Recent cases have highlighted the importance of seller contractually protecting and retaining ownership over communications that, pre-closing, are subject to the attorney-client privilege. The absence of such language in a merger or asset/stock purchase agreement can lead a court to conclude that such communications are owned by the buyer/surviving corporation.
Such was the result in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLP, 80 A.3d 155 (Del. Ch. 2013), where more than a year post-closing, after the buyer sued the seller for allegedly fraudulently inducing buyer to enter into the merger, the seller asserted ownership over pre-merger privileged communications maintained on the surviving corporation’s computer system.
The court ruled in the buyer’s favor and held that the surviving corporation owns and controls such communications, noting that the seller had not been proactive in either protecting the communications from seller’s access, or contractually preserving ownership. The court specifically noted that under Delaware law, all property, rights, privileges, etc. become property of the surviving corporation (the same is true under Louisiana law, LSA-R.S. 12:1-1107); a contrary result can only be achieved by contractual agreement.
Accordingly, a clause addressing ownership and control over such communications, and proactively protecting them from disclosure, is critical.