Reilly v. Greenwald & Hoffman, LLP
196 Cal. App. 4th 891
| Cal. Ct. App. | 2011Background
- Reilly, a minority shareholder, sues BRi, Brion, and Greenwald & Hoffman, LLP for negligence, misrepresentation, malpractice, breach of contract, and related conspiracy in connection with Brion’s misappropriation of BRi assets after dissolution.
- BRI dissolved in August 2009; windup proceedings ongoing with Brion as majority owner/officer continuing to manage BRi.
- Plaintiff alleges Greenwald, BRi’s outside counsel, aided Brion’s improper conduct by advising that BRi could appropriate BRi assets without distributing to Reilly.
- Greenwald demurred, arguing the attorney‑client privilege shields communications with Brion; without waiver, Greenwald cannot meaningfully defend against the derivative claims; also challenged Civil Code section 1714.10(b) procedural requirements.
- Trial court sustained the demurrer based on McDermott v. Superior Court’s privilege ruling and dismissed the action; judgment entered April 13, 2010.
- Favila v. Katten Muchin Rosenman LLP later held a dissolved corporation may still assert attorney‑client privilege during windup, influencing appellate analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does McDermott bar the derivative claims due to privilege without a waiver? | Reilly argues McDermott is inapplicable to a dissolved corp. | Greenwald argues privilege bars defense absent waiver. | Favila undermines McDermott; privilege can apply, action not barred. |
| Can a dissolved corporation assert the attorney‑client privilege during windup? | BRI remains capable of asserting privilege through windup managers. | Privilege should not be extinguished by dissolution. | Favila permits continued privilege during windup. |
| Should the court adopt a conditional stay rather than dismissal to address privilege concerns? | Unclear possibility of waiver or exception; continued action may proceed. | Demurrer should stand; privilege prevents defense. | Reilly forfeited review of Favila’s conditional stay approach; not decided here. |
Key Cases Cited
- McDermott, Will & Emery v. Superior Court, 83 Cal.App.4th 378 (Cal. Ct. App. 2000) (derivative action privileges bar unless Waived; shareholder cannot access privileged communications)
- Favila v. Katten Muchin Rosenman LLP, 188 Cal.App.4th 189 (Cal. Ct. App. 2010) (dissolved corporations may assert privilege; windup persists; informs approach to McDermott in dissolution context)
- Dietz v. Meisenheimer & Herron, 177 Cal.App.4th 771 (Cal. Ct. App. 2009) (factors for denying or delaying action to protect client confidentiality at pleading stage)
- City of Rialto v. U.S. Department of Defense, 492 F.Supp.2d 1193 (C.D. Cal. 2007) (federal discovery context; distinguished derivative privilege issues in CA context)