Court Rules that Buyers of a Company’s Assets Now Control the Privilege

September 7, 2005

Most courts hold that the purchaser of a corporation’s stock buys the privilege too. On the other hand, purchasers of a company’s assets generally do not acquire the privilege – because the company continues to exist (although perhaps in a limited or even shell form).

In Coffin v. Bowater, Inc., No. 03-277-P-C, 2005 U.S. Dist. LEXIS 9395 (D. Me. May 13, 2005), a company’s bankruptcy trustee attempted to waive the bankrupt company’s privilege. However, the court rejected a “bright-line rule” that only a sale of a company’s stock conveys the privilege. It found that the purchaser of the company’s assets (including all the company’s “tangible and intangible rights”) owned the privilege. Id. at *9. Because the “practical consequence” of the asset purchase “was to transfer virtually all control and continuation of the [company’s] business” to the new owner, the new owner – not the company’s bankruptcy trustee – had the right to waive or assert the privilege. Id.

The court in Coffin relied on another recent case that focused on “practical consequences” rather than a bright-line rule.