Justices order in camera review of report to determine if material is privileged

September 4, 2014

The Indiana Supreme Court tackled two issues of first impression Wednesday in a dispute involving a family business and claims the company president caused a significant decrease in shareholder value.

Sibling minority shareholders in TP Orthodontics – Christopher, Adam and Emily Kesling – filed the complaint against their brother and president of the company, Andrew Kesling. A special litigation committee was formed to investigate the derivative claims. The SLC ultimately recommended only some of the claims be pursued and refused to hand over its full, unredacted report to the siblings. In the 140-page report, only 20 pages were unredacted based on TPO’s claim of attorney-client privilege and work-product privilege. The siblings sought the full report in order to try to show the SLC’s determination was not made after an investigation conducted in good faith based on I.C. 23-1-32-4(c).  This is an issue of first impression before the Supreme Court.

The trial court ordered the full report filed under seal and the Court of Appeals affirmed on interlocutory appeal.  And the justices agreed in part, holding that absent derivative claims of attorney-client privilege or work-product privilege, SLC reports are to be presumptively disclosed.  

“Here, there is no question that the full, unredacted SLC report is relevant at this stage of discovery proceedings, as the content of the report will provide the sibling shareholders with the information necessary to either prove or disprove the issue of whether the SLC conducted a good faith investigation into the derivative claims,” Justice Steven David wrote in TP Orthodontics, Inc., Christopher Kesling, DDS, MS, Adam Kesling, and Emily Kesling, et al. v. Andrew Kesling, Individually and as Trustee of the Andrew C. Kesling Trust Dated March 28, 2001 et al., 46S03-1405-MI-337.

But TPO claims there is information in the report that must be redacted due to attorney-client privilege. The siblings argue that TPO implicitly waived any privileged information in the report by putting the SLC’s good faith at issue. The waiver of privilege in this context is also an issue of first impression for the justices.

The court decided that TPO met its burden of establishing the presence of confidential attorney-client communications within the SLC report.

“Although the sibling shareholders desire access to the full SLC report in order to meet their statutory burden of establishing the SLC’s lack of a good faith investigation, their wish for access cannot come at the expense of TPO’s desire to protect the privileged attorney-client communications and attorney work product contained within the report,” David wrote. “We therefore remand this case to the trial court and direct (1) TPO to specifically identify privileged attorney-client communications and attorney work product contained within the SLC report; (2) the trial court to review in camera the revised redacted SLC report and privilege designations to determine whether the designated material is in fact privileged; (3) the trial court to then order the release of the revised SLC report not protected by privilege to the sibling shareholders; and (4) the trial court to issue a protective order preventing any party from disclosing the report’s (unredacted) contents."


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