mistake of law.
ISSUE TWO
¶20 Is the confidentiality of the attorney-client privilege violated when a former director of a closely-held corporation, who has brought claims against the corporation, is allowed to discover communications between corporate counsel and other directors which occurred during his tenure as a director?
¶21 The attorney-client privilege is codified in §26-1-803, MCA, which provides:
(1) An attorney cannot, without the consent of his client, be examined as to any communication made by the client to him or his advice given to the client in the course of professional employment.
(2) A client cannot, except voluntarily, be examined as to any communication made by him to his attorney or the advice given to him by his attorney in the course of the attorney's professional employment.
¶22 This privilege is the oldest of the privileges for confidential communications known to the common law. State ex rel. United States Fid. and Guar. Co. v. Mont. Second Judicial Dist. Ct. (1989), 240 Mont. 5, 10, 783 P.2d 911, 914. We have previously stated:
The fundamental purpose of the attorney-client privilege is to enable the attorney to provide the best possible legal advice and encourage clients to act within the law. The privilege furthers this purpose by freeing clients from the consequences or the apprehension of disclosing confidential information, thus encouraging them to be open and forthright with their attorneys.
Palmer by Diacon v. Farmers Ins. Exch. (1993), 261 Mont. 91, 106, 861 P.2d 895, 904. We have also stated that Tajnother important policy behind the attorney-client privilege is to foster the attorney-client relationship by ensuring that attorneys are free to give accurate and candid advice without fear that the advice will later be used against the client." Palmer, 261 Mont. at 107, 861 P.2d at 904-05.
¶23 The attorney-client privilege attaches to both individuals and corporations, but "complications in the application of the privilege arise when the client is a corporation, which in theory is an artificial creature of the law, and not an individual ." Upjohn Co. v. United States (1981), 449 U.S. 383, 389-90, 101 S.Ct. 677, 682-83, 66 L.Ed.2d 584. This petition presents just such a complication.
¶24 Inter-Fluve asserts that individual directors of a corporation are not clients in the attorney-client relationship between a corporation and its legal counsel. Rather, there is only one client-fche corporation. As such, Inter-Fluve contends, the attorney-client privilege belongs to the corporation, acting through a majority of its directors, and it does not belong to individual directors.
¶25 Applying these contentions to this case, Inter-Fluve argues that: (1) Miller was never the client with respect to the attorney-client communications at issue; (2) when Mikkelsen ánd Koonce met with Inter-Fluve's corporate counsel to discuss legal issues facing the corporation, they did so on behalf of Inter-Fluve, and thus the attorney-client privilege applies to those discussions; (3) it is irrelevant that Miller was a director when Mikkelsen and Koonce met with corporate counsel because the attorney-client privilege belongs to Inter-Fluve only, acting through a majority of its directors, and not individual directors; and (4) Miller is not entitled to waive Inter-Fluve's attorney-client privilege, as only the corporation may do so through its current directors. Thus, Inter-Fluve concludes that its attorney-client privilege will be violated if Miller is allowed to discover the privileged communications at issue.
¶26 Additionally, Inter-Fluve argues that it is a matter of good public policy to allow a majority of a corporation's board of directors, in their determination of what is best for the corporation, to seek confidential legal advice from corporate counsel regarding the termination of an employee who is also a director, officer or shareholder. Finally, Inter-Fluve suggests that we consider that Miller no longer has a fiduciary duty to act in the best interests of the corporation, and his interests are now contrary to those of Inter-Fluve.
¶27 Miller argues that he is entitled to discover the attorney-client communications at issue because he was a client with respect to such communications during his tenure as a director. In support of this contention, Miller advances a 'joint client"theory which specifies that because a corporate entity can only act through people, and because the directors are a collective body responsible for managing the corporation, the directors are properly considered joint clients with respect to legal advice given to the corporation. Pursuant to this theory, Miller argues that because he was a member of the Board of Directors, the collective body responsible for managing Inter-Fluve, he was thus entitled to access the legal advice received from corporate counsel during his tenure. Thus, Miller argues, since he was entitled to access these communications at the time they occurred, it would be a perversion of the attorney-client privilege to now deny him access to that information simply because he is no longer a director. As such, Miller concludes that the attorney-client communications at issue should not be considered privileged as against him.
¶28 Miller argues that we should adopt this 'joint client" theory because it recognizes that individuals must act on behalf of legal entities, and it acknowledges that all of a corporation's directors, not just a select or privileged group thereof, are entitled to the advice of corporate counsel. Further, Miller argues that such a theory properly reflects the realities of a closely-held corporation. For example, in reality, the line between the entity and the individuals who own or control the entity, often becomes blurred in a closely-held corporation. The reality of Inter-Fluve, Miller argues, was that he, Koonce and Mikkelsen were engaged in a joint undertaking, as shown by the fact that the three shareholders also made up the Board of Directors. Lastly, Miller argues that Inter-Fluve's corporate counsel represented all parties to the joint undertaking and, consequently, select members of that group can not rightly assert the attorney-client privilege as a basis for withholding legal advice received during the joint undertaking.
¶29 In terms of policy implications, Miller argues that if the attorney-client privilege can be used in the way Inter-Fluve argues for, it would promote the covert use of corporate resources by directors in order to gain potentially wrongful advantage over each other. Conversely, Miller argues, the 'joint client"approach would essentially eliminate the potential for wrongful use of corporate counsel. With the 'Joint client" approach established, Miller suggests that if a group of directors in a closely-held corporation seek legal advice regarding the actions of a fellow director, and if they wish to keep such advice confidential as against that fellow director, they can simply retain and pay for their own counsel.
¶30 The parties agree that an attorney-client relationship existed between Inter-Fluve and its corporate counsel, and that any communication conducted pursuant to that relationship is cloaked in the confidentiality of the attorney-client privilege.
¶31 We first address Inter-Fluve's contention that Miller has no power to waive the corporation's attorney-client privilege, as only the corporation may do so through its current directors. While we agree with this argument, we observe that it does not resolve the issue of whether Inter-Fluve may assert the privilege against Miller to preclude him from accessing the attorney-client communications at issue. As stated in Gottlieb v. Wiles (D.Colo. 1992), 143 F.R.D. 241, 247, "[t]he fact that former officers and directors lack the power to waive the corporate privilege does not resolve the question of whether they themselves are precluded by the attorney-client privilege or work product doctrine from inspecting documents generated during their tenure." Here, Miller's request to access these communications is not an attempt to waive Inter-Fluve's attorney-client privilege. Waiver is the voluntary relinquishment of a known right. Kuiper v. District Court (1981), 193 Mont. 452, 460, 632 P.2d 694, 698. Miller does not attempt to relinquish a right, rather, he seeks to assert his right to access attorney-client communications conducted during his tenure as a director.
¶32 In order to determine whether Miller is entitled to discover the attorney-client communications at issue, we must ascertain who the client was with respect to those communications. Inter-Fluve contends that only the corporation is the client, not individual directors, and thus the attorney-client privilege belongs only to the corporation. Hence, Inter-Fluve argues that Miller is not entitled to discover the attorney-client communications at issue because he was never the client.
¶33 While we accept the premise that the corporation is the client, we observe that a corporation can only act through a person or persons to carry out its many functions, such as receiving legal advice and waiving or asserting the attorney-client privilege. Montana's statutory law establishes that corporate powers are exercised through a board of directors. Section 35-1-416(2), MCA, provides:
Subject to any limitation set forth in the articles of incorporation, all corporate powers must be exercised by or under the authority of the board of directors, and the business and affairs of the corporation must be managed under the direction of its board of directors.
Further, the United States Supreme Court has explained, regarding the attorney-client privilege:
As an inanimate entity, a corporation must act through agents. A corporation cannot speak directly to its lawyers. Similarly, it cannot directly waive the privilege when disclosure is in its best interest. Each of these actions must necessarily be undertaken by individuals empowered to act on behalf of the corporation.
Commodity Futures Trading Comm'n v. Weintraub (1985), 471 U.S. 343, 348, 105 S.Ct. 1986, 1991, 85 L.Ed.2d 372. This principle is reflected in Rule 1.13(a) of the Montana Rules of Professional Conduct, which provides that '[a] lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents."
¶34 The Wisconsin Supreme Court has dealt with the issue that we consider here. In Lane v. Sharp Packaging Systems, Inc. (Wis. 2002), 640 N.W.2d 788, the court considered whether a corporation, Sharp Packaging Systems, could invoke the attorney-client privilege against Lane, who was a former member of the corporation's board of directors, regarding attorney-client communications conducted during Lane's tenure as a director. The majority of the court concluded that the corporation could effectively assert the attorney-client privilege against Lane. Lane, ¶ 34. In her dissent, Chief Justice Abrahamson argued a 'joint client" theory, stating:
[T]he client is the corporate entity; the corporate entity can act only through people; the directors are the collective body that has the responsibility to manage the corporation; and consistent with their joint obligations, the directors are the joint clients when legal advice is given to the corporation through one of its officers or directors. Lane was part of the collective body and was, therefore, entitled to have access to the legal advice Sharp Packaging received during Lane's tenure on the board. This legal information cannot be privileged against Lane. An attorney may not withhold legal advice from his or her own client.
Lane, ¶ 80.
¶35 We find this reasoning persuasive. Thus, we conclude that while Inter-Fluve was the client with respect to the attorney-client communications at issue here, the directors were joint clients with Inter-Fluve. As corporate directors are jointly responsible for the proper management of a corporation, it is consistent with this joint obligation that they be treated as joint clients with the corporation when legal advice is rendered to the corporation through one of its officers or directors. Kirby v. Kirby (Del. Ch. 1987), 1987 WL 14862, at *7, 1987 Del. Ch. LEXIS 463, at *19. When Miller was a part of the collective body of Inter-Fluve's Board of Directors, he was entitled to access the attorney-client communications occurring between corporate counsel and the other directors. The fact that Miller is no longer a director is not sufficient cause to render these communications privileged as against him. As the United States District Court for the District of Colorado observed in a case where it considered whether a former director was precluded by the attorney-client privilege from inspecting documents generated during his tenure:
An analogous situation presents itself when parties with a common interest retain a single attorney to represent them. When they later become adverse, neither is permitted to assert the attorney-client privilege as to communications occurring during the period of common interest.
Gottlieb, 143 F.R.D. at 247.
¶36 To allow Inter-Fluve to assert the attorney-client privilege against Miller would not promote the principles underlying the attorney-client privilege. As stated in Moore Bus. Forms, Inc. v. Cordant Holdings Corp. (Del. Ch. 1996), 1996 WL 307444, at *6,1996 Del. Ch. LEXIS 56, at *18, Tbjecause the attorney-client privilege belongs to the client, it would be perverse to allow the privilege to be asserted against the client."
¶37 We hold that the confidentiality of the attorney-client privilege is not violated when a former director of a closely-held corporation, who has brought claims against the corporation, is allowed to discover communications between corporate counsel and other directors which occurred during his tenure as a director.
¶38 Having determined that the District Court's Order is not premised on a mistake of law, we must now conclude that Inter-Fluve's Petition for a Writ of Supervisory Control is DENIED.
DATED this 26th day of April, 2005.
JUSTICES NELSON, COTTER and WARNER concur.