{"id":245,"date":"2015-03-12T08:27:54","date_gmt":"2015-03-12T12:27:54","guid":{"rendered":"https:\/\/www2.law.temple.edu\/10q\/?p=245"},"modified":"2015-03-12T08:27:54","modified_gmt":"2015-03-12T12:27:54","slug":"no-mouthpiece-no-privilege-pennsylvania-superior-court-holds-that-the-attorney-client-privilege-does-not-survive-the-dissolution-of-a-business-entity","status":"publish","type":"post","link":"https:\/\/law.temple.edu\/10q\/no-mouthpiece-no-privilege-pennsylvania-superior-court-holds-that-the-attorney-client-privilege-does-not-survive-the-dissolution-of-a-business-entity\/","title":{"rendered":"No Mouthpiece, No Privilege: Pennsylvania Superior Court Holds that the Attorney-Client Privilege Does Not Survive the Dissolution of a Business Entity"},"content":{"rendered":"

Dissolving a business comes with a host of complicated legal issues, and the Superior Court of Pennsylvania recently added one more to the list. In Red Vision Systems, Inc. v. National Real Estate Information Services, L.P.<\/em>, 2015 Pa. Super. 5 (2015), the Court held for the first time that the attorney-client privilege dissolves along with the business, rendering previously privileged documents and communications subject to discovery.<\/p>\n

The underlying complaint in Red Vision Systems <\/em>centered on allegations that the defendants \u2014 several business entities \u2014 failed to pay the plaintiff for a variety of real estate services performed on the defendants\u2019 behalf. When attempts to serve the complaint on the defendants were unsuccessful, the plaintiff learned that each of the entities was defunct and\/or dissolved. Seeking to test its theory that the defendants had transferred substantial assets to other entities to avoid paying their creditors, the plaintiff subpoenaed Thomas K. Lammert, Jr., who had served as in-house counsel for each of the defendants before their dissolution. The plaintiff also requested that Lammert produce documents relating to the defendants\u2019 management personnel, insurance coverage, and any transfer of defendants\u2019 assets.<\/p>\n

Lammert filed a motion to quash the subpoena and asserted the attorney-client privilege. The trial court denied the motion to quash, holding that \u201cthe attorney-client privilege did not protect Defendants\u2019 documents because Defendants no longer existed or had interests in need of protection.\u201d Lammert appealed this ruling, arguing that the privilege survived dissolution. The Superior Court addressed the following questions of first impression: (1) \u201cWhether the attorney-client privilege survives the dissolution of a limited liability company, limited partnership, corporation or other legal entity, particularly when the legal entity continues to be subject to suits in the courts of the Commonwealth?\u201d; and (2) \u201cWhether former counsel to a dissolved limited liability company, limited partnership, corporation or other legal entity may invoke the attorney-client privilege on behalf of the legal entity?\u201d The Superior Court answered both questions in the negative.<\/p>\n

Pennsylvania case law makes clear that the client must assert the attorney-client privilege to invoke its protection. The Court’s determination that the attorney-client privilege dissolves with the business stems from the well-settled concept that a business can speak only through its agents.\u00a0Thus, the power to assert (or waive) the attorney-client privilege rests with a business\u2019s managers, officers, and directors (not former counsel, the Court held in deciding the second issue presented).<\/p>\n

The Court\u2019s determination that the attorney-client privilege dissolves with the business stems from the well-settled concept that a business can speak only through its agents.<\/p><\/blockquote>\n

\u201c[T]he continued existence of the corporation\u2019s privilege turns on whether there is anyone with continued authority to raise it,\u201d the Court reasoned. When a business entity is \u201cdead,\u201d it has no managers, officers, or directors to speak for it, and the privilege effectively evaporates. The Court was careful to note that this logic does not apply in successorship situations or where a business is in a wind-up phase with people still operating on its behalf.<\/p>\n

The Court crafted its precise holding in the case as follows: \u201cWe hold 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 \u2018client.\u2019\u201d The Court went on to note that the \u201csomeone\u201d may be a bankruptcy trustee, statutory liquidator, successor-in-interest, someone managing the entity during a wind-up process, or \u201csome other person who succeeds to the defunct company\u2019s management.\u201d If the company retains no form of existence, and therefore has no one to speak for it, the attorney-client privilege is lost.<\/p>\n

Addressing the concern that its holding will have a chilling effect on communications between corporate representatives and corporate counsel, the Court quoted from an opinion of the U.S. District Court for the Western District of Pennsylvania as follows: \u201cThe possibility that a corporation\u2019s management will hesitate to confide in legal counsel out of concern that such communication may become unprivileged after the corporation\u2019s demise is too remote and hypothetical to outweigh the countervailing policy considerations supporting discoverability.\u201d<\/p>\n

A petition for Allowance of Appeal to the Pennsylvania Supreme Court is pending. Until Red Vision Systems<\/em> is overturned, businesses involved in litigation, or that suspect or know that litigation is on the horizon, might want to think twice about closing their doors. Before dissolving, a business with active or anticipated litigation should do a cost-benefit analysis with respect to their attorney-client privileged documents. Specifically, the business should carefully analyze all documents that would lose their privileged status should the company dissolve. Then the business should determine whether the risk it would face if documents were subject to discovery outweighs the benefits of immediate complete dissolution. If discovery of the documents carries a high risk of harm, the company might want postpone complete dissolution until the litigation at issue concludes.<\/p>\n

Emily Miller is an associate in the Philadelphia office of Cozen O\u2019Connor. She is a member of the firm\u2019s Labor and Employment Department, providing management-side representation in a wide range of labor and employment matters.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Dissolving a business comes with a host of complicated legal issues, and the Superior Court of Pennsylvania recently added one more to the list. In Red Vision Systems, Inc. v. National Real Estate Information Services, L.P., 2015 Pa. Super. 5 (2015), the Court held for the first time that the attorney-client privilege dissolves along with<\/p>\n","protected":false},"author":5,"featured_media":247,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[12,13,52],"tags":[],"coauthors":[51],"class_list":["post-245","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-alumni-authored","category-business-law-practice","category-compliance","masonry-post","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"yoast_head":"\nNo Mouthpiece, No Privilege: Pennsylvania Superior Court Holds that the Attorney-Client Privilege Does Not Survive the Dissolution of a Business Entity - The Temple 10-Q<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/law.temple.edu\/10q\/no-mouthpiece-no-privilege-pennsylvania-superior-court-holds-that-the-attorney-client-privilege-does-not-survive-the-dissolution-of-a-business-entity\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"No Mouthpiece, No Privilege: Pennsylvania Superior Court Holds that the Attorney-Client Privilege Does Not Survive the Dissolution of a Business Entity - The Temple 10-Q\" \/>\n<meta property=\"og:description\" content=\"Dissolving a business comes with a host of complicated legal issues, and the Superior Court of Pennsylvania recently added one more to the list. 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