It’s 8 o’clock on the evening before your deposition. You were the CEO of Company X (a corporation), which sold substantially all of itself to Company Y approximately two years ago. You are now the representative in a lawsuit for the former shareholders of your company. You are suing to gain access to escrowed funds (or a holdback, an earn out, or indemnification…) You are prepared. You recall the deal. And, you take comfort knowing that the most harmful facts are buried among hundreds (or thousands) of emails to and from your former deal counsel. Your merger agreement contains a “Great Hill” Clause (defined below). You own the emails. They are privileged.

But, are they? The issue may depend on what law governs your transaction and whether a privilege “waiver” has occurred.

From the perspective of a deal litigator, few issues matter more than determining what rules will govern the use (or protection) of privileged deal-related documents. They contain admissions. Emails between attorneys and clients are typically blunt. They seldom take a muted tone, which accounts for the optics of (potential) future litigation. These documents contain a treasure trove of context for cross examination.

Historically, the question of who owned (and therefore controlled) these pre-deal, privileged materials hinged on the choice of what law governed your transaction. The answer spanned the spectrum between Delaware General Corporate Law Section 259 and the Techni-Plex decision in New York. Compare 8 Del. C. § 259 with Tekni-Plex, Inc. v. Meyner & Landis, 89 N.Y.2d. 123 (N.Y. 1996). Under Section 259, among other things, a buyer purchases the seller’s privileges including, but not limited to, the attorney-client privilege. In contrast, under Tekni-Plex, pre-deal privileged materials are compartmentalized into two buckets: general privileged materials, which convey to the buyer, and deal-related privileged materials, which do not convey. Tekni-Plex, 89 N.Y.2d at 136-138. Put succinctly, the choice of law provision contained in the deal document likely controlled the resolution of this question.

In 2013, the Delaware Chancery Court clarified the issue. It opined that, even under Section 259, parties had the freedom to agree contractually about the ownership of pre-deal privileged materials. Stated differently, parties could contractually opt out of Section 259 and into the world of Tekni-Plex (or something like it). Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155, 160 (Del. Ch. 2013). Consequently, parties began to include provisions in merger documents, i.e., “Great Hill Clauses,” to ensure clarity about the ownership of pre-closing privileged materials. And, this past May, the Delaware Court of Chancery upheld a Great Hill Clause. Shareholder Rep. Services LLC v. RSI Holdco, LLC, 2019 WL 2290916 (Del. Ch. May 29, 2019); read more here.

But, amidst this seeming victory for the sanctity of a party’s privilege, the Chancery Court likely opened a new level of inquiry related specifically to privilege waiver.

The facts of the Shareholder Rep. Services LLC case are critical. RSI Holdco, LLC (“Holdco”) acquired Radixx Solutions International, Inc. (“Radixx”) in September 2016. Through the merger, Holdco obtained possession of Radixx’s computers and servers. Those computers and servers contained roughly 1,200 pre-merger emails, which were indisputably privileged at the time they were made. Litigation ensued related to a holdback payment. Holdco sought to use the privileged emails, arguing that, even though the merger document contained a Great Hill Clause, a privilege waiver had occurred. Radixx did not attempt to segregate privileged emails pre-merger. Radixx turned those privileged materials over to Holdco. Shareholder Rep. Services (i.e., the Seller’s “Representative” post-closing) did not attempt to do so post-merger either. Thus, Holdco argued, a waiver had occurred.

The Chancery Court disagreed, stating that, “Holdco’s argument for waiver would undermine the guidance of Great Hill – which cautioned parties to negotiate for contractual protections.” Critically, the Chancery Court did not conduct a full waiver analysis. Instead, the Chancery Court cited to Section 13.12 of the merger agreement, which placed the onus on both parties to “take the steps necessary to ensure that any privilege attaching … remain in effect and be assigned to and controlled by the [Representative].”

Where does this leave you?

No matter what jurisdiction governs your transaction, take comfort that the presence of a Great Hill Clause will go a long way toward ensuring that you will not be cross-examined by your own emails to your own counsel. But, despite the Chancery Court’s decision in In Shareholder Rep. Services, more may be required when you turn over possession of computers and/or servers to the buyer. In the future, at a minimum, there is a substantial risk that courts outside of Delaware would opt to analyze this issue within the rubric of a more traditional privilege waiver analysis. Consider taking steps to position yourself better for such an analysis. For instance, consider including in deal documents a list of specific efforts that each party will undertake to segregate potentially privileged communications. Set expectations. Fulfill expressed contractual mandates. Then take comfort that this added layer of protection will fortify your efforts to keep privileged documents from entering your case as evidence in Delaware and (likely) other jurisdictions too.

And, if you have any questions about how to litigation-proof your deal, we are here to help.

It’s now 9 o’clock the night before your deposition. You are ready.