Another Court Adopts The 'Practical Consequences' Test In Analyzing The Sale Of Corporate Assets

Author:Mr Thomas Spahn
Profession:McGuireWoods LLP

Courts have traditionally recognized what was called the "bright-line" test in assessing whether a corporate transaction conveyed the benefits of an attorney-client relationship (including the privilege). Under that standard, selling the stock of a subsidiary to a third party normally transferred the privilege, while selling assets did not.

Courts increasingly use a more subtle analysis when analyzing asset sales – called the "practical consequences" test. This approach sometimes results in the asset purchaser's ownership of the privilege relating to those assets. In John Crane Production Solutions, Inc. v. R2R & D, LLC, Civ. A. No. 3:11-CV-3237-D, 2012 U.S. Dist. LEXIS 67457 (N.D. Tex. May 15, 2012), the court dealt with a disqualification motion which focused on whether an asset sale conveyed the elements of an attorney-client relationship. The court asked for more evidence...

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