Page 267 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
f. Fiduciary Exception. Application to Partnership Representative
Some states have established a fiduciary exception to the attorney-client privilege between a trustee of a trust and its legal counsel. Generally, the privilege would, under a traditional approach, only be between the trustee, and its agents, and the attorney, and his or her agents. Under the fiduciary exception, beneficiaries and successor fiduciaries are within the scope of the
support, petitioners offered two exhibits and an affidavit as well as the anticipated testimony of a lawyer for the LLC. Placing the exhibits and affidavit under seal, Judge Halpern addressed the privilege claim asserted by the LLC through its successor in interest at the time of trial to prohibit: (1) the admission of the exhibits that allegedly contained privileged communications between the lawyer for the LLC and the entity; (2) the anticipated testimony of the lawyer as to privileged communications including the contents of the exhibits; and (3) all other testimony or written material containing matters protected by the attorney-client privilege or work-product doctrine. While the government did not formally take a position on the dispute between the former LLC members, the court recognized that it had to resolve: (i) whether the admission of the exhibits and the LLC’s lawyer’s testimony would disclose a privileged communication between client and attorney; (ii) assuming it would, who held, and who now holds, the privilege; and (iii) has the privilege been waived? The court had no problem answering the first question in the affirmative; indeed, the testimony and exhibits, etc., evidenced privileged communications and the lawyer’s testimony sought to be adduced at trial would cover privileged matters. As to the second item, Judge Halpern looked to Georgia state law and the lawyer’s understanding, which was that he believed he represented the entity as compared with multiple client-members. Making an analogy to corporate clients and their attorneys, and identifying language contained in the operating agreement, pursuant to which management of the LLC was vested in its manager, the court ruled that it was the entity (i.e., the LLC) that held the rights to the privilege and not its individual members. Ga. Code Ann. § 14-11-304 (2003) (manager-operated LLC). Compare Zielinski v. Clorox Co., 504 S.E.2d 683, 685 (Ga., 1998) (“the corporate attorney-client privilege belongs to the corporation, not to an officer or employee of the corporation”) with Commodity Futures Trading Comm. v. Weintraub, 471 U.S. 343, 85 L. Ed. 2d 372 (1985) (“for solvent corporations, the power to waive the corporate attorney-client privilege rests with the corporation’s management”). TIFD III-E, Inc. v. United States, 94 AFTR 2d 2004-5248 (D. Conn., 2004) (common interest rule extending attorney- client privilege to privileged communications revealed to a third party who shares a common legal goal did not apply to communications from counsel for foreign bank to American corporation regarding creation of partnership) It followed, that the manager had the exclusive authority to assert or waive the attorney-client privilege on behalf of the surgi-center. It would follow, that if the “members” were vested with the right and power to manage the LLC, instead of the “manager,” the privilege would have belonged to the members possessed of such management authority. See Wortham & Van Liew v. Superior Court, 188 Cal. App. 3d 927, 233 Cal. Rprt. 725 (1987) (partners in a partnership are represented jointly by the attorney who advises the partnership on legal matters). Thus, the successor in interest to the LLC argued that it was the successor holder of the privilege and that it did not wish to waive privilege as to any item, including the LLC’s attorney’s testimony. Judge Halpern however, found an involuntary waiver of privilege by petitioner’s providing otherwise privileged exhibits to the respondent during the discovery phase of the trial. The court did allow the LLC’s lawyer to testify as to the exhibits at trial. All other privileged communications and documents were protected from disclosure.
© Terence Floyd Cuff and Jerald David August, 2016
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