Attorney-Client Privilege in Illinois Ownership Disputes: Protecting Privileged Documents

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Attorney-Client Privilege in Illinois Ownership Disputes: Protecting Privileged Documents

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Adam Diederich, Kirstie Brenson
  • Illinois LLCs may be able to protect their attorney-client privileged emails from disclosure to minority members by expressly restricting member access in the LLC’s operating agreement.
  • The litigation work product doctrine may also protect those emails from being disclosed to minority members.

Consider this scenario: an Illinois limited liability company (LLC) has a majority member and three minority members. The majority member also happens to be the LLC’s manager, who we will refer to here as “Manager.” Manager suspects that one of the minority members (Minority Member) is embezzling company funds and begins to investigate Minority Member’s actions with the LLC’s attorney. Can Minority Member obtain copies of emails between Manager and the LLC’s attorney, either through a books and records request or through discovery in litigation? Unless the LLC’s operating agreement states otherwise, it is certainly possible. (See our prior post, which explains how members of an Illinois LLC can pierce the LLC’s attorney-client privilege to obtain communications between the LLC’s managers and its attorneys.)

Those with ownership stakes in privately held businesses, partnerships, or family offices need to closely collaborate with and trust others. When disagreements and disputes over rights and responsibilities arise, individual emotions and personalities can complicate matters. This ongoing series will help owners anticipate potential problems when structuring their businesses and find solutions to issues that commonly arise among owners of privately held businesses, both before and during litigation.

This post explains steps that Illinois LLCs and their majority members can take to protect otherwise privileged communications from disclosure to minority members in advance of and during litigation. (In our next post, we will outline rules that apply to Illinois corporations and business entities organized under other state laws.)

Drafting Operating Agreements that Protect Attorney-Client Communications from Disclosure to Members

In our scenario, the LLC can prohibit Minority Member from accessing its attorney-client communications if its operating agreement allows it to do so. Under the default rules established by the Illinois LLC Act, members of an Illinois LLC have broad rights to access the LLC’s books and records, including communications between the LLC’s manager and its attorney. But an LLC can supersede those default rules by restricting member access to company records in its operating agreement, so long as the restrictions are reasonable.

If the LLC’s operating agreement does not restrict Minority Member’s rights to inspect the LLC’s records, the LLC should consider amending it to expressly give Manager the authority to restrict member access to communications between the LLC and its attorneys, especially in the case of a dispute or litigation between a member and the LLC. Alternatively, the LLC could amend its operating agreement to attempt to authorize Manager to restrict member access to company records if Manager believes that disclosure of certain information to a member would not be in the LLC’s best interest (which is permitted in other jurisdictions).

Invoking the Work Product Doctrine

Even if the operating agreement does not restrict Minority Member’s access to company records, the LLC and Manager may still be able to shield some of the LLC’s records from disclosure to Minority Member under the litigation work product doctrine. That doctrine protects from disclosure documents that are created in anticipation of litigation and that contain the theories, mental impressions, or litigation plan of the LLC’s attorney. Unlike the attorney-client privilege (which, in our scenario, protects communications seeking legal advice between the LLC and its attorneys), the litigation work product doctrine shields material created for those on one side of a lawsuit.

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Solving Disputes Among Business Partners and Owners

This ongoing series will help owners anticipate potential problems when structuring their businesses and find solutions to issues that commonly arise among owners of privately held businesses, both before and during litigation. MORE