Does the Buyer of Corporate Assets Also Purchase the Attorney-Client Privilege?

November 19, 2003

Because the ability to assert and waive the attorney-client privilege constitutes a corporate asset, most courts hold that corporate successors (purchasing a corporation’s stock) can assert or waive the privilege. Courts have taken differing positions in dealing with corporations which purchase assets rather than stock.

In Zenith Electronics Corp. v. WH-TV Broadcasting Corp., No. 01 C 4366, 2003 U.S. Dist. LEXIS 13816 (N.D. Ill. Aug. 6, 2003), Zenith sold assets from one of its corporate divisions to General Instrument Corp. (GI) and another buyer. WH-TV (a company engaged in litigation with Zenith) sought the production of documents that Zenith provided to GI as part of the asset sale, arguing that the sharing had waived the privilege. GI resisted the discovery, noting that its purchase agreement with Zenith included “all intangible personal property” (including all “privileges”) used in the conduct of the business that it had purchased. Id. at *5. The court rejected GI’s argument, as well as the notion that “the attorney-client privilege is a corporate asset that can be sold.” Id. The court acknowledged that a company’s new management may assert or waive the privilege, but explained that “the mere transfer of some assets from one corporation to another . . . does not transfer the attorney-client privilege.” Id. at * 6.

Companies selling assets should not assume that they can avoid waiving the attorney-client privilege by adding a provision in the sales agreement, and may wish to consider restructuring the transaction to protect the privilege.