Court Deals with a Successor’s Ownership of the Attorney-Client Privilege

August 11, 2004

Courts must sometimes deal with “ownership” of the attorney-client privilege in situations involving the sale of corporate control. One case has dealt with this issue in an interesting situation.

In Venture Law Group v. Superior Court, 12 Cal. Rptr. 3d 656 (Cal. Ct. App. 2004), plaintiffs (minority shareholders and former employees of Soft Plus) sued Soft Plus and three of its former officers and directors. The plaintiffs alleged that Soft Plus and the individual defendants deprived them of their statutory rights as minority shareholders when a new owner bought Soft Plus. The three individual defendants asserted an “advice of counsel” defense, and the trial court agreed with plaintiffs that the defense created a subject matter waiver of the attorney-client privilege. The appellate court disagreed, finding that Soft Plus’s privilege now belonged to its new owner, and that the individual defendants could not waive (impliedly or otherwise) Soft Plus’s attorney-client privilege “over the wishes of the current managers” of the company. Id. at 662. Interestingly, the court did not indicate whether the individual defendants could continue to assert an “advice of counsel” defense in light of its ruling.

Lawyers should remember that situations involving the transfer of corporate control can present complicated privilege issues.