DealLawyers.com Blog

We’ve blogged quite a bit about issues surrounding who owns the seller’s attorney-client privilege after the deal closes. The default rule in Delaware is that it generally goes to the buyer, but this McGuire Woods memo discusses the NY Second Department’s recent Askari decision, in which the Court applied New York law & held that the seller retained the privilege. Here’s an excerpt:

The appellants argued that New York law applied to the dispute because New York had the greater interest in the litigation, notwithstanding the Delaware choice-of-law provision in the Membership Interest Purchase Agreement, and that the MIPA was but one of many agreements at issue. Under New York law, while the buyer or successor entity in a merger or acquisition does obtain control over attorney-client communications made prior to the acquisition process and in the normal course of business, attorney-client communications made during the acquisition transaction and its negotiation remain with the selling entity or its representative.

The defendant argued that Delaware law applied in accordance with the terms of the purchase agreement and that the attorney-client privilege concerning all pre-merger or acquisition communications passes to the buyer, even if they were made during negotiation of the agreement.

The Second Department disagreed, holding that NY law applied.  In its view, the purchase agreement was just one part of a larger series of transactions, most of which were governed by NY law.  In particular, it noted that the case didn’t involve an issue under the purchase agreement, but the plaintiff’s efforts to recover documents in the possession of its former counsel.

In a situation where documents are sought, the Court said that “New York will apply the law of the forum where the evidence will be introduced at trial or the location of the proceeding seeking discovery of those documents.” In this case, that was New York.

– John Jenkins