By Paul Raskin and Mike Moore

The attorney-client privilege is generally viewed as fundamental to American jurisprudence. From veteran lawyers to TV viewers, we often take for granted that communications between attorney and client are privileged. While many people are familiar with the crime-fraud, malpractice and reliance-on-counsel exceptions, few are aware that courts around the country have applied other exceptions to allow discovery in litigation of attorney-client communications.

The Washington superior courts have recently applied a “fiduciary exception” to the attorney-client privilege in two cases, finding that a general partner could not shield attorney-client communications regarding a limited partnership from limited partners to whom they owed fiduciary duties of disclosure. These holdings could potentially have far-reaching implications, not only to general partners and limited partnerships, but also trustees, investment advisors, corporate officers and directors, ERISA plan administrators and other persons considered to be “fiduciaries” under Washington law.

Meyer v. Ayres

Meyer v. Ayres1 involved a limited partnership that owned valuable commercial property. The general partner allegedly informed the limited partner plaintiff that, for legal and financial reasons, the limited partnership should be dissolved. The general partner provided a promissory note to the limited partner for her interest in the partnership.

Several years later, the limited partner sued the general partner, alleging that her interest was worth much more than the promissory note and that she was wrongfully induced to give up her interest. During discovery, the general partner invoked the attorney-client privilege, seeking to preclude discovery from his counsel; the limited partner moved to compel. Judge Kathleen Learned found that the fiduciary exception applied, ordering disclosure of communications between the general partner and his attorney relating to the formation, management and dissolution of the limited partnership.

Garrett v. Swedish Health Services
In Garrett v. Swedish Health Services,2 plaintiffs were limited partners in a partnership that provided MRI services to a Seattle hospital. The limited partners alleged that the general partner was wrongfully seeking to take over the MRI business for its own gain. Plaintiffs sought, among other things, communications between the general partner and its counsel relating to the general partner’s reasons for withdrawing from the partnership. A special master ordered disclosure. The decision was affirmed in a minute order by Judge Linda Lau.

Arguments Against Exception
In Meyer and Garrett, defendants argued that the fiduciary exception has not been applied in a published Washington appellate decision and that its application would effectively prevent a partner from obtaining confidential legal advice where his interests may conflict with those of the partnership. Defendants also referred to recent amendments to Washington’s partnership statute, providing that “[a] partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner’s conduct furthers the partner’s own interest.”3

Defendants also relied heavily on a U.S. District Court decision out of Minnesota, Opus Corp. v. International Business Machines Corp.4 The court in Opus rejected the notion that there is an inevitable conflict between the attorney-client privilege and the duty of disclosure under partnership law, observing that the duty of disclosure extends to “material facts,” not communications. The Opus court, therefore, refused to adopt the fiduciary exception, cautioning that an obligation to disclose attorney-client communications “would severely undermine the attorney-client privilege and could well make it impossible for a general partner to obtain legal advice about matters in which the general partner’s interests may conflict with the limited partner’s interests.”

The plaintiffs in Meyer and Garrett argued that the fiduciary exception is based on the black-letter principle that a fiduciary owes a duty of full disclosure that cannot be compromised by asserting privilege to conceal information relevant to the fiduciary relationship.5 The core principle of the fiduciary duty in a partnership is the general partner’s obligation to disclose “all known information that is significant and material to the affairs or property of the partnership” and to “abstain from any and all concealment concerning matters pertaining to the partnership business.”6 Further, because an overbroad application of the attorney-client privilege “may result in the exclusion of evidence which is otherwise relevant and material, contrary to the philosophy that justice can be achieved only with the fullest disclosure of the facts, the privilege is not absolute; but rather, it must be strictly limited to the purpose for which it exists.”7

Plaintiffs also argued that the fiduciary exception is followed in other courts and should be applied in Washington, given the broad duties of disclosure owed by general partners and narrow application of privileges against disclosure. In one leading case, Roberts v. Heim, the Northern District of California ruled that allowing a general partner to conceal information relevant to its potential breach of its fiduciary duty would:

in effect be a repudiation of a mass of authority in most, if not all, jurisdictions which have long held that partners have a fiduciary relationship and obligation to each other with respect to partnership affairs . . . . Indeed, as limited partners ordinarily do not participate in the formation and operation of the partnership and are usually passive investors, they are far more likely to be dependent on the promoter/general partner for information than would be a general partner in a general partnership.8

Good Cause and Other Considerations
It appears likely that Washington courts will continue to apply the fiduciary exception. Because the parameters of such an exception under Washington law have yet to be determined, counsel may wish to evaluate how the exception has been applied in other jurisdictions and advise their fiduciary clients that communications could be discoverable.

Courts elsewhere have required parties seeking disclosure to demonstrate “good cause.” In the corporate setting, factors have included: (a) the number of shareholders and the percentage of their holdings; (b) the nature and merit of the shareholders’ claim; (c) the necessity of the information and its availability from other sources; (d) whether the communications related to past or prospective actions; (e) whether the communication is advice concerning the litigation itself; (f) the extent to which shareholders are blindly fishing; and (g) the extent to which the corporation has an interest in the confidentiality of the communication for independent reasons. These factors have been applied by analogy to limited partnership matters.9 A party in litigation also may be able to invoke procedural safeguards against unreasonable disclosure, including seeking in camera inspection or limiting the scope of the intrusion into attorney-client communications. n

1 King County Cause No. 04-2-40050-3SEA.

2 King County Cause No. 02-2-3090-4SEA.

3 RCW 25.05.165.

4 Opus Corp. v. International Business Machines Corp., 956 F. Supp. 1503, 1509 (D. Minn. 1996).

5 Garner v. Wolfinbarger, 430 F.2d 1093, 1103-04 (5th Cir. 1970), cert. denied, 401 U.S. 974 (1971).

6 Bovy v. Graham, Cohen & Wampold, 17 Wn. App. 567, 570 (1977).

7 Dietz v. Doe, 131 Wn.2d 835, 843 (1997); Dike v. Dike, 75 Wn.2d 1, 11 (1968).

8 123 F.R.D. 614, 624-25 (N.D. Cal. 1988). See also In Re ML-Lee Acquisition Fund II, L.P., 848 F. Supp. 527, 564-65 (D. Del. 1994); Abbott v. The Equity Group, 1988 U.S. Dist. Lexis 9153, *3 (E.D. La. Aug. 8, 1988); Helt v. Metropolitan Dist. Com., 113 F.R.D. 7, 9 (D. Conn. 1986); Hammond v. Trans World Airlines, Inc., 1991 U.S. Dist. LEXIS 6868, *4-5 (N.D. Ill. May 21, 1991).