Monday, November 4, 2019

Attorney Not Legitimately Hired By LLC = No Attorney-Client Privilege

Attorney Not Legitimately Hired By LLC = No Attorney-Client Privilege

In a recent decision from Tennessee, the court was called upon to determine whether an attorney had been properly hired on behalf of an LLC.  The court held that he had not.  Inconsequence there was not attorney-client relationship and no attorney-client privilege.  Morristown Heart Consultants, PLLC v. Patel, No. E2018- 01590-COA-R9-CV, 2019 WL 3318184 (Tenn. Ct. App. July 24, 2019).

This case involved a dispute between two unequal members in a two member LLC.  While each member had a right to 50% of the earnings of the LLC, Dr. Ramaprasad held a 67% management right while Dr. Patel held a 33% interest in management. The court held that the majority member’s “act of hiring an attorney to represent [the LLC] in a potential action against [the second member] was not in the ordinary course of the LLC’s business.”  The operating agreement, as to actions not in the ordinary course, required member approval. But Ramaprasad never got that consent. He never called a meeting of the members to consider the matter. And he never signed a written consent that would have authorized him to act outside of a meeting.

Alternatively, MHC could have accomplished the act by written consent without having a meeting. Without a meeting, Mr. Ramaprasad could have signed a written consent with his majority governing rights to approve the hiring of Mr. Bowlin and provided notice to Dr. Ramaprasad of the LLC’s action. No evidence is in the record on appeal of written consent approving the action signed by Dr. Ramaprasad or notice of such action provided to Dr. Patel. (citation omitted). 2019 WL 3318184, *5.

As the majority member had not employed the procedure mandated by the company’s operating agreement, the attorney was never properly hired on behalf of the company which had the effect of waiving the attorney-client privilege. Patel is permitted to access the attorney’s file.

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