Delaware Superior Court CCLD Addresses Claim of Common Interest Privilege over Merger Agreement Parties’ Post-Signing, Pre-Closing Communications

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The American Bottling Co. v. Repole, C.A. No. N19C-03-048 AML CCLD (Del. Super. May 12, 2020)

Delaware courts will apply the common interest doctrine when two parties, represented by counsel, exchange privileged information with one another concerning a legal matter in which they have a shared interest. To maintain the privilege, the common interest must involve predominantly legal issues, rather than a common economic interest in a commercial venture. If there is no common interest, a party who shares privileged materials with a third-party will generally waive the privilege. 

By way of background, the plaintiff, The American Bottling Co. (“Plaintiff”) had entered into a distribution contract with BA Sports Nutrition, LLC (“Defendant”), wherein Defendant granted exclusive rights to Plaintiff to distribute its sports drinks. The agreement contained a termination clause that would be triggered if Plaintiff experienced a change in control. Plaintiff’s parent corporation was subsequently merged with another entity (“the Third Party Entity”) and Defendant thereafter terminated the distribution agreement. Plaintiff and Defendant disagreed over whether the parent’s merger triggered the termination clause, and Plaintiff filed an action in the Complex Commercial Litigation Division of the Delaware Superior Court challenging the termination. During discovery, Plaintiff inadvertently produced documents over which it later claimed privilege. Plaintiff then sought to claw-back the production. 

Plaintiff’s theory that the documents were privileged was premised on the argument that the documents were prepared for the benefit of Plaintiff, Plaintiff’s parent company, and the Third Party Entity (who later merged with Plaintiff’s parent). The documents were a series of charts and other work product that described the nature of the distribution agreement between Plaintiff and Defendant and described how best to “capitalize on” it in the context of the merger. The documents were drafted and shared by the Third Party Entity’s counsel with Plaintiff’s parent after the merger agreement was executed but before the merger closed. For the documents to remain privileged, Plaintiff needed to show that a common interest applied to protect the shared documents.

The Court found that the Plaintiff and the Third Party Entity did not share a common legal interest sufficient to protect the documents from production on the basis of privilege. Following an in camera review, the Court found that the documents were shared with the Plaintiff for predominantly commercial purposes rather than to facilitate rendering legal advice. The Court followed Delaware precedent holding that, if the primary focus of the interest was commercial, “[i]t is of no moment that the parties may have been developing a business deal that included as a component the desire to avoid litigation,” regardless of whether in-house and outside counsel provided input on the documents.

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