Delaware Courts Address Common Interest Doctrine Issue: Part I

July 22, 2020

The common interest doctrine occasionally allows separately represented clients to share privileged communications without waiving that fragile protection. Nearly all courts require that the common interest doctrine participants share a common legal interest, rather than merely a common financial interest.

In RCS Creditor Trust v. Schorsch, C.A. No. 2017-0178-SG, 2020 Del. Ch. LEXIS 98 (Del. Ch. Mar. 20, 2020), bankrupt RCAP’s reorganization plan created a Creditor Trust. Kramer Levin represented the Trust in suing defendants for breaching their fiduciary duties while at RCAP. During that litigation, Kramer Levin lawyers communicated with Skadden lawyers, who represented non-party Luxor — which was RCAP’s “largest unsecured creditor and . . . the largest stakeholder in the Trust.” Id. at *3. Defendants sought discovery of those communications, contending that “the Trust and Luxor have, at most, a common financial interest in the outcome of this litigation.” Id. at *3-4. The court rejected Defendants’ efforts, explaining that “the Trust conducts no business, other than the maximization of value of the legal claims assigned to it in the Plan,” so “in their nature practically all of the Trust’s communications have a legal nexus.” Id. at *13. Thus, Luxor “has a sufficient legal interest for communications with the Trust” in its role “[a]s the largest beneficiary and controller of the Trust.” Id. at *14. This satisfied Delaware’s “joint legal strategy or objective” common interest doctrine standard. Id. at *14-15.

With bankruptcies likely to multiply, lawyers representing debtors and creditors should familiarize themselves with this and other common interest doctrine principles. Next week’s Privilege Point will discuss a later Delaware court decision addressing this issue.