Attorney-client privilege rests solely with directors.

• Date: 27 March 2002
• Author: Ziemer, David

Byline: David Ziemer

A divided Wisconsin Supreme Court on Mar. 20 issued the most significant decision concerning the attorney-client privilege in years, making numerous holdings.

First, the court held that a corporation can invoke the lawyer-client privilege against a former member of the corporation's board of directors, even when the materials sought were generated during the former director's tenure on the board.

Second, the court held that an attorney's billing records can be protected by the lawyer-client privilege, and must be inspected in camera by the trial court before determining if they are.

Third, the court held that stating a prima facie case under the crime-fraud exception to the privilege does not warrant automatic release of the documents requested, but instead triggers in camera review to determine if the exception applies.

Sharp Practices

Sharp Packaging Systems, Inc., is a Subchapter S corporation, of which Paul and Virginia Scarberry are the sole shareholders. In 1992, Harold C. Lane, Jr. entered into an employment agreement with Sharp, under which he was designated president and chief operating officer.

In 1995, they entered a new agreement, under which Lane was to receive a stock option for a 25% interest in the company. If Sharp were to terminate Lane prior to his having exercised the option, Lane would receive 25% of the company's value.

Lane was further entitled to at least a forty-eight hour notice of any shareholder meetings, and to be a member of the board of directors.

Lane also held the right to veto or discharge any professional providing services to Sharp. Pursuant to that right, Lane caused Sharp to replace John H. Niebler, of Niebler, Pyzyk, Klaver & Wagner, LLP, as corporate counsel, in 1995, and Lane replaced Niebler with the firm of Meissner & Tierney.

Lane never exercised the stock options, however. On Feb. 23, 1999, Sharp paid the Scarberrys a shareholder distribution of roughly $3.8 million, without consulting Lane or calling a meeting of the board of directors, a prerequisite to such a distribution. Niebler provided counsel to the Scarberrys in effecting this distribution.

The result was that the corporation's value, and thus the value of Lane's 25%, was reduced to a small fraction of its previous value. On March 2, they informed Lane that he was removed from the Board, and was terminated effective May 31.

Lane then brought suit against Sharp and the Scarberrys under numerous theories, based on the dilution of the corporation's value from the shareholder distribution.

During discovery, Lane sought all records of communications between the Scarberrys and Niebler, including billing records. Sharp and the Scarberrys moved to quash the subpoena, but Waukesha County Circuit...