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  • Until Death Do Us Part? Magistrate Judge Holds that Corporate Attorney-Client Privilege Dies with the Corporation

    For individuals, the attorney-client privilege is one of the most important aspects of the attorney-client relationship. It is clear that this privilege survives after a person’s death because he/she will be more willing to have honest discussions with his/her lawyer knowing that what is said can be taken to the grave. People are generally concerned about their reputation or civil liability that may harm their family and friends after they die. A Southern District of New York Magistrate found that these concerns do not apply to corporations, and therefore, corporate attorney-client privilege dies at dissolution.

    In a recent case, SEC v. Carrillo Huettel LLP, 2015 U.S. Dist. LEXIS (S.D.N.Y. April 8, 2015), the United States District Court for the Southern District of New York (Francis, J.) held that the attorney-client privilege does not survive a corporation’s death. The Court examined the justifications for preserving the attorney-client privilege and determined that “the interests that are furthered by the extension of the privilege beyond the death of a natural person simply do not apply in the context of a corporate entity.” The Court found that for corporations, it is unlikely that company management would hold back information from lawyers because the communication would no longer be privileged once the company is dissolved.

    By way of brief background, in Carrillo Huettel LLP, a San Diego law firm was shut down and the firm and many other individuals were accused by the Securities and Exchange Commission (“SEC”) of pumping and dumping stock in two publicly traded U.S. companies. The SEC alleges that the Corporation’s principals helped stock promoters hide their ownership interests in their companies, drafted misleading securities filings and gave misleading legal advice, which they received compensation for from proceeds of stock sales disguised as loans. The SEC moved for production of documents withheld by Carrillo, Huettel and the law firm. In response, the lawyers submitted a 27-page privilege log to the Court but the Court rejected it and ordered the attorneys to turn over the withheld documents and compelled them to testify as to their communications with the entities in question.

    As for public policy reasoning, Magistrate Judge Francis stated that “limiting the duration of the attorney-client privilege to the life of the corporation is consistent with the principle that the privilege is to be construed narrowly because it withholds information from the judicial process.”

    Although the court’s ruling has little meaning for corporations that have been dissolved, it can affect the individuals who worked for the corporation as well as any successor entity that could come into being under similar circumstances such as, corporate restructuring for tax, etc. Therefore, businesses should be aware of future effects of the Southern District’s decision.

    If you or your institution has any questions or concerns regarding commercial litigation related issues, please email Cynthia A. Augello at caugello@cullenanddykman.com or call her at (516) 357-3753.

    A special thank you to Lauren Dwarika, a law clerk at Cullen and Dykman LLP, for her assistance with this blog post.