Delaware Chancery Court: Attorney-Client Privilege Passes to Surviving Corporation

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In Great Hill Equity Partners v. SIG Growth Equity Fund (November 15, 2013 - Strine), the Delaware Court of Chancery held that attorney-client privilege passes to the surviving corporation in a merger. The case was brought by the buyer of Plimus, Inc., and claimed that the seller had fraudulently induced the buyer to acquire Plimus. The buyer sought a determination regarding the pre-merger attorney-client communications about the transaction it found on Plimus’ computer systems.

Section 259 of the DGCL provides that “all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the surviving or resulting corporation.” The court decided that, in the absence of a contractual provision excluding pre-merger attorney-client communications from the transferred assets, all privileges, including the attorney-client privilege over any pre-merger communications (even regarding the merger negotiations), passed to the surviving corporation in the merger.

As a practical matter, parties should include specific contractual provisions if there is an intent to exclude the transfer of any attorney-client communications.