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September 29, 2003

HLC Properties Limited v. Superior Court of Los Angeles (2003) 112 Cal.App.4th 305

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The Second District decided that the attorney-client privilege passes to the legal successor of a predecessor business organization.  The Supreme Court has accepted review of this decision.

Bing Crosby managed his interests in television programs, motion pictures, radio programs, and music compositions under different business forms throughout his lifetime.  The various businesses that managed Crosby’s interests generally operated under the name Bing Crosby Enterprises.  After his death, Crosby’s widow transferred the assets managed by Bing Crosby Enterprises to HCL Properties, Ltd., a limited partnership formed to manage the Crosby entertainment empire.

HLC filed suit against, among other parties, MCA Recordings, alleging that they had underpaid royalties.  In discovery, HLC withheld the production of 59 documents under the attorney-client privilege doctrine.  MCA issued a subpoena at trial requiring HLC to produce these 59 documents.  The trial court compelled HLC’s production on grounds that the attorney-client privilege of an individual is terminated once the estate is wound up in Probate Court.

In the Court of Appeal MCA argued that because of Crosby’s death and the closing of his estate, there is no holder of the attorney-client privilege.  The Court did not determine whether the privilege terminates as to an individual decedent.  Rather, it held that Bing Crosby Enterprises constituted an “organization,” and HLC, as successor to that business organization, is the holder of the privilege.

The business staff assembled by Crosby to operate his entertainment interests, qualified as an organization under Evidence Code section 953(d) for purposes of the attorney-client privilege.  Though the organization took different forms over the years, it continued to conduct the same operations throughout Crosby’s life and thereafter.  When HLC became the successor of Bing Crosby Enterprises and continued to operate the same business, HLC became the holder of the privilege.

A privilege can flow to a business that assumes the operations of another when there is a continuation of the business, not just an assignment of assets.  The protection of the privilege recognizes that new managers of an ongoing business must be able to assert the privilege as a measure of operational control.

Comment: The courts will elevate substance over form when evaluating attorney-client privilege issues.

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