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CALIFORNIA CORPORATE & SECURITIES LAW

When A Corporation Dissolves, Does The Attorney-Client Privilege Live On?

Generally, a corporation’s suit for legal malpractice results in a waiver of the attorney-client privilege.  When the corporation’s suit is brought derivatively, however, the privilege is not waived.  McDermott, Will & Emery v. Superior Court, 83 Cal. App. 4th 378, 383 (2000).  Therein lies a problem.

If the attorney-client privilege is not waived by the filing of a derivative suit for malpractice, then the attorney may be unable to defend the malpractice action.  Thus, the Court of Appeal in McDermott held that an attorney’s inability to disclose privileged communications barred a derivative action from proceeding. 

Does the same rule apply when the corporation has been dissolved?   Last year, the Second District Court of Appeal rejected an argument that McDermott does not apply to a dissolved corporation.  Favila v. Katten Muchin Roseman LLP, 188 Cal. App. 4th 189 (2010).  This week, the Fourth District Court of Appeal reached the same result in Reilly v. Greenwald.

There is a certain symmetry in the Court of Appeal’s approach.  As the Court noted, it is “only logical that if a dissolved corporation continues to exist for litigation, it remains the holder of the attorney-client privilege during litigation.”

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