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Attorney-Client Privilege May Follow Purchaser of Company

By Francis G. X. Pileggi, Esq.

In Postorivo v. AG Paintball Holdings, Inc., 2008 WL  343856  (Del.Ch., Feb. 7, 2008), read opinion here, the Delaware Chancery ruled on the issue of who holds the attorney-client privilege when a company is sold in an asset sale, and the successor continues to operate the business? The court followed settled Delaware law and respected a forum selection clause that provided for New York law to control the dispute between the parties. Here is the money quote:

The [NY] Court of Appeals concluded that when a corporation changes ownership, "whether the attorney-client relationship transfers as well to the new owners turns on the practical consequences rather than the formalities of the particular transaction." [FN17] When the successor merely purchases assets and does not attempt to continue the pre-existing operation, generally the attorney-client privilege does not transfer. By contrast, when the successor continues the operations of the predecessor company, the successor company stands in the shoes of prior management and holds the privilege with respect to communications regarding the company's operations.

In this case, the seller  also excluded certain assets from the sale, and to that extent, he retained any attorney-client privilege that related to those assets.

Full post as published by Delaware Corporate and Commercial Litigation Blog on February 11, 2008 (boomark / email).