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No Directors, No Officers, No Employees And No Agents - Now What?

Occasionally, a corporation may find itself with no directors and no management.  Yet, the corporation does not cease to exist.

One might wonder what use can there be in a corporation deprived of head and limb.  In Melendrez v. Superior Court, 2013 Cal. App. LEXIS 343 (April 30, 2013), the corporation was maintained as a shell through which personal injury claims could be passed on to insurers.  A problem arose, however, when discovery was propounded on the corporation.  The corporate attorney responded but "represented to the court that the responses could not be verified, as the corporation had no officer, director, employee, or agent who could verify the discovery responses."  The trial court agreed  that, under the circumstances, no individual existed who could verify the responses, and, at the corporation’s request, simply deemed them verified.  The plaintiff took a writ.

The Court of Appeal first noted that an attorney can in fact verify responses on behalf of a corporation.  See Cal. Code Civ. Proc. §§ 2030.250(b) & 2033.260(b).  But, there's a "but" (and there's usually a "but").  The "but" in this case is that when an attorney does so, there is a limited waiver of the attorney-client privilege.  Because the holder of the privilege is the corporation, it is for the corporation, not the attorney, to decide whether to waive the privilege.  See Cal. Evid. Code § 953.  When there are no directors or officers to ask, obtaining this waiver presents an obvious practical problem.

Writing for the Court, Justice H. Walter Croskey concluded that the trial court should simply try harder:

The trial court should first determine whether SECO is still in existence beyond being a shell for the transmission of insurance claims to its insurers.  If so, the court should direct SECO’s counsel to seek the election or appointment of a new director for SECO, who would hold SECO’s attorney-client privilege.  If not, SECO’s insurers hold its attorney-client privilege.  Once the privilege holder is identified, that individual or entity should be given an opportunity to decide whether to waive the privilege for the limited extent necessary for SECO’s counsel to verify its discovery responses.  If SECO chooses not to waive the privilege, the unverified discovery responses cannot be deemed verified, and the court should proceed to rule on Melendrez’s motions as it would on any discovery motions when the responses are unverified.

I'm confused by the first step of the Court's instruction, which implies that a corporation may be in existence but not sufficiently so as to hold the attorney-client privilege.

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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