When controlling owners or managers seek the legal advice from the company’s attorney on sensitive subjects such as a business divorce, the company expects the attorney-client privilege to keep this advice private. But in Illinois, the attorney-client privilege may not protect communications between the managers of a limited liability company (LLC) and the company’s attorneys when those communications are sought by the LLC’s minority members. Minority members may be able to access those otherwise-privileged communications even when their subject matter is at issue in litigation between the LLC and those minority members.
Under the Illinois LLC Act, members of an LLC have broad default rights to inspect the company’s “books and records.” This is an expansive term that includes documents concerning the company’s activities, finances, and “other circumstances concerning the company’s business.” It also includes communications between an LLC’s managers and its attorneys. Therefore, when an LLC’s operating agreement does not restrict members’ rights to inspect the company’s records, a member may have the right to obtain the company’s attorney-client communications. (By the same token, restrictions on a member’s access to the LLC’s records in an operating agreement must be reasonable to be enforceable.)
As a general rule, an LLC’s manager expects that communications with the LLC’s attorneys seeking legal advice will be protected from disclosure by the attorney-client privilege. But the privilege applies only to communications in which the manager both (a) seeks legal advice and (b) reasonably expects that the communications are made in confidence. When a non-controlling member has the right to access certain records — including communications between the company and its lawyers — the company likely does not have any reasonable expectation that its communications with the lawyers were made in confidence. The company probably cannot invoke the attorney-client privilege to conceal those records from its members. This analysis does not change depending on the subject matter of the communications or the subject matter of the dispute between the company and the non-controlling member.
This is a paradigm situation where hiring an experienced corporate attorney or corporate litigator is very important. Missing out on the opportunity to access or to block access to attorney-privileged documents can make or break a case. The language of the operating agreement may grant LLC members the right to view otherwise privileged communications even when the communication concerns the subject of a dispute between the non-controlling member and the LLC itself. When litigating business divorce and similar cases, attorneys representing minority owners should propound discovery requests to obtain any communications between the company’s representatives and the company’s attorneys regarding the subject of the litigation.
The ability to read communications in which the participants thought they will be protected by the attorney-client privilege cannot be overstated. Clients are encouraged to be candid to the greatest extreme possible, which means having access to this candor is a big deal. The candor may be more than merely embarrassing–it could provide the smoking gun that wins or defeats the case.
David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, real estate, dispute resolution and avoidance, contract drafting and negotiation, and other issues.
He can be reached at david@seidmanlawgroup.com or 312-399-7390.
This blog post is not legal advice. Please consult an experienced attorney to assist with your legal issues.
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