Protecting Attorney-Client Privilege for Pre-Merger Communications, 1016 COBJ, Vol. 45, No. 10 Pg. 71

• Author: By J. Randolph Evans. Shari L. Klevens. Lino S. Lipinsky

45 Colo.Law. 71

Protecting Attorney-Client Privilege for Pre-Merger Communications

Vol. 45, No. 10 [Page 71]

The Colorado Lawyer

October, 2016

By J. Randolph Evans. Shari L. Klevens. Lino S. Lipinsky

Whoops-Legal Malpractice Prevention

Authors' Note: Readers' comments and feedback on this series of "Whoops—Legal Malpractice Prevention" articles are welcomed and appreciated. References in the articles to "safest courses to proceed," "safest course," or "best practices" are not intended to suggest that the Colorado Rules require such actions. Often, best practices and safest courses involve more than just complying with the Rules. In practice, compliance with the Rules can and should avoid a finding of discipline in response to a grievance or a finding of liability in response to a malpractice claim However, because most claims and grievances are meritless, effective risk management in the modern law practice involves much more. Hence, best practices and safer courses of action do more: they help prevent and more quickly defeat meritless claims and grievances.

Both clients and attorneys expect the attorney-client privilege to protect all privileged communications between the client and the attorney, regardless of whether the client is a corporation or an individual.^[1] Corporate clients involved in heavily negotiated deals for mergers and acquisitions expect the privilege to protect communications between the attorney and the company's directors, officers, and other high-level executives. However, such transactions present the risk of unintentional disclosure of privileged communications, because it is often difficult to determine which entity owns the attorney-client privilege following the merger or acquisition.

This article discusses who owns the attorney-client privilege after a corporate merger or acquisition, reviewing the law in both Colorado and other jurisdictions. The article concludes with best practices to protect both the attorney and his or her client's attorney-client privilege in mergers and acquisitions.

Who Owns the Attorney-Client Privilege for Pre-Merger Client Communications?

Consider an attorney who represents a corporate client in negotiating the sale of its business to a competitor. When the sale closes, the client company's assets are a part of the competitor's business. But who owns the privilege related to the client's communications with counsel predating the merger? If the competitor now owns the client's assets, does the competitor also own the client's privilege?

The answer is not always clear. And the implications for clients, and for attorneys who fail to inform their clients of those implications, can be serious. One notable case in Delaware, which is the preferred jurisdiction for many corporate entities,^[2] illustrates this challenge.

The underlying dispute in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fundi, LLLP^[3] arose between parties to a merger transaction that involved the acquisition of a software company. In Great Hill, a full year after the merger, the buyers filed suit alleging that defendants, former shareholders and representatives of the acquired corporation to the merger (seller), had fraudulently induced buyers to acquire the software company. Buyers based their claims largely on pre-merger communications between seller and its counsel regarding the transaction Buyers found these communications on the software company's computer system. When seller learned that buyers had obtained these...