When a company is acquired, who “owns” the company’s pre-acquisition, attorney-client privileged communications—the buyer or the seller? Where a merger or other combination is effectuated under Delaware law, Delaware courts follow a bright-line rule that any attorney-client privilege attached to pre-merger communications—whether they relate to business operations or the negotiation of the merger itself—pass to the acquirer in the merger, unless the parties agree otherwise in the merger agreement. Under New York law, in contrast, courts apply a rule, informed by public policy, that the seller transfers to the buyer its privilege on most subjects but retains control of pre-merger privileged communications that relate to the merger and its negotiation. The Second Department recently addressed a variation on these divergent approaches—a New York court deciding who controls privilege when the core transaction documents contain a Delaware choice of law provision but the litigation is not brought under the transaction documents. Reversing a trial court decision, the Second Department held in Askari v. McDermott, Will & Emery, 2019 WL 6334192 (N.Y. App. Div. Nov. 27, 2019), that a dissolved seller and its controlling shareholder retained control over privileged pre-merger communications with their counsel because the plaintiffs’ claim of replevin against their former counsel did not involve the enforcement or interpretation of any Delaware-law transaction document.

Background

The purpose of the attorney-client privilege is to allow attorneys and their clients to have a full and frank exchange; by encouraging the client to speak freely, the privilege facilitates the provision of informed legal advice. “You can tell me everything, it will never leave this room,” is a confidence-inspiring message from a lawyer to a client. In practice, whether a particular communication is privileged in the first place—and will remain so for all time—cannot always be ascertained when the communication is made. Once we start carving out the exceptions (the communication was not made in a confidential setting, it lacked a legal purpose, waiver, etc.), communications perhaps thought to be privileged may not be viewed so by a court.