Legal Ethics Corner

Ethics Corner is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Attorney Client Privilege Remains Alive Even if Corporation is Barely Alive

A recent court decision has not only confirmed corporate counsel’s strict duties to an active viable corporation, but also to corporations winding up.  More than a decade ago, the court in McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378 (McDermott), held a shareholder bringing a derivative action has no right to information protected by the attorney-client privilege nor any right to waive the privilege on the corporation’s behalf.  (McDermott, 83 Cal.App.4th at 383-384.)  McDermott went on to hold that a derivative action against corporate counsel for breach of duty was barred where corporation refused to waive the attorney-client privilege over corporate attorney-client privilege over “the very communications which are alleged to constitute a breach of that duty,” thus making it impossible for the attorney effectively to defend himself.  (Id. at 385.)

More recently, Reilly v. Greenwald & Hoffman, LLP (May 23, 2011) 196 Cal.App.4th 891, 901held that a dissolved corporation should be permitted to assert its privilege during the windup process, “at least until all matters involving the company have been fully resolved and no further proceedings are contemplated.” (Id.) “Indeed, [a minority shareholder] is able to bring this action because [corporation’s] existence continues for purposes of litigation.  It is only logical that if a dissolved corporation continues to exist for litigation, it remains the holder of the attorney-client privilege during the litigation.  A dissolved corporation would be at just as great a disadvantage as an active corporation by having to disclose confidential communications with its outside counsel.  Moreover, the status of the corporation does not affect corporate counsel’s inability to adequately defend himself or herself against malpractice and related claims in a shareholder derivate suit absent the corporation’s waiver of the privilege.”  (Id.) 

Although these decisions provide protections to attorneys representing corporations, they also provide a strong reminder that attorneys must be cognizant of who they represent when counseling a corporation.   Indeed, "[a]s explained in the Rules of Professional Conduct, rule 3-600, [] [i]n representing an organization, a member shall conform his or her representation to the concept that the client is the organization itself, acting through its highest authorized officer, employee, body, or constituent overseeing the particular engagement." (Skarbrevik v. Cohen, England & Whitfield (1991) 231 Cal.App.3d 692, 704; CRCP, rule 3-600.) 

In this regard, counsel has the duty to maintain inviolate client confidences and to preserve the secrets of his client. (Business and Professions Code section 6068 (e).)

-- Andrew Servais

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis.  Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**