Delaware Court Provides Transactional and Practical Guidance: Part II

September 9, 2020

Last week’s Privilege Point described a Delaware Chancery Court’s analysis of pre-closing privileged transactional documents in: (1) a stock sale (in which the statutory “default” position is that the buyer acquires those documents, unless the seller explicitly negotiates their exclusion); and (2) an asset sale (in which the seller retains ownership of those, unless the buyer explicitly negotiates for their transfer). DLO Enterprises, Inc. v. Innovative Chemical Products Group, LLC, C.A. No. 2019-0276-MTZ, 2020 Del. Ch. LEXIS 202 (Del. Ch. June 1, 2020).

The DLO Enterprises court also dealt with several post-closing and pre-closing privileged transactional-related emails housed on accounts the buyer acquired. The court asked for further briefing on the post-closing communications’ ownership, pointing to case law governing corporate management’s right to read employees’ personal email communications on the company servers (focusing on personnel policies, etc.). The court also required further briefing on the pre-closing privileged transaction-related privileged communications, noting that their ownership would be governed by inadvertent transmission principles. Interestingly, although Delaware ethics rules on their face allow the recipients of inadvertently transmitted emails to read them, the court condemned “Buyers’ counsel’s inappropriate review of the content of the potentially privileged” emails — explaining that they “should not have viewed these documents prior to resolving the privilege issues associated with them.” Id. at *22-23.

DLO Enterprises: (1) further clarified privileged transactional documents’ fate in stock and asset sales; (2) reinforced the wisdom of explicitly negotiating their ownership during either type of transaction; and (3) highlighted courts’ frequent expectation that lawyers should refrain from reading inadvertently transmitted privileged communications despite their ethical right to do so under the applicable ethics rules.