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Corinne Ball. Photo: Jones Day Corinne Ball. Photo: Jones Day

The “two hats” doctrine evolved in the context of assessing parent responsibility for environmental liability attaching to a subsidiary’s ownership or operation of a polluting facility in the seminal case United States v. Bestfoods, 524 U.S. 51 (1998). The doctrine has generally been viewed as permitting shared officer and director positions without risk of parental liability for subsidiary actions, absent evidence sufficient to support piercing the corporate veil or direct parent action, because courts generally presume that the directors are wearing their “subsidiary hats” and not their “parent hats” when acting for the subsidiary. In contrast, recent rulings from the Bankruptcy Court for the District of Delaware highlight the risk of relying on the “two hats” doctrine to protect attorney-client privilege covering communications involving shared personnel. In In re Maxus Energy Corporation, 617 B.R. 806 (Bankr. D. Del. 2020) and a subsequent letter opinion, Case No. 18-50489 (Bankr. D. Del. March 8, 2020) [Docket No. 359], the court ruled that parent companies waived the privilege. The decision turned on the failure of the party claiming privilege, the parent in this case, to establish that the shared personnel, whether officer, employee or director, received the communication when acting for the parent and not the subsidiary.

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