Kahlon v. Project Verte Inc.

Background

The order resolved the parties’ sole outstanding discovery dispute. Julian Kahlon asked the Court to compel Project Verte Inc. to produce a memo prepared by corporate counsel concerning the basis for his termination. Project Verte withheld the memo under the attorney-client privilege, which generally protects confidential communications between a client and its lawyer for purposes of obtaining or providing legal advice.

The memo stated that Kahlon’s refusal to sign certain convertible notes justified terminating him for cause. The memo was read aloud to Project Verte’s Board at the meeting where the Board voted to terminate Kahlon. Project Verte produced the meeting minutes, but the minutes did not describe the memo’s contents or the Board’s reasoning.

Parties’ Arguments

Kahlon argued that he needed the memo to evaluate Project Verte’s asserted good-faith basis for terminating him for cause. He contended that Project Verte had waived attorney-client privilege by placing the memo at issue—using the communication to support its position while preventing Kahlon from examining it. He also raised whether reading the memo aloud at the Board meeting independently waived privilege.

Project Verte argued that it had not placed the memo at issue because it was not asserting a counterclaim based on Kahlon’s failure to sign the convertible notes. It also argued that the Board meeting minutes provided another source of direct proof about the reasons for Kahlon’s termination.

Ruling

The Court rejected Project Verte’s arguments. The Court explained that it did not matter that Project Verte was not asserting a counterclaim based on the memo’s contents. As part of its defense, Project Verte argued that it relied on advice of counsel in deciding that terminating Kahlon for cause was justified. The Court also noted that Project Verte had told the Court that it acted on advice of counsel when it fired Kahlon.

The Court held that Project Verte could not affirmatively rely on privileged communications to support its defense while shielding the underlying communications from Kahlon’s scrutiny. The meeting minutes did not provide another source of proof because they did not reveal the memo’s contents or the Board’s reasoning. The Court therefore concluded that Project Verte waived privilege with respect to the memo in question.

The Court ordered Project Verte to produce the memo to Kahlon by April 23, 2021.