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CALIFORNIA CORPORATE & SECURITIES LAW

Court Rules Attorney-Client Privilege Ceases To Exist When Corporation Ceases To Exist Without Successor

The LLC May Well Be The Platypus Of Business Organizations

What happens to the attorney-client privilege when a corporation dissolves?  Magistrate Judge Sallie Kim recently answered that question in Virtue Global Holdings Ltd. v. Rearden LLC, 2016 U.S. Dist. LEXIS 53076 (N.D. Cal. April 5, 2016):

When a corporation ceases to exist, “the corporate powers, rights and privileges of the corporation shall cease.” Cal. Corp. Code §1905(b). In that case, no entity holds the attorney-client privilege for Original MO2. City of Rialto, 492 F.Supp.2d at 1197 (“a dissolved corporation is not entitled to assert the attorney-client privilege”).

I am somewhat baffled by the ruling because the entity asserting the privilege in the case was not a corporation at all (Section 1905 is in the General Corporation Law).  The entity attempting to claim the privilege was, according to the information provided in the opinion, indubitably a California limited liability company.  Thus, the court should be citing the California Revised Uniform Limited Liability Company Act, not the General Corporation Law.

A citation to the correct law, however, may not change the conclusion as Corporations Code Section 17707.08(b)(2)(C), similar to Corporations Code Section 1905, provides that upon filing a certificate of cancellation, an LLC’s “powers, rights, and privileges shall cease”.

This Court isn’t the only court to be confuse LLCs and corporations, as illustrated by the following recent opinion and order:

Plaintiff Malibu Media, LLC (d/b/a “X-Art.com”) is a California limited-liability corporation that claims ownership of certain United States copyright registrations. Malibu Media, LLC v. Doe, 2016 U.S. Dist. LEXIS 53225 (D.N.J. Apr. 20, 2016)

 

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