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The Loss of Privilege for a Defunct Business

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The Loss of Privilege for a Defunct Business

The issue of whether or not a company retains some level of attorney-client privilege after that company dissolves or ceases normal business operations to some degree has recently become a hot topic in the Pennsylvania courts.

In a recent decision by the Pennsylvania Superior Court, it was held that a so-called “defunct” company only retains attorney-client privileges in limited circumstances.  A former in-house attorney for National Real Estate Investment Services, Inc. was subpoenaed for documents relating to the business to which the attorney responded that he had the right to protect privileged communications between himself and his former employer. 

Judge Eugene B. Strassburger III found that a company maintains the ability to invoke attorney-client privilege but not the “individuals through whom the company acts.”

The court ultimately found that the communications between a company and its attorney are subject to attorney-client privilege after the company dissolves or ceases normal business activity provided that the company retains some level of “continued existence evidenced by having someone with the authority to speak for the client.”

Conversely, if a company that dissolves or ceases operation has neither a legal successor nor any individuals to speak on its behalf with proper authority, there is no longer a “client to raise or waive” the attorney-client privilege.  As such, a company in this scenario loses the right to use the attorney-client privilege to protect documents and materials.  

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