Wednesday, March 30, 2011

Privilege And Girl Scouts

The Oklahoma Supreme Court has held that the attorney-client privilege did not prohibit disclosure of otherwise confidential information from counsel to an entity client to an entity created by a merger. The facts:

The defendant/appellant Marilyn Barringer-Thomson (Attorney) is an attorney who represented Girl Scouts-Sooner Council, Inc. (Sooner) on employee severance and other matters related to employees of Sooner. Subsequently, Sooner merged with Girl Scouts-Red Lands Council, Inc. (Red Lands) and the surviving corporation is the plaintiff/appellee, Girl Scouts-Western Oklahoma, Inc. (Western). Western filed a replevin action to obtain all Sooner files and documents, including confidential employee severance agreements, in the possession of Attorney and now owned by Western as a result of the merger. The petition recited that the documents sought contained details of agreements between Sooner and its former employees for which Western is now responsible as Sooner's successor in interest. Attorney objected, claiming attorney-client privilege and attorney work product. Western asserted that the attorney-client privilege transferred to it as a result of the merger. Both sides filed motions for summary judgment and the trial judge granted summary judgment in favor of Western. Attorney appealed and we granted her motion to retain the case.  

The court concluded:

 The attorney-client privilege belongs to the client and not to the lawyer, and it may be waived only by the client...if the client is a corporation, the privilege may be claimed by the successor, trustee, or similar representative.This is in accord with Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343,348-49, 105 S.Ct. 1986, 1991, 85 L.Ed.2d 372 (1985). There, the Supreme Court stated that the power of a solvent corporation to waive the corporate attorney-client privilege rests with the corporation's management and is normally exercised by its officers and directors. When 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 merger, or simply normal succession, may waive the attorney-client privilege with respect to communications made by former officers and directors. The displaced managers may not assert the privilege over the wishes of current management. Weintraub held that the trustee in bankruptcy of an insolvent corporation had the power to waive the corporation's attorney-client privilege for pre-bankruptcy communications.

To the same effect is Tekni-Plex, Inc. v. Meyer and Landis, 674 N.E.2d 663 (NY 1996). Tekni-Plex merged into TP Acquisitions, which became the surviving corporation. The merger agreement conveyed all of the assets, rights and liabilities of Tekni-Plex. The merger agreement contained warranties by Tang, the owner of Tekni-Plex, that Tekni-Plex was in full environmental compliance, and Tang indemnified TP against loss as a result of breach of the warranties. TP Acquisition later renamed itself Tekni-Plex, Inc. (new Tekni-Plex). New Tekni-Plex obtained arbitration against Tang for breach of warranties of environmental compliance. The law firm representing Tang in the arbitration had represented Tekni-Plex and Tang on environmental compliance matters and also represented them in the merger transaction. New Tekni-Plex moved to disqualify law firm and, among other things, sought an order directing law firm to return to new Tekni-Plex all of the files in the law firm's possession concerning its prior legal representation of Tekni-Plex.

The New York Court of Appeals held that where the successor corporation continued the business operations of the pre-merger entity, ownership of the law firm's files regarding its pre-merger representation on environmental issues passed to the successor, as did control of the attorney-client privilege attached thereto. Thus, ownership of the law firm's files regarding its pre-merger representation of Tekni-Plex on environmental compliance matters passed to the management of new Tekni-Plex. The court held that the privilege did not pass on files regarding the merger transactions because the arbitration arose from representations made in the merger agreement.

 The court concluded that it was necessary for new Tekni-Plex to have the right to invoke the pre-merger attorney-client relationship if it should have to prosecute or defend against third-party suits involving the assets, rights or liabilities that it assumed from Tekni-Plex.

We find the reasoning in Weintraub and Tekni-Plex persuasive. Tekni-Plex holds that where the successor corporation carries on the business and assumes managerial responsibilities, ownership of a lawyer's files regarding its pre-merger representation of a corporation passes to the management of the successor corporation. In the present matter, plaintiff's evidentiary materials show that the business of both Sooner and Red Lands is being continued by Western. Western has assumed Sooner's rights and liabilities and may have to prosecute or defend third-party suits involving those rights and liabilities. Attorney did not represent Sooner in the merger transaction and the materials sought from attorney are not materials regarding the merger transaction itself.

 Sooner did not exempt or exclude confidential or any other materials from the merger agreement; it adopted a merger agreement that transferred all assets, properties and privileges to the surviving corporation. Ownership of Sooner's assets, as well as its attorney-client privilege, has now transferred to Western by operation of law as a result of the merger. To allow Attorney to assert Sooner's attorney-client post-merger would be in derogation of the merger agreement transferring ownership to Western.

(Mike Frisch)

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