Privilege Ownership in High-Stakes Corporate Contexts: Part II

May 23, 2018

Last week’s Privilege Point focused on privilege ownership when corporations sell assets rather than stock.  Privilege ownership issues can also arise when competing board factions claim to be acting on a corporation’s behalf.

In Eagle Forum v. Phyllis Schlafly’s American Eagles, two Eagle Forum board members retained lawyer Rohlf on behalf of that corporation “to provide … ‘representation and counsel with respect to governance matters, Board disputes and litigation as necessary.'” Case No. 3:16-cv-946-DRH-RJD, 2018 U.S. Dist. LEXIS 53284 at *3 (S.D. Ill. Mar. 29, 2018) (internal citation omitted).  Rohlf’s firm even entered an appearance on Eagle Forum’s behalf in an Illinois state court action filed by other Board members (which named Eagle Forum as a nominal defendant).  Those other Board members soon exercised their power “as the majority of the Eagle Forum Board of Directors” to suspend Eagle Forum’s President and Treasurer – and sought to depose Rohlf.  Id. at *4.  Not surprisingly, Plaintiffs (having a Board majority) argued that “Eagle Forum, not Joel Rohlf, controls its privilege and can waive it.”  Id. at *5.  Rohlf resisted the deposition, contending that Eagle Forum’s privilege “did not, and could not, pass to the individual Plaintiffs from the control group. . . who retained [Rohlf] for the purpose of preventing the individual Plaintiffs from taking control of the organization.”  Id. at *7.  The court rejected Rohlf’s argument that the “clear fissure in Eagle Forum’s Board and management” was “an occurrence akin to an acquisition.”  Id. at *9-10.  The court ultimately concluded that “at all relevant times hereto [Plaintiffs] constituted the majority of Eagle Forum’s Board of Directors” – and therefore “have had control over Eagle Forum, and ultimately its privilege.”  Id. at *9.

Lawyers involved in corporate transactions and in corporate board disputes must keep track of who owns the corporation’s attorney-client privilege and who can waive it.

Related alert

Privilege Ownership in High-Stakes Corporate Contexts: Part I