Commercial Litigation and Arbitration

Corporate Attorney-Client Privilege — Sale of Business (Asset Sale) — No Waiver By Leaving Privileged Date on Company Computer at Time of Sale

Orbit One Commc’ns, Inc. v. Ronsen, 2008 U.S. Dist. LEXIS 90981 (S.D.N.Y. Oct. 31, 2008):

Numerex argues that Old Orbit One waived its right to assert privilege with respect to any documents remaining on its computers after August 1, 2008 because title transferred to Numerex at that time. To support its position, Numerex relies primarily on In re In-Store Advertising Securities Litigation, 163 F.R.D. 452 (S.D.N.Y. 1995). There, the court held that a predecessor company waived any privilege attached to documents actually possessed by its successor company concerning the predecessor's business operations. Id. at 458. In-Store, however, is inapposite. It did not involve litigation between the predecessor company and successor company concerning the merger transaction; rather, the underlying case was a shareholders' suit arising from an initial public offering of the predecessor company's stock. Id. at 452. Therefore, the successor company needed the purportedly privileged documents to defend against liabilities that it inherited directly from the predecessor company. Id. at 452, 457-58; see Tekni-Plex, 89 N.Y.2d at 136, 651 N.Y.S.2d at 961. Furthermore, In-Store apparently involved documents that were physically transferred to the successor company. In-Store, 163 F.R.D. at 456 (explaining that the contested documents were given to the successor company and subsequently transferred to a third party).

The question of waiver in the instant case is more closely analogous to situations where an employee claims privilege for documents saved to the hard drive of a company-owned computer. Neither the Second Circuit nor the New York Court of Appeals has specifically addressed the extent to which information stored on an employer's computer system can be a confidential communication for purposes of the attorney-client privilege. See Curto v. Medical World Communications, Inc., No. 03 Civ. 6327, 2006 WL 1318387, at *4 (E.D.N.Y. May 15, 2006); Scott v. Beth Israel Medical Center Inc., 17 Misc. 3d 934, 940, 847 N.Y.S.2d 436, 441 (N.Y. Sup. Ct. 2007) (noting that no New York case discussed applicability of attorney-client privilege to confidential e-mails sent via employer's e-mail server). The lower state and federal cases that have addressed this issue have focused on an employer's ability and right to access the information at issue, and whether the privilege-claiming employee had notice of the employer's practices and policies. See, e.g., Scott, 17 Misc. 3d at 939-43, 847 N.Y.S.2d at 440-44 (surveying relevant federal and state cases). In Curto, an employee sought to protect confidential communications that she created on and saved to her company-owned computer but never transmitted through the company's e-mail system. 2006 WL 1318387, at *1. The company argued that its "E-Mail/Computer Privacy Policy" precluded the employee from asserting privilege: "Employees expressly waive any right of privacy in anything they create, store, send, or receive on the [company-owned] computer." Id. The employee, who primarily used her company-owned computer in her home office, argued that her computer files were protected from disclosure because her company lacked physical access. Id. at *1, 5. "The heart of the overriding question," according to the court, was whether the employee was "so careless as to suggest that she was not concerned with the protection of the privilege." Id. at *5. The court concluded that the employee's expectation of confidentiality was reasonable under the circumstances, company policy notwithstanding. Accordingly, the court upheld her assertion of privilege.

There is no case law to support the proposition that Mr. Ronsen automatically waived Old Orbit One's privilege for documents remaining on his work computer after its title passed to Numerex. There is also no support for the proposition that Numerex's company policies change this conclusion. Numerex argues that Mr. Ronsen should have known that documents stored on company computers were not private, based on language in the company handbook. However, as in Curto, Numerex never had ready access to Mr. Ronsen's computer. At all relevant times, Mr. Ronsen worked from New Orbit One's offices in Bozeman, Montana, from the same location where Old Orbit One had been headquartered.... Numerex's other offices were located in Georgia and Pennsylvania.... Numerex did not send personnel to Montana to gain access to New Orbit One's computers until January 2008.... Under these circumstances, Mr. Ronsen's expectation of confidentiality was reasonable. There was thus no waiver of privilege; any confidential communications concerning the acquisition agreement stored on Mr. Ronsen's Old Orbit One computer retained their privileged status.


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