March 30, 2015 Practice Points

Pennsylvania Court Limits Attorney-Client Privilege for Defunct Business Entities

The Superior Court of Pennsylvania held that "if a business is dissolved and/or has ceased to operate, and has neither a legal successor nor some remaining management with authority to handle the company's post-dissolution windup, then there is no longer any 'client' to raise or waive the privilege."

by Marie-Theres DiFillippo

While "[i]t has been generally, if not universally, accepted, for well over a century, that the attorney-client privilege survives the death of the client[,]" Swidler & Berlin v. United States, 524 U.S. 399, 410 (1998), whether the privilege survives a business entity's dissolution has been less clear. Courts have provided a range of different conclusions, and the Superior Court of Pennsylvania, an intermediate appellate court, recently considered the issue for the first time in that state. In Red Vision Systems, Inc. v. National Real Estate Information Services, L.P., the Superior Court held that "if a business is dissolved and/or has ceased to operate, and has neither a legal successor nor some remaining management with authority to handle the company's post-dissolution windup, then there is no longer any 'client' to raise or waive the privilege." 108 A.3d 54, 68 (Pa. Super. Ct. 2015).

In Red Vision, the appellate court wrestled with the question of whether a former in-house attorney of three related, defunct companies had to comply with a subpoena for documents related to his legal work for the entities. The plaintiffs had filed a complaint against the defendant companies, alleging that they had failed to pay for certain real estate services. It was only after the lawsuit was filed that the plaintiffs learned that all three companies had been dissolved. At that point, the plaintiffs served a third-party subpoena upon the defendants' former in-house counsel, Thomas K. Lammert, Jr., in an effort to determine whether the companies had fraudulently transferred assets to other entities in order to avoid paying creditors like the plaintiffs. The subpoena also sought production of documents identifying the defendants' management personnel, insurance coverage, and showing any transfer of assets. Lammert filed a motion to quash the subpoenas, asserting, inter alia, that the requested documents were protected by the attorney-client privilege. The Court of Common Pleas for Allegheny County denied the motion.

On appeal, the Superior Court of Pennsylvania considered whether the attorney-client privilege survived the companies' dissolution. Because the issue presented a matter of first impression in Pennsylvania, the appellate court considered the general policies upon which the attorney-client privilege is based, as well as decisions from other jurisdictions. According to the Court, those cases all turned on the fact of whether the business entity was "dead," as opposed to being in some other state of existence where there was still a person or entity with successive interests or authority to assert the privilege. In situations where the company was "dead," no such person or entity existed, and the attorney-client privilege did not survive post-dissolution.

Rather than announce a blanket-rule regarding the assertion of the privilege after a business entity dissolves, the Red Vision Court explained that the continued existence of a defunct company's attorney-client privilege will turn on whether there is anyone with continued authority to raise it. Thus, the Court held that "the communications between a corporation or other business entity and its attorney remain subject to the attorney-client privilege after the company dissolves and/or ceases normal business operations so long as the company retains some form of continued existence evidenced by having someone with the authority to speak for the 'client.'" Red Vision, 108 A.3d at 68. Because Lammert, former in-house counsel for the defendants, did not claim to retain power to act on their behalf post-dissolution, the Court upheld the trial court's finding that he could not assert the attorney-client privilege to avoid compliance with the plaintiffs' third-party subpoena. While the Red Vision case is unlikely to be the last word on the issue, it provides a useful starting point for other attorneys who find themselves in a similar situation.

Keywords: litigation, attorney-client privilege, business dissolution, commercial and business, privilege

Marie-Theres DiFillippo is with Dilworth Paxson LLP in Philadelphia, Pennsylvania.


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