292 A.3d 178
Del. Ch.2023Background
- FairXchange (a Delaware corporation) received an unsolicited acquisition proposal from Coinbase in late 2021; the board consisted of CEO Neal Brady, Chairman Clifford Lewis, and Weiss (a preferred-stock designee who was a partner at Hyde Park and managed two Funds that owned ~15% of FairX).
- Weiss, as the preferred-stock director, urged a market check and retention of an investment banker; he opposed the Coinbase transaction and requested board materials and communications in a December 7, 2021 demand.
- On December 8, 2021, holders of a majority of the preferred stock removed Weiss by written consent; the board approved the merger with Coinbase in January 2022 and the merger closed February 1, 2022.
- The Funds sought appraisal after the merger closed and moved to compel production of documents that FairX and its counsel (DLA Piper) had withheld as privileged but that had been shared with Weiss during his tenure as director.
- The Court applied Delaware’s joint-client doctrine: directors who receive board legal advice are presumptively joint clients with the corporation (and, where a director is a stockholder’s designee, the stockholder is presumptively within that circle), so the corporation cannot assert attorney-client privilege against those joint clients for communications made during the director’s tenure.
- The court held FairX cannot withhold materials created between November 14, 2019 and December 8, 2021 (Weiss’s tenure) from the Funds, except that privilege could be asserted for communications relating to Weiss’s December 7, 2021 books-and-records request; the Funds’ motion to compel was granted and FairX’s request for a destruction order was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FairX can invoke attorney-client privilege to withhold documents created during Weiss’s tenure | Funds: Weiss was a joint client as a director and shared board legal advice with the Funds; communications made during his tenure are not confidential as to him or the Funds | FairX: privilege applies and may be asserted by the surviving entity; Weiss (and the Funds) should not get privileged materials | Held: No privilege as to communications made during Weiss’s tenure (11/14/2019–12/8/2021), except for materials concerning Weiss’s Dec. 7 books-and-records request |
| Whether the post-merger surviving entity’s control of pre-merger privilege bars access | FairX: merger made surviving entity the privilege holder and it can assert privilege against former directors/affiliates | Funds: successor status does not create new privilege rights against someone who was a joint client when communications were made | Held: Section 259 transfers the privilege-holder status but does not enlarge privilege; surviving entity cannot assert privilege against former joint clients for pre-merger communications |
| Whether Section 220(d) or SerVaas supports treating former directors like outsiders for discovery | Funds: Section 220(d) is irrelevant to plenary discovery; Rule 26 and joint-client precedent govern privilege in litigation | FairX: analogize Section 220(d) limits and SerVaas to show a former director or former executive cannot obtain privileged materials in litigation | Held: Section 220(d) and SerVaas do not change joint-client rule; privilege is assessed as of when the communication was made |
| Whether the Funds waived or are barred by delay (quasi-laches) from challenging privilege assertions | Funds: discovery is ongoing and they timely moved to compel; no waiver | FairX: claim of prejudice from defense planning and late challenge | Held: No waiver; delay did not justify denying the motion to compel |
| Whether the Funds must destroy privileged material received from Weiss | Funds: Weiss had right to share materials; materials were not privileged as to him/Funds | FairX: seeks destruction order to eliminate materials it considers privileged | Held: Destruction order denied; materials were not privileged as to Weiss/Funds given their joint-client status |
Key Cases Cited
- In re WeWork Litig., 250 A.3d 901 (Del. Ch. 2020) (directors presumptively joint clients entitled to corporation’s privileged information)
- Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155 (Del. Ch. 2013) (surviving corporation succeeds to constituent corporations’ rights, including privilege-holder status)
- Weintraub v. United States, 471 U.S. 343 (U.S. 1985) (control of corporate privilege rests with current management; applies to who may assert/waive privilege)
- Schoon v. Smith, 953 A.2d 196 (Del. 2008) (directors’ access to legal advice and related standing principles)
- Moyer v. Moyer, 602 A.2d 68 (Del. 1992) (burden of proving privilege lies with asserting party)
- Deutsch v. Cogan, 580 A.2d 100 (Del. Ch. 1990) (elements of attorney-client privilege articulated)
- Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co., 623 A.2d 1118 (Del. Super. Ct. 1992) (privilege existence determined at time communication made)
- In re Teleglobe Commc’ns Corp., 493 F.3d 345 (3d Cir. 2007) (communications during joint representation are discoverable between former joint clients)