Can Contracting Transactional Parties Select Favorable Privilege Law?: Part II

November 16, 2016

Last week’s Privilege Point described diversity cases in which litigants did not address the choice of laws issue, and in which the issue was irrelevant because there appeared to be no material difference between the possibly applicable privilege laws.

Del Giudice v. Harlan , No. 15 Civ. 7330 (LTS) (JCF), 2016 U.S. Dist. LEXIS 129938 (S.D.N.Y. Sept. 22, 2016), generated substantial news about its corporate governance holding – that under Delaware law even directors who are adverse to their corporation can sometimes access privileged communications about their dispute. But the news articles have not covered what could be a more broadly significant point. After noting that “[t]he parties engage in a half-hearted dispute about what state’s law should determine whether the attorney-client privilege applies,” respected Magistrate Judge Francis emphasized that “it appears that the Delaware [privilege] law differs from New York law in material ways” – so “[a] choice-of-law analysis is therefore necessary.” Id. at *8-9. After tiptoeing into New York’s elaborate choice of laws standard, Judge Francis short-circuited the analysis – holding “under New York state law, where the contract sued upon contains a choice-of-law provision, that choice will generally govern what state’s privilege law applies.” Id. at *11-12. Because the LLC’s operating agreement specified Delaware law, Judge Francis applied Delaware privilege law. As it turned out, that was dispositive — and resulted in the widely reported corporate governance decision.

This is not the first time a privilege choice of laws analysis played a decisive role. In 2010, a Delaware state court relied on a merger agreement’s choice of law provision to apply Delaware rather than Massachusetts privilege law to communications that occurred in Massachusetts. 3Com Corp. v. Diamond II Holdings, Inc., C.A. No. 3933-VCN, 2010 Del. Ch. LEXIS 126 (Del. Ch. May 31, 2010). That conclusion made a huge difference – because Goldman Sachs was outside privilege protection under Massachusetts law but inside privilege protection under Delaware law. Although such situations may arise infrequently, lawyers should be looking for them.