April 30, 2015 Practice Points

NY Federal Court Finds No Attorney-Client Privilege for Defunct Corporate Entities

A New York federal magistrate judge has ruled that the attorney-client privilege cannot be asserted to shield documents of a company that is defunct

by Charles W. Stotter

Following the "weight of authority," a New York federal magistrate judge has ruled that the attorney-client privilege cannot be asserted to shield documents of a company that is defunct. In Securities and Exchange Commission v. Carrillo Huettel LLP, et al., No. 13 Civ. 1735 (S.D.N.Y. Apr. 8, 2015), U.S. Magistrate Judge James Francis IV found, in the context of an SEC enforcement action, that documents sought from the attorneys for defunct corporate entities were not entitled to be withheld on the basis of attorney-client privilege because such "entities are incapable of asserting the privilege."

In Carrillo Huettel, the SEC charged that the defendants engaged in a "pump and dump" scheme by promoting sales of unregistered securities in connection with two defunct corporate entities, Tradeshow Marketing Company Ltd. and Pacific Blue Energy Corporation. Among other things, the SEC alleged that two of the individual defendants were attorneys who, with their firm, Carrillo Huettel, also named as a defendant, assisted the promoters in their scheme. The SEC sought documents and testimony from the attorneys and their law firm relating to Tradeshow Marketing Pacific Blue, as well as other defunct entities that the attorneys had represented, but the attorneys resisted on grounds of attorney-client privilege. On the SEC's motion to compel production of the withheld documents and the testimony from the attorneys, Judge Francis rejected the defendants' assertion of attorney-client privilege.

The court noted that authorities finding that the "privilege survives the dissolution of a corporation generally do so on the basis of state law," but determined that "where federal law supplies the rule of decision, as it does here, the question of whether the corporate attorney-client privilege survives the demise of the corporation is answered by reference to federal common law." Judge Francis went on to conclude that because the corporate entities as to which documents and testimony were sought "are now defunct," even though some courts consider it an "unsettled legal question," "the weight of authority . . . holds that a dissolved or defunct corporation retains no privilege." Judge Francis noted several rationales for this conclusion: (1) the "interests that are furthered by the extension of privilege beyond the death of a natural person simply do not apply in the context of a corporate entity" (e.g., while a natural person may want to know their confidences will be preserved after their death so as not to affect their reputation or family, after a corporate dissolution there is no longer any "good will or reputation to maintain . . . nor are there tangible assets left to protect"); (2) "there is no one who can speak for a defunct corporation in order to assert the privilege"; and (3) "limiting the duration of the attorney-client privilege to the life of a corporation is consistent with the principle that the privilege is to be construed narrowly because it withholds relevant information from the judicial process."

Judge Francis did recognize that state law may be relevant to, and dictate the determination of whether a corporation is, in fact, dissolved. That would obviously require a case-by-case analysis where privilege is asserted as to an allegedly defunct corporate entity. The ruling here, however, joins those in the majority that reject the assertion of privilege for a defunct business entity under federal common law.

Keywords: litigation, attorney-client privilege, business dissolution, commercial and business, corporate dissolution, defunct corporation, federal common law, privilege

Charles W. Stotter is with Bressler, Amery & Ross, P.C., in Florham Park, New Jersey, and New York, New York.


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