Court Opinion

ID: 4362232
Source: CourtListenerOpinion
Date Created: 2019-01-25 22:02:38.399666+00
Date Added: 2024-06-11T11:49:25.062674
License: Public Domain

01/25/2019
                 IN THE SUPREME COURT OF TENNESSEE
                            AT NASHVILLE
                                October 3, 2018 Session

             DIALYSIS CLINIC, INC. v. KEVIN MEDLEY ET AL.

                   Appeal by Permission from the Court of Appeals
                         Circuit Court for Davidson County
                    No. 14C4843 Joseph P. Binkley, Jr., Judge
                      ___________________________________

                            No. M2017-01352-SC-R11-CV
                       ___________________________________

        In this interlocutory appeal, we address whether the attorney-client privilege
protects communications between a corporation’s legal counsel and a third-party
nonemployee of the corporation. After acquiring four commercial properties, a
corporation filed unlawful detainer actions against the properties’ tenants. The tenants
subpoenaed documents from a property management company hired by the corporation
to manage its properties. The corporation and the property management company
objected to producing documents containing communications between the corporation’s
legal counsel and the property management company, arguing that the attorney-client
privilege protected the documents. The trial court held that the documents were protected
because the attorney-client privilege extended to the property management company as
an agent of the corporation. We hold that the attorney-client privilege applies to
communications between an entity’s legal counsel and a third-party nonemployee of the
entity if the nonemployee is the functional equivalent of the entity’s employee and when
the communications relate to the subject matter of legal counsel’s representation of the
entity and the communications were made with the intention that they would be kept
confidential. Applying this framework, we hold that the property management company
was the functional equivalent of an employee of the corporation, that the communications
related to the subject matter of counsel’s representation of the corporation, and that the
communications were made with the intention that they would be kept confidential. We
affirm the ruling of the trial court and remand to the trial court for further proceedings.

   Tenn. R. App. P. 11 Appeal by Permission from Denial of Rule 9 Application;
     Ruling of the Trial Court Affirmed; Case Remanded to the Trial Court

SHARON G. LEE, J., delivered the opinion of the Court, in which JEFFREY S. BIVINS, C.J.,
and CORNELIA A. CLARK, HOLLY KIRBY, and ROGER A. PAGE, JJ., joined.
L. Vincent Williams, Nashville, Tennessee, and J. Ryan Poole, Hermitage, Tennessee, for
the appellants, Kevin Medley, individually; Kevin Medley, LLC; Canvas Lounge, LLC;
and 3 Entertainment Group, LLC.

Peter C. Sales and Frankie N. Spero, Nashville, Tennessee, for the appellee, Dialysis
Clinic, Inc.

                                           OPINION

                                                I.

       Dialysis Clinic, Inc. (Dialysis Clinic) owned and operated dialysis centers. In
addition, Dialysis Clinic owned and leased various commercial properties to third parties.
Dialysis Clinic did not have in-house knowledge about or experience in the management
of commercial rental properties. For that reason, Dialysis Clinic had a property
management agreement with XMi Commercial Real Estate (XMi) to manage several of
Dialysis Clinic’s commercial properties. Under the property management agreement,
XMi acted as Dialysis Clinic’s agent on an exclusive basis to manage and operate
properties. XMi’s scope of work under the agreement included negotiating lease renewals
and amendments; collecting rents and dues; canceling or terminating leases upon Dialysis
Clinic’s direction; and instituting, prosecuting, and defending actions involving the leases
and properties.

       XMi handled all day-to-day operations and tenant relations and regularly
communicated with Dialysis Clinic about those matters. XMi also communicated with
Dialysis Clinic’s in-house and outside counsel about the properties because, in XMi’s
role as property manager, it had information about the properties that Dialysis Clinic did
not have.

       In July 2012, Dialysis Clinic acquired four commercial properties on Church
Street in Nashville. The properties were occupied by Canvas Lounge, LLC; 3
Entertainment Group, LLC d/b/a WKND; and OutCentral, Inc. under a series of leases
and sub-leases, the complicated history of which is immaterial.

      In October 2014, Dialysis Clinic filed unlawful detainer actions in the Davidson
County General Sessions Court against Kevin Medley, individually; Kevin Medley, LLC;
Canvas Lounge, LLC; 3 Entertainment Group, LLC; and OutCentral, Inc.1 On motion of

       1
         Three separate unlawful detainer actions were filed—one naming as defendants Kevin Medley
and Canvas Lounge, LLC; a second naming as defendants Kevin Medley, individually, and d/b/a Kevin
Medley, LLC and OutCentral, Inc.; and a third naming as defendants Kevin Medley and 3 Entertainment

                                               -2-
Kevin Medley, individually; Kevin Medley, LLC; Canvas Lounge, LLC; and 3
Entertainment Group, LLC (the Defendants), the General Sessions Court consolidated the
cases and removed them to Davidson County Circuit Court (the trial court).

       After the cases were removed to the trial court, the Defendants served a subpoena
on XMi, a nonparty to the detainer action, for production of documents related to the
Church Street properties. XMi withheld a number of documents from production based
on the attorney-client privilege. Those documents included emails between XMi and
Dialysis Clinic’s in-house and outside counsel. Dialysis Clinic contends that these emails
are protected by the attorney-client privilege based on the agency relationship between
Dialysis Clinic and XMi.

        After an evidentiary hearing and in-camera review of the disputed documents, the
trial court ruled that the attorney-client privilege applied to XMi’s communications with
Dialysis Clinic’s attorneys and that XMi had properly withheld emails containing those
communications from its document production. The trial court granted the Defendants’
motion for an interlocutory appeal under Tennessee Rule of Appellate Procedure 9. The
Court of Appeals denied the Defendants’ application. The Defendants then filed an
application under Tennessee Rule of Appellate Procedure 11 for review by this Court,
which we granted.

        This Court’s review on interlocutory appeal is limited to the issue certified to it by
the trial court. Wallis v. Brainerd Baptist Church, 509 S.W.3d 886, 896 (Tenn. 2016).
Here, the certified issue is whether the trial court extended the attorney-client privilege
beyond what Tennessee law allows by finding that XMi properly withheld certain
documents from production based on attorney-client privilege because of its agency
relationship with Dialysis Clinic.

       We review a trial court’s rulings on the application of the attorney-client privilege
under an abuse of discretion standard. Boyd v. Comdata Network, Inc., 88 S.W.3d 203,
211 (Tenn. Ct. App. 2002) (citing In re Grand Jury Proceedings, 219 F.3d 175, 182 (2d
Cir. 2000); Frontier Refining, Inc. v. Gorman-Rupp Co., 136 F.3d 695, 699 (10th Cir.
1998)); see also Lee Med., Inc. v. Beecher, 312 S.W.3d 515, 524 (Tenn. 2010) (citing
Doe 1 ex rel. Doe 1 v. Roman Catholic Diocese of Nashville, 154 S.W.3d 22, 42 (Tenn.
2005); Benton v. Snyder, 825 S.W.2d 409, 416 (Tenn. 1992); Loveall v. Am. Honda
Motor Co., 694 S.W.2d 937, 939 (Tenn. 1985)). “A court abuses its discretion when it
causes an injustice to the party challenging the decision by (1) applying an incorrect legal

Group, LLC d/b/a WKND. Defendant OutCentral, Inc. is represented in the lawsuit by separate counsel
and is not a party to this appeal.

                                               -3-
standard, (2) reaching an illogical or unreasonable decision, or (3) basing its decision on a
clearly erroneous assessment of the evidence.” Lee Med., Inc., 312 S.W.3d at 524 (citing
State v. Ostein, 293 S.W.3d 519, 526 (Tenn. 2009); Konvalinka v. Chattanooga-Hamilton
Cnty. Hosp. Auth., 249 S.W.3d 346, 358 (Tenn. 2008); Roman Catholic Diocese of
Nashville, 154 S.W.3d at 42). We review the trial court’s factual findings underlying a
discretionary decision under a preponderance of the evidence standard. Boyd, 88 S.W.3d
at 212. We review the trial court’s legal determinations de novo without a presumption of
correctness. Id. (citing Brown v. Birman Managed Care, Inc., 42 S.W.3d 62, 66 (Tenn.
2001); Burlew v. Burlew, 40 S.W.3d 465, 470 (Tenn. 2001); Grand Jury Proceedings v.
United States, 156 F.3d 1038, 1042 n.1 (10th Cir. 1998)).

                                                    II.

       The attorney-client privilege “encourages full and frank communication between
attorney and client by sheltering these communications from disclosure.” State ex. rel.
Flowers v. Tenn. Trucking Ass’n Self Ins. Group Trust, Inc., 209 S.W.3d 602, 615–16
(Tenn. Ct. App. 2006) (citing Tenn. Code Ann. § 23-3-105; Federal Ins. Co. v. Arthur
Anderson & Co., 816 S.W.2d 328, 330 (Tenn. 1991)). The privilege is codified at
Tennessee Code Annotated section 23-3-105,2 but whether it applies to a communication
is “necessarily question, topic and case specific.” Bryan v. State, 848 S.W.2d 72, 80
(Tenn. Crim. App. 1992) (citing Johnson v. Patterson, 81 Tenn. 626, 649 (1884)). For the
privilege to apply, “[t]he communication must involve the subject matter of the
representation and must be made with the intention that the communication will be kept
confidential.” Flowers, 209 S.W.3d at 616 (citing Bryan, 848 S.W.2d at 80). The
privilege protects both the client’s communications to the attorney and the attorney’s
communications to the client when the communications are based on the client’s
communications or when disclosure of the attorney’s communications would reveal the
substance of the client’s communications. Boyd, 88 S.W.3d at 213 (citing Burke v. Tenn.
Walking Horse Breeders’ & Exhibitors’ Ass’n, No. 01A01-9611-CH-00511, 1997 WL
277999, at *11 (Tenn. Ct. App. May 28, 1997); Bryan, 848 S.W.2d at 80)).

        The attorney-client privilege, however, does not protect communications between
attorneys and clients that take place in the presence of a third party or are divulged to a
third party. Id. (citing Hazlett v. Bryant, 241 S.W.2d 121, 123 (Tenn. 1951); Taylor v.
State, 814 S.W.2d 374, 377 (Tenn. Crim. App. 1991)). That said, when the third party is
an agent of the client, the attorney-client privilege applies. Smith Cnty. Educ. Ass’n v.

        2
          “No attorney, solicitor or counselor shall be permitted, in giving testimony against a client or
person who consulted the attorney, solicitor or counselor professionally, to disclose any communication
made to the attorney, solicitor or counselor as such by such person during the pendency of the suit, before
or afterward, to the person’s injury.” Tenn. Code Ann. § 23-3-105 (2009).

                                                   -4-
Anderson, 676 S.W.2d 328, 333 (Tenn. 1984) (citing McCormick § 91 (2d. ed. 1972); D.
Paine, Tennessee Law of Evidence, § 92, at 112 (1974)). In Smith County, a third party
who served as a negotiator between the school board and the teachers’ union attended a
meeting between the school board and its attorneys about the pending litigation. Id. at
330–31. We held that under these facts the attorney-client privilege applied because the
third-party negotiator was acting as an agent of the school board. Id. at 333. We,
however, did not define who is an “agent” of the client for purposes of the privilege. Id.

       The Eighth Circuit Court of Appeals in In re Bieter Co., 16 F.3d 929, 938 (8th Cir.
1994) analyzed the privilege issue as whether the nonemployee agent of a corporation or
partnership is the “functional equivalent of an employee” whose “involvement in the
subject of the litigation makes him precisely the sort of person with whom a lawyer
would wish to confer confidentially in order to understand [the corporate client’s] reasons
for seeking representation.”

        The Bieter court found that it was not appropriate to distinguish between a
corporation or partnership’s employees and those who work as independent contractors.
Id. at 937. The privilege rests on the need for an attorney to have all the information that
relates to his or her representation of the client. Id. (quoting Upjohn Co. v. United States,
449 U.S. 383, 389 (1981)). In Upjohn, the United States Supreme Court recognized that
any corporate employee, including middle-level and even lower-level employees, can
have relevant information that a corporation’s attorney needs to advise the corporate
client. 449 U.S. at 391. The issue of nonemployee agents was not presented to the Upjohn
Court, but the Court’s reasoning has been extended to nonemployee independent
contractors by the Bieter court and many others.

       In Bieter, an independent contractor worked as a consultant to a partnership on a
commercial development. 16 F.3d at 933. The independent contractor worked to procure
tenants and acted as the representative of the partnership with architects, other
consultants, and the partnership’s attorneys. Id. at 934. His interactions with the
partnership’s attorneys were extensive and included meetings (with or without the
company’s principals) and correspondence with the attorneys. Id. The Bieter court
observed that although the information an attorney needs to represent a client will in most
cases be available from the client’s employees, there will also be nonemployees whose
relationship to the client means that they possess “the very sort of information that the
privilege envisions flowing most freely.” Id. at 937–38. Because the independent
contractor in Bieter had been involved daily with the partnership’s principals and as a
representative of the partnership with local officials and potential tenants, the court found
that the independent contractor likely possessed information that no one else had. Id. at
938. The Bieter court held that “he was in all relevant respects the functional equivalent
of an employee.” Id. After further analysis, the Bieter court held that the attorney-client

                                            -5-
privilege protected the communications between the partnership’s attorneys and the
independent contractor.3 Id. at 939–40.

       The federal district court in the Western District of Tennessee followed the Bieter
court’s functional equivalent analysis in Royal Surplus Lines Insurance Co. v. Sofamor
Danek Group, 190 F.R.D. 463 (W.D. Tenn. 1999), noting that Tennessee courts are often
guided by state and federal common law when determining the limits of the
attorney-client privilege. Id. at 484 (citing State v. Bobo, 724 S.W.2d 760 (Tenn. Crim.
App. 1981); Schneider v. Troxel Mfg. Co., 1988 WL 130351 (Tenn. Ct. App. Dec. 7,
1988)).

       The Royal Surplus court explained that the federal court’s duty, with no
controlling Tennessee law, was to formulate a rule that the Tennessee Supreme Court
would most likely adopt if ruling on the same issue. Id. Based on its review of case law
from other jurisdictions and secondary sources, the court found that Bieter was “highly
persuasive authority on this issue.” Id. at 485. The Tennessee Supreme Court had already
recognized in Smith County that the attorney-client privilege could be extended to cover
communications involving a representative of the client; the Bieter functional equivalent
analysis informs the definition of “representative” or “agent” for extending the privilege.
Id. Based on factually analogous cases from other jurisdictions, the Royal Surplus court
held that the involvement of a nonemployee insurance broker in discussions with the
insured corporation’s attorney did not defeat the attorney-client privilege and that the
privilege applied so long as the communications were made for the purpose of seeking
legal advice and with the intention of keeping them confidential.4 Id. at 486.
        3
         After finding that the independent contractor was the functional equivalent of an employee, the
Bieter court applied the five-factor test adopted by the Eighth Circuit in Diversified Industries, Inc. v.
Meredith, 572 F.2d 596 (8th Cir. 1977) to determine that the attorney-client privilege applied and had not
been destroyed. The five factors are

        (1)     The communication was made for the purpose of securing legal advice;
        (2)     The employee making the communication did so at the direction of his corporate
                superior;
        (3)     The superior made the request so that the corporation could secure legal advice;
        (4)     The subject matter of the communication is within the scope of the employee’s
                corporate duties; and
        (5)     The communication is not disseminated beyond those persons who, because of
                the corporate structure, need to know its contents.

Bieter, 16 F.3d at 936.
        4
          The Royal Surplus court did not, however, follow the Bieter court’s use of the Diversified
factors to determine whether the privilege should apply to communications involving the functional
equivalent of an employee. The court instead looked to Tennessee case law for the criteria that the

                                                  -6-
       The Middle District of Tennessee followed Royal Surplus in Jones v. Nissan North
America, Inc., No. 3:07-0645, 2008 WL 4366055, at *7 (M.D. Tenn. Sept. 17, 2008) to
find that the medical director of Nissan’s employee medical clinic was an insider for
purposes of the attorney-client privilege even though she was employed by another entity
and worked under contract at Nissan through that entity. She was the custodian of the
records of medical restrictions on Nissan employees and had a significant relationship to
Nissan and its involvement in an ongoing workers’ compensation case. Id. The court
found that under the analysis used in Royal Surplus, the medical director’s presence
during discussions with Nissan’s attorneys in the workers’ compensation case did not
defeat the privilege. Id.

        The Tennessee Court of Appeals recently applied the functional equivalent
analysis in Waste Administrative Services, Inc. v. Krystal Co., No. E2017-01094-COA-
R9-CV, 2018 WL 4673616 (Tenn. Ct. App. Sept. 27, 2018). In Krystal, the Court of
Appeals applied the attorney-client privilege to communications between in-house
counsel at Krystal and an employee of an outside vendor, Denali Sourcing Services, Inc.
Id. at *6. The Court of Appeals observed that there was no controlling Tennessee law, so
it looked to case law from other jurisdictions, finding that in many jurisdictions, the
attorney-client privilege is extended to include the functional equivalent of an employee.
Id. at *3–5. The Krystal court determined that it was appropriate to apply the functional
equivalent test because it “acknowledges the reality of corporate activity and is in
keeping with Upjohn.” Id. at *5. The written agreement between Krystal and Denali
during the time period at issue on appeal explicitly disclaimed any kind of agency
relationship. Id. at *1. But, the Court of Appeals noted, the inquiry must extend into how
the parties conducted themselves. Id. at *5. The president of Krystal, in an email, had
asked the Denali employee to “take the lead” on finding and negotiating a deal with a
new waste services provider for Krystal. Id. After that email, the Denali employee was
involved in internal-use-only communications, including those with Krystal’s in-house
counsel, about changing providers. Id. The Court of Appeals found that his activities
“could scarcely be distinguishable from those of a Krystal employee” and that he was,
therefore, the functional equivalent of a Krystal employee. Id. Consequently,
communications with Krystal’s counsel in which the Denali employee was involved
qualified for the attorney-client privilege under the functional equivalent analysis. Id. at
*6. The Court of Appeals remanded the case to the trial court to determine the
applicability of the privilege on a document-by-document basis. Id.

       The functional equivalent analysis has been widely accepted by courts in other
jurisdictions. The Ninth Circuit Court of Appeals adopted it in United States v. Graf, 610

communications must have been made in the context of the attorney-client relationship and must have
been intended to be kept confidential. Id. at 483 (citing Bryan, 848 S.W.2d at 80).

                                               -7-
F.3d 1148 (9th Cir. 2010), a criminal case involving an insurance company accused of
fraud. The owner of the company was prohibited under cease-and-desist orders from
being employed by an insurance company, and therefore he denied that he was a director,
officer, or employee of the company but claimed that he instead was an outside
consultant. Id. at 1157. The Graf court found that the owner was the functional equivalent
of a company employee because he was the company’s agent with authority to
communicate with its attorneys about the company’s legal matters. Id. at 1159. He also
communicated with insurance brokers and agents on behalf of the company and managed
the company’s employees. Id. Under a separate test,5 the Graf court found that the
company’s owner, in his individual capacity as opposed to his role as a functional
employee, was not represented by the company’s attorneys. Id. at 1161–163. Thus, he
had no personal attorney-client privilege over his communications with the company’s
attorneys, and they were free to testify against him in his personal capacity. Id. at 1164.

        The federal district court in the Eastern District of Pennsylvania followed the
functional equivalent approach in In re Flonase Antitrust Litigation, 879 F. Supp. 2d 454
(E.D. Pa. 2012). There, a pharmaceutical consulting firm was held to be the functional
equivalent of an employee of a pharmaceutical company based on the firm’s role in the
development and implementation of a brand maturation plan, including administrative
tasks and business strategy, as well as involvement in legal and regulatory issues. Id. at
456. The Flonase court found that the functional equivalent analysis “reflect[ed] the
reality that ‘corporations increasingly conduct their business not merely through regular
employees but also through a variety of independent contractors retained for specific
purposes.’” Id. at 460 (quoting Edna Selan Epstein, The Attorney-Client Privilege and the
Work-Product Doctrine 269 (5th ed. 2007)).

       In In re Copper Market Antitrust Litigation, 200 F.R.D. 213 (S.D.N.Y. 2001), the
federal district court in the Southern District of New York used the functional equivalent
analysis to determine that an outside public relations firm was the functional equivalent
of an employee of the corporate client. The firm had been hired to deal with publicity
surrounding an antitrust copper trading scandal. Id. at 215. The corporation itself had no
internal resources sufficient to deal with the publicity. Id. The firm’s duties included
preparing statements for public release as well as statements informing the corporation’s
employees about what they could and could not say about the matter. Id. at 219. The firm
had authority to make public relations strategy decisions, and the potential legal
ramifications were factors that the firm considered when developing the statements. Id. at
216, 219. The firm was advised by the corporation’s in-house counsel and was informed

       5
          In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120 (3rd Cir. 1986) sets forth a
five-part test to determine whether a corporate employee holds a personal attorney-client privilege over
communications with attorneys for the corporation.

                                                 -8-
of his advice to the corporation about the scandal and resulting litigation. Id. at 219. The
firm’s communications with counsel were about matters within the scope of its work for
the corporation, and the declarations of witnesses established that the firm understood
that the purpose of the communications was to obtain legal advice from both in-house
and outside counsel. Id. The court concluded, “[i]n applying the principles set forth by
the Supreme Court in Upjohn, there is no reason to distinguish between a person on the
corporation’s payroll and a consultant hired by the corporation if each acts for the
corporation and possesses the information needed by attorneys in rendering legal advice.”
Id. (citing In re Grand Jury Subpoenas Dated January 20, 1998, 995 F. Supp. 332, 340
(E.D.N.Y. 1998)).

       The federal district court in Maryland held that a landscaping company, hired to
address citations issued to a landowner by the county, was the functional equivalent of an
employee of the landowner. Huggins v. Prince George’s Cnty., No. AW-07-825, 2008
WL 11366503, at *4 (D. Md. Sept. 25, 2008). The company evaluated the violations
charged in the citations, obtained approvals for permits on behalf of the landowner, and
represented the landowner in interactions with county and state agencies. Id. at *2–3. As
part of its work and at the landowner’s direction, the company communicated with the
landowner’s attorneys in confidence to provide information that the attorneys needed to
defend against the citations and to pursue litigation against the county. Id. at *3. The
company was informed of the attorneys’ legal advice and strategies so that it could
perform work on the landowner’s behalf. Id. The communications were considered
confidential and were not shared with anyone other than the landowner’s personnel and
representatives with a need to know the contents. Id. The court found that all of these
facts established the integral role the company played as consultant to the landowner. Id.
See also Medversant Techs., L.L.C. v. Morrisey Assocs., Inc., No. CV09-05031 MMM
(FFMx), 2011 WL 13124128, at *4–5 (C.D. Cal. July 20, 2011) (finding a public
relations firm to be the functional equivalent of an employee that “essentially
function[ed] as Medversant’s public relations department,” because it provided press
releases and business development functions among other public relations duties, and
therefore communications between the firm and Medversant’s attorneys regarding review
of press releases and legal advice about their contents were protected by the
attorney-client privilege); Am. Mfrs. Mut. Ins. Co. v. Payton Lane Nursing Home, Inc.,
No. CV 05-5155(SJF)(AKT), 2008 WL 5231831, at *2–3 (E.D.N.Y. Dec. 11, 2008)
(holding that a construction management contractor was the functional equivalent of an
employee of the insurance company—even though the contractor provided identical
services to others on thousands of projects—because the company did not have the
resources to oversee the project, the contractor had authority to negotiate contracts and
make decisions for the company, the contractor’s services required consultation with and
legal advice from the company’s attorneys, and the contractor was the “eyes and ears” for
the company on day-to-day supervision of the project); Stafford Trading, Inc. v. Lovely,

                                            -9-
No. 05-C-4868, 2007 WL 611252, at *6–7 (N.D. Ill. Feb. 22, 2007) (holding that under
the functional equivalent analysis, an investment banking firm, although it served many
clients, was the functional equivalent of an employee of the corporate client and that its
communications with corporate counsel made for seeking or providing legal advice and
treated as confidential qualified for the attorney-client privilege); MLC Automotive, LLC
v. Town of S. Pines, No. 1:05CV1078, 2007 WL 128945, at *2–4 (M.D.N.C. Jan. 11,
2007) (finding that an engineer hired for development of an auto park was the functional
equivalent of an employee since it was a specialized role that no employee or other agent
of the company fulfilled, and as part of his work, the engineer communicated directly
with the company’s attorneys as their primary source of information about the property
and his interactions with the town about regulatory approval); cf. Guidance Endodontics,
LLC v. Dentsply Int’l, Inc., No. CIV 08-1101-JB/RLP, 2009 WL 10706594, at *3–5
(D.N.M. Dec. 17, 2009) (finding email between the client corporation and its attorney
that was subsequently shared with the corporation’s accountant at an outside firm was not
privileged because the accountant was not asked to provide opinions to the attorney so
that the attorney could provide legal advice); Horton v. United States, 204 F.R.D. 670,
672 (D. Colo. 2002) (concluding that a property manager was not the functional
equivalent of an employee for purposes of communicating with the client’s attorneys
about litigation because the property management agreement did not address the
management of claims asserted in litigation, and a property manager does not necessarily
have authority to manage litigation); Export-Import Bank of U.S. v. Asia Pulp & Paper
Co., Inc., 232 F.R.D. 103, 113 (S.D.N.Y. 2005) (holding that a financial consultant was
not the functional equivalent of an employee because although he was intimately
involved in the client company’s restructuring talks and participated in communications
with the company’s attorneys, his “efforts [were] precisely those that any financial
consultant would likely make under the circumstances”); Banco do Brasil, S.A. v. 275
Washington St. Corp., No. 09-11343-NMG, 2012 WL 1247756, at *5–6 (D. Mass. Apr.
12, 2012) (holding that a real estate broker was not the functional equivalent of an
employee because the broker’s agreement contemplated that she could represent a
prospective tenant while also serving as the company’s real estate agent—thus defeating
any assumption that she was to be a confidential representative of the company—and she
had no expertise in regulatory approval and therefore would have had no need to
communicate with the company’s attorney on that issue).

       After surveying the case law from other jurisdictions, we conclude that the
functional equivalent analysis is a sound approach. We have synthesized the approach
taken by courts in other jurisdictions to formulate the appropriate analysis for Tennessee
courts to apply when determining, under the totality of the circumstances, whether a
third-party nonemployee is the functional equivalent of an entity’s employee whose
communications with the entity’s attorneys are protected by the attorney-client privilege.
As a result, under this analysis, a court may find that a third-party nonemployee is the

                                          - 10 -
functional equivalent of an employee after considering the following non-exclusive
factors: whether the nonemployee performs a specific role on behalf of the entity;
whether the nonemployee acts as a representative of the entity in interactions with other
people or other entities; whether, as a result of performing its role, the nonemployee
possesses information no one else has; whether the nonemployee is authorized by the
entity to communicate with its attorneys on matters within the nonemployee’s scope of
work to facilitate the attorney’s representation of the entity; and whether the
nonemployee’s communications with the entity’s attorneys are treated as confidential.

       If a court determines that the nonemployee’s communications qualify for the
attorney-client privilege because the nonemployee is the functional equivalent of an
employee, then the court should use the standard already in place in Tennessee to
determine whether the privilege attaches. Thus, on a case-by-case, communication-by-
communication basis, the court should determine whether the communication involves
the subject matter of counsel’s representation of the entity and whether the
communication was made with the intent that the communication be kept confidential.6
Flowers, 209 S.W.3d at 616 (citing Bryan, 848 S.W.2d at 80); Boyd, 88 S.W.3d at 213
(citing Burke, 1997 WL 277999, at *11; Bryan, 848 S.W.2d at 80 (stating that the
application of the privilege to any given communication is “necessarily question, topic
and case specific”)).

                                                 III.

       Applying this analysis to the facts before us, we find that the attorney-client
privilege applies to communications between Dialysis Clinic’s legal counsel and XMi.
The witness testimony shows that Dialysis Clinic hired XMi as its agent because of
XMi’s experience in property management, which Dialysis Clinic did not have in-house,
and that XMi had primary responsibility for the day-to-day management of Dialysis
Clinic’s properties in Nashville. Dialysis Clinic’s in-house counsel testified that during
the purchase of the properties, it became apparent that Dialysis Clinic was stepping into
unfamiliar territory and needed a professional hand to help guide and advise Dialysis
Clinic and to run the properties on a day-to-day basis. Likewise, the testimony shows that
there was a close working relationship between XMi and Dialysis Clinic on matters
related to this litigation as well as other legal matters such as lease negotiation and
drafting. Finally, numerous witnesses testified that because XMi managed the properties
on a day-to-day basis and was the entity that interacted directly with the tenants, XMi had
information about the properties that no one at Dialysis Clinic had.

       6
          Here, like the Royal Surplus court, we depart from Bieter and find it appropriate to use this
standard that is already firmly grounded in Tennessee law rather than adopting the Diversified factors
relied on by the Bieter court.

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        Thus, under the criteria set forth above, we hold that XMi is the functional
equivalent of an employee of Dialysis Clinic. There is no reason to distinguish XMi’s
role from that of a Dialysis Clinic employee, and XMi’s involvement in the management
of the Church Street properties makes it precisely the sort of entity with which Dialysis
Clinic’s attorneys would like to communicate because XMi possesses information that
the attorneys need and that Dialysis Clinic does not have. XMi’s duties also include
potentially serving as trial witnesses, collecting information to prosecute claims related to
the properties, and lease negotiations—all essential to both in-house and outside counsel
in their representation of Dialysis Clinic. For that reason, Dialysis Clinic “could
justifiably rely upon confidentiality in consultations [between XMi and] its own
lawyer[s].” Krystal, 2018 WL 4673616, at *5.

       We now turn to the second prong of the analysis—whether the communications
related to the subject matter of legal counsel’s representation of Dialysis Clinic and
whether counsel made the communications with the intention that the communications be
kept confidential. We presume that communications with an attorney are made for the
sake of legal advice, Bieter, 16 F.3d at 938. Here, the witness testimony shows that the
communications involving XMi and counsel for Dialysis Clinic were made for the
purpose of seeking legal advice on issues involving the properties, which were the subject
matter of the attorneys’ representation. Dialysis Clinic’s general counsel testified that
XMi communicated with Dialysis Clinic’s outside counsel at his direction because XMi
had much of the information outside counsel needed at different times on lease
transactional matters as well as litigation matters, including this lawsuit. In addition,
Dialysis Clinic’s general counsel testified he needed XMi’s expertise about what to do
with matters related to the leases on a day-to-day basis, which he, as a health care
regulatory attorney, did not have. Outside counsel for Dialysis Clinic explained that they
needed to communicate with XMi because XMi handled the day-to-day management of
the Church Street properties and had information that the attorneys needed to fully advise
Dialysis Clinic and represent Dialysis Clinic in litigation and other matters related to the
properties. Current and former property managers at XMi stated that they communicated
with counsel for Dialysis Clinic to provide information needed by the attorneys in their
representation of Dialysis Clinic for investigation and assessment of legal matters.
Finally, both in-house and outside counsel, and the employees of Dialysis Clinic and
XMi who communicated with them, testified that they understood and intended for their
communications to be confidential.

                                     CONCLUSION

       Under the functional equivalent test that we have now adopted, we find that XMi
operated as the “property management department” of Dialysis Clinic and as such was
the functional equivalent of an employee of Dialysis Clinic. In addition, communications

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between XMi and legal counsel for Dialysis Clinic related to the subject matter of
counsel’s representation of Dialysis Clinic and were made with the intention that the
communications would be kept confidential. For that reason, we hold that the trial court
did not extend the attorney-client privilege beyond what is allowed under Tennessee law
and properly ruled that XMi did not have to produce certain documents because of its
agency relationship with Dialysis Clinic. We affirm the ruling of the trial court and
remand the case to the trial court for further proceedings consistent with this opinion. We
tax the costs of this appeal to Appellants, Kevin Medley, individually; Kevin Medley,
LLC; Canvas Lounge, LLC; and 3 Entertainment Group, LLC, for which execution may
issue if necessary.

                                                   _________________________________
                                                   SHARON G. LEE, JUSTICE

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