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Who Is the Client? Recent Appellate Division Ruling Provides Useful Reminder
The result should not be surprising to attorneys. However, we suspect that it would unpleasantly surprise many owners of closely held corporations.
January 12, 2024 at 12:00 PM
2 minute read
A recent unpublished Appellate Division opinion provides a useful reminder of the relationship between the corporate veil and the attorney-client privilege. In Royzenshteyn v. Pathak, the shareholders of a closely held corporation decided to raise capital for the business by selling a majority interest, while retaining a minority interest and executive positions under employment contracts. After a few years, disagreements between the sellers and buyers led the sellers to sue and the buyers to counterclaim. The sellers claimed attorney-client privilege over a broad range of their presale communications with the law firm that represented the corporation in the sale.
After an evidentiary hearing, the trial court found that the firm had represented only the corporation and not the selling owners as individuals. The privilege belonged only to the corporation, and the buyers, who now controlled the corporation, declined to assert it. The Appellate Division held that the trial court's findings as to the client's identity were supported by substantial evidence and affirmed. In affirming, the Appellate Division reiterated settled law that under the Rules of Professional Conduct 1.13(a), an attorney representing a corporation represents the entity and not its individual directors unless all parties give informed consent to concurrent representation. It explicitly declined to depart from the RPC by adopting a presumption that shareholders in a closely held corporation hold the corporation's privilege individually.
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