Privilege Protection for Antitrust Discussions In Mergers: New Guidance From the Frontlines

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Few lawyers would question the need to keep their clients apprised of negotiations with enforcers, particularly where merger approval hinges in the balance. A recent federal district court ruling, however, serves as a reminder that privilege protection is not a given for a lawyer’s factual updates to her client.1 The ruling also addresses other frequent privilege issues in merger reviews, including the scope of the common interest exception to privilege waiver and antitrust lawyer involvement in public communications. The opinion helpfully acknowledges a common legal interest among parties to an agreed merger but takes a more conservative— and arguably draconian—approach to other privilege questions that can arise in merger review.

Opinion Highlights

The court addressed three privilege issues that arise in almost all mergers with substantive antitrust questions: the scope of the common interest doctrine; agency status updates; and lawyer involvement in preparing public disclosure materials. The court also considered privilege waiver in subsequent shareholder litigation.

  • Communications between merging parties: the common interest doctrine. In one of the few cases to address the common interest in the merger antitrust defense context, the court acknowledged that parties to an agreed merger share a common interest in regulatory approval—but the answer may be different when they are still negotiating. The court offered the following, common sense guidance: “[The parties] shared a common legal interest … insofar as all … parties were interested in [enforcement agency] approval of the merger. Any communication with the attorneys of these parties bearing the primary purpose of communicating legal advice furthering how both recipient and sender can achieve [agency] merger approval IS protected under the community-of-interest doctrine. Any adversarial communications with these third parties relating to negotiations between themselves, or any subject other than [agency] approval of the merger, IS NOT protected.” Id., at *26.
  • Updates on negotiations with the enforcement agency. Taking a narrow view of the types of attorney communications that qualify for attorney-client privilege, the court denied privilege protection for attorney summaries of discussions with the enforcement agency that merely recited communications with the agency and did not expressly render legal advice. The court declined to infer privileged advice from the details the attorneys chose to provide. “For privilege to attach to a report, description, or account of a third-party conveyance, the conveyance must be couched in legal analysis or advice.” Id., at *10.
  • Public announcements about the merger. Noting that privilege applies only where the “primary purpose” of a communication is to obtain or convey legal advice, the court rejected privilege protection for the entirety of most draft company statements, but it did allow redactions of legal comments. That attorneys were involved in drafting and approving the company statements was insufficient, in the court’s view, to confer privilege over entire drafts. “[T]he attorney is the master of his communication. He or she could choose to convey advice under separate cover. The non-privileged document does not become privileged only because the attorney chose to implant advice on the document itself. Again, the line edits may be excised and justified as independently privileged, but the document on which they appeared remains discoverable.” Id., at *22-23.
  • Waiver of privilege in subsequent litigation. Because of the unusual posture of the case, which involved shareholder plaintiffs alleging that they were misled about the likelihood of approval of an ultimately abandoned merger, the court also addressed waiver of privilege in litigation. The court held that any merger updates and analyses that did merit privilege protection lost it when the defendant placed the updates and analyses at issue in the private litigation. To defend itself against the charge that it had provided shareholders with overly optimistic statements on the likelihood of regulatory approval, the defendant not only proffered what it publicly stated, but also – in the court’s view – relied on the sufficiency of its lawyers’ advice. For example, in support of its motion to dismiss, the defendant stated: “Plaintiffs fail to rebut the simple, benign inference [… that its …] executives sought to keep investors informed, their statements genuinely reflected the information they possessed, and they disclosed [enforcement agency] developments in real time. Because this inference is more compelling than the pointless fraud Plaintiffs allege, dismissal is required...” Id., at *20 (emphasis added). For the court, this and similar references to the defendant’s knowledge about negotiations with the enforcement agency and the likelihood of merger approval tipped the scales in favor of waiver. “Though any material which merely relays agency-sourced information should not be privileged, these pleadings show that Defendants have placed at issue what they knew about the agency’s review process. They explicitly state that they made the allegedly fraudulent statements ‘because they believed — based on what they knew — that regulatory approval was obtainable and the news reports were inaccurate.’” Id.

The court defined the subject matter as “all documents containing information or analysis regarding the status of the [enforcement agency’s] review process, including but not limited to: the status of the ongoing dialogue and discussions between [the Defendant] and the [agency]; the general nature and status of the [agency]’s feedback; the status of the sales process for potential … divestitures associated with this merger; and reports and updates regarding the status of the merger and [agency’s] review process provided by other …executives and personnel involved in the … merger (including attorneys).”

Key Takeaways

  • Common interest communications during deal negotiations. The court helpfully defined the contours of the common interest doctrine for communications between merging parties under antitrust review. This part of the decision comes with its own notes of caution. First, the decision is a reminder that arm’s-length communications during deal negotiations may not be privileged if the parties are in an adversarial posture when the communications are made (for example, negotiating over antitrust risk allocation provisions). Second, while many other courts have applied the court’s otherwise broad common interest standard, it is not universal. New York state courts and the Fifth Circuit, for example, have denied common interest protection for antitrust and other regulatory compliance discussions if those discussions were not specifically held to prepare jointly for litigation.2 Even the Massachusetts district court case that is cited in favor of the broader standard ultimately declined to recognize a common interest between the transacting parties.3
  • Factual accounts and their nexus to legal analysis. The U.S. Supreme Court has made clear that recitations of facts gathered can be privileged even if documents reflecting such facts do not, themselves, contain legal advice.4 The rub is that those materials must be created for the purpose of developing legal advice. Here, the court saw no evidence that the lawyers’ factual accounts of their meeting with the agency were created to prepare legal advice for the client; instead, the court concluded that those accounts appeared to be an end in themselves, with any legal advice following in separate communications. While not all courts will draw such a line,5 this case is not unique.6 Accordingly, to maintain privilege over factual accounts, it is advisable to expressly tie the accounts to specific legal analysis.
  • Draft materials prepared for public disclosure. It is common ground that parties can redact legal advice reflected in business documents, including in drafts of public statements. For example, lawyer comments in the margin of a draft investor presentation undoubtedly are privileged and can be withheld. A trickier question is whether lawyer involvement can render an entire draft document privileged. Courts vary in their approach to privilege protection for drafts but, at a minimum, privilege will apply only where the draft clearly reveals an attorney-client communication. The mere involvement of an attorney somewhere in the drafting process will not suffice, particularly where the draft concerns a public statement that a company would typically make in the normal course of business. When it is necessary to protect entire documents from disclosure, companies should either create a separate, clearly labelled legal workstream, or make clear that the attorneys are in charge of the drafting process. Of course, companies also should be prepared to articulate to a court precisely what legal issues necessitated the attorneys’ involvement.
  • Waiver. The court keyed in on the distinction between a defendant simply denying the plaintiffs’ claims versus affirmatively offering its knowledge about the progress of merger negotiations as a defense – knowledge it gained principally from its lawyers. The court’s waiver decision is arguably draconian, hanging on a rather thin argument that the defendant placed its attorney-client communications at issue.7 It is, however, important to recall that the waiver problem surfaced as a result of actions taken in litigation. The court provided no indication that out-of-court statements, even if based on legal advice, could amount to a waiver. This is consistent with the view of several federal circuit courts that extrajudicial disclosure should not lead to subject matter waiver.8 Rather, as occurred here, the waiver risks are associated with how the privilege holder subsequently uses those statements in litigation.
Footnotes - 
  1. See Chabot v. Walgreens Boots Alliance, Inc., 2020 U.S. Dist. LEXIS 107547 (M.D. Pa. Jun. 11, 2020). 
  2. Compare In re Santa Fe International Corporation, 272 F.3d 711 (5th Cir. 2001) (“there must be a palpable threat of litigation at the time of the communication, rather than a mere awareness that one's questionable conduct might some day result in litigation, before communications between one possible future co-defendant and another, such as the ones here made between one horizontal competitor and another, could qualify for protection [under the common legal interest doctrine].”); Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 27 N.Y.3d 616, 2016 N.Y. LEXIS 1649 (N.Y. June 9, 2016) (“Bank of America contends that highly regulated financial institutions constantly face a threat of litigation and that the protection of their shared communications is necessary to facilitate better legal representation, ensure compliance with the law and avoid litigation. But no evidence has been presented here that privileged communication-sharing outside the context of litigation is necessary to achieve those objectives. There is no evidence, for example, that mergers, licensing agreements and other complex commercial transactions have not occurred in New York because of our State's litigation limitation on the common interest doctrine; nor is there evidence that corporate clients will cease complying with the law.”); with Schaeffler v. United States, 806 F.3d 34, 42 (2d Cir. 2015) (“A financial interest of a party, no matter how large, does not preclude a court from finding a legal interest shared with another party where the legal aspects materially affect the financial interests.”).
  3. Cavallaro v. United States, 153 F. Supp. 2d 52, 61 (D.Mass. 2001), affirmed and clarified at 284 F.3d 236 (1st Cir. 2002) (“The [common interest] doctrine does not extend to prevent waiver when an accountant, not within the Kovel doctrine, is made privy to the attorney-client communications.”).
  4. Upjohn Co. v. United States, 449 U.S. 383, 395 (1981) (“A fact is one thing and a communication concerning that fact is an entirely different thing.”). 
  5. See, e.g., Toyo Tire & Rubber Co. v. Atturo Tire Corp., 2016 U.S. Dist. LEXIS 72756, *8 (N.D. Ill. Jun. 3, 2016) (“If every litigant were required to comb through every communication with its attorneys, determine which portions of those communications contained facts and which contained legal opinion, redact the portions that consisted of legal opinion, and then produce the redacted communications, civil litigation would be ground to halt.”).
  6. See, e.g., Fed. Hous. Fin. Agency v. UBS Americas Inc., 2013 WL 1700923, at *1 (S.D.N.Y. Apr. 16, 2013) (factual summaries contained in memo about meetings held by lawyer with third parties were not privileged).
  7. Cf. United States v. White, 887 F.2d 267, 270 (D.C. Cir. 1989) (“A rule thus forfeiting the privilege upon denial of mens rea would deter individuals from consulting with their lawyers to ascertain the legality of contemplated actions; it would therefore undermine the animating purpose of the privilege.”).
  8. See., e.g., In re Keeper of Records, 348 F.3d 16, 24 (1st Cir. 2003) (“Virtually every reported instance of an implied waiver extending to an entire subject matter involves a judicial disclosure, that is, a disclosure made in the course of a judicial proceeding”; finding no subject matter waiver where company’s lawyer disclosed to company’s shareholders certain legal justifications behind the company’s decision to discontinue a product) (citations omitted).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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