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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: March 17, 2019

Business Valuation Not Protected by Attorney-Client Privilege

On February 28, 2019, the Third Department issued a decision inĀ Galasso v. Cobleskill Stone Prods., Inc., 2019 NY Slip Op. 01483, holding that a business valuation was not protected by the attorney-client privilege, explaining:

The attorney-client privilege shields from disclosure any confidential communications between an attorney and his or her client made for the purpose of obtaining or facilitating legal advice in the course of a professional relationship. The party asserting the privilege bears the burden of establishing that the communication at issue was between an attorney and a client for the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship and that the communication was predominately of a legal character. The purpose of the privilege is to ensure that one seeking legal advice will be able to confide fully and freely in his or her attorney, secure in the knowledge that his or her confidences will not later be exposed to public view to his or her embarrassment or legal detriment. Generally, communications made in the presence of third parties, whose presence is known to the client, are not privileged. However, statements made to the agents or employees of the attorney or client, or through a hired interpreter, retain their confidential (and therefore, privileged) character, where the presence of such third parties is deemed necessary to enable the attorney-client communication and the client has a reasonable expectation of confidentiality.

. . .

[W]e are unpersuaded by plaintiff’s contention that the valuation report was protected by attorney-client privilege. Although MPI was hired by plaintiff’s counsel and the agreement between MPI and plaintiff’s counsel states that its communications would be confidential, the primary purpose for which MPI was hired was to appraise plaintiff’s stocks in defendant for estate tax filing purposes. In fact, the instant action was not commenced until after MPI expressed “serious and substantial concerns” upon completion of its appraisal. Therefore, the mere fact that MPI’s report now supports plaintiff’s legal action does not eliminate the fact that the report was not initially done for legal purposes. In fact, during a court conference, plaintiff confirmed that the valuation report did not include any legal information, nor did it disclose plaintiff’s confidences. Thus, given that the primary purpose of MPI’s valuation report was for estate tax purposes and is not of a legal character, Supreme Court properly held that it was not protected by the attorney-client privilege. We also reject plaintiff’s assertion that the Kovel privilege attaches to the valuation report because the purpose of the report was not to facilitate or clarify communications between plaintiff and his attorneys.

(Internal quotations and citations omitted).

An issue that arises in almost all complex commercial litigation is identifying evidence that should be withheld from production in evidence because it is subject to the attorney-client or other privilege. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the attorney-client, common interest, work product or other privileges or exemptions from production of evidence.

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