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When Can the Attorney-Client Privilege Cease to Exist?

When attorney-client and work product privilege issues are litigated, the disputes usually involve the applicability of the privilege, whether any exceptions apply or whether the privilege has been waived. This month’s blog deals with a different spin on the law of privileges, namely, do those privileges ever cease to exist? Here is how that question may arise.

There is a notion under Michigan law dating back to the turn of the last century that confidential attorney-client communications can never be revealed. See Lorimer v. Lorimer, 124 Mich 631, 637 (1900), which is discussed below. But is that the end of the inquiry? What if a corporate client has ceased operations, is defunct and its documents have been scattered to the winds? Suppose that the company’s counsel is the only remaining source of documents, some of which would normally be considered protected by the attorney-client and/or work product privileges.

What then happens if a litigant wants to subpoena documents from the company’s former counsel? Consider the trick box in which the attorney for the defunct company would then find himself or herself. There is no client left to assert or waive the privilege. Is the attorney nevertheless obligated to preserve the privilege and refuse to produce the documents? The Michigan courts have provided little guidance on this issue, but a trio of courts in other jurisdictions have issued decisions that are on point.

One such decision is Gilliland v. Geramita, 2006 U.S. Dist. LEXIS 2642525 (W.D. Pa., Sept. 14, 2006), in which the court held that the attorney-client privilege for a corporation that has ceased operations no longer exists. The Court reasoned that no real purpose is served by continuing to recognize the privilege in that situation, because the defunct company no longer has any goodwill or reputation to maintain. It also observed that the possibility that a corporation’s management will hesitate to confide in legal counsel out of concern that their communications may become unprivileged after the corporation’s demise is too remote and hypothetical to outweigh the countervailing policy consideration supporting discoverability. City of Rialto v. U.S. Department of Defense, 492 F.Supp.2d 1193 (C.D. Cal. 2007), likewise held that a dissolved company loses the right to assert the attorney-client privilege when it is dissolved.

Lopes v. Vieira, 688 F.Supp.2d 1050 (E.D. Cal. 2010), relied on City of Rialto and Gilliland in holding that although a company continued to exist as a corporate entity, it no longer retained the right to assert or waive the attorney-client privilege because it no longer had any assets, ongoing business, management, headquarters or documents. The Court accordingly ruled that the company’s law firm could not invoke the defunct company’s attorney-client privilege and had to produce the subpoenaed documents.

Thus, if a Michigan court is willing to adopt the reasoning of City of RialtoGilliland and Lopes, a litigant could be successful in having his or her subpoena enforced in the defunct business entity context.

But what about the closed estate situation? If a decedent’s estate has been closed and its files have been discarded or destroyed, can a litigant successfully subpoena documents from the decedent’s attorney or compel his or her testimony that might reflect privileged communications with the deceased? The Michigan Supreme Court’s decision in Lorimer, supra, seems to indicate that the answer is usually no. It held that the privilege survives the decedent’s passing and will be enforced against third parties whose interests are adverse to those of the decedent. But the Lorimer Court did note that where there is a dispute over the terms of a will, the lawyer who was consulted or who drafted the will can be compelled to reveal confidential communications if they relate to the decedent’s testamentary intent. 124 Mich. at 638, 639.  Furthermore, in McKinney v. Kalamazoo-City Savings Bank, 244 Mich. 246, 253 (1928), the Court held that the estate’s personal representative can waive the attorney-client privilege on behalf of the decedent for the protection of the estate, but not for the dissipation or diminution of it, because the principal reason for the privilege of secrecy no longer exists.

Thus, if the estate has been closed and its assets have been distributed, and the privileged documents or communications are being sought for purposes that would have no effect on the estate, it would appear that the Michigan courts would rule that the privilege no longer exists. That in fact was the logic employed by the court in Melendrez v. Superior Court of Los Angeles County, 215 Cal. App. 4th 1343, 1353; 156 Cal. Rptr. 3d 335 (2013), which held that once the estate is distributed and the personal representative discharged, the privilege is terminated.

To learn more, contact Jennifer Grieco directly at jgrieco@neumananderson.com.