“The attorney-client privilege holds a special place among privileges: it is ‘the oldest and most venerated of the common law privileges of confidential communications.'” Paxton v. City of Dallas, 509 S.W.3d 247, 259 (Tex. 2017) (quoting U.S. v. Edwards, 303 F.3d 606, 618 (5th Cir. 2002)). In In re Elm Creek Investments, the Texas Supreme Court may further delineate the contours of certain waivers to this sacred privilege, namely, the advice-of-counsel and offensive-use waivers.
The underlying trial court proceedings concern a complex, multi-party lawsuit, including claims against certain corporate managers. Among other things, those managers sought shelter under a clause in the company agreement that excuses liability for any action or lack of action “based on the advice of legal counsel”. In the Texas Supreme Court mandamus proceedings, the second issue presented essentially asks whether the trial court erred by permitting other parties in the lawsuit to discover the substance of attorney-client communications underlying that advice. See Relators’ Petition for Writ of Mandamus at 34-40, In re Elm Creek Invs., No. 26-0804 (Tex. filed July 29, 2026) (orig. proceeding) (hereinafter, “Pet.”); Real Parties in Interest’s Response to Petition for Writ of Mandamus at 39-45, In re Elm Creek Invs., No. 26-0804 (Tex. filed Sept. 25, 2026) (orig. proceeding) (hereinafter, “Resp.”).
Therefore, the Texas Supreme Court may decide a relatively novel issue under Texas law: the extent of privilege waiver due to asserting a contractual limitation-of-liability provision based on the advice of counsel. Moreover, a recurring theme in the parties’ filings boils down to when and how does a party waive the privilege due to advice-of-counsel waiver as opposed to offensive-use waiver. Thus, the Texas Supreme Court may also decide whether the attorney-client privilege can be compromised due to “at-issue” waiver, independent of the offensive-use doctrine’s requirement that the privilege-holder be seeking “affirmative” relief. This article examines relevant arguments made in the parties’ filings concerning these waivers that soon may be addressed and resolved by the Texas Supreme Court.
The Parties, General Nature of Case, And Privilege Dispute
The underlying dispute concerns a governance battle involving a closely-held entity. As pertinent to the Texas Supreme Court proceeding, the Relators are Elm Creek Investments (“ECI”); two of ECI’s managers—Karl Williams and Ed Chalupa (together, “Williams & Chalupa”); and various entities affiliated with ECI. See Pet. at 5-6, 18. The Real Parties in Interest are Monty Rial (“Rial”), individually and derivatively on behalf of ECI and TCJ Ventures, (“TCJ”), and TCJ itself (collectively, “Real Parties”). Pet. at 6.
Real Parties allege that ECI’s managers—Williams & Chalupa and a non-party to the Texas Supreme Court proceeding (collectively, the “ECI Managers”)—breached fiduciary duties and the ECI company agreement by and through certain wrongful actions essentially concerning an involuntary buyout. Resp. at 2, 17-21; see also Pet. at 18. Relators characterize the matter essentially as a corporate-governance dispute where Real Parties have already received relief through an arbitration award for the harm caused by the involuntary buyout. Pet. at 19-21, 31-33.
On Sept. 25, 2026, Relators filed a Petition for Writ of Mandamus with the Texas Supreme Court. The Texas Supreme Court proceeding basically arises out of two orders signed by the trial court. Pet. at 15, 22-23. While the first issue concerns whether Real Parties’ derivative claims can proceed, this article solely focuses on the second issue concerning privilege waiver. In that regard, because the privilege fight has its own discrete procedural history, understanding that history is important to understanding what gave rise to the mandamus proceeding regarding the issue of privilege waiver.
The privilege dispute essentially arose during Williams’ & Chalupa’s depositions in their capacity as ECI Managers. Resp. at 22. During those depositions, Williams & Chalupa relied on a provision in the ECI company agreement providing that a “Manager shall not be liable . . . for any loss or liability caused by any act, or by the failure to do any act . . . based on the advice of legal counsel.” (“Section 5.10”). Resp. at 22-23; Pet. at 18. Real Parties contend Williams & Chalupa refused to answer various follow-up questions based on their counsel’s objections that the questions sought privileged information. Resp. at 22. After Real Parties moved to compel, the trial court ordered Williams & Chalupa to produce privileged communications related to the advice of legal counsel and to sit for further depositions regarding that privileged advice. Pet. at 23, 49.
Relators sought mandamus relief from the Dallas Court of Appeals, which denied the petition without a substantive opinion. See Pet. at 23. Then Relators filed their Petition for Writ of Mandamus.
Summary Of The Parties’ Arguments Before Texas Supreme Court
At a high level, the parties dispute whether advice-of-counsel waiver is available in Texas state court proceedings and whether the offensive-use doctrine applies to the circumstances at issue. The parties also disagree about what was the specific legal basis for the trial court’s order (which only compelled further discovery regarding the privileged advice).
A. Relators’ position: No offensive-use waiver occurred and advice-of-counsel waiver is inapplicable.
The petition frames the trial court’s order as based on a finding that offensive-use waiver applies. See Pet. at 43. Relators claim that none of the elements of offensive-use waiver is met by Williams’ & Chalupa’s invocation of Section 5.10. Pet. at 45-46. In Republic Ins. v. Davis, the Texas Supreme Court held offensive-use waiver requires (a) “the party asserting the privilege must seek affirmative relief . . . [(b)] the privileged information sought must be . . . outcome determinative of the cause of action asserted . . . and [(c)] disclosure of the confidential communication must be the only means by which the aggrieved party may obtain the evidence.” 856 S.W.2d 158, 163 (Tex. 1993).
Regarding the first element, Relators argue that the first element is not met because Williams & Chalupa invoked Section 5.10 only as a contractual defense and because merely seeking attorneys’ fees is not sufficient to seek “affirmative relief.” Relators rely on Krug v. Caltex Petroleum, stating that the court “has already rejected the argument that . . . a party seeks affirmative relief by asserting an affirmative defense.” No. 05-96-00779-CV, 1999 WL 652495, at *3 (Tex. App.—Dallas Aug. 27, 1999, no pet.) (not designated for publication). Relators also rely on Nat’l Union Fire Ins. of Pittsburgh v. Valdez, for the similar proposition that asserting a defense does not constitute seeking affirmative relief. 863 S.W.2d 458, 461-62 (Tex. 1993) (orig. proceeding); see also Pappas Harris Cap. v. Advance Hydrocarbon, No. 14-23-00224-CV, 2024 WL 3616716, at *11 (Tex. App.—Houston [14th Dist.] Aug. 1, 2024, no pet.) (mem. op.) (“A request for attorney’s fees in the defendant’s answer . . . [without a breach of contract claim] does not constitute a claim for affirmative relief.”).
Regarding the second and third elements, Relators largely argue that the Section 5.10 contractual defense only turns on whether counsel was consulted and the advice was relied upon, not the merits. Pet. at 46-47. Relators argue that the defense can be tested through “deposition testimony regarding topics on which advice was sought and whether actions were taken ‘based on’ that advice; engagement letters, . . . calendars, and transmittal metadata”, and other things. Pet. at 38. Relators again rely on Krug, in which a party alleged that a settlement violated a most-favored-nation clause with another party, where the Dallas Court of Appeals held that “discovery as to why [the settlement happened] is not related to [a defensive] contention that, as a matter of law, it had the legal privilege to settle . . . for any reasons it chose.” Krug, 1999 WL 652495, at *4; see also In re Exxon Mobil, 389 S.W.3d 577, 582 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) (orig. proceeding) (a party challenging the reasonableness of a settlement may obtain “evidence of the reasonableness and good faith of the settlement [] from sources other than the privileged materials”).
Additionally, Relators draw a sharp line between a common law advice-of-counsel waiver and a contractual limitation-of-liability defense. Pet. at 39. And Relators note that Section 5.10 does not contain the reasonableness requirements present in a common law advice-of-counsel waiver. Relators contend that because the Texas Business Organization Code § 101.401 allows the parties to restrict duties and related liabilities, Section 5.10 should be enforced as an objective safe-harbor provision. Thus, because Section 5.10 does not use the word “reasonable,” Relators argue the Texas Supreme Court should not add such language to the ECI company agreement.
Finally, Relators’ Reply contends there is no support for the proposition that asserting a “contractual limitation of liability defense is somehow an automatic waiver that needs not satisfy the requirements every other such waiver must satisfy.” Relators’ Reply In Support Of Petition for Writ of Mandamus at 19, In re Elm Creek Invs., No. 26-0804 (Tex. filed Oct. 9, 2026) (orig. proceeding) (hereinafter, “Reply”). Relators distinguished the federal and criminal cases cited by Real Parties because the former apply a lower standard and the latter involve voluntary disclosures. Of note, Relators did not address a secondary source cited by Real Parties, which provides: “if a party interjects the ‘advice of counsel’ as an essential element of a claim or defense, then that party waives the privilege as to all advice received concerning the same subject matter.” 1 McCormick On Evid. Section 93 (Robert P. Mosteller ed., 9th ed. 2025); Reply at 19-20. Relators also argue that Real Parties relied solely on offensive-use waiver below and, thus, are precluded from relying on a different waiver doctrine. Reply at 19.
B. Real Parties’ position: Advice-of-counsel and offensive-use waiver apply.
The Response frames the trial court’s order as based on a finding that advice-of-counsel waiver applies. Resp. at 40-43. Real Parties contend “the trial court’s discovery order regarding advice of counsel was not specifically based on any single doctrine”, but instead it actually followed “months of discovery hearings in which Rial . . . raised arguments regarding waiver . . . and the offensive-use doctrine.” Resp. at 23. Real Parties further contend the trial court’s order should be upheld on any independent ground. Resp. at 39.
Further, Real Parties argue that, while “[o]ffensive use is one form of implied waiver,” “[a]dvice of counsel asserted as a defense independently places the advice at issue and prevents using privilege as both shield and sword.” Resp. at 42. In support, Real Parties cite Bailey v. State, which held that when a party asserts “a defense based on an assertion of good-faith reliance on the advice of counsel[,]” privileged advice is waived. 469 S.W.3d 762, 775 (Tex. App.—Houston [1st Dist.] 2015), aff’d, 507 S.W.3d 740 (Tex. Crim. App. 2016). Similarly, they cite a federal district court in Texas which held there is a waiver “[w]hen a defendant asserts an advice-of-counsel defense, . . . because such documents are evidence of a relevant and non-privileged fact, namely what the defendant knew about” the claim the defendant is facing. Autobytel v. Dealix, 455 F. Supp. 2d 569, 572 (E.D. Tex. 2006). In other words, Real Parties argue that they must be able to determine what advice was received, whether it concerned the challenged conduct, and whether Williams & Chalupa acted on it. Resp. at 40-41, 43.
In response to Relators’ contractual limitation-of-liability distinction, Real Parties argue that because Section 5.10 does not expressly prohibit discovery when it is invoked, the Texas Supreme Court should not add such language to the ECI company agreement. Real Parties contend that Relators fail to cite any authority for the proposition that Section 5.10 is an “‘objective, contractual safe harbor'” and specifically note that Texas Business Organization Code Section 101.401 concerns limiting liability, not discovery. Resp. at 41 & nn.3-4.
Alternatively, Real Parties argue that the elements of offensive-use waiver were satisfied. Regarding the first element, Real Parties rely on a Houston Court of Appeals decision holding that the affirmative-relief element is satisfied when the party claiming the privilege seeks “statutory penalties, actual damages, and attorney’s fees.” In re Bonding, 522 S.W.3d 75, 90 (Tex. App.—Houston [1st Dist.] 2017, orig. proceeding). In that regard, Real Parties make two points: (a) Williams & Chalupa seek attorneys’ fees, and (b) entities controlled by Williams & Chalupa, including ECI, seek fees, penalties, and declaratory relief. Resp. at 43-44. Relators respond that the relief sought by those entities is irrelevant because those entities are not asserting the Section 5.10 defense. Reply at 17. Of note, the parties’ mandamus briefing does not squarely address who holds the asserted privilege—Williams & Chalupa or ECI. Regarding the second and third elements, Real Parties largely argue that only after discovering the substance of the advice can they determine whether that advice was relied upon. Resp. at 44-45. Real Parties rely on Tex. Dept. of Pub. Safety Officers Ass’n v. Denton for the proposition that questions concerning the allegations asserted by the party claiming privilege “go directly to the heart of” that party’s claims. 897 S.W.2d 757, 761-62 (Tex. 1995). Real Parties contend that the alternative evidence does not go to the heart of the issue. Resp. at 45.
Practice Pointers
Parties dealing with either advice-of-counsel or offensive-use waiver should carefully track the status of In re Elm Creek Invs. In the meantime, whenever a party intends to assert, or may rely on, advice of counsel in a Texas state court proceeding:
- Counsel should discuss with their clients the potential waiver of the attorney-client privilege by asserting that they relied on advice of counsel for any action or inaction—even as a purely defensive matter—before asserting it.
- Counsel considering whether to include a provision like Section 5.10 in a company agreement may wish to specify how reliance on the advice of counsel under the contractual provision is to be proven and whether invoking the provision waives privilege.
Shain Khoshbin and Aaron Dilbeck are attorneys in the complex litigation/dispute resolution group at Munck Wilson Mandala.
DISCLAIMER: This article does not constitute legal advice. It provides general information, which may or may not be correct, complete or current at the time of reading. The content is not intended to be used as a substitute for specific legal advice or opinions.
Reprinted with permission from the Nov. 5 issue of Texas Lawyer© 2026. ALM Global Properties LLC, trading as Centellic. Further duplication without permission is prohibited contact 877-256-2472 or [email protected]. All rights reserved.
