Attorney/Client Privilege with Dissolved Corporations • Fraudulent Transfer • Breach of Contract • Unjust Enrichment
Red Vision Sys. v. Nat’l Real Estate Info. Sys., PICS Case No. 14-0411 (C.P. Allegheny Feb. 26, 2014) Wettick, J. (7 pages).
Where a corporation had dissolved, the attorney-client privilege ended and the dissolved corporation’s attorney could be subpoenaed to divulge information about the disposition of the corporation’s assets in a breach of contract claim. Ordered.
Plaintiff brought an action against defendants for breach of contract and unjust enrichment. After filing, plaintiff learned that defendants had stopped operating and/or dissolved; plaintiff alleged that defendants had transferred their assets in order to avoid paying creditors, including plaintiff. Plaintiff sought discovery against Thomas Lammert, former in-house counsel to defendants, to seek information regarding the disposition of defendants’ assets and other sources of recovery; plaintiff claimed Lammert was the only person of whom they were aware that had information about the identity of persons involved in the transfer of assets.
Lammert filed a motion to quash, invoking the attorney-client privilege. The court noted that the privilege is normally invoked by clients, but that an attorney is expected to invoke the privilege when a client is deceased. The court further noted that the expectation was justified by the necessity of allowing clients to disclose confidences without fear that such confidences might be disclosed, potentially harming the reputation of the client or the client’s family.
The court argued that such justification was inapplicable to corporations, as communications from corporate officers can be disclosed after the corporation has been dissolved; corporate officers therefore do not have the same expectation as individual clients. The court also cited §73 of the Third Restatement of the Law Governing Lawyers, which holds that when a corporation ceases to exist such that no person can act on its behalf, the attorney-client privilege normally terminates.
Although Lammert argued an obligation to protect his former clients, the court noted that Lammert’s clients did not exist, and that Lammert appeared to be protecting the interests of former officers of his corporate clients. However, corporate attorneys owe their obligation to the corporation, and that interest no longer needed to be protected after the corporation dissolved.
The court also rejected Lammert’s argument that production of the thousands of corporate documents in his possession would be an extreme hardship because he would have to review each document for attorney-client privilege, work product privilege, or violation of confidentiality or non-disclosure agreements. However, the court noted that attorney-client privilege, work product privilege, and confidentiality and non-disclosure agreements did not apply; therefore, Lammert could turn over all of the documents without review.
The court concluded that the importance of the discovery request outweighed the burden imposed on Lammert.