No. 04-699
IN THE SUPREME COURT OF THE STATE OF MONTANA
2005 MT 103
______________
INTER-FLUVE, a Montana Corporation, )
)
Relator, )
) OPINION
v. ) &
) ORDER
MONTANA EIGHTEENTH JUDICIAL )
DISTRICT COURT, GALLATIN COUNTY, )
THE HONORABLE MIKE SALVAGNI, )
Presiding Judge, )
)
Respondent. )
______________
¶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.
1
¶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 sharehold-
ers. 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.
2
¶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
3
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, asserting the 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.
4
¶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 Inter-Fluve. 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
5
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,
6
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.
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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 “[a]nother 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,
8
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--the 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
and 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
9
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 corpora-
tion’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
10
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
11
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
12
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
13
privilege against Lane. Lane, ¶ 34. In he`r 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:
14
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, “[b]ecause 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.
/S/ JAMES C. NELSON
/S/ PATRICIA O. COTTER
/S/ JOHN WARNER
15
Chief Justice Karla M. Gray, concurring in part and dissenting in part.
¶39 I concur in the Court's denial of Inter-Fluve's petition for writ of supervisory control,
but respectfully dissent from its approach to this cause number. I erred in joining that
portion of the Court's order herein of December 7, 2004, in which we stated our intention
to issue a published opinion. I also recognize I erred in joining our Order and Opinion in
Hegwood, setting forth a full legal analysis of the legal question at issue before denying the
petition for supervisory control on the grounds it did not meet our criteria for supervisory
control.
¶40 It is my view that we should first determine whether a petition for supervisory control
meets our criteria for the exercise of supervisory control; we did so in this case. If and when
we determine a supervisory control petition does not meet our criteria, we should state that
conclusion in a very brief order and then merely deny the petition. Taking the time, and
using our limited resources, to present a full legal analysis under circumstances such as those
before us here is simply unwise from a variety of perspectives.
¶41 First, we must recognize that, even when the parties agree an issue should be decided
pursuant to supervisory control, as they have in this case, bringing an original proceeding
in this Court for that purpose results in delays in the underlying proceeding. While the
record before us in the present matter is limited, it is clear that the District Court action was
filed in 2002. Motions to compel, for a protective order, in limine and to reopen discovery
were filed from March of 2003 through July of 2004, after defendants moved for summary
16
judgment. The District Court issued the order before us here early in October of 2004. The
petition also was filed in this Court that month. By December 27, 2004, briefing on the
petition was completed and the parties stipulated to no further briefing. Four months have
passed since that time, a relatively short period of time for this Court to be ready to issue an
opinion. At the bottom line, this petition has delayed further proceedings in the District
Court for approximately five-and-one-half months in a case filed three years ago and still not
at the summary judgment stage in the trial court. I am not persuaded that the litigants' rights
to justice without unreasonable delay are met by proceeding in this fashion.
¶42 Moreover, at the time the briefing in this matter was complete and it became possible
to begin preparing an order or, as here, an opinion, this Court had significantly more than
100 cases ready for authoring. Most of those cases had finally made their way to this Court
after full trial court proceedings and judgment, followed by direct appeal, and had been
pending for some time. Some remain pending even now, and have been "preempted" by our
attention and effort on this petition for supervisory control and our decision to write a full
opinion herein when such an opinion simply is not necessary. In 2003, our overall case
filings were 860; in 2004, those filings were 882. In the face of our increasing workload,
and the fact that we are primarily an "appeal of right" Court, it strikes me as inherently very
unfair to our appellate litigants when we unnecessarily divert our efforts from their appeals
to the extent we do here or in other similar matters by issuing a full opinion. This is
particularly true when we have long been unable to issue quality opinions in appeals within
the time parameters we believe are appropriate.
17
¶43 Finally, issuing a full opinion deciding a legal issue, merely to ultimately determine
the trial court was correct and/or that the regular remedy of appeal is sufficient, in essence
grants an interlocutory appeal of an issue that can--and should--be raised on appeal after
judgment in the district court. We need not--and should not--do so. We should merely issue
a short order stating, in this case:
Inter-Fluve has petitioned this Court for a writ of supervisory control.
Having determined our criteria for the exercise of supervisory control have not
been met,
IT IS ORDERED the Petition is DENIED.
¶44 We could have done so months ago, returned this case to the District Court, and
turned our own attention back to our primary work.
¶45 For these reasons, while I agree the petition must be denied, I dissent from the
approach the Court uses to deny the petition.
/S/ KARLA M. GRAY
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Justice Jim Rice dissenting.
¶46 I would conclude that the District Court is proceeding under a mistake of law and,
deeming this matter to be appropriate for supervisory control, would exercise the same and
reverse the order entered by the District Court. Although I agree with undertaking review
of the merits of the petition, I must dissent from the Court’s failure to exercise supervisory
control under Issue 1. In support of exercising supervisory control, I find persuasive the
Supreme Court of Wisconsin’s review by certiorari of an interlocutory appeal, where
discovery issues similar to those here arose in litigation between a dissident director and a
corporation, in Lane v. Sharp Packaging Sys., Inc. (Wis. 2002), 640 N.W.2d 788.
¶47 I dissent to Issue 2. The Court essentially disregards the concrete legal principle that
a corporation is a client–indeed, is the actual or “true” client here–who has actual legal
interests that must be protected by the attorney-client privilege. Instead, it adopts the
fictional “joint client theory,” and pursuant thereto holds that the true client’s interests in
preserving the confidentiality of its communications with counsel may not be protected by
assertion of the privilege against a former director who was serving on the board at the time
the communications occurred. Thus, the true client’s interests are subordinated to a creature
of fiction–that is, the concept that individual directors are also “clients,” and even more, that
the interests of those individual directors are superior to the interests of the corporation they
serve. Henceforth, a single corporate board member can force open confidential communica-
tions between the corporation’s counsel and corporate representatives authorized to conduct
legal business. Thus, in these situations, the true client’s rights are effectively destroyed.
19
¶48 The authority cited by the Court in support of the “joint client theory” consists of a
dissenting opinion in Lane and the 1992 United States District Court decision in Gottlieb,
which has since been widely criticized. I would reject these sources in favor of the strong
majority position in the country, which is both well-supported and well-reasoned, as
represented by the majority in Lane:
The corporation’s lawyer does not need to worry about representing the
interests of every member (or former member) of the corporation’s board of
directors. Accordingly, only the client corporation or the corporation’s
lawyer, acting on the corporation’s behalf, can waive the lawyer-client
privilege. We disagree with the dissent’s interpretation that applying the entity
rule makes the lawyer “become the corporation’s guardian ad litem.”
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 corpora-
tion’s management and is normally exercised by its officers and directors.”
471 U.S. at 348, 105 S.Ct. 1986. 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.’” 875 F.Supp. 646, 649-650. 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.
Lane, ¶ 33 n.14, ¶ 34. Thus, a corporation, as directed by the current corporate principals,
retains its attorney-client privilege and the power to assert it. A dissident board member has
no power to waive it. I would so hold.
¶49 The decision in Gottlieb, upon which the Court relies, has been roundly criticized.
United States District Courts in Bushnell v. Vis Corp. (N.D. Cal. 1996), 1996 U.S. Dist.
20
Lexis 22572, and Milroy v. Hanson (D. Neb. 1995), 875 F.Supp. 646, have stated that
Gottlieb “made a ‘fundamental error’ in failing to recognize that ‘there is but one client, and
that client is the corporation.’” Bushnell, at 13. Recently, the United States District Court
for the Northen District of Illinois concluded that “Gottlieb does not reflect a correct
application of the law of corporate privilege . . . .” Dexia Credit Local v. Rogan, 2004 U.S.
Dist. Lexis 25635, at 24. In another recent analysis of Gottlieb, the Court of Appeals of
Colorado disagreed with its holding and concluded:
We agree with the court’s reasoning in Milroy. Although plaintiff’s
status as a former director would have entitled him to learn privileged
information when he was a director, he would then have been duty bound to
keep such information confidential. He would not have been entitled alone to
assert or waive the privilege on behalf of [the corporation].
Genova v. Longs Peak Emergency Physicians, P.C. (Colo. Ct. App. 2003), 72 P.3d 454, 463.
¶50 In In re Mktg. Investors Corp. (Tex. Ct. App. 1998), 80 S.W.3d 44, the Texas Court
of Appeals analyzed Gottlieb and responded as follows:
Gottlieb and its progeny recognize a collective corporate or “common
interest” client which may take a position adverse to the corporation and still
prevent the application of the attorney-client privilege. Gottlieb, 143 F.R.D.
at 246-47. Milroy expressly disapproves of this and holds there is but one
client–the corporation. Milroy, 875 F.Supp. at 649. The Milroy line of cases
hold that a former officer or director who is seeking documents in a personal
capacity, not in a fiduciary capacity, does not act as corporate “management.”
Milroy, 875 F.Supp. at 650. And has “no authority to pierce or otherwise
frustrate the attorney-client privilege when such action conflicts with the will
of management.” Id.
We find the Milroy line of cases more persuasive. Those cases hold that
the privilege belongs to the corporation. Only the corporation may permit
access to its attorney-client communications. When the Corporation
terminated MacDonald’s employment, he no longer had the Corporation’s
permission to view or possess any of the corporation’s documents. The
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Corporation is a separate entity and should not lose its valuable legal rights
because it can only act through its employees. We conclude the attorney-
client privilege applies against MacDonald’s possession of the Corporate
documents. To hold otherwise would mean that the employee and the
Corporation share the privilege.
In re Mktg. Investors Corp., 80 S.W.3d at 50.
¶51 I agree that a corporation “should not lose its valuable legal rights because it can only
act through its employees.” I would reverse the District Court.
/S/ JIM RICE
22
Inter-Fluve v. Montana Eighteenth Judicial District Court
Court: Montana Supreme Court
Date filed: 2005-04-26
Citations: 2005 MT 103, 112 P.3d 258, 327 Mont. 14
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