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Keywords

plaintiffattorneydiscoveryappealtestimonycorporationattorney-client privilege
plaintiffattorneytestimonycorporationattorney-client privilege

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Fausek v. White, 965 F.2d 126, 35 Fed. R. Evid. Serv. 1225

Facts

The plaintiffs, former shareholders of Selox, Inc., alleged that Robert E. White, the majority shareholder and CEO, abused his position to the financial detriment of the plaintiffs. They claimed that White misrepresented the value of Selox stock and engaged in fraudulent activities to gain control of the corporation, ultimately selling it for a significantly higher price than represented. During discovery, the plaintiffs sought to depose Joel Richardson, an attorney for Selox, who refused to answer questions based on attorney-client privilege, leading to the current appeal.

The plaintiffs, former shareholders of Selox, Inc., alleged that Robert E. White, the majority shareholder and CEO, abused his position to the financial detriment of the plaintiffs.

Issue

Whether Selox, Inc. could assert attorney-client privilege to prevent the disclosure of communications between its attorney and its controlling shareholder in a case brought by former shareholders.

Whether Selox, Inc. could assert attorney-client privilege to prevent the disclosure of communications between its attorney and its controlling shareholder in a case brought by former shareholders.

Rule

The attorney-client privilege applies to corporations but is not absolute; it may be overridden when shareholders have a legitimate interest in the information and cannot obtain it from other sources, particularly in cases involving allegations of fraud or misconduct.

The attorney-client privilege applies to corporations but is not absolute; it may be overridden when shareholders have a legitimate interest in the information and cannot obtain it from other sources, particularly in cases involving allegations of fraud or misconduct.

Analysis

The court applied the principles established in Garner v. Wolfinbarger, which allow for the abrogation of attorney-client privilege when shareholders present a colorable claim of fraud or misconduct. The court found that the plaintiffs had established good cause for accessing the information, as they were minority shareholders with a significant interest in the corporation's dealings and the information sought was not readily available from other sources.

The court applied the principles established in Garner v. Wolfinbarger, which allow for the abrogation of attorney-client privilege when shareholders present a colorable claim of fraud or misconduct.

Conclusion

The court affirmed the lower court's ruling, allowing the former shareholders to access the attorney's testimony and documents, concluding that the attorney-client privilege did not apply in this case.

The court affirmed the lower court's ruling, allowing the former shareholders to access the attorney's testimony and documents, concluding that the attorney-client privilege did not apply in this case.

Who won?

The former shareholders prevailed in the case because the court determined that their need for information outweighed the corporation's claim of privilege, especially given the allegations of fraud.

The former shareholders prevailed in the case because the court determined that their need for information outweighed the corporation's claim of privilege, especially given the allegations of fraud.

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