00-1797 Lane v. Sharp Packaging Systems, Inc.

Listen to this article

“Lane’s status as a former director does not entitle him to access Niebler’s files regarding communications with Sharp. Wisconsin follows the entity rule, and accordingly, the lawyer-client privilege belongs to Sharp – Niebler’s client – and only Sharp can waive the lawyer-client privilege. … While a corporate client can only act through its officers, directors, employees, shareholders and other constituents, see Comment to SCR 20:1.13,15 we logically conclude that a former director cannot act on behalf of the client corporation and waive the lawyer-client privilege.”

Further, we conclude that the circuit court erroneously ordered the production of the attorney billing records sought by plaintiff because the billing records reveal the nature of the legal services provided and the substance of the lawyer-client privilege.

And, where plaintiff submitted evidence demonstrating the law firm’s involvement with the distribution of more than $3 million to two shareholders, without the approval of the board of directors, we conclude that the trial court did not abuse its discretion in finding that plaintiff had established a prima facie case of fraud.

However, the circuit court erroneously exercised its discretion in failing to conduct an in camera review of the disputed documents.

“As discussed previously, the burden to establish a prima facie case is low. Once the circuit court determines the prima facie case has been established, an in camera review is the proper procedure to determine if the crime-fraud exception to the lawyer-client privilege applies. … The court should make that decision in light of the facts and circumstances of the particular case, including, among other things, the volume of materials the district court has been asked to review, the relative importance to the case of the alleged privileged information, and the likelihood that the evidence produced through in camera review, together with other available evidence then before the court, will establish that the crime-fraud exception does apply.”

Further, we conclude that the circuit court erred in simply concluding that all documents prepared or obtained prior to plaintiff’s termination were not covered by the work product doctrine.

“[T]he circuit court’s decision does not reflect a finding that Lane made a showing of substantial need for the documents, there is no determination that the documents were prepared or obtained because of the ‘prospect of litigation,’ and although the circuit court’s decision includes discussion about other sources of the information, the circuit court concluded, ‘the most efficient way of obtaining them is through the Niebler law firm.’ Because the circuit court failed to apply the correct legal standard, and did not examine the documents to determine whether the work product doctrine applies, we conclude that the circuit court’s decision was an erroneous exercise of discretion.”

Reversed and remanded with directions.

DISSENTING OPINION: Abrahamson, Ch. J., with whom Bablitch and Bradley, JJ., join. “[T]he question presented in this case is whether Lane, a former director in a closely held corporation, may have access to documents created during his tenure as a director of the corporation when the corporation’s current board of directors asserts the corporation’s attorney-client privilege to those documents. The majority opinion concludes that the current directors decide whether to waive the attorney-client privilege. I conclude that the corporation does not have an attorney-client privilege in the present case. …

“In summary, using either the entity theory or the closely held corporation approach, I would uphold the circuit court’s discretionary rulings allowing discovery. Sharp Packaging’s attorney-client privilege for legal advice that was developed for Sharp Packaging while Lane was a member of the board of directors and also while Lane was a member of the joint undertaking with Sharp Packaging and the Scarberrys cannot be asserted against either Lane or the Scarberrys.”

On Certification by the Court of Appeals; Crooks, J.

Attorneys:

For Appellant: Larry J. Britton, William J. Richards, Milwaukee; James Reiher, Terrance E. Nilles, Milwaukee

For Respondent: James O. Huber, Maureen A. McGinnity, David W. Simon, Milwaukee