Diederich Quoted on Navigating Attorney-Client Privilege and Fiduciary Exception in Investment Management Industry

Adam emphasized that managers should be aware not only of litigious investors but also their partners in the fund. He clarified that in several states, including Delaware, top executives (directors of corporations and managers of limited liability companies) typically have access to their partners’ communications with company attorneys as a matter of corporate law.

“If the two LLC managers are emailing the company’s lawyer about kicking out the third director — whether it’s right or wrong — generally speaking, the third director can probably get access to those records,” he said. “The lawyer is a lawyer for the company, and a director or LLC manager embodies that company.”

Adam suggested that industry executives should first remember who the lawyer’s client is.

“Many company executives mistakenly act as if the company’s lawyer is their own lawyer. In most situations, the company’s lawyer is not the executive’s lawyer, and this is often stated in the engagement letter between the company and the law firm. The client controls the attorney-client privilege,” Adam said.

Adam also noted that funds can protect the attorney-client privilege in the event there are concerns about another firm partner by forming a special committee or hiring a separate attorney.

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