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The Tennessee Business Court Tackles Privilege Claims

The Tennessee Business Court has provided additional guidance to commercial litigators concerning internecine legal battles between members of limited liability companies.  The Court has determined the fiduciary duties of minority members who combine to form a control group. Now, the Court has defined the analytical structure for resolving requests by a passive member for communications by the operating member with the LLC’s counsel. (Wilford v. Coltea, No. 15-856-BC, (Davidson County Chancery Ct. Sept. 14, 2015)).

The parties were the only two (2) members of an LLC and the documents sought from the non-party LLC were privileged.  But the passive, investing member sought communications by the “day-to-day Managing Member” with its Nashville, Tennessee counsel, which objected to protect “its attorney communications with and work product for the LLC.”  The underlying litigation involved allegations of breach of the LLC operating agreement and fiduciary duties, including usurpation of corporate opportunity.

The Business Court avoided consideration of the merits of the parties’ claims because of the parties’ disparity in access to the subject communications with counsel.  The Business Court found that the ethical concerns by the LLC’s counsel for preservation of privileges were not properly implicated because the dispute was between the members, not the LLC. It was “just and reasonable” for the LLC member to obtain privileged information from the managing member.  Moreover, “[b]ecause the issues in dispute in the lawsuit include matters requiring member consent, the ‘Collective Corporation Client’ theory, where the members are considered to be the LLC, collectively, and may not assert the attorney-client privilege against one another … there was no ethical bar for the attorneys’ production of documents to the passive, investing member.”

William R. O'Bryan, Jr.

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