Commercial Litigation and Arbitration

Attorney-Client Privilege — Dissolved Corporation’s Right to Assert Privilege

Our post of January 26, 2007, discussed whether, and in what circumstances, the corporate attorney-client privilege moves with the corporation's business. That issue was ultimately dispositive in City of Rialto v. U.S. Dep’t of Defense, 2007 U.S. Dist. LEXIS 48381 (C.D. Cal. May 25, 2007), but the threshold question was whether a dissolved corporation, once it is revived for the purpose of defending itself in court, may assert its former attorney-client privilege. Following the reasoning of Gilliland v. Geramita, 2006 WL 2642525 (W.D.Pa. 2006) (which is discussed in the article entitled Privilege Developments 2006 on the Recent Articles page), among others, Magistrate Judge Suzanne H. Segal concluded that a dissolved corporation may not assert the attorney-client privilege:

A dissolved corporation does not have the same concerns as a deceased natural person and therefore has less need for the privilege after dissolution is complete. As there are usually no assets left and no directors, the protections of the attorney-client privilege are less meaningful to the typical dissolved corporation. Moreover, because the attorney-client privilege has the effect of withholding relevant information from the factfinder, it should be applied only when necessary to achieve its limited purpose of encouraging full and frank disclosure by the client to his or her attorney

That did not lead to the conclusion that no one could assert the privilege, however. At the time of the corporation’s dissolution, another entity ‛became the sole shareholder“ of the dissolved corporation and ‛acquired all of [its] assets,“ including the documents as to which the dissolved corporation wished to assert privilege. The City of Rialto Court recognized that, normally, the transfer of control over the corporation would also result in a transfer of the attorney-client privilege, but that the mere transfer of assets from one entity to another does not necessarily transfer the privilege. Applying the principles discussed in our post of January 26, 2007, the Court found that the privilege had, indeed, passed to the successor entity — but that that entity had waived the privilege. Held, documents unprotected.

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