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Manao Investments, Inc. v. Stouts Brunswick Associates Limited Partnership

97-744 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)

ATTORNEYS; PARTNERSHIPS; LITIGATION; DISCOVERY—Where a limited partner has a substantial claim and interest in a matter and information not obtainable from other sources, the partnership cannot block discovery by a claim of attorney-client privilege.

In connection with discovery proceedings related to a claim by the limited partner that the general partner had structured an elaborate and complex transaction with the intent of cheating the limited partner, a limited partner was thwarted by the general partner’s claim that many documents for which discovery was sought were protected by attorney-client privilege. The limited partner claimed that the transaction was so complicated that the purportedly privileged documents were required to explain how and why they were done. The general partner, on the other hand, denied all allegations of fraud and argued that the limited partner had failed to bring forth any evidence in support of its claims. It described the limited partner’s attempt to force the disclosure as a desperate move. With respect to the transaction itself, the general partner argued that the limited partner’s involvement was, by law and by the terms of the partnership agreement, restricted to a “non-management role.” The limited partner’s consent was not required for the transactions in question.

The Court granted the limited partner’s request. In reaching its decision, it recognized the broad public interest that is served by the attorney-client privilege, especially in that it encourages full and frank communications between a party seeking informed legal advice and an attorney who can provide that advice. On the other hand, because the privilege obstructs the truth-finding process, it is construed narrowly and “protects only those disclosures—necessary to obtain informed legal advice—which might not have been made absent the privilege.” General partners of limited partnerships owe a fiduciary duty to limited partners. On the other hand, limited partners are not afforded an absolute right to disclosure of privileged communications and such disclosure is appropriate only where the party seeking disclosure demonstrates “good cause.” Citing Delaware case law with respect to corporations, the Court said that requiring a demonstration of good cause protects the purposes that underlie the attorney-client privilege while recognizing that disclosure of privileged communications may be necessary in certain instances. One such need is to ensure that those in fiduciary positions, such as general partners, are acting in the best interests of their beneficiaries. The Court listed seven relevant factors: (a) the number of shareholders and their percentage interest; (b) the nature and colorability of the shareholder’s claims; (c) the shareholder’s need to have the information and its availability from other sources; (d) whether the communication related to past or prospective actions; (e) whether the communication is advice concerning the litigation itself; (f) the extent to which the shareholder is blindly fishing; and (g) the extent to which the corporation has an independent reason for confidentiality. Balancing these factors, the Court found that this particular limited partner had a substantial claim and interest in the matter and that the information was not obtainable from other sources. The Court reviewed the privilege logs and decided that the entries were those relating to decisions and discussions on behalf of the partnership. Therefore, as such, even though they were communications between an attorney and the client, the limited partner was, in this instance, an extension of the client.


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