This post was written by George Thomas. 

The attorney-client privilege protects from discovery or other disclosure confidential communications between an attorney and a client for the purposes of obtaining or providing legal assistance.  This privilege can be waived, however, if the communications are made in the presence of, or shared with, a third party.

As part of an M&A due diligence process, it is typical for buyers to broadly request copies of correspondence, memoranda, and notes concerning ongoing or threatened lawsuits and compliance with a range of laws and regulatory matters such as environmental issues, tax compliance, data privacy practices, international trade issues, and the like.  Oftentimes a seller, to comply with such requests fully, would need to share attorney work product and privileged attorney-client communications.  Furthermore, if significant issues are uncovered, a buyer will almost invariably ask to question the seller’s legal counsel on such issues to better assess future risks.

Given this natural tension between a buyer’s desire to conduct a thorough risk assessment and a seller’s desire to preserve attorney-client privilege, what should a seller do?  The answer depends on the circumstances underlying the privileged communications and upon what state’s law governs.  Delaware, several federal courts of appeal, and various other jurisdictions grant a broad-based common-interest exemption that permits parties to share privileged information and not waive the benefits of attorney-client privilege if there is an adequate common commercial interest (such as closing the transaction to which the due diligence relates).  A handful of states, most notably New York, however, only recognize a common-interest exemption with respect to privileged communications relating to pending or anticipated litigation (and not to, for example, regulatory compliance issues where litigation is not expected).

A seller, therefore, should always consult with legal counsel to determine how, if, and when to share privileged attorney-client communications in due diligence or another commercial context.

 

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