Southern District of New York Issues a Troublesome Corporate Privilege Case

January 18, 2017

Most courts applying privilege principles automatically treat wholly-owned subsidiaries’ employees as if they were the parent’s employees. However, occasionally courts take a narrower view.

In Au New Haven, LLC v. YKK Corp., Judge Netburn rejected defendants’ argument that “entities under common ownership sharing privileged information are always considered to be a single entity for the purpose of attorney-client privilege” protection. No. 15-CV-03411 (GHW)(SN), 2016 U.S. Dist. LEXIS 160602, at *20 (S.D.N.Y. Nov. 18, 2016). Instead, the court surprisingly held that “[e]ntities that are under common ownership must still demonstrate that [the common interest doctrine] applies, such as by making a showing that a common attorney was representing both corporate entities or that they otherwise shared a common legal interest.” Id. at *10. The court ultimately found the privilege applicable.

Although almost by definition a wholly-owned subsidiary’s legal interest must align with its parent’s legal interest, it is unsettling that a prestigious court would apply the common interest doctrine in such a setting.