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By Samson Habte
Aug. 8 - A displaced corporate director or officer who is suing his former employer is not entitled to access or use the company's privileged documents to bolster his case, the Nevada Supreme Court decided Aug. 7.
Speaking through Chief Justice Mark Gibbons, the court concluded unanimously that "a corporation's current management is the sole holder of its attorney-client privilege." Nevada law doesn't allow for a judicially created "class of persons exception" that some courts have adopted to grant former officers the right to affect the privilege in certain situations, Gibbons said.
The court said its decision comports with the "modern trend" of authority rejecting such an exception.
"Allowing a former fiduciary of a corporation to access and use privileged information after he or she becomes adverse to the corporation solely based on his or her former fiduciary role is entirely inconsistent with the purpose of the attorney-client privilege," Gibbons stated. "We believe that such a situation would have a perverse chilling effect on candid communications between corporate managers and counsel."
The ruling grants a petition for a writ of prohibition that Las Vegas Sands Corp. filed to halt a discovery order entered in the wrongful termination suit of Steven C. Jacobs, the former chief executive officer of Sands's Chinese subsidiary.
The discovery dispute concerned 40 gigabytes of e-mails and communications that Jacobs gathered at the time of his termination. Sands said the documents may be privileged, and it moved for a protective order when Jacobs refused to return them.
Jacobs challenged several privilege claims as invalid. He further contended that the "collective corporate client" approach to the attorney-client privilege precluded Sands from "depriv[ing] Jacobs of access to the proof, particularly when he was a participant in its creation."
"Essentially, Jacobs argued that he was 'the client' when he was directly involved in running Sands China, and therefore had a right to access and use any privileged documents that had been created while he was CEO of Sands China," the court explained.
The district court concluded that Jacobs was within the class of persons legally allowed to view and use the purportedly privileged documents. Sands appealed.
Jacobs cited People v. Greenberg , 851 N.Y.S.2d 196 (N.Y. App. Div. 2008). In that case, former AIG directors facing civil fraud charges were granted access to privileged corporate legal memos prepared during their tenure.
The Greenberg court said current directors controlled the company's attorney-client privilege for communications relating to "general business matters." But the former directors had "a qualified right" to assert the privilege over communications that implicated the transactions at issue in the fraud action, it added.
The Nevada Supreme Court acknowledged that some other courts have adopted the "collective corporate client exception" to preclude a company from asserting its attorney-client privilege against former officers and directors. E.g., Gottlieb v. Wiles , 143 F.R.D. 241 (D. Colo. 1992); Kirby v. Kirby , 1987 BL 17 , No. Civ. A. 8604 (Del. Ch. July 29, 1987).
However, it added, "many more courts" have adopted an "entity is the client" approach under which "current management is the sole holder of the [corporate] attorney-client privilege."
"[W]e conclude that the district court erred when it applied the collective corporate client approach to find that Jacobs was within a class of persons legally allowed to use Sands's purportedly privileged documents in the prosecution of his claims," Gibbons wrote.
The court said case law and policy considerations supported its ruling.
It cited several decisions as reflective of a "modern trend" rejecting the collective corporate client approach, including CFTC v. Weintraub , 471 U.S. 343 (1985) (bankrupt company's displaced managers may not assert privilege over wishes of trustee); Milroy v. Hanson , 875 F. Supp. 646 (D. Neb. 1995) (dissident director could not waive privilege over objection of board majority); and Montgomery v. eTreppid Techs. LLC , 548 F. Supp. 2d 1175 (D. Nev. 2008) (terminated officer not entitled to privileged materials for use in suit against company).
"More importantly, we are persuaded by the policy behind the Weintraub , Milroy , and Montgomery line of cases and conclude that it is consistent with Nevada privilege law," the court said.
J. Stephen Peek of Holland & Hart LLP, Las Vegas, represented Las Vegas Sands Corp. James J. Pisanelli of Pisanelli Bice PLLC, Las Vegas, represented Jacobs.
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