Dialysis Clinic, Inc. v. Kevin Medley, 567 S.W.3d 314

Dialysis Clinic (corporate plaintiff) owned commercial properties and contracted XMi, a nonemployee property manager, to handle day-to-day operations, tenant relations, lease negotiations, rent collection, and to institute/defend claims at Dialysis Clinic’s direction.
After Dialysis Clinic sued tenants in unlawful detainer actions, the tenants subpoenaed documents from XMi; XMi withheld emails between XMi and Dialysis Clinic’s in-house and outside counsel asserting attorney-client privilege.
The trial court reviewed documents in camera and held the communications privileged because XMi was an agent and the communications were confidential and related to counsel’s representation; interlocutory appeal followed to the Tennessee Supreme Court.
The central factual findings: XMi had exclusive management authority, possessed information Dialysis Clinic lacked, routinely communicated with counsel at counsel’s direction, and treated communications as confidential.
The Supreme Court adopted a ‘‘functional equivalent of an employee’’ test for extending attorney-client privilege to third-party nonemployees and applied it to find XMi privileged.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether attorney-client privilege protects communications between corporate counsel and a third-party nonemployee (XMi)	Dialysis Clinic: XMi acted as its agent/functional equivalent of an employee, so communications with counsel are privileged	Defendants (tenants): XMi is a nonparty nonemployee; presence of third party destroys privilege; privilege should not extend	Court: Privilege applies if nonemployee is functional equivalent of employee and communications concern counsel’s representation and were intended confidential

Upjohn Co. v. United States, 449 U.S. 383 (U.S. 1981) (corporate attorney-client privilege covers communications with corporate employees at various levels)
In re Bieter Co., 16 F.3d 929 (8th Cir. 1994) (adopted "functional equivalent of an employee" test for nonemployee agents)
Smith Cnty. Educ. Ass’n v. Anderson, 676 S.W.2d 328 (Tenn. 1984) (privilege can extend to client representatives/agents)
Lee Med., Inc. v. Beecher, 312 S.W.3d 515 (Tenn. 2010) (standard of review for privilege rulings and privilege principles)
State ex rel. Flowers v. Tenn. Trucking Ass’n Self Ins. Group Trust, Inc., 209 S.W.3d 602 (Tenn. Ct. App. 2006) (elements for privilege: subject matter of representation and intent of confidentiality)