October 21, 2019

October 21, 2019

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Is The Attorney-Client Privilege An Asset?

Suppose that a corporation decides to sell all of its assets.  Do all assets include the attorney-client privilege?  In considering this question, I think it is useful to distinguish between the documents or other media that contain the privileged communications and the right to assert the privilege.  One would expect that, unless specifically excluded, assets would include the physical media that contain privileged communications.  Like other assets, these assets can be transferred.  The right to assert the privilege would seem to be a horse of a different color.

Under the California Evidence Code, the holder of the attorney-client privilege is the client.  Cal. Evid. Code § 953.  The client is “a person who, directly or through an authorized representative, consults a lawyer for the purpose of retaining the lawyer or securing legal service or advice from him in his professional capacity . . .”.  Cal. Evid. Code § 951.  Under this definition, a seller who consulted a lawyer prior to sale is the client but a buyer is not with respect to the seller’s lawyer.  If the buyer isn’t the holder, then the buyer may not have any right to assert the privilege.  A further problem is created if documents or other media including the privileged communications are sold because that may destroy the privilege.  Thus, it seems that while the seller may consider the privilege to be valuable, it can’t transfer that value to the buyer of assets without destroying the privilege.  If something has value but can’t be transferred, is it an asset for purposes of a purchase and sale agreement?

If the purchase agreement refers to “all assets”, one could ask “Does ‘all assets’ mean all assets?”  That question may not be enough because one must also resolve whether the privilege is in fact an asset.  Even if one concludes that the privilege is an asset and determines to except it from the definition of “assets” in the agreement, that may not preserve the seller’s right to claim the privilege if documents and other media containing the privilege are transferred.

Today’s post is inspired by Chancellor Leo Strine’s recent ruling in Great Hill Equity v. Sig Growth Equity Fund I, 2013 Del. Ch. LEXIS 280 (Del. Ch. 2013) which deals with a merger (not an asset sale) and Delaware (not California) law.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...