Assertion of Common Interest Doctrine and Business Strategy Privilege Rejected

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[authors: Bruce M. Sabados, Joseph E. Gallo]

The Delaware Court of Chancery recently rejected a party’s argument that the “common interest doctrine” and the “business strategy privilege” shielded documents from discovery.

CrossFit, Inc. (CrossFit), a distributor of fitness and training regimens, was wholly owned by an artificial entity, the marital community of Greg and Lauren Glassman. The entity was in the process of dissolution as a result of the Glassmans’ divorce proceedings. Ms. Glassman committed to sell her share in CrossFit to a private equity firm, Anthos Capital, L.P. (Anthos). Mr. Glassman moved to compel the production of documents containing communications between Ms. Glassman and Anthos concerning the sale of Ms. Glassman’s share. Ms. Glassman argued that the common interest and business strategy immunity doctrines shielded the documents from discovery.

The Court of Chancery rejected Ms. Glassman’s arguments. It held that the common interest doctrine applies when parties with a common legal interest share privileged communications in furtherance of that legal interest. The court found that Ms. Glassman had not demonstrated that the communications with Anthos were “sufficiently legal,” and not simply commercial, and thus subject to common interest doctrine. Crucially, the court held that “communications about a business deal, even when the parties are seeking to structure a deal so as to avoid the threat of litigation, will generally not be privileged under the common-interest doctrine. The doctrine only protects those communications that directly relate to the parties’ legal interests, such as their potential common defense strategies.”

The court also held that the business strategy immunity doctrine did not apply. Under the business strategy immunity doctrine, certain information may be protected from disclosure if the information may be used for practical business advantages rather than for proper legal purposes. In declining to apply business strategy immunity doctrine, the court found that the risk of improper business advantage was mitigated by a confidentiality order between the parties and that the risk was outweighed by the potential probative value of the communications.

Glassman v. CrossFit, Inc., et. al., Civil Action No. 7717-VCG (Del. Ch. Oct. 12, 2012).