Delaware State Court Applies Expansive Delaware Privilege Law to Communications that had Occurred in Massachusetts

September 15, 2010

State courts and federal courts sitting in diversity must determine which state’s privilege law applies. Courts look to a variety of possible sources, including the state where the communication took place – which probably is the most logical source of the privilege law.

However, in 3Com Corp. v. Diamond II Holdings, Inc., C.A. No. 3933-VVCN, 2010 Del. Ch. LEXIS 126 (Del. Ch. May 31, 2010) (not released for publication), a Delaware state court applied Delaware law to communications that had occurred in Massachusetts. The court pointed to the contract parties’ choice of Delaware as both the source of substantive law and the forum for resolving any disputes. The court’s selection of Delaware law allowed one of the litigants to protect communications to and from its investment banker, Goldman Sachs. The court noted that Goldman Sachs was inside the attorney‑client privilege under Delaware law, but outside the privilege under Massachusetts law (because Goldman Sachs’s participation was not “‘necessary'” for “‘effective consultation’ between client and attorney”). Id. at *10-11 (citation omitted).

The Delaware state court’s ultimate holding that Goldman Sachs was inside the privilege represents a minority position, and its acknowledgment that contract parties have power to select the applicable privilege law represents an opportunity that lawyers should explore.