"Common Interest" Privilege Considered By The NC Business Court

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How much of an ownership interest does a parent have to have in a subsidiary for the attorney-client privilege to extend to communications between the susidiary and the lawyer for the parent company?

Judge Gale pondered that question in SCR-Tech v. Evonik Energy Services LLC, 2013 NCBC 42, and wrote on a clean slate, given that he found no applicable North Carolina precedent. Op. ¶8.

The Plaintiff, SCR-Tech, had been owned by a holding company in which Ebinger had a minority (37.5%) interest. The communications withheld on the basis of privilege covered a three year period during which SCR-Tech, Ebinger, and counsel were negotiating the sale of SCR-Tech.

Defendants said that to be considered SCR-Tech's "parent," Ebinger needed to be a majority owner with a greater than 50% interest.

That argument launched Judge Gale into distinguishing the "joint client" aspect of the attorney-client privilege from the "common interest" doctrine. He said:

The “joint client” privilege focuses on client identity as defined by the extent of corporate relationship between two entities. The “common-interest” doctrine depends more on common legal interests between the separate entities, although the fact of corporate affiliation between them can factor into the analysis of that common legal interest.  The common-interest doctrine has arisen by expanding the joint-defense doctrine in criminal law, which was not controlled by any ownership relationship.

Op. ¶12.

The extent of Ebinger's interest in SCT-Tech really didn't make much difference to the analysis, given the two companies' common legal interest in the matters discussed in the withheld communications.

The Court held that the documents in question were privileged and denied the Defendants' motion to compel their production.

Judge Gale cautioned that "the court here does not intend to set rigid parameters for applying the common-interest doctrine, and this Order must be read in the context of the particular facts of this case." Op. ¶12 & n.1.

 

Topics:  Attorney-Client Privilege, Common-Interest Privilege, Corporate Counsel, Parent Corporation, Subsidiaries

Published In: Business Organization Updates, Civil Procedure Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Brooks Pierce | Attorney Advertising

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