Federal Court Wrestles With Privilege Ownership After a Complicated Corporate Transaction

October 14, 2020

Several previous Privilege Points have summarized often-complicated judicial holdings on who owns privilege protection after corporate stock or asset transactions. It should come as no surprise that the privilege ownership issue can arise in many possible settings.

In In re Ahlan Industries, Inc., Ch. 7 Case No. BG 18-04650, 2020 Bankr. LEXIS 1746 (Bankr. W.D. Mich. July 2, 2020), GRE sued several corporate defendants, individual owners and managers. When one defendant corporation declared bankruptcy, GRE purchased from a Chapter 7 trustee all of the corporation’s assets. GRE claimed that it now owned 60,000 emails on the corporation’s servers. The individual defendants argued that 424 of the emails were their communications with their personal lawyers, which the trustee did not own and therefore could not sell to GRE. Somewhat surprisingly, the court agreed with the individual defendants, applying the generally accepted standard for ownership of such personal emails on company servers (In re Asia Global Crossing, Ltd., 322 B.R. 247 (Bankr. S.D.N.Y. 2005)). The court pointed to the company’s “lack of policies concerning email usage or monitoring, the password protection of the accounts, and the fact that the company had never taken any steps to invade the confidentiality of the accounts.” Id. at *27-28. The court also held that even if the company (now under the trustee’s control) could waive its privilege, the individuals could veto that waiver as the privilege’s co-owners. Id. at *46-47.

The court’s Asia Global analysis was remarkably employee-friendly, but its analysis and holding highlight the difficulty of assessing privilege ownership following such a complicated corporate asset transaction.