Attorney-client privilege survives the death of a flesh-and-blood client, Swidler & Berlin v. United States, 524 U.S. 399 (1998), but does it survive when a corporate client is dissolved and — having no assets, no lingering business, no chance of revival, no possibility of being sued and nobody left who is authorized to assert or waive the privilege — is stone cold dead?
Looking at the U.S. Supreme Court’s rationale for extending attorney-client privilege beyond the demise of a human client — and citing U.S. District Court decisions from Central and Northern Illinois — the Colorado Court of Appeals ruled that Kenneth Fellman and his law firm, the former general counsel for a dissolved corporation named EAGLE-Net Alliance, could not claim attorney-client privilege for their communications with the defunct business when they were sued for an allegedly negligent misrepresentation in an opinion letter that the plaintiff relied on in contracting with EAGLE-Net. Affiniti Colorado v. Kissinger & Fellman, 2019 COA 147 (Sept. 12, 2019).
Here are highlights of Judge Rebecca R. Freyre’s opinion (with light editing and omissions not noted):
Fellman urges us to follow the well-settled general rule that the privilege survives the death of a natural person, but acknowledges that whether the privilege survives the dissolution of a corporation is less settled. See In re Grand Jury Subpoena, 274 F. App’x 306 (4th Cir. 2008) (whether “the corporate attorney-client privilege survives the dissolution of the corporate entity” is an “unsettled legal question”). Thus, we begin with the well-settled jurisprudence.
In Swidler & Berlin v. United States, 524 U.S. 399 (1998), the U.S. Supreme Court acknowledged that the attorney-client privilege is “one of the oldest recognized privileges in the law” and held that it survives the death of a client.
In that case, an individual sought legal advice concerning investigations related to the firings of White House travel office employees. The individual later committed suicide, and a federal grand jury issued a subpoena for the attorney’s notes. In the action to enforce the subpoena, the district court concluded that the notes were protected by the attorney-client and work-product privileges.
The appellate court reversed and concluded that the posthumous attorney-client privilege was not absolute in the criminal context. It found “a posthumous exception to the privilege for communications whose relative importance to particular criminal litigation is substantial” and applied the exception to enforce the subpoena.
The Supreme Court disagreed and reversed. It recognized that a posthumous privilege, subject to a few exceptions, was well-settled at common law and found that “a contrary rule would be a modification of the common law.”
The court then discussed the general rationale for the posthumous privilege, explaining that it encourages frank and open communication and that “clients may be concerned about reputation, civil liability or possible harm to friends or family.” It held that because these considerations would be undermined if the posthumous privilege did not apply in criminal cases, no such exception existed.
These justifications, however, do not apply with equal force to defunct corporations for several reasons.
First, while frank and full communications are undoubtedly important between corporations and their attorneys, a corporation’s privilege is held by its managers, who often change over time. Thus, no individual manager can be assured that future managers will not waive the privilege and reveal confidences.
The U.S. Supreme Court alluded to this distinction in Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343 (1985). There, the court considered whether a bankruptcy trustee could waive a dissolved corporation’s attorney-client privilege in bankruptcy proceedings.
It noted that because directors and managers change, and the right to assert or waive the privilege applies only to current directors and managers, “displaced managers may not assert the privilege over the wishes of current managers, even as to statements that the former might have made to counsel concerning matters within the scope of their corporate duties.” Consequently, even frank and open communications between corporate managers and their attorneys are subject to disclosure by future management, undermining this reason for presuming a “posthumous” privilege following a corporation’s dissolution.
As well, corporations do not have friends or family who could be embarrassed or harmed, nor do they have a reputation to protect following dissolution. Further, unlike an individual, whose estate can be sued civilly, once a corporation is fully dissolved, any suit brought against it must be filed within two years [under Colorado law].
As one federal district court has noted, “a dissolved corporation does not have the same concerns as a deceased natural person and therefore has less need for the privilege after dissolution is complete. As there are usually no assets left and no directors, the protections of the attorney-client privilege are less meaningful to the typical dissolved corporation. Moreover, because the attorney-client privilege has the effect of withholding relevant information from the fact-finder, it should be applied only when necessary to achieve its limited purpose of encouraging full and frank disclosure by the client to his or her attorney.” City of Rialto v. Department of Defense, 492 F. Supp. 2d 1193 (C.D. Cal. 2007); see also Trading Technologies International v. GL Consultants, 2012 Westlaw 874322 (N.D. Ill. March 14, 2012) (corporation dissolved for nearly  years could not assert privilege); TAS Distributing v. Cummins, 2009 Westlaw 3255297 (C.D. Ill. Oct. 7, 2009) (privilege did not survive corporation’s dissolution).
Fellman appears to concede that the only policy reason supporting the “posthumous” privilege for a dissolved corporation is to encourage full and frank communications between lawyers and clients.
We reject a “posthumous” privilege for dissolved corporations because the reasons justifying an individual’s posthumous privilege simply do not apply with anything close to equal force to a dissolved corporation and are outweighed by the truth-seeking goals of the justice system.
Other jurisdictions that have considered this question have concluded that, although the privilege does not generally survive the dissolution of a corporation, limited post-dissolution circumstances exist where an individual with the authority to act on behalf of a corporation may invoke or waive the privilege. We consider these cases and conclude that in this case, no one with the authority to act on behalf of EAGLE-Net remains to invoke or waive the privilege.
In Gilliland v. Geramita, 2006 Westlaw 2642525 (W.D. Pa. Sept. 14, 2006), the case on which the district court relied, a federal district court considered the same legal issue under similar circumstances. There, plaintiffs sued a corporation for making misrepresentations that induced them to purchase the corporation’s worthless stock.
At the time of the suit, the corporation had “ceased operations” and was “for all practical purposes out of business,” but it had not been dissolved. Corporate counsel was joined as a defendant, and the plaintiffs sought discovery of communications related to the representation. Counsel asserted the privilege.
The court concluded that the privilege belonged to the corporation, the burden of establishing the privilege was on the party asserting it, and because there was no one left with authority to assert the privilege, the communications had to be produced.
As noted by the district court here, the “trending majority view” in other jurisdictions follows the rule that the attorney-client privilege does not survive a corporation’s dissolution if there is no one with the authority to assert it. See also Restatement (Third) of the Law Governing Lawyers Section 73, Comment k (American Law Institute 2000) (“When a corporation or other organization has ceased to have a legal existence such that no person can act in its behalf, ordinarily the attorney-client privilege terminates.”).
Fellman urges us to follow a different line of cases upholding the attorney-client privilege post-dissolution. But these cases are distinguishable, because unlike Gilliland and this case, they involved ongoing post-dissolution proceedings where a person associated with those proceedings possessed the authority to invoke or waive the privilege on behalf of the dissolved corporation.
We reject Fellman’s assertion that these cases are contrary to the general rule that the privilege does not survive dissolution and instead conclude that they represent exceptions to the general rule.
As recognized by the court in Red Vision Systems Inc. v. National Real Estate Information Services, 108 A.3d 54 (Pa. Super. Ct. 2015), “the disparate results turn not upon the application of different rules of law, but upon differences in facts. The key fact is whether the corporation is ‘dead’ as opposed to being in some other state, such as a windup phase, bankruptcy or liquidation, or having merged into or been acquired by a successor.”
No one asserts that EAGLE-Net is still in windup, bankruptcy or similar proceedings. Therefore, the district court’s finding that EAGLE-Net is a dissolved corporation with no management to act on its behalf is supported by the record.
We next reject Fellman’s related contention that, as EAGLE-Net’s former general counsel, Fellman possesses the authority to invoke the privilege for EAGLE-Net. It relies on the exceptions noted above finding that a successor-in-interest, bankruptcy trustee, person managing windup or statutory liquidator retains the authority to invoke or waive the privilege during post-dissolution proceedings.
Fellman asks us to create a “former general counsel” exception without citing any authority in support. We decline this request because it is inconsistent with existing precedent precluding former corporate directors and managers from invoking the corporation’s attorney-client privilege. And, it is inconsistent with the Supreme Court’s holding that a former manager cannot assert the privilege as a shield to protect his or her own interest. Weintraub, 471 U.S. at 353-54.
Accordingly, we conclude that Mr. Fellman lacks the authority to invoke the privilege.