Death to the Company is Death to the AC Privilege
The law in Pennsylvania, like most other jurisdictions, is clear that the attorney-client privilege survives the death of an individual. However, until recently the law was not so clear as to whether that same privilege applies to a corporation after it dissolved or “died.” Earlier this year the Pennsylvania Superior Court answered this question in Red Visions Systems v. National Real Estate Information Services, and just recently, the state Supreme Court denied allocator, leaving the Superior Court’s decision as the law of the state.
The case was initiated by two title companies against several defendants claiming non-payment for various services rendered. After filing suit, the plaintiffs discovered that each of the defendant corporations had dissolved. The plaintiffs suspected that the defendants had transferred assets to other entities to avoid paying creditors and therefore sought to discover information related to the disposition of assets. The only potential source of this information that the plaintiffs identified was a former in-house attorney to each of the defendants.
In response to a subpoena to testify and produce documents related to the defendants’ transfer of assets, the former in-house attorney filed a motion to quash pursuant to the attorney-client privilege. The trial court denied the motion and ruled that the privilege did not apply. On appeal, the Superior Court affirmed and 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.’”
The court noted that the key factor is whether the corporation is actually “dead” as opposed to being in some other state such as liquidation or bankruptcy. If a business has dissolved, and has neither a legal successor nor some remaining management, then there is no longer a “client” to raise the privilege.
Applying that reasoning to the facts, the court found that because the former in-house attorney did not claim to retain any power to act on behalf of the defendants post-dissolution, but rather emphasized only that he was a non-party and acting pro se to discharge his ethical duties to his former clients, the court found that the privilege could not be asserted.
The decision will undoubtedly affect corporations of all sizes in Pennsylvania. It is common for corporate officers to seek legal advice on the disposition of assets when a corp dissolves. Therefore, corporate counsel need to be cognizant of the potential limits on the attorney client privilege as addressed by the foregoing opinion and advise clients accordingly. It will be interesting to see if other states follow the Pennsylvania approach.