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Because a closely held company and three of its minority shareholders are now at odds, a federal judge must decide which side holds the attorney-client privilege with the law firm that was paid by the company but used by the shareholders.

U.S. District Senior Judge Maurice B. Cohill Jr. of the Western District of Pennsylvania said he was leaning toward finding that the shareholders had the privilege, but held off on a final ruling until he reviewed the eight documents at issue.

“We are reasonably sure that the withheld documents are properly privileged but will not issue a final ruling until after we conduct an in camera review of the withheld documents,” Cohill said in his opinion in Gary Miller Imports v. Doolittle.

Even though the dealership paid for the legal services, the shareholders can assert the privilege because the work was performed on their behalf, the judge said.

Gary Miller Imports, a car dealership in western Pennsylvania, brought a suit against three brothers—Carter, Brent and Kevin Doolittle—who were minority shareholders in the company with several claims, including racketeering. That claim was based on Gary Miller Imports’ allegation that the brothers stole cars from its lot in Erie and crossed state lines to deliver them to their dealership in Randolph, N.Y.

Gary Miller Imports similarly alleged that the brothers moved stolen money across state lines, saying that Brent and Carter Doolittle together had stolen more than $70,000 to pay personal credit card bills and embezzled extra pay, vacation pay and bonus payments. Those two brothers started working at Gary Miller Imports shortly after finishing high school and worked their way up to being directors of the dealership, according to the complaint.

Among the expenses Gary Miller Imports alleges it paid on behalf of the Doolittles were legal fees for the Erie law firm of MacDonald, Illig, Jones & Britton, according to court papers.

Carter Doolittle retained MacDonald Illig after Gary Miller Imports, which had sold Chrysler and Mazda cars, lost its deal with Chrysler and faced internal disagreements about how the business should proceed, according to court papers.

The law firm had responded to Gary Miller Imports’ subpoena for documents in the instant Racketeer Influenced and Corrupt Organizations Act action with a privilege log identifying 23 items as being privileged as attorney-client communications or as attorney work-product, according to Cohill’s opinion.

“Of the 23 documents, plaintiff’s counsel seeks to compel the production of eight of them on the basis that they are materials related to MacDonald Illig’s representation of the plaintiff corporation and therefore the plaintiff corporation holds the privilege, and not any of the defendants in their individual capacities,” Cohill said.

“In particular, plaintiff argues that defendants Brent Doolittle and Carter Doolittle did not make clear to the law firm that they were seeking legal services in their individual capacities; the law firm billed the plaintiff corporation for the work performed, and in any event the matters discussed with the law firm by the Doolittles concerned matters of the company.”

“In response, defendants maintain that the Doolittles in fact did make it clear to the law firm that they were seeking representation in their individual capacities; the law firm undertook the personal representation of the Doolittles knowing that a possible conflict could arise, and the substance of the representation concerned the Doolittles personally seeking to protect their rights and interests as minority shareholders,” Cohill said.

MacDonald Illig declined to comment, partner Patrick Delaney said.

Cohill relied heavily on the U.S. Court of Appeals for the Third Circuit’s 1986 opinion in In re Bevill, Bresler & Schulman Asset Management to determine where the privilege should lie. There, the appeals court set out a five-part test to determine whether a corporate officer has properly asserted attorney-client privilege for communications with the corporation’s lawyer.

Referring to the eight documents at issue, Cohill said, “It appears on the face of the entries that the documents are properly withheld as being privileged based on the MacDonald Illig’s representation that the documents concern matters of the Doolittles personally.”

The judge later said, “While MacDonald Illig did represent the plaintiff corporation in corporate matters, it is also clear that at some point the positions of the majority shareholder of the plaintiff corporation (Gary Miller) and the defendants were diametrically opposed. As such, we see no reason to doubt MacDonald Illig’s representations as well as the affidavits provided by Brent and Carter Doolittle, that the Doolittles sought advice from lawyers at the same firm that had been representing the corporation itself. Likewise, there is no reason to doubt MacDonald Illig’s representation as officers of the court that they undertook the personal representation of the Doolittles.”

The only open question, then, is whether the conversations between the Doolittles and MacDonald Illig’s lawyers were about matters going on at the company or about the company’s general affairs, Cohill said. He explained that he agreed with the Doolittles that there is a distinction between corporate officers seeking advice from counsel about their rights and interests in the company and seeking advice for the company generally.

“With respect to the withheld documents, it appears that the substance of the Doolittles’ conversations with counsel concerned matters related to the Doolittles’ personal rights and interest as minority shareholders and did not concern matters within the company or the general affairs of the company,” Cohill said.

Neither John Mizner of the Mizner Law Firm in Erie, who represented Gary Miller Imports, nor Harold Schwarz of Stark & Knoll in Akron, Ohio, who represented the Doolittles, could be reached for comment.

Saranac Hale Spencer can be contacted at 215-557-2449 or sspencer@alm.com. Follow her on Twitter @SSpencerTLI.

(Copies of the five-page opinion in Gary Miller Imports v. Doolittle, PICS No. 14-1239, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)