Opinion ID: 1712049
Heading Depth: 3
Heading Rank: 1

Heading: Lane's status as former director of Sharp

Text: ¶ 23. First, we examine whether Lane, as a former officer and director of Sharp, is entitled to documents from Sharp either because he can waive the lawyer-client privilege, or because as a corporate representative, he was entitled to the privileged communications at the time they were made, and the privilege survives his termination of employment. ¶ 24. Sharp, the Scarberrys, Niebler, and the Niebler law firm (hereinafter appellants) argue that the circuit court erred in ordering the discovery of documents from Niebler because according to the entity rule (the organization, not individual members, is the client), only Sharp can waive the lawyer-client privilege. Appellants urge this court to apply the entity rule here and find that Lane's status as a former director does not allow him to waive the lawyer-client privilege, and that the current corporate representatives may effectively assert the lawyer-client privilege against Lane. ¶ 25. Appellants first rely on SCR 20:1.13(a), which states: A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. In Jesse v. Danforth, 169 Wis. 2d 229, 485 N.W.2d 63 (1992), this court discussed the entity rule expressed by SCR 20:1.13, holding that the organization, not the constituent, is the lawyer's client. We then applied the entity rule to privileged communication under SCR 20:1.6, [9] and held that the corporate entity, not the constituent, holds the privilege. Appellants contend that under the entity rule, only Sharp, not Lane, can waive the lawyer-client privilege. ¶ 26. In addition to relying on the entity rule and Jesse, appellants rely on Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343 (1985), for their position that even as a former director of Sharp, Lane may not waive the lawyer-client privilege and the present directors of Sharp may effectively assert the privilege against him. In Weintraub, the United States Supreme Court addressed whether the trustee of a corporation in bankruptcy has the power to waive the debtor corporation's attorney-client privilege with respect to communications that took place before the filing of the petition in bankruptcy. 471 U.S. at 345. As part of an investigation of the Chicago Discount Commodity Brokers (CDCB) the Commodity Futures Trading Commission (hereafter the Commission) served a subpoena duces tecum upon CDCB's former counsel, Gary Weintraub. At his deposition, Weintraub refused to answer questions, asserting the lawyer-client privilege. The CDCB maintained that former officers, directors and employees no longer had authority to assert the privilege. Recognizing that corporations must act through agents, the Court discussed how control of the corporation is exercised through management and the effect of new management. New managers installed as a result of a takeover, merger, loss of confidence by shareholders, or simply normal succession, may waive the attorney-client privilege with respect to communications made by former officers and directors. Displaced managers may not assert the privilege over the wishes of current managers, even as to statements that the former might have made to counsel concerning matters within the scope of their corporate duties. Weintraub, 471 U.S. at 349. The Court noted that for solvent corporations, the corporation's management retains the power to waive the corporate lawyer-client privilege. Id. at 348. Therefore, because the trustee plays the role most closely analogous to that of a solvent corporation's management the Court held that the trustee retains control of the lawyer-client privilege. Id. at 353. Appellants urge this court to follow Weintraub and hold that because Lane is now neither an officer nor a director ... [he] retains no control over the corporation's privilege. Id. at 349 n.5. ¶ 27. Finally, appellants argue that the standard to determine if the lawyer-client privilege applies should be based on why the information is requested, not when the documents are prepared. Relying on Milroy v. Hanson, 875 F. Supp. 646 (D. Neb. 1995), appellants argue that whether the lawyer-client privilege can be invoked depends on whether the requesting officer or director attempting to acquire the privileged documents, is acting in his own capacity or as a representative of the corporation. ¶ 28. In Milroy, the United States District Court for the District of Nebraska, examined whether a director and minority stockholder of a corporation has the right to documents otherwise protected under the lawyer-client privilege. 875 F.Supp. at 646. The director brought suit against the corporation and remaining stockholders and directors seeking money damages and liquidation of the corporation. Id. The court focused on whether the corporation could assert the lawyer-client privilege and prevent production of documents held by the corporation's accountants and lawyers. Id. at 647. The court examined case law from other jurisdictions, particularly Kirby v. Kirby, No. Civ. A. 8604, 1987 WL 14862 (Del. Ch. July 29, 1987), and cases relying on Kirby. [10] In Kirby, the Delaware Chancery Court reasoned that all directors are responsible for the proper management of the corporation and concluded that the lawyer-client privilege could not be asserted against a former director. 1987 WL 14862, at . The Milroy court disagreed with the Kirby reasoning: With all due respect, cases like Kirby, Harris, and Gottlieb make a fundamental error by assuming that for a corporation there exists a collective corporate `client' which may take a position adverse to management for purposes of the attorney-client privilege. There is but one client, and that client is the corporation. This is true despite the fact that a corporation can only act through human beings.... A dissident director is by definition not management and, accordingly, has no authority to pierce or otherwise frustrate the attorney-client privilege when such action conflicts with the will of management. 875 F.Supp. 646, 649-650 (citations omitted). The court held that under Nebraska law, the dissident director has no right to waive or otherwise pierce [the corporation's] attorney-client privilege because he is not the `management' of the corporation and `management' of the corporation, as it has a right to do, asserts the privilege against him. Id. at 651. In this case, appellants contend that because Lane is a dissident former director seeking privileged documents for personal gain, the lawyer-client privilege applies, it cannot be waived by Lane, and Sharp may effectively assert the privilege against him. ¶ 29. Lane argues that the documents requested from Niebler are not privileged because Sharp has not established the communications were for the purpose of obtaining legal advice. Even if the documents are privileged, however, Lane contends that Sharp cannot withhold privileged documents because he was an officer and director of Sharp during the time the requested communications were made. According to Lane, applying the entity rule does not solve this issue because he does not dispute that Sharp is the client. Rather, Lane argues that his right to the documents is based on his former status as director and a representative of the entity. Lane contends that Milroy and Weintraub are not on point because Milroy was principally a shareholder derivative suit and unlike here, the plaintiff did not contend he was entitled to corporate documents. According to Lane, Weintraub is inapplicable because the case focuses on who has the authority to assert or waive a corporation's lawyer-client privilege, and not whether a former director is entitled to discover documents to which he was entitled during his employment. ¶ 30. Instead of Milroy and Weintraub, Lane urges this court to follow Moore Business Forms, Inc. v. Cordant Holdings Corp., 1996 WL 307444 (Del. Ch. June 4, 1996), [11] because the facts are similar. In Moore, the Court of Chancery of Delaware was faced with a situation where an attorney furnished legal advice about a purchase agreement and discussed strategies with all but one director. 1996 WL 307444, at . When the attorney was subsequently deposed, the corporation asserted the lawyer-client privilege. Id. Relying largely on Delaware case law, the court held that a corporation cannot assert the lawyer-client privilege to deny a director access to legal advice furnished to the board during the director's tenure. 1996 WL 307444, at . Because the attorney-client privilege belongs to the client, it would be perverse to allow the privilege to be asserted against the client. Id. at  (emphasis in original). The court also noted that under Delaware law, the corporation had alternative means to enable its directors to receive confidential attorney advice not discoverable by the other director. [12] Based on Moore, Lane contends that the circuit court did not erroneously exercise its discretion and properly held that the information in Niebler's files was not protected by the lawyer-client privilege. Lane urges this court to hold that because he was entitled to the communications regarding the shareholder distribution when he was a director, he is entitled to the same communications in this litigation. ¶ 31. In reviewing the circuit court's decision, we note first that the circuit court did not directly rule on this specific issue. The court did not specifically address the legal issues the parties raise before this court regarding whether Lane's former status as a director allows him access to otherwise privileged communications. The circuit court judge's only comment on this issue was related specifically to billings, [13] but the court's ruling seemed to rely largely on Lane's former status as a director. There were (sic) a linking by contract of these parties during a significant period of time in which the Niebler law firm provided services to the Sharp Corporation. And if, in fact, there were billings that were submitted to the corporation and under Mr. Lane's obligations were reviewed by him but not retrievable by him upon his termination, I think he's entitled to examine them again with the benefit of counsel. [9] ¶ 32. We conclude that the circuit court's ruling was an erroneous exercise of discretion. The circuit court did not directly address whether a former director is allowed to waive the lawyer-client privilege of the corporation, or whether the corporation is able to assert the lawyer-client privilege against a former director for documents prepared during the director's tenure. However, we recognize the circuit court had little guidance because this is an issue of first impression in Wisconsin. ¶ 33. Lane's status as a former director does not entitle him to access Niebler's files regarding communications with Sharp. Wisconsin follows the entity rule, [14] and accordingly, the lawyer-client privilege belongs to SharpNiebler's clientand only Sharp can waive the lawyer-client privilege. See Wis. Stat. § 905.03(3); see also Dudek, 34 Wis. 2d at 605 (only the client can waive the lawyer-client privilege); Borgwardt, 196 Wis. 2d at 355; Swan Sales Corp., 126 Wis. 2d at 31-32. While a corporate client can only act through its officers, directors, employees, shareholders and other constituents, see Comment to SCR 20:1.13, [15] we logically conclude that a former director cannot act on behalf of the client corporation and waive the lawyer-client privilege. [10] ¶ 34. We further conclude that even though the documents were created during Lane's tenure as a director, Lane is not entitled to the documents in Niebler's files. As the United States Supreme Court stated in Weintraub, the power to waive the corporate attorney-client privilege rests with the corporation's management and is normally exercised by its officers and directors. 471 U.S. at 348. The Scarberrys currently comprise Sharp's board of directors, or management, and retain control over Sharp's lawyer-client privilege. Lane is a former director, and a dissident. We agree with the court's reasoning in Milroy: A dissident director is by definition not `management' and, accordingly, has no authority to pierce or otherwise frustrate the attorney-client privilege when such action conflicts with the will of `management.' [16] 875 F. Supp. 646, at . Accordingly, we conclude that even though Lane is a former officer and director, and the documents at issue were prepared during his tenure, Sharp can effectively assert the lawyer-client privilege against him. [17] ¶ 35. Finally, before addressing other issues involving the lawyer-client privilege, we note that our holding here is based strictly on the facts as presented. We rely largely on the fact that Lane is a former director. We specifically do not address, or speculate, on the outcome of any similar situations involving a current member of a board of directors. [18]