Search results for: waiver of privilege

A recent ruling of the Delaware Court of Chancery provides a useful refresher on the standards that must be met for various exceptions or waivers of the attorney/client privilege to apply. In Drachman v. BioDelivery Sciences International, Inc., C.A. No. 2019-0728-LWW (Del. Ch. Aug. 25, 2021), the Court addressed the following theories which, if applicable, could prevent one from enjoying the protection of the attorney/client privilege, and might lead to the disclosure of otherwise privileged communications:

  • The Garner doctrine;
  • Crime-Fraud exception;
  • At-Issue exception (placing the privileged document in question “at issue” or using it as both a sword and a shield)

Selected Key Facts

The case involves a stockholder claim that the approvals required by DGCL Section 242 were not obtained for amendments to the corporate charter, and that the related actions of the board of directors were a breach of their fiduciary duties.

Selected Highlights

The Court began with the basics. Chancery Rule 26(b) essentially allows discovery of relevant data that is proportional to the needs of the case. But Delaware Rule of Evidence 502(b), which codifies the attorney/client privilege, insulates from discovery “confidential communications made for the purpose of facilitating the rendition of professional legal services to the client.”

Garner Doctrine

Sometimes referred to as the “fiduciary exception”, the Court notes that this is not actually an exception to the privilege rule. See n. 34. When applicable it provides that “when a stockholder sues a fiduciary for behavior inimical to the stockholder’s interests, she may invade the corporation’s privilege upon a showing of “good cause”.

There are 9 enumerated factors that must be considered, but the first two are “gatekeepers” and the parties in this case focused on the first three factors. Although the party who moved to compel “cleared the first two gates”, the movant did not demonstrate that the data was unavailable from other sources (discovery was in the early stages) or that the data was needed to prove her claim. See Slip op. at 10-17.

The At-Issue Exception

The Court noted that whether this is an exception or a waiver deserves attention but is not determinative in practice. See n. 62. After a thorough analysis and application of the facts, the Court explained why the moving party did not meet the threshold for this exception to apply.

Crime-Fraud Exception

Any reader who needs to know the necessary requirements to determine if this exception applies, should read pages 23 to 26 of this letter ruling to understand why the moving party did not persuade the Court that this exception applied.

Jefferson v. Dominion Holdings, Inc., C.A. No. 8663-VCN (Del. Ch. Dec. 13, 2013).

Issue Addressed:  Whether the Court would bar the use at trial of privileged documents that were produced but not noticed by producing counsel until they were made exhibits in a deposition. Short Answer:  Yes under the circumstances of this case.

Brief Overview:

The issues addressed in this case were in the context of production during discovery in the midst of an action for books and records under 8 Del. C. Section 220, (as opposed to production ordered after the trial of the Section 220 matter).

Procedurally this short letter ruling was based on an application captioned as “an emergency motion for a protective order.”  The motion was based on the argument that privileged documents were inadvertently produced but were first noticed by the producing counsel during the deposition in which they were used as an exhibit.  The parties previously entered into a stipulation governing the production and exchange of confidential information which established that the inadvertent production of privileged materials do not constitute a waiver, but the stipulation did not include a clawback provision.

The Court did not address whether the receiving party should have realized that they were privileged.  The producing party first noticed that the privileged documents were produced when they were used during a deposition of the CEO of the defendant in this 220 action.

The documents at issue contained communications from the company’s counsel and according to the Court “there is little doubt that they were – – at least initially – – properly subject to a claim of attorney-client privilege.”  Thus, the Court determined that the issue was whether the production of the privileged materials was inadvertent.  The Court explained that the matter was complicated by the fact that the counsel for the company allowed questions at the deposition about the privileged materials and only raised the issue at a break during the deposition.

The Court explained that the standard for inadvertence in this context is based on four factors:

“(1)  The reasonableness of the precautions taken to prevent inadvertent disclosure; (2)  The time taken to rectify the error; (3)  The scope of discovery and extent of disclosure; and (4)  The overall fairness, judged against the care or negligence with which the privilege is guarded.”  See footnote number 5.

The Court explained that in this Section 220 action, during which typical conventional discovery is very limited, only 330 pages of documents were produced prior to trial, and that they were reviewed by both company counsel and trial counsel before they were produced.  In addition to an application of the factors, the Court reasoned that even though the issue was not raised until a break in the deposition, the privilege was not waived.  However, the Court mentioned that if the issue was not raised until after completion of the deposition, the result might be different.

In sum, the Court granted the motion to prevent the use of the documents–and related deposition testimony, at trial.  The trial on the Section 220 matter proceeded the day after this decision.

In re Comverge, Inc., Shareholders Litigation, C.A. No. 7368-VCP (Del. Ch. April 10, 2013).

Issue Presented: Whether the attorney-client privilege was a defense to a motion to compel documents.

Short Answer:  Yes, under the circumstances of this case.

Summary of Analysis
The court observed that under Court of Chancery Rule 26(b)(1), the “parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action . . ..  A party asserting a privilege has the burden of proof to show that the privilege is applicable to the communication.”  See footnote 3.  Rule 502 of the Delaware Rules of Evidence codifies the lawyer-client privilege and the five elements of that rule.

Communication is confidential if it is not “intended to be disclosed to third persons other than those to whom disclosure is made in furtherance of the rendition of professional legal services to the client or those reasonably necessary for the transmission of the communication.”  See footnote 5.  The lawyer-client privilege as described in DRE 502 is not absolute and can be restricted or denied entirely when a party places an otherwise privileged communication “at issue” in the litigation.  See footnote 7.

This “at issue exception” to the lawyer-client privilege is based on waiver and fairness to prevent a party from using it at both an offensive and defensive weapon.

A party places the lawyer-client communication “at issue” and waives the lawyer-client privilege when:

(1) a party injects the privileged communications themselves into the litigation, or (2) a party injects an issue into the litigation, the truthful resolution of which requires an examination of confidential communications. See footnote 9.

Court’s Reasoning

The court reasoned that the examination of privileged communications was not required for the truthful resolution of this litigation because the defendants merely seek to rely on the fact that they sought and obtained legal advice – – rather than arguing that they relied on the substance of the privileged communications to prove that the board was fully informed.

Therefore, the court explained that the defendants:  “did not inequitably use attorney-client privilege as a sword or inject a privilege-laden issue into the litigation.”  See footnote 21 and related text.

The court referred to cases where the defense was that legal counsel was obtained and that the existence of legal advice was material to the question of whether the board acted with due care, but the substance of that advice was not inquired into.  See, e.g., Hollinger International, Inc. v. Black, 844 A.2d 1022 (Del. Ch. 2004), aff’d, 872 A.2d 559 (Del. 2005) (referring to the dismissal of a breach of fiduciary duty claim because the board had adequately informed themselves by seeking the advice of counsel even though the exact content of that advice was not disclosed).

Another reason the court rejected the argument that the attorney-client privilege was waived due to the “at issue” exception, was because the information disclosed regarding any privileged communications was summary in nature and comparable to what would be disclosed in a privilege log.

Redaction of Board Minutes

The court conducted an in camera review of redacted board minutes to determine whether they were protected by the attorney-client privilege.

The court recited the well-settled Delaware law that:  “the presence of a lawyer in a business meeting called to consider a problem that has legal implications does not itself shield the communications that occur at that meeting from discovery.  Rather, it is communications to a lawyer by or on behalf of a client for the purpose of the rendition of legal services or lawyers’ statements constituting legal service that are protected.”  See footnotes 42 and 43.  Likewise the attorney-client privilege protects legal advice as opposed to business or personal advice.  See footnote 44.

However, communications that contain an inseparable, combination of business and legal advice may be protected by the attorney-client privilege.  See footnote 45.  Moreover, if it is a “close call” whether a communication reflected in a document contains a mixture of legal and business matters and is more closely related to legal advice as opposed to business advice, the party asserting the privilege will be given the benefit of the doubt.  See footnote 46 and related text.

 

Amirsaleh v. Board of Trade of the City of New York, Inc., No. 75, 2010 (Del. Supr. Aug. 16, 2011), read  Delaware Supreme Court opinion here. Prior decisions by the Court of Chancery (and a video/audio clip of trial court proceedings), were highlighted on these pages here, here, here, here and here.
Issue Addressed: The issue addressed is whether the deadline established for participants in a merger to elect a form of consideration was waived based on an arbitrary extension of the contractual deadline that was not uniformly applied.

Brief Overview of Background: The Board of Trade of the City of New York, Inc. (“NYBOT”) entered into a merger agreement with Intercontinental Exchange, Inc. (“ICE”).  The merger agreement provided that each NYBOT member was permitted to elect a form of consideration:  either stock or cash.  One could refrain from indicating a preference and instead receive whatever form of consideration that a pro rata reallocation required.  There was a problem, however, with mailing the Election Forms so that many of the members did not receive the Election Forms on a timely basis.  The initial deadline was January 5, 2007.  At first, the Defendants decided not to extend the deadline but after several election forms were received after the deadline, many members threatened to sue if the Election Forms were not honored.

Five days after the merger closed, on January 17, the Defendants decided to waive the initial deadline.  There was some confusion about whether notice of the new deadline was received, and whether the Election Forms were received on a timely basis.  After follow-up calls between Amirsaleh’s assistant and NYBOT Member Services, and others, Amirsaleh received an e-mail on January 18 with a copy of the Election Form, notifying him to fax, and send via overnight mail, a completed Election Form, even though they could not guarantee that it would be accepted.  Three hours after that e-mail, an Election Form from Kevin Davis was received and was deemed timely.

That Election Form was the last Election Form deemed timely.  Davis was an important client of ICE and he was also the CEO of one of the world’s largest commodity exchange clearing firms.  Davis’ Election Form was also deficient in several respects.  Amirsaleh faxed his Election Form on January 19.  Approximately one hour later, Davis corrected the deficiencies in his earlier submission and it was accepted after those corrections were made.  However, as a result of Amirsaleh’s Election Form not being accepted, he lost his NYBOT trading rights and did not receive any shares of ICE common stock in exchange for his NYBOT membership interests.

The three prior Chancery decisions in this case summarized at the above links addressed summary judgment motions and also include the ruling that gave Amirsaleh standing even though he was not a party to the merger agreement.

Highlights of Legal Analysis

Although the parties primarily focused on the implied covenant of good faith and fair dealing, the Supreme Court reformulated the issue to be decided as one of contract waiver.  The Court explained that the Defendants’ failure to set and communicate a new, clear election deadline constituted a waiver of the deadline which thereafter they did not effectively rescind.

The Court recited the definition for waiver of contract conditions or requirements.  The three elements required for invoking the waiver doctrine are:  “(1) That there is a requirement or condition capable of being waived; (2) That the waiving party knows of that requirement or condition, and (3) That the waiving party intends to waive that requirement or condition.”  (See footnote 21.)

The Court reasoned that this case reflects that all three of those elements were established.  The initial deadline to submit the Election Form was a condition with substantial consequences for failing to satisfy that condition.  The Defendants knew of that condition and they decided to waive that condition by extending the initial deadline.

They did not retract that waiver.  The prerequisite for retracting a waiver is that the retracting party give reasonable notice to the non-waiving party before that party has suffered prejudice or materially changed his position.  See footnote 31.  The Court explained that “a waiving party typically is prohibited from retracting its waiver if the non-waiving party has suffered prejudice or has relied to his detriment on the waiver.”

The Court concluded that the Defendants engaged in an ad hoc, “suboptimal process” to establish the new deadline retroactively.  As a result, Amirsaleh suffered the prejudice of losing his NYBOT trading rights.  Because the Defendants waived the initial deadline, and the retraction of that waiver was invalid as a matter of law, the Election Form that Amirsaleh submitted on January 19 was properly filed and timely received.  The Defendants were required by the Court to honor that Election Form.  The Court of Chancery’s decision was, therefore, reversed and the matter was remanded.

In Grunstein v. Silva, C.A. No. 3932-VCN (Del. Ch. April 13, 2010), read letter decision here,  the Court granted Plaintiffs’ motion to compel production of post-acquisition financial documents but denied Plaintiffs motion to compel the production of six emails between the Defendant and his attorneys at Dechert LLP for which the Defendants claimed the attorney-client privilege.

Kevin Brady, a Delaware litigator, prepared this synopsis.

Background

On December 8, 2009, the Court denied the defendants motion to dismiss. That decision was highlighted on this blog here.

This dispute arose out of an alleged breach of an oral partnership agreement which was formed to carry out an acquisition. Plaintiffs Grunstein and Dwyer alleged that they orally agreed to form a partnership with Defendant Silva for the purpose of acquiring a nursing home services company. Plaintiffs alleged that they agreed to share profits and losses resulting from the acquisition and that “each partner would share in all the economic benefits received by any of them (or any entities controlled by them) resulting from the [acquisition].” Grunstein, Dwyer and Silva entered into a merger agreement with Beverly Enterprises Inc. and during the negotiations, Silva replaced the original acquiring entities with companies he controlled. As a result, after the merger, Beverly was owned solely by Silva’s companies.

Plaintiffs’ Motion to Compel Privileged Emails

Plaintiffs attempted to establish the existence of a business relationship through emails and deposition testimony by W. Brinkley Dickerson, Jr., Grunstein’s law partner at Troutman Sanders LLP describing a conversation with Silva in which Silva allegedly acknowledged that Grunstein had a “carried interest” in the transaction. Troutman Sanders, as transactional counsel, represented the acquiring entities that included Silva and his related entities. While Plaintiffs were not certain that the nature of the relationship was being discussed in emails between Silva and Grunstein, they had “cause to believe” that Silva made similar assertions regarding the nature of his business relationship with Grunstein in emails to his attorneys at Dechert.

The Privileged Emails Are Protected from Discovery

Plaintiffs claim that these emails are not privileged because they were originally designated in Defendants’ privilege logs as involving either attorneys’ fees or the Troutman Sanders engagement letter which does not fall within the scope of the attorney-client privilege. The Court noted that while communications regarding fee arrangements are typically discoverable “because fee arrangements are considered incidental to the attorney-client relationship and do not usually involve the disclosure of confidential communications arising in the context of the professional relationship….this exception only applies to communications between an attorney and client with respect to their particular professional arrangement.” Here, Plaintiffs wanted access to legal advice that Dechert provided to Silva with respect to fee dispute between Silva and Troutman Sanders. The Court found that the privilege exception did not extend that far.

In the alternative, Plaintiffs argued that any privilege with respect to the subject of Silva and Grunstein’s business relationship had been waived because it had been disclosed to third parties. Troutman Sanders (and Dickerson) represented Silva only through their representation of the acquiring entities in the acquisition of Beverly, not regarding the underlying legal structure governing the acquiring entities. Furthermore, in the attorney-client privilege context the client must have a reasonable expectation of confidentiality in the matters discussed with counsel. Here, Silva had no reasonable expectation that Dickerson would keep their conversations with respect to the nature of his alleged business relationship with Grunstein confidential. Dickerson expressly informed Silva that he was not representing him as to that topic. Because the communications between Silva and Dickerson concerned matters outside of the scope of their attorney-client relationship, they were not privileged communications. As such, waiver was not an issue.

Court Allows Discovery of Financial Information

Plaintiffs also sought the production of financial information for the purpose of quantifying their damages. Defendants argued that the Court should wait to decide this issue until it considered Defendants’ recently filed motion for summary judgment. The Court disagreed stating that :         “[a]lthough these documents are relevant only as to damages, Plaintiffs deserve adequate time to allow their experts to properly analyze and extrapolate the relevant damages due under each of the theories that they have put forward.” Accordingly, Plaintiffs’ motion to compel production of the relevant financial information was granted.

 

eBay Domestic Holdings, Inc. v. Newmark, Inc., No.3705-CC  (Del. Ch., Sept. 16, 2009), read letter decision here.

The Chancery Court addressed three issues of practical importance in most corporate and commercial litigation matters in Delaware and elsewhere.

  1. Should certain documents be designated as merely "confidential" as compared to "highly confidential", the latter designation requiring that the documents may be viewed by outside counsel only and not their clients;
  2. Whether specific documents that were produced should be treated as privileged–thus resulting in a waiver of the privilege for the subject matter covered by those documents; and
  3. Whether a party should be entitled to a clawback of certain documents that were inadvertently produced.

The Court’s 4-page letter ruling is pithy and full of practical analysis that deserves a place in every business litigator’s toolbox.

First, the argument made to change the designation to merely confidential was based on the lack of technical expertise by outside counsel to understand the import or nuances of the documents in question. The reply to that argument is that the documents were produced on the condition that they be restricted to viewing by outside counsel. The Court  ordered eBay to review 1,900 selected documents and make a good faith determination about whether they warranted the more limiting designation, and any document not designated in good faith as highly confidential must then be re-designated as merely confidential.

The second and third issues  were somewhat conflated. eBay initially produced the documents in dispute, but after defendants argued that the documents were privileged and therefore their production resulted in a waiver of subject matter privilege, eBay sought to clawback the disputed documents. The Court determined that the good faith production of reviewed documents did not result in a waiver of privileged communications between counsel.

The Court’s rationale was to "avoid discouraging litigants from making a good faith effort to produce non-privileged documents while withholding documents that are privileged." The Court also held that if eBay inadvertently produced documents that were truly privileged, that they could recall those documents without waiving the privilege.

In sum, the Court concluded that there would be no waiver, and whether or not the documents should be withheld would be based on whether they were privileged. eBay thus far had not met its burden to establish that the documents at issue were privileged, but the Court gave eBay one  more week to prepare a privilege log to establish their status as privileged–after which the defendants could present their objections and then the Court would make a final ruling on whether the documents involved deserved to be designate as privileged.

In Postorivo v. AG Paintball Holdings, Inc., 2008 WL 3876199 (Del. Ch., Aug. 20, 2008), read opinion here, the Chancery Court disqualified from the case (i.e., colloquially, kicked off the case) certain lawyers of the defense team due to their litigation conduct which also raised issues about their compliance with the Delaware Lawyers’ Rules of Professional Conduct.  Though the court stopped short of disqualifying the entire law firm, it did award fees to the plaintiff due to the defense counsel’s conduct.

This decision in its original format is over 70-pages long, and by necessity it is factually intensive. In part due to my disinclination to bring attention to an unfortunate experience for some of the lawyers involved, I will simply highlight some of the key issues in this case primarily because it is rare that the Chancery Court disqualifies lawyers from continuing representation in a case, and the Delaware Lawyers’ Rules of Professional Conduct  (DLRPC) involved are not very often addressed in Chancery Court (compared for example, with the conflict of interest Rules 1.7 to 1.10.)

The Court also addresses the "standing of a non-client" to prosecute violations of the DLRPC. In sum, it cannot be merely a "technical violation", but rather must prejudice one’s rights and "call into question the fair or efficient administration of justice".

The DLRCP Rules addressed by the Court include: Rule 4.2 (communication with witnesses represented by counsel); Rule 4.4 (regarding obtaining evidence in a way that violates rights of a third-party); Rule 8.4 (engaging in conduct prejudicial to the adminstration of justice or that involves dishonesty, fraud, deceit or misrepresentation).

Rule 4.2 was interpreted in the recent Chancery Court decision of LaPoint v. AmerisourceBergen Corp., 2006 WL 2105862 (Del. Ch. 2006). Relying in part on LaPoint, here is some guidance from the Court that would be useful for most lawyers involved in litigation:

Even when appopriate to contact a former employee ex parte, one cannot do so "without first making the former employee aware that she could not divulge attorney-client privileged information, or any other privileged, information and providing the information required in Monsanto " [Co v. Aetna Casualty & Surety Co., 593 A.2d 1013 (Del. Super. 1990).]

Additional practical guidance from the Court was provided regarding Rule 4.4 and in particular, "what to do with documents that the other side claims to be privileged"? This is especially important in the current climate where large volumes of electronic data is exchanged, and one may not have the benefit of a "clawback provision" (as discussed in a recent case summary on this blog here.) As to this situation, the Court instructs as follows:

In modern commercial litigation, it is becoming more common for outside counsel or other agents of a party to litigation to be in possession of privileged information of an adverse party. Many cases involve some form of electronic discovery, for example, and the sheer volume of documents involved often necessitates creative means to handle privileged documents. Consequently, for cost-saving or -shifting reasons, during the early stages of discovery, one side rightfully may come into possession of documents and information storage devices that contain privileged information or communications of an adverse party. It is essential to the integrity of the litigation process in such circumstances that the court and the parties can rely on counsel scrupulously to conform to their ethical obligations and to whatever treaties or agreements they work out for handling the particular discovery challenges they face. As reflected in the relatively recent amendments to the Federal Rules of Civil Procedure relating to discovery of electronically stored information, the success of that approach depends importantly on early and fulsome communications among counsel for the opposing parties about the discovery demands of their particular case. Similar communications in early 2007 in this case would have ameliorated many of the problems that arose.

Two prior Chancery Court decisions in this same case that addressed "who held the attorney/client privilege" in connection with the sale of a company in which certain assets were excluded,  as well as dismissing derivative claims, and including more factual background, were summarized here.

 U.S. v. BDO Seidman, LLP, (7th Cir., July 2007), read opinion here.

 This case addresses the “common interest doctrine” which is often confused with the attorney/client privilege, but is an essential concept to grasp especially for multi-party litigation. It is, in effect, an exception to the rule that no attorney/client privilege attaches to communications between a client and an attorney in the presence of a third person. In effect, the common interest doctrine extends the attorney/client privilege to otherwise non-confidential communications in limited circumstances. The common interest doctrine will apply only “where the parties undertake a joint effort with respect to a common legal interest, and the doctrine is limited strictly to those communications made to further an ongoing enterprise. Moreover, communications need not be made in anticipation of litigation to fall within the common interest doctrine. (See footnote 6.) The court found that a memorandum that two joint venturers, BDO and Jenkens & Gilchrist, who consulted with their respective in house counsel, and also the outside counsel BDO  hired with respect to the legality of a proposed financial course of action they would recommend to their common clients– was within the scope of the common interest doctrine. Moreover, the common interest doctrine cannot be waived without the consent of all the parties and the voluntary disclosure by one member of a joint venture does not waive it with respect to the other member of the joint venture.

Delaware has addressed the topic, e.g.,  in American Legacy Foundation v. Lorillard Tobacco Co.,  2004 WL 2521289 (Del. Ch. 2004) (discussing attorney/client privilege waiver and common interest doctrine–also called "joint defense doctrine"). See generally, Jenkins v. Bartlett, (7th Cir. U.S. Ct. App., April 23, 2007), read opinion here, which explained that :

"… there is an exception to the general rule that the presence of a third party will defeat a claim of privilege when that third party is present to assist the attorney in rendering legal services. (citation omitted)."

"… This exception applies both to agents of the attorney, such as paralegals, investigators, secretaries and members of the office staff responsible for transmitting messages between the attorney and client, and to outside experts engaged ‘to assist the attorney in providing legal services to the client’, such as accountants, interpreters…. Additionally, this exception reaches retained experts, other than those hired to testify, when the expert assists the attorney by transmitting or interpreting client communications to the attorney or formulating opinions for the lawyer based on the client’s communications. (citation omitted)."

In a recent letter ruling, the Delaware Court of Chancery provided a short tutorial on the Chancery rules of procedure that describe the specific requirements for responding to discovery and the detail that the parties are obligated to provide, especially for objections. See Bocock, et al. v. Innovate Corp., et al., C.A. No. 2021-0224-PAF (Del. Ch. Dec. 6, 2023). 

For example, objections must be specific and must identify what is being withheld based on the objections. See Ct. Ch. R. 33(b)(4) (regarding interrogatories). See also Ct. Ch. R. 34 (regarding responses to requests for documents).

Highlights

  • Relying on prior Chancery decisions, the court instructed that “generic and formulaic objections are insufficient.” Slip op. at 8. 
  • The court also reminded us: that failure to assert a proper, timely objection in compliance with the rules risks waiver of objections. See Ct. Ch. R. 33(b)(4).
  • Specifically, the court referred to prior decisions that explain: “Boilerplate objections have been considered prima facie evidence of a Rule 26 violation, which causes the objecting party to waive any legitimate objections that they may or may not have had.”  Slip op. at 8-9.
  • The court instructed that “an objection must state whether the responding party is withholding or intends to withhold any responsive materials on the basis of that objection.”  Quoting Ct. Ch. R. 34(b).
  • The decision provides more examples of the failure to provide specificity or to explain the basis on which documents were being withheld. 
  • The court also emphasized why the failure to comply in this case justified waiver of all of the objections except for attorney/client privilege and work product doctrine.

Takeaway:

The Delaware Court of Chancery has emphasized the importance of specific, timely objections. Generic or formulaic objections are considered insufficient, potentially leading to waiver of objections. Failure to comply can result in waiving all objections.