Limited liability companies (LLCs) are hybrid business entities that borrow characteristics from corporations and partnerships, but they are understood to have unique benefits for their owners, who are called members. Montgomery v. eTreppid Techs., LLC, 548 F. Supp. 2d 1175, 1181 (D. Nev. 2008). Like individuals and corporations, LLCs are generally protected from the involuntary disclosure of communications with their legal representatives. Ryskamp ex rel. Boulder Growth & Income Fund v. Looney, 2011 WL 3861437, at *4 (D. Colo. Sept. 1, 2011) (citing Upjohn Co. v. United States, 449 U.S. 383 (1981)). Further, the LLC is the ultimate beneficiary of the attorney-client privilege—not the managers or the members at large. See generally Delta Fin. Corp. v. Morrison, 819 N.Y.S.2d 425 (N.Y. Sup. Ct. 2006) (discussing an LLC as a legal entity distinct from its membership for purposes of deciding a question of attorney-client privilege). But LLCs cannot speak directly to their lawyers or assert the attorney-client privilege on their own behalf. Ryskamp, 2011 WL 3861437, at *4 (“a corporation cannot speak directly to its lawyers . . . [so it] can only act through its officers, directors, agents, and employees”). This means the attorney-client privilege must be exercised through the members who are responsible for the operation of the LLC, also known as managers. Applying the attorney-client privilege to an LLC is complicated when the managers object to disclosing their communications with counsel to their own members.
Most jurisdictions defer to the organizers of the LLC when its organizing documents (including the articles of organization and the operating agreement or bylaws) clearly establish the rights and obligations of its managers and members. See, e.g., ULQ, LLC v. Meder, 666 S.E.2d 713, 721 (Ga. Ct. App. 2008) (“It is the policy of this state with respect to limited liability companies to give maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.” (citations omitted)). The organizing documents may provide all LLC members with broad access to documents or even limit manager access to specific documents. In re Mehra v. Teller, 2020 WL 1230285 (Del. Ch. Mar. 11, 2020) (allowing a director’s access to company information to be limited by agreement ex ante); Obeid v. Gemini Real Estate Advisors, LLC, 2018 WL 2714784, at *4 (Del. Ch. June 5, 2018) (discussing an operating agreement that allowed any member to inspect and examine company books and records during reasonable business hours and granting an aggrieved member access to the documents he sought). A proactive understanding of an LLC’s organizing documents can preempt an expensive privilege dispute between managers and members.
Generally, LLCs that operate more akin to well-organized corporations than loosely affiliated partnerships enjoy greater protection against requests for privileged information made by their minority members. Montgomery, 548 F. Supp. 2d at 1188 (denying a minority member’s request to access the LLC’s privileged material). A well-defined management structure, clearly established LLC procedures (through bylaws or other internal organizing documents), and well-drafted articles of organization filed with the state may act as a shield against member requests for the LLC’s attorney-client communications. Id. at 1179–83.
Every state has default organizing rules for an LLC when its operating agreement is silent on the rights and obligations of the managers and members. See, e.g., Retina Assocs. of Greater Phila. v. Retinovitreous Assocs., 176 A.3d 263, 273–74 (Pa. Super. Ct. 2017) (discussing 1994 Pa. Laws § 8904, which provides general rules for LLC organization and allocation of liability); ULQ, 666 S.E.2d at 720 (discussing Ga. Code Ann. §14-11-305(1), which provides the statutory duties owed by members to their LLC). In most jurisdictions, the right to access LLC communications and documents is narrower for members as compared with managers. Kortüm v. Webasto Sunroofs, Inc., 769 A.2d 113, 119–20 (Del. Ch. 2000) (discussing 8 Del. Code § 220(c), which imposes a higher standard on corporate shareholders seeking corporate records than on the directors of the same corporation); see also In re Mehra, 2020 WL 1230285, at *1 (providing that shareholders and directors are analogous to managers and members for purposes of allocating rights to company information).
Some states, however, may require LLC managers to allow members to access documents containing privileged material. See, e.g., Janousek v. Slotky, 980 N.E.2d 641, 650–51 (Ill. App. Ct. 2012) (allowing a former member of an LLC to inspect books and records during the period of his membership pursuant to 805 Ill. Comp. Stat. 180/10-15 (2010)). Further, some states impose a set of quasi-fiduciary rules on managers and members alike for their conduct related to the operation of the LLC. Retina Associates, 176 A.3d at 277 (summarizing the duties of members of a manager-managed LLC, including potential breaches of those duties if a manager squeezes out or expels another member, appropriates benefits by exercising or selling control, fails to disclose a self-dealing transaction, or appropriates LLC property for personal use); Bridlington Co., LLC v. S. Disposal Servs., LLC, 216 So. 3d 219, 225 (La. Ct. App. 2017) (“La. R.S. 12:1314 provides that managers and members of an LLC have fiduciary duties to one another”).
In the absence of statutory guidance of clear precedent, courts use “reason and experience” to ascertain whether an LLC’s management may successfully claim the attorney-client privilege. Roberts v. Heim, 123 F.R.D. 614, 622 (N.D. Cal. 1988) (citing Trammel v. United States, 445 U.S. 40 (1980)). Such “reason and experience” borrows from other areas of corporate law to settle disputes between LLC management and members. Montgomery, 548 F. Supp. 2d at 1181 (“A number of states have . . . applied corporate law to LLCs”). Corporate law from multiple states, along with federal common law, may arise in an interstate dispute involving an LLC with a regional or national footprint. See, e.g., id. at 1179 (discussing Nevada, California, and federal common law in deciding whether an LLC should be treated as a corporation or partnership for purposes of the attorney-client privilege); Delta Financial Corp., 819 N.Y.S.2d at 811–12 (applying Delaware law, which borrows from federal common law, in a New York court’s adjudication of a privilege dispute involving an LLC).
In a privilege dispute between managers and members, good cause may exist if the members can allege that the managers are acting “inimically” to the interests of the LLC. Garner v. Wolfinbarger, 430 F.2d 1093, 1103–4 (5th Cir. 1970). The privilege is less likely to apply if the LLC’s managers are accused of acting illegally by a large share of the members. Members will help their cause to obtain the attorney-client communications with specific descriptions and a showing that the purportedly privileged information cannot be obtained from another source. Courts are less likely to order the production of trade secrets or other confidential information that the LLC has an interest in for reasons other than the attorney-client privilege. Most importantly, courts will not reward members with the LLC’s attorney-client communications if the members are engaged in a fishing expedition in support of a frivolous claim. Id.
In sum, the question of whether the members of an LLC may obtain privileged communications of the entity depends on the provisions of the LLC’s operating agreement and other governance documents, the specific statutory provisions of the state whose law governs, and how the courts apply analogous principles from corporate or partnership law to the context of an LLC.
