Attorney-Client: Who Owns the Privilege in Asset Deals?
The default rule in Delaware is that post-closing, the seller’s attorney-client privilege is transferred to the buyer in a deal structured as a merger. But what about an asset purchase? The Chancery Court recently addressed that question in DLO Enterprises, Inc. v. Innovative Chemical Products Group, LLC (Del. Ch.; 6/20). A Steve Quinlivan blog summarizes Vice Chancellor Zurn’s letter opinion:
The court initially noted that cases such as Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP and Shareholder Representative Services LLC v. RSI Holdco were not applicable because those cases arose in the context of a statutory merger The court held in the asset purchase context, the seller will retain pre-closing privilege regarding the agreement and negotiations unless the buyer clearly bargains for waiver or a waiver right. Here, the buyers failed to explicitly secure pre-closing privilege waiver rights relating to the negotiation of the Purchase Agreement.
Section 8.9 of the Purchase Agreement gave buyers waiver rights over the privilege relating to Assets and Assumed Liabilities transferred to buyers. The question presented to the court was whether deal communications related to Assets and Assumed Liabilities. Section 1.2 of the Purchase Agreement defined Excluded Assets to include the sellers’ “rights under or pursuant to this Agreement and agreements entered into pursuant to this Agreement.” Section 8.9’s privilege waiver for Assets did not reach deal communications because Sellers’ rights under or pursuant to the Purchase Agreement were carved out as an Excluded Asset under Section 1.2.
In addition to documents relating to pre-closing deal communications between the sellers and their counsel, the case also involved documents reflecting such communications that were currently in possession of the buyer because these documents were left in email accounts acquired by the buyer. As to this latter category of documents, the Vice Chancellor requested supplemental briefing on the proper test to assess whether sellers waived privilege for these communications.
-John Jenkins, DealLawyers.com June 9, 2020
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