J-A29038-14
2015 PA Super 5
RED VISION SYSTEMS, INC. AND : IN THE SUPERIOR COURT OF
TITLEVISION TEXAS, LLC : PENNSYLVANIA
:
v. :
:
NATIONAL REAL ESTATE INFORMATION :
SERVICES, L.P., NATIONAL REAL ESTATE :
INFORMATION SERVICES, INC., AND :
NREIS OF TEXAS, LLC :
:
APPEAL OF: THOMAS K. LAMMERT, JR. : No. 416 WDA 2014
Appeal from the Order Entered February 26, 2014
in the Court of Common Pleas of Allegheny County,
Civil Division, at No(s): GD13-008572
BEFORE: FORD ELLIOTT, P.J.E., ALLEN, and STRASSBURGER,* JJ.
OPINION BY STRASSBURGER, J.: FILED JANUARY 13, 2015
Thomas K. Lammert, Jr. (Lammert), a non-party to this action,
appeals from the February 26, 2014 order which denied his motion to quash
subpoena and for protective order. Also before us is the motion of appellees
Red Vision Systems, Inc. and Titlevision Texas, LLC (Plaintiffs, collectively)
to quash some issues raised in the appeal. After careful review, we grant in
part and deny in part Plaintiff’s motion, and affirm the trial court’s February
26, 2014 order.
This action was filed by Plaintiffs against National Real Estate
Information Services, L.P. (NREIS, L.P.), National Real Estate Information
Services, Inc. (NREIS, Inc.), and NREIS of Texas, LLC (Defendants,
collectively). Plaintiffs are affiliated companies which provide real estate
*Retired Senior Judge assigned to the Superior Court.
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services such as title searches to customers throughout the United States.
Complaint, 5/14/2013, at 3. Plaintiffs filed a complaint in the Allegheny
County Court of Common Pleas alleging that they performed a variety of
services for Defendants pursuant to a number of different agreements and
that Defendants failed to pay invoices for those services totaling more than
$500,000. Id. at 3-6.
When Plaintiffs’ attempts in May and June of 2013 to serve Defendants
with the complaint pursuant to Pa.R.C.P. 400(a) were unsuccessful, they
received permission to serve Defendants through certified mail and
publication pursuant to Pa.R.C.P. 430. Order, 9/23/2013. Accordingly,
Plaintiffs published notice of suit and notice to defend in the Pittsburgh Post-
Gazette and Pittsburgh Legal Journal, and served NREIS of Texas by certified
mail. Affidavit of Service, 9/27/2014; Affidavit of Service, 11/15/2013.
Plaintiffs subsequently learned that each defendant corporation was defunct
and/or dissolved.
Believing that Defendants transferred substantial assets to other
entities in order to avoid paying creditors such as Plaintiffs, Plaintiffs sought
“to obtain information relating to the disposition of [D]efendants’ assets and
to identify possible sources of recovery.” Trial Court Opinion and Order,
2/26/2014, at 1. Such information might enable Plaintiffs “to amend their
Complaint to raise causes of action based on the law governing fraudulent
transfers.” Id. The only source of such information of which Plaintiffs are
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aware is Lammert, who had been in-house counsel to each of Defendants,
was an officer of NREIS, Inc. prior to its interests in NREIS, L.P. being sold,
and a manager of NREIS Texas, which was a subsidiary of NREIS, L.P., and
NREIS, LLC. Reply Brief to Plaintiffs’ Brief in Opposition to Quash Subpoena,
12/12/2013, at 2.
On September 23, 2013, Plaintiffs filed a notice of intention to serve
Lammert with a subpoena to attend and testify. In addition to requiring his
testimony, the subpoena required Lammert to produce documents related to
the identification of Defendants’ management personnel and insurance
coverage, and any transfer of Defendants’ assets. Subpoena to Attend and
Testify, 9/17/2013, at Exhibit 1.
Lammert filed a motion to quash the subpoena, claiming that many of
the requested documents are protected by the attorney-client privilege,1 or
would require the disclosure of sensitive information of third parties subject
to non-disclosure agreements. Motion to Quash Subpoena and for Protective
1
Lammert also made arguments as to work-product privilege. Although he
raises the argument in his brief on appeal, Lammert’s Brief at 34-36, no
issue related to the applicability of the work-product privilege is included in
his statement of questions presented or fairly suggested thereby.
Accordingly, we will not consider the argument. See Nolt v. TS Calkins &
Associates, LP, 96 A.3d 1042, 1047 n.4 (Pa. Super. 2014) (“As the
[appellants] did not raise this issue in their statement of questions involved,
it is waived and we will not address it.”); Pa.R.A.P. 2116(a) (“No question
will be considered unless it is stated in the statement of questions involved
or is fairly suggested thereby.”).
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Order, 12/2/2013,2 at 3. Lammert further claimed that he would incur a
“considerable burden and expense” in reviewing and categorizing the
records, which are electronically-stored. Id. Plaintiffs filed an answer to
Lammert’s motion contesting the existence of any privilege, agreeing to the
entry of a protective order to limit Plaintiffs’ use of confidential information,
and claiming that Lammert failed to demonstrate that complying with the
subpoena would be unduly burdensome. Answer to Motion to Quash
Subpoena and for Protective Order, 11/19/2013, at 5-9.
The trial court denied Lammert’s motion by an opinion and order filed
February 26, 2014, holding (1) the attorney-client privilege did not protect
Defendants’ documents because Defendants no longer existed or had
interests in need of protection; (2) Lammert would not violate any
confidentiality agreements by producing documents pursuant to court order;
and (3) because he need not concern himself with applicability of privilege or
confidentiality agreement, Lammert may “blindly turn over” the documents,
and thus need not undergo any burdensome review of the documents. Trial
Court Opinion and Order, 2/26/2014, at 3-4.
On March 12, 2014, Lammert filed a notice of appeal. That same day,
the trial court filed an order pursuant to Pa.R.A.P. 1925(a), indicating that
the reasons for its decision were provided in its February 26, 2014 opinion.
2
Lammert’s motion was served upon Plaintiffs on November 4, 2013, but
was not docketed until December 2, 2013, after he presented it to the
Honorable R. Stanton Wettick, Jr. on November 15, 2013.
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Lammert presents the following questions for this Court’s review.3
1. Whether the attorney-client privilege survives the
dissolution of a limited liability company, limited partnership,
corporation or other legal entity, particularly when the legal
entity continues to be subject to suit in the courts of the
Commonwealth?
2. Whether former counsel to a dissolved limited liability
company, limited partnership, corporation or other legal entity
may invoke the attorney-client privilege on behalf of the legal
entity?
3. Whether the Court of Common Pleas erred in denying
Appellant’s Motion to Quash Subpoena and for Protective Order
where Appellant will be required to blindly produce confidential
non-public personal information of third-parties and documents
of clients other than Defendants?
4. Whether the Court of Common Pleas erred in requiring
Appellant to produce the subpoenaed documents, which are
essentially pre-complaint discovery, despite the unreasonable
burden to Appellant?
Lammert’s Brief at 3 (trial court answers omitted).
We begin by considering our jurisdiction over this appeal. Lammert
asserts that the trial court’s interlocutory order is immediately appealable as
a collateral order under Pa.R.A.P. 313. Lammert’s Brief at 1.
Generally, discovery orders are not appealable as they do not
dispose of the litigation. However, Pennsylvania Rule of
Appellate Procedure 313 provides that appeals may be taken
from collateral orders, that is, those which are separable from
and collateral to the main cause of action where the right is too
important to be denied review and the question presented is
3
The issues have been briefed in this Court not only by Lammert and
Plaintiffs, but also by amicus curiae, the Association of Corporate Counsel
(ACC) and three of its Pennsylvania chapters.
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such that if review is postponed until final judgment in the case,
the claim will be irreparably lost.
PECO Energy Co. v. Insurance Co. of North America, 852 A.2d 1230,
1233 (Pa. Super. 2004) (citations and quotation marks omitted). “Rule 313
must be interpreted narrowly, and each of the above prongs must be clearly
present for an order to be considered collateral.” J.S. v. Whetzel, 860 A.2d
1112, 1117 (Pa. Super. 2004). Further, we apply the three-prong collateral
order test separately to each issue raised in the appeal. Rae v.
Pennsylvania Funeral Directors Ass’n, 977 A.2d 1121, 1123 (Pa. 2009).
“Appellate review is appropriate when a colorable claim of privilege is
asserted.” PECO Energy Co., 852 A.2d at 1233. Because Lammert’s first
two questions raise a colorable claim of attorney-client privilege, “we find
the instant discovery order collateral and appealable as it implicates
potentially privileged material.” Id.
Plaintiffs have filed a motion to quash this appeal in part. While they
do not contest that Lammert’s first and second questions are properly before
us under Rule 313, Plaintiffs argue that Lammert’s third and fourth questions
do not meet the requisites of a collateral order. Appellees’ Motion to Quash
Issues to Be Raised on Appeal (Appellees’ Motion), 4/2/2014, at 5-7.
While not contesting its severability from the main cause of action,
Plaintiffs maintain that Lammert’s third question “involves no claim of
privilege sought to be protected but rather is a standard confidentiality
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objection to a discovery request.” Appellees’ Motion, 4/2/2014, at 5.
Plaintiffs argue that the question does not involve “a deeply rooted public
policy right too important to be denied review.” Id. Plaintiffs also claim that
postponement of review will not result in irreparable loss because no
privilege is destroyed. Id. at 6.
Lammert counters that the right to privacy of personal information has
been recognized as sufficiently important to satisfy the collateral-order test.
Opposition to Plaintiffs’ Motion, 4/9/2014, at 6. For example, in J.S., 860
A.2d at 1117, this Court held that an expert witness’s “privacy interest in his
income information raises a sufficiently important public policy concern” to
warrant Rule 313 review of an order requiring him to produce IRS tax forms.
Further, Lammert contends, once the sensitive, confidential information of
the non-parties is disclosed, “the confidentiality attaching to this information
is lost.” Opposition to Plaintiffs’ Motion, 4/9/2014, at 8 (emphasis omitted)
(quoting Jones v. Faust, 852 A.2d 1201, 1203 (Pa. Super. 2004)).
As for the documents which he claims are subject to “non-disclosure
or confidentiality agreements” in the instant case, Lammert offers virtually
no description. Lammert’s Brief at 41. Rather, we are left to guess precisely
what “confidential, sensitive and non-public personal information” is
contained in these documents. Id. Without any indication of what type of
information is contained in the documents, we are unable to determine that
Lammert is seeking review of an important issue rooted in Pennsylvania
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public policy. Further, Plaintiffs have agreed to the entry of a protective
order “to safeguard confidential documents and information.” Brief in
Opposition to Motion to Quash Subpoena, 12/30/2013, at 4 and Exhibit 2.
See Gunn v. Automobile Ins. Co. of Hartford, Connecticut, 971 A.2d
505, 512 (Pa. Super. 2009) (holding collateral order test not satisfied where
only generalized, speculative concerns about possible privilege were
asserted and confidentiality could be protected by entry of a protective
order).
Plaintiffs also maintain that Lammert’s fourth question, related to the
burden he will sustain in complying with Plaintiffs’ subpoena, fails to satisfy
any of the prongs of the collateral order test. Plaintiffs’ Motion, 4/2/2014, at
7. In his response, Lammert offers no argument as to what public policy will
be offended if this issue is not reviewed immediately, let alone authority in
support. Nor does he explain how his claim about the unreasonableness of
the burden placed upon him will be irretrievably lost if review is delayed.
Indeed, from the record before us, we are unable to ascertain what burden
he will suffer in obeying the trial court’s order.
Accordingly, we hold that Lammert’s third and fourth issues do not
satisfy the collateral order test, and we grant Plaintiffs’ motion to quash this
appeal as to those issues.
Having established the extent of our jurisdiction, we turn to the merits
of the issues properly before us. Lammert’s first two questions present this
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Court with an issue of first impression in Pennsylvania: whether the
attorney-client privilege survives the dissolution of a business entity. The
question is purely one of law. “The standard of review of questions of law is
de novo, and the scope of review is plenary.” Clarke v. MMG Ins. Co., 100
A.3d 271, 275 (Pa. Super. 2014).
We begin by examining the nature and extent of privilege under
Pennsylvania law,4 and the policies upon which it is based. “In a civil matter
counsel shall not be competent or permitted to testify to confidential
communications made to him by his client, nor shall the client be compelled
to disclose the same, unless in either case this privilege is waived upon the
trial by the client.” 42 Pa.C.S. § 5928.
Although it is now embodied in a statute, “[t]he attorney-client
privilege has deep historical roots and indeed is the oldest of the privileges
for confidential communications in common law.” Nationwide Mut. Ins.
Co. v. Fleming, 924 A.2d 1259, 1263 (Pa. Super. 2007). The privilege is
available to corporate as well as individual clients. Custom Designs & Mfg.
Co. v. Sherwin-Williams Co., 39 A.3d 372, 376 (Pa. Super. 2012).
4
As there is no Pennsylvania case law on point to Lammert’s first two
issues, he and Plaintiffs rely upon other state and federal court cases,
including cases from the United States Supreme Court. Although none of
them is binding upon this Court in determining this issue of Pennsylvania
law, we may consider these cases for their persuasive value. Eckman v.
Erie Ins. Exchange, 21 A.3d 1203, 1207 (Pa. Super. 2011).
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“[W]hen the client is a corporation, the privilege extends to
communications between its attorney and agents or employees authorized to
act on the corporation’s behalf.” Pennsylvania State University v.
W.C.A.B. (Sox), 83 A.3d 1081, 1092 (Pa. Cmwlth. 2013) (quoting In re
Condemnation by City of Philadelphia in 16.2626 Acre Area, 981 A.2d
391, 396 (Pa. Cmwlth. 2009)).5 There are few Pennsylvania appellate court
decisions discussing the attorney-client privilege in the corporate setting.
However, the United States Supreme Court offered the following discussion,
often utilized by courts determining the issue before us, of how the practical
workings of the privilege differ when a corporation, rather than an individual,
is the client.
The administration of the attorney-client privilege in the case of
corporations… presents special problems. As an inanimate
entity, a corporation must act through agents. A corporation
cannot speak directly to its lawyers. Similarly, it cannot directly
waive the privilege when disclosure is in its best interest. Each
of these actions must necessarily be undertaken by individuals
empowered to act on behalf of the corporation.
***
[F]or solvent corporations, the power to waive the corporate
attorney-client privilege rests with the corporation’s
management and is normally exercised by its officers and
directors. The managers, of course, must exercise the privilege
5
“The Commonwealth Court has addressed in detail the issue of whether
corporate employees are protected by attorney-client privilege when
providing information to the corporation's counsel. Although we are not
bound by the holdings of the Commonwealth Court, we have found that
court’s insight into these issues both illuminating and persuasive.” Custom
Designs & Mfg. Co., 39 A.3d at 377 n.3.
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in a manner consistent with their fiduciary duty to act in the best
interests of the corporation and not of themselves as individuals.
***
[W]hen control of a corporation passes to new management, the
authority to assert and waive the corporation’s attorney-client
privilege passes as well. New managers installed as a result of a
takeover, merger, loss of confidence by shareholders, or simply
normal succession, may waive the attorney-client privilege with
respect to communications made by former officers and
directors. Displaced managers may not assert the privilege over
the wishes of current managers, even as to statements that the
former might have made to counsel concerning matters within
the scope of their corporate duties.
Commodity Futures Trading Com’n v. Weintraub, 471 U.S. 343, 348-49
(U.S. 1985) (holding that, because role of bankruptcy trustee was analogous
to solvent corporation’s management, trustee could waive the privilege as to
pre-bankruptcy communications). Accord Maleski v. Corporate Life Ins.
Co., 641 A.2d 1, 3 (Pa. Cmwlth. 1994) (citing 15 Pa.C.S. § 1721 and
Weintraub).
Our Supreme Court has explained that the purpose of the privilege
is to encourage clients to provide information freely to their
attorneys to allow the attorney to give sound and informed
advice to guide their clients’ actions in accordance with the law.
As the privilege encourages clients to speak openly with their
counsel, we recognize that in many cases, [t]he privileged
communications kept from the court do not really represent a
loss of evidence since the client would not have written or
uttered the words absent the safeguards of the attorney-client
privilege. We are further cognizant that to attain the privilege’s
goals, the attorney and client must be able to predict with some
degree of certainty whether particular discussions will be
protected. An uncertain privilege ... is little better than no
privilege at all.
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Levy v. Senate of Pennsylvania, 65 A.3d 361, 371 (Pa. 2013) (internal
citations and quotation marks omitted).
Our Supreme Court has noted “the ongoing tension between the two
strong, competing interests-of-justice factors in play - namely - the
encouragement of trust and candid communication between lawyers and
their clients, and the accessibility of material evidence to further the truth-
determining process.” Gillard v. AIG Ins. Co., 15 A.3d 44, 57 (Pa. 2011)
(citation omitted). Regarding the latter interest, our Supreme Court has
explained as follows.
[E]videntiary privileges are not favored. [E]xceptions to the
demand for every man’s evidence are not lightly created nor
expansively construed, for they are in derogation of the search
for truth. Thus, courts should accept testimonial privileges only
to the very limited extent that permitting a refusal to testify or
excluding relevant evidence has a public good transcending the
normally predominant principle of utilizing all rational means for
ascertaining the truth.
Commonwealth v. Stewart, 690 A.2d 195, 197 (Pa. 1997) (internal
citations and quotation marks omitted).
“The privilege exists only to aid in the administration of justice, and
when it is shown that the interests of the administration of justice can only
be frustrated by the exercise of the privilege, the trial judge may require
that the communication be disclosed.” Cohen v. Jenkintown Cab Co., 357
A.2d 689, 693-94 (Pa. Super. 1976) (en banc). For example, there is an
exception to the privilege where “the client has attacked the integrity and
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professionalism of counsel.” Salsman v. Brown, 51 A.3d 892, 895 (Pa.
Super. 2012). Similarly, “if the legal advice sought from counsel is for the
purpose of committing a crime, the attorney-client privilege does not apply.”
In re Thirty-Third Statewide Investigating Grand Jury, 86 A.3d 204,
217 (Pa. 2014).
Conversely, if the private good of protection from the harm that could
come with disclosure of attorney-client communications is not furthered by
application of the privilege, it is inapplicable:
It is for the protection and security of clients that their attorneys
at law or counsel are restrained from giving evidence of what
they have had communicated and intrusted to them in that
character; so that legal advice may be had at any time by every
man who wishes it in regard to his case, whether it be bad or
good, favorable or unfavorable to him, without the risk of being
rendered liable to loss in any way, or to punishment, by means
of what he may have disclosed or intrusted to his counsel. But
where it is impossible, that the rights or the interests of the
client can be affected by the witness’s giving evidence of what
came to his knowledge by his having been counsel and acted at
the time as attorney or counsel at law, the rule has no
application whatever, because the reason of it does not exist.
Cohen, 357 A.2d at 692 (quoting Hamilton v. Neel, 7 Watts 517, 521 (Pa.
1838)) (emphasis omitted).
Thus, the privilege is not absolute, and “Pennsylvania law imposes a
shifting burden of proof in disputes over disclosure of communications
allegedly protected by attorney-client privilege.” Custom Designs & Mfg.
Co., 39 A.3d at 376.
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The party invoking a privilege must initially set forth facts
showing that the privilege has been properly invoked; then the
burden shifts to the party seeking disclosure to set forth facts
showing that disclosure will not violate the attorney-client
privilege, e.g., because the privilege has been waived or because
some exception applies. Accordingly, [i]f the party asserting the
privilege does not produce sufficient facts to show that the
privilege was properly invoked, then the burden never shifts to
the other party, and the communication is not protected under
attorney-client privilege.
Id. (internal citations and quotation marks omitted).
In order to invoke the privilege properly and shift the burden to the
party seeking disclosure to prove waiver or an exception, the following
elements must be established:
1) The asserted holder of the privilege is or sought to
become a client.
2) The person to whom the communication was made is a
member of the bar of a court, or his subordinate.
3) The communication relates to a fact of which the
attorney was informed by his client, without the presence of
strangers, for the purpose of securing either an opinion of law,
legal services or assistance in a legal matter, and not for the
purpose of committing a crime or tort.
4) The privilege has been claimed and is not waived by the
client.
Fleming, 924 A.2d at 1264 (quoting Commonwealth v. Mrozek, 657 A.2d
997, 998 (Pa. Super. 1995)).
With these principles in mind, we turn to the precise issue before us:
whether Lammert properly invoked the attorney-client privilege on behalf of
Defendants. As noted earlier, there is no Pennsylvania precedent on point.
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The only decision from a Pennsylvania appellate court touching on the issue
is Maleski, supra, a single-judge opinion regarding a motion for
reconsideration of a Commonwealth Court order.
In Maleski, Corporate Life had been found insolvent and ordered to be
dissolved and liquidated. 641 A.2d at 2. The Commonwealth Court also
ordered Corporate Life’s attorneys to give to the statutory liquidator all files
related to its representation of Corporate Life. Id. The law firm asserted
attorney-client privilege, and asked the court to reconsider its ruling. After
examining Weintraub and its reasoning in holding that a bankruptcy trustee
held the power to waive the privilege that had been held by the now-
bankrupt company, the court determined that the statutory liquidator
obtained the authority to waive the privilege “as the management successor
to the former directors and officers of Corporate Life….” Id. at 4.
The issue before the Maleski court was whether the statutory
liquidator had the power to waive the privilege. It is unclear to what extent
the client corporation was still functioning at the time of the order, and the
issue of whether the privilege continued to exist after dissolution was
ordered does not appear to have been questioned. Accordingly, we turn to
the cases cited by Lammert and Plaintiffs in which the issue of the continued
existence of the privilege post-dissolution was the focus of the courts’
determinations.
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In support of his position that the privilege survives after a business
organization ceases to exist, Lammert cites County of Santa Clara v.
Myers Industries, Inc., No. 95-298, 1996 WL 53800 (E.D.Pa. February 9,
1996). In that case, BKHN moved to compel DB&R, former counsel of the
defunct partnership Newbold’s, to produce documents which DB&R claimed
were privileged. The court noted that the “analysis of whether the attorney-
client privilege survives the death of the client depends on whether the
‘rights and interests’ of the client could be adversely affected”. Id. at *1
(citing Cohen, 357 A.2d at 692-93). Although all of the former partners of
Newbold’s were deceased and the partnership had ceased to exist, there was
a question whether another entity, Newson, Inc., was the legal successor to
Newbold’s. Id. at *1. Newson, Inc. denied being the successor-in-interest
to Newbold’s, but until the issue had been determined, the court held that it
would be “unfair to require it to assert the privilege or deem it waived.” Id.
at *2. Therefore, the court allowed DB&R to claim the privilege on behalf of
the defunct partnership for the time being. Id.
Lammert also relies upon, inter alia,6 the case of PCS Nitrogen, Inc.
v. Ross Development Corporation, No. 2:09-3171-MBS, 2011 WL
6
In addition to the cases we address in this opinion, Lammert cites Official
Committee of Administrative Claimants on Behalf of LTV Steel
Company, Inc. v. Bricker, No. 1:05 CV 2158, 2011 WL 1770113 (N.D.
Ohio May 9, 2011). However, this case does not aid in our determination, as
it is based upon an Ohio statute for which Pennsylvania has no equivalent.
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3665335 (D.S.C. August 19, 2011). Therein, PCS had filed a complaint
against Ross, a dissolved corporation, and its directors alleging that the
directors had breached their duties to Ross and its creditors by dissipating
the corporation’s assets. A discovery dispute arose which required the trial
court to determine whether Ross retained the attorney-client privilege after
its dissolution. After examining Weintraub and a number of other
decisions, the court held that “[s]ince South Carolina law permits a dissolved
corporation to be sued, the court finds that it follows that a dissolved
corporation could assert the attorney-client privilege where former directors
or others properly exercise authority to do so.” Id. at *4.
Despite holding that “the attorney-client privilege of a dissolved
corporation can be asserted under certain circumstances,” the PCS
Nitrogen court held that the defendants had failed to meet their burden of
proving that the privilege applied under the circumstances of that case. Id.
The corporation asserted neither any reason for raising the privilege other
than to protect the directors, nor “any interest in maintaining goodwill,
protecting its reputation or protecting any available assets.” Id. Because
the privilege appeared to have been asserted for the impermissible purpose
of protecting the personal interests of the directors, the corporation’s motion
for a protective order was denied. Id.
See id. at *2 (applying Ohio statute which augments the attorney-client
privilege by expressly extending it for dissolved corporations).
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Similarly, in Randy International, LTD v. Automatic Compactor
Corp., 412 N.Y.S.2d 995 (N.Y.Civ.Ct. 1979), the court held that the fact that
corporations which were judgment creditors were “defunct and no longer
functioning or operating” did not preclude them from invoking the attorney-
client privilege. Id. at 997. The court held that “even if a defunct
corporation were to be equated with a deceased individual, the privilege
would continue to exist since it is clear that the privilege continues to exist
after the death of an individual client.” Id. Further, it was appropriate for
the former attorneys of the corporations to raise the privilege because,
under New York law, “the privilege may be raised by anyone.” Id.
However, the court held that the attorneys failed to meet their burden of
justifying the recognition of the privilege because they failed to show that
the information sought (whether the attorneys or anyone else held the
corporation’s money in escrow, whether the attorneys had other matters of
the corporation pending in their office) was from confidential
communications, had been received in the course of professional
employment, or was a matter of public record. Id. at 998-99.
On the other side of the issue, Plaintiffs point us to Gilliland v.
Geramita, No. 2:05-CV-01059, 2006 WL 2642525 (W.D.Pa. September 14,
2006) (McVerry, J.). In Gilliland, the plaintiffs sought documents from
Hergert, an attorney who had represented three of the defendant companies
against which default judgments had been entered. Id. at *1. While not
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dissolved, those companies were insolvent, no longer had managers, and
were “for all practical purposes out of business.” Id. In addition to serving
as counsel for the defendants, Hergert had served as a manager of one
company and as a board member of the other two. Id. In response to the
plaintiffs’ discovery requests, Hergert raised the attorney-client privilege to
withhold documents, which consisted primarily of emails between Hergert
and officers of the companies, because he felt “obligated under the Rules of
Professional Conduct to assert the privilege on behalf of” the defunct
companies. Id.
In ruling on the applicability of the privilege under Pennsylvania law,
the court first opined that it mattered not that the defendants had not
dissolved and continued to have a legal existence, for “decisions about the
attorney-client privilege should be based primarily on the practical realities
of the business rather than technical legal status.” Id. at *2. The practical
reality was that, because the CEO of the defendant companies was
deceased, all other management had resigned, and Hergert’s operational
role in the companies had ended, there was no one in charge of the
companies. In other words, there was “no current management personnel
who [could] assert the attorney-client privilege on behalf of the corporation.”
Id. at *3 (contrasting Weintraub and Maleski). Noting that the analysis of
whether a person has the ability to waive the privilege turns upon whether
the individual is an authorized representative of the corporation, the court
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similarly held that Hergert had not shown that a person with authority to
speak for the company had asserted it: “Defendant cannot meet its burden
to prove that the privilege has been validly asserted because there is no
person with authority to properly invoke the privilege. Thus, the burden
never shifts to plaintiffs to demonstrate that the privilege either does not
exist or has been effectively waived.” Id. at *4.
Addressing policy concerns and counsel’s ethical duty to keep a client’s
confidences, the court offered the following discussion.
[C]ounsel has no duty to assert the attorney-client privilege on
behalf of a non-operating/defunct corporation, and indeed,
counsel lacks the ability to do so.
The better rule, in the [c]ourt’s view, is that there should
be a presumption that the attorney-client privilege is no longer
viable after a corporate entity ceases to function, unless a party
seeking to establish the privilege demonstrates authority and
good cause.
Id. (citations omitted).
The reasoning of Gilliland has been cited with approval or adopted by
other courts. See, e.g., In re Fundamental Long Term Care, Inc., No.
8:11-bk-22258-MGW, 2012 WL 4815321 (Bankr.M.D.Fla. October 9, 2012)
(citing Gilliland in holding that no one remained to assert privilege on
behalf of dissolved company and that the rationale behind the privilege no
longer applied); SEC v. Espuelas, No. 1:11-cv-00025-WSD-RGV, 2011
U.S.Dist.LEXIS 22825 (N.D.Ga. January 27, 2011) (citing Gilliland in
holding that attorney-client privilege does not survive the dissolution of a
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corporation absent a compelling reason); Lopes v. Vieira, 688 F.Supp.2d
1050 (E.D.Cal. 2010) (holding, under the reasoning of Gilliland, that
defunct corporation did not retain attorney-client privilege); TAS
Distributing Co., Inc. v. Cummins, Inc., No. 07-1141 (C.D.Ill. October 7,
2009) (citing Gilliland in holding “[a]bsent some compelling reason to the
contrary, the attorney client privilege does not survive the death of a
corporation”).
Our review of the cases cited by the litigants herein leads us to
conclude that the disparate results turn not upon the application of different
rules of law, but upon differences in facts. The key fact is whether the
corporation is “dead” as opposed to being in some other state, such as a
windup phase, bankruptcy or liquidation, or having merged into or been
acquired by a successor. In the latter cases, there was a person or entity
which succeeded to the defunct company’s interests and authority to assert
the privilege; in the former, no such person or entity existed.
For example, Lammert relies upon Reilly v. Greenwald & Hoffman,
LLP, 196 Cal.App.4th 891 (Cal. App. 2011), in support of his position that a
corporation’s privilege does survive dissolution. That court, remarking that
under California law a dissolved corporation “continues to exist for the
purposes of winding up its affairs, prosecuting and defending actions by or
against it and enabling it to collect and discharge obligations, dispose of and
convey its property and collect and divide its assets[,]” id. at 901, noted
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that “a corporation’s dissolution is best understood not as its death, but
merely as its retirement from active business.” Id. at 902 (internal
quotation marks and citation omitted). Therefore,
[b]ecause it continues in existence … it would appear the
persons authorized to act on the dissolved corporation’s
behalf during the windup process—its ongoing
management personnel—should be able to assert the
privilege, at least until all matters involving the company have
been fully resolved and no further proceedings are
contemplated. [] Indeed, if the lawyer-client privilege is simply
extinguished upon dissolution, then the corporation’s ability to
effectively prosecute or defend actions is eviscerated….
Id. at 901 (emphasis added) (quoting Favlia v. Katten Muchin Rosenman
LLP, 188 Cal.App.4th 189, 219-20 (Cal. App. 2010)). The complaint in that
case not only failed to allege that the dissolved corporation lacked current
management, it “effectively concede[d]” that its majority shareholder was
managing the corporation as it went through the post-dissolution process.
Id. at 902. Thus, Reilly stands for the proposition that the privilege
survives so long as there is a continued corporate existence and post-
dissolution management is there to assert it.7
7
The Reilly court also held that corporation’s attorney was duty-bound to
raise the privilege unless and until someone with authority to waive the
privilege on the corporation’s behalf did so. 196 Cal.App.4th at 902-03.
However, the court’s determination was inextricably intertwined with the fact
that the case was a shareholder derivative suit, the attorney was a
defendant in the case, and the attorney would be unable to defend himself
against claims of wrongdoing unless the corporation waived the privilege.
Id. at 898, 903. Such circumstances are not present in the instant case.
See Trial Court Opinion and Order, 2/26/2014, at 1 n.1 (“Plaintiffs are not
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For their opposing argument that a company’s privilege terminates
upon dissolution, Plaintiffs cite City of Rialto v. United States
Department of Defense, 492 F.Supp.2d 1193 (C.D. Cal. 2007). In that
case, the court indeed concluded that “a dissolved corporation is not entitled
to assert the attorney-client privilege.” Id. at 1197. That ruling applied
only to Kwikset, a corporation which had dissolved 50 years ago and
transferred substantially all of its assets to AHC. As it no longer had any
assets or management, Kwikset no longer had any need for the protections
of the privilege. Id. at 1200. Therefore, “Kwikset lost its right to assert the
attorney-client when its dissolution was complete in 1958.” Id. at 1201.
However, the court also held that AHC acquired the right to assert the
privilege as to Kwikset’s documents when AHC acquired them along with the
rest of Kwikset’s assets. Id. When AHC became Emhart Industries, Emhart
held the privilege as to Kwikset’s attorney-client communications. Id.
Because Emhart failed to assert the privilege in a timely fashion, it waived
its right to raise it, and it was required to produce Kwikset’s documents.
Therefore, the court’s holding was not that any privilege attached to
Kwikset’s attorney-client communications evaporated when Kwikset
dissolved; rather, the privilege continued to exist in successors AHC and
then Emhart after Kwikset’s dissolution was completed.
claiming that Mr. Lammert was involved in any scheme to transfer assets in
order to avoid payment of creditors.”).
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A review of other cases cited by the litigants supports our conclusion
that the same basic legal concepts underlie them, with the different results
based upon the factually dissimilar statuses of the companies. See, e.g.,
County of Santa Clara, 1996 WL 53800 at *2 (refusing to deem privilege
waived until determined whether Newson, Inc. was successor to defunct
partnership), Gilliland, 2006 WL 2642525 at *3 (holding privilege not
invoked properly on behalf of defunct companies because there was “no
person that [was] in a role analogous to current corporate management”);
Lewis v. United States, 2004 WL 3203121 at * (W.D. Tenn. December 7,
2004) (holding attorney client privilege no longer applied where company
was bankrupt and had no assets or managers); Official Committee of
Administrative Claimants on Behalf of LTV Steel Company, Inc. v.
Moran, 802 F.Supp.2d 947, 949-50 (N.D. Ill. 2011) (holding privilege
continued to exist for company which had temporarily dissolved and had
ceased normal business operations but had “not yet ‘died’” because
company was pursuing claims as part of the windup process and retained
management which could assert the privilege). See also Melendrez v. The
Superior Court of the State of California, 215 Cal.App.4th 1343 (Cal.
App. 2013) (holding de facto assignee of defunct corporation had authority
to waive privilege, but noting “[i]f there is no … successor entity, and the
corporation no longer exists, we presume the privilege would no longer
exist”).
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The notion that the continued existence of the corporation’s privilege
turns on whether there is anyone with continued authority to raise it is in
accord with secondary sources which provide that, “[w]hen a corporation or
other organization has ceased to have a legal existence such that no person
can act in its behalf, ordinarily the attorney-client privilege terminates….”
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 73 cmmt. K. See
also 1 Testimonial Privileges § 1:74 (3d ed. 2014) (“For organizations, the
general rule is that when the organization ceases to have legal existence
such that no one can act in its behalf, the privilege terminates.”).
Our ruling also is consistent with Pennsylvania’s policy to apply the
privilege “only to the very limited extent that permitting a refusal to testify
or excluding relevant evidence has a public good transcending the normally
predominant principle of utilizing all rational means for ascertaining the
truth.” Stewart, 690 A.2d at 197 (internal quotation marks and citation
omitted). As the Gilliland court observed,
This rule is consistent with the principle that the attorney-
client privilege should be given the narrowest interpretation
consistent with its purpose. No real purpose would be served by
continuing the privilege after operations cease, as the
corporation would no longer have any goodwill or reputation to
maintain. The possibility that a corporation’s management will
hesitate to confide in legal counsel out of concern that such
communication may become unprivileged after the corporation’s
demise is too remote and hypothetical to outweigh the
countervailing policy considerations supporting discoverability.
Accordingly, counsel has no duty to assert the privilege on behalf
of a non-functioning corporation. Instead, the duty of counsel to
assert the privilege would be triggered only when a person with
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authority to act on behalf of the corporation instructs counsel to
assert the privilege.
Gilliland, 2006 WL 2642525 at *4 (citations omitted). See also Cohen,
357 A.2d at 692-94 (holding interests of administration of justice warranted
disclosure of communications between attorney and deceased client).
Moreover, as the United States Supreme Court has noted, the public
good served by the privilege, namely fostering open communication between
attorney and client, is somewhat lessened when the client is a company
rather than a person:
According to respondents, corporate managers will be wary of
speaking freely with corporate counsel if their communications
might subsequently be disclosed in bankruptcy. But the chilling
effect is no greater here than in the case of a solvent
corporation, where individual officers and directors always run
the risk that subsequent management might waive the
corporation’s attorney-client privilege with respect to prior
management’s communications with counsel.
Weintraub, 471 U.S. at 357 (citations omitted). The privilege belongs to
the company, not to the individuals through whom the company acts, and
those individuals are on notice from the start that their communications may
one day be disclosed not only to future management, but also to a
bankruptcy trustee, a statutory liquidator, or a successor company.
Therefore, we hold that the communications between a corporation or
other business entity and its attorney remain subject to the attorney-client
privilege after the company dissolves and/or ceases normal business
operations so long as the company retains some form of continued existence
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evidenced by having someone with the authority to speak for the “client.”
That person may be a bankruptcy trustee as in Weintraub; a statutory
liquidator as in Maleski; a successor-in-interest as in County of Santa
Clara and City of Rialto; a person managing the corporation during the
windup process as in Reilly; or some other person or group who succeeds to
the defunct company’s management as in Melendrez, 215 Cal.App.4th at
1356 (holding dissolved company which had gone through bankruptcy, no
longer had officers or directors, and existed only as a shell to pay out
insurance proceeds to asbestos claimants could assert attorney-client
privilege through the company’s insurers as its de facto assignee).
However, if a business is dissolved and/or has ceased to operate, and
has neither a legal successor nor some remaining management with
authority to handle the company’s post-dissolution windup, then there is no
longer any “client” to raise or waive the privilege. Without such a client, it is
impossible to satisfy the burden of one invoking the privilege to show that
“[t]he privilege has been claimed and is not waived by the client.” Fleming,
924 A.2d at 1264.
Having determined the applicable law, we apply it to the facts before
us. NREIS, Inc. was a Pennsylvania corporation with a registered office in
Pittsburgh; NREIS, L.P. was a Pennsylvania limited partnership with a
registered office at the same address. Complaint, 5/14/2013, at 2. NREIS
Texas was a Texas limited liability company with a registered office in Dallas.
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Id. “NREIS, Inc. sold its general partner interests in 2011 and is now
defunct; NREIS, L.P. was merged into NREIS, LLC, a Delaware limited
liability company, which dissolved in 2013. NREIS Texas was also dissolved
in 2013.” Lammert’s Brief at 7 n.1 (some punctuation added).
“As part of the wind down of NREIS, L.P., its offices in Pittsburgh were
vacated, and its computer systems and servers were disconnected and
placed in storage.” Id. at 7. However, so he could “continue to provide
legal advice to NREIS, L.P., as well as assistance in its wind down,” id.
(some punctuation added), Lammert was given electronic copies of his
documents and emails, and an email account was set up through which he
could continue to receive NREIS email after the dissolution. Id. at 7-8. In
addition to the electronic documents, Lammert “is also in possession of
several bankers’ boxes of bank reconciliations and related documents
concerning consumer residential real estate transactions.” Id. at 8.
Although at some point he had held management positions with two of
Defendants and had retained company documents and the ability to receive
company email, Lammert does not claim to have retained the power to act
on behalf of any Defendants post-dissolution. Rather, he emphasized that
he is a non-party and is acting pro se to discharge his ethical duties to his
former clients. See, e.g., Reply Brief to Plaintiffs’ Brief in Opposition to
Quash Subpoena, 12/12/2013, at 1 (“I, Thomas K. Lammert, Jr., am not a
party to this lawsuit, am not an employee of the Defendants and have not
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been hired by them to be involved in this case. … I am before this [c]ourt
because I believe I have a professional responsibility to protect privileged
communications between my former clients and me….”).
Plaintiffs subpoenaed the following documents from Lammert.
1. All documents relating to the current operations of NREIS,
L.P., NREIS, Inc. and/or NREIS of Texas, LLC.
2. All documents relating to the transfer of assets of NREIS,
L.P. and/or NREIS, Inc. from January 1, 2009 to present.
3. All documents relating to the payment of creditors by
NREIS, L.P. and/or NREIS, Inc. from January 1, 2013 to
present.
4. All documents that identify the names and addresses of
the persons who served as officers and/or directors of
NREIS, L.P. and/or NREIS, Inc. from January 1, 2012 to
present.
5. All communications with employees, owners, agents
and/or representatives of NREIS, L.P. and/or NREIS, Inc.
relating to the disposition of assets of NREIS, L.P. and/or
NREIS, Inc.
6. All communications with employees, owner, agents and/or
representatives of NREIS, L.P. and/or NREIS, Inc. relating
to the transfer of assets of NREIS, L.P. and/or NREIS, Inc.
7. All documents, including communications with employees,
owner, agents and/or representatives of NREIS, L.P.
and/or NREIS, Inc., relating to the cessation of the
operations of NREIS, L.P. and/or NREIS, Inc.
8. All documents that identify the insurance carrier(s)
providing errors and omissions/liability insurance coverage
to the officers and/or directors of NREIS, L.P. and/or
NREIS, Inc. from January 1, 2012 to present, and a copy
of the declaration page and insurance policy applicable
during such time.
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Subpoena to Attend and Testify, 9/17/2013, at Exhibit 1.
Because the burden is upon the person asserting the privilege to
establish that it has been invoked properly, it is clear that Lammert’s claim
of privilege cannot be sustained on the record before us. Lammert points to
no person who presently has the authority to claim or waive the privilege on
behalf of Defendants. Thus, as with the attorney in Gilliland, he failed to
show that the “privilege has been claimed and is not waived by the client.”
Fleming, 924 A.2d at 1264.
Further, although Lammert generically asserts that “many of the
documents demanded by the subpoena are protected by the attorney-client
privilege[,]” Motion to Quash Subpoena and for Protective Order, 12/2/2013,
at 3, he failed to offer proof that any document in his possession constitutes
a communication made by one of Defendants to Lammert which “relates to a
fact of which the attorney was informed by his client, without the presence
of strangers, for the purpose of securing an opinion of law, legal services or
assistance in a legal matter, and not for the purpose of committing a crime
or tort.” Fleming, 924 A.2d at 1264.
Lammert appears to justify his bald claim of privilege by pointing to
the burden it would cause him, a non-party who is no longer being
compensated for his time by Defendants, to review the documents and
compile a privilege log. In so doing, Lammert is trying to have his cake and
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eat it too. The fact that such a burden of time and money would be placed
upon Lammert if the privilege were still applicable under the circumstances
of this case further supports our determination that the interests of justice
outweigh the motivation for the client to speak openly with its counsel when
the client is a business which no longer has any existence.
Because the record contains insufficient proof that the attorney-client
privilege is applicable to the information or documents in Lammert’s
possession, the privilege has not been invoked properly. Therefore, the
attorney-client privilege, as codified at 42 Pa.C.S. § 5928, does not prevent
Lammert from disclosing Defendants’ communications. Accordingly, we
affirm the trial court’s order to the extent that it denied Lammert’s motion to
quash the subpoena based upon the existence of attorney-client privilege.
Order affirmed. Motion to Quash Issues to Be Raised on Appeal
granted. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 1/13/2015
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