The Pennsylvania Superior Court recently denied the assertion of attorney-client privilege by a former inhouse attorney subpoenaed for documents related to his representation of three now-defunct companies (Red Vision Systems, Inc. v. National Real Estate Information Services, LLC). Although the decision stopped short of the trial judge’s contention that the attorney-client privilege never survives corporate dissolution, it established that the attorney-client privilege for a corporation survives cessation of operations or an entity’s dissolution only if the entity “retains some form of continued existence evidenced by having someone with authority to speak for the ‘client.’”
The Court reviewed and relied on existing law in the jurisdiction as the basis for its decision and found that in the past, Pennsylvania courts have consistently upheld claims of attorney-client privilege when asserted by designated parties with authority to raise it; including bankruptcy trustees, successors-ininterest, individuals managing the wind-up process, statutory liquidators, or other persons officially succeeding the management of a defunct company. The former in-house counsel in Red Vision did not allege that he or any other individual was the present, active representative for the companies, and therefore could not claim the privilege.
The decision is sweeping in that it affects not just large corporations in Pennsylvania, but also small businesses that are more prone to failure and likely have a greater need for legal counsel when facing bankruptcy or dissolution. Further, a company’s privilege ultimately protects conversations between individuals. Open and honest communication between corporate counsel and their clients, regardless of size, potentially could be chilled by the knowledge that those communications might be subject to disclosure as soon as the doors close.
The Red Vision ruling counsels that in the case of bankruptcy, liquidation, merger, acquisition or windup, when possible, businesses should consider clearly and unequivocally designating someone with authority to speak for the company so that person may protect the company’s interests even after operations cease. In addition, corporate counsel would be wise to remind and advise all members of management that attorney-client privilege belongs to the corporation until its “death”—meaning that their conversations with counsel may not remain privileged in perpetuity, unless there is some sort of surviving entity.