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Court Grants Motion to Compel Post-Acquisition Financial Documents but Denies Motion to Compel Privileged Emails

By Francis G.X. Pileggi

In Grunstein v. Silva, C.A. No. 3932-VCN (Del. Ch. April 13, 2010), read letter decision here,  the Court granted Plaintiffs' motion to compel production of post-acquisition financial documents but denied Plaintiffs motion to compel the production of six emails between the Defendant and his attorneys at Dechert LLP for which the Defendants claimed the attorney-client privilege.

Kevin Brady, a Delaware litigator, prepared this synopsis.

Background

On December 8, 2009, the Court denied the defendants motion to dismiss. That decision was highlighted on this blog here.

This dispute arose out of an alleged breach of an oral partnership agreement which was formed to carry out an acquisition. Plaintiffs Grunstein and Dwyer alleged that they orally agreed to form a partnership with Defendant Silva for the purpose of acquiring a nursing home services company. Plaintiffs alleged that they agreed to share profits and losses resulting from the acquisition and that 'each partner would share in all the economic benefits received by any of them (or any entities controlled by them) resulting from the [acquisition].' Grunstein, Dwyer and Silva entered into a merger agreement with Beverly Enterprises Inc. and during the negotiations, Silva replaced the original acquiring entities with companies he controlled. As a result, after the merger, Beverly was owned solely by Silva's companies.

Plaintiffs' Motion to Compel Privileged Emails

Plaintiffs attempted to establish the existence of a business relationship through emails and deposition testimony by W. Brinkley Dickerson, Jr., Grunstein's law partner at Troutman Sanders LLP describing a conversation with Silva in which Silva allegedly acknowledged that Grunstein had a 'carried interest' in the transaction. Troutman Sanders, as transactional counsel, represented the acquiring entities that included Silva and his related entities. While Plaintiffs were not certain that the nature of the relationship was being discussed in emails between Silva and Grunstein, they had 'cause to believe' that Silva made similar assertions regarding the nature of his business relationship with Grunstein in emails to his attorneys at Dechert.

The Privileged Emails Are Protected from Discovery

Plaintiffs claim that these emails are not privileged because they were originally designated in Defendants' privilege logs as involving either attorneys' fees or the Troutman Sanders engagement letter which does not fall within the scope of the attorney-client privilege. The Court noted that while communications regarding fee arrangements are typically discoverable 'because fee arrangements are considered incidental to the attorney-client relationship and do not usually involve the disclosure of confidential communications arising in the context of the professional relationship….this exception only applies to communications between an attorney and client with respect to their particular professional arrangement.' Here, Plaintiffs wanted access to legal advice that Dechert provided to Silva with respect to fee dispute between Silva and Troutman Sanders. The Court found that the privilege exception did not extend that far.

In the alternative, Plaintiffs argued that any privilege with respect to the subject of Silva and Grunstein's business relationship had been waived because it had been disclosed to third parties. Troutman Sanders (and Dickerson) represented Silva only through their representation of the acquiring entities in the acquisition of Beverly, not regarding the underlying legal structure governing the acquiring entities. Furthermore, in the attorney-client privilege context the client must have a reasonable expectation of confidentiality in the matters discussed with counsel. Here, Silva had no reasonable expectation that Dickerson would keep their conversations with respect to the nature of his alleged business relationship with Grunstein confidential. Dickerson expressly informed Silva that he was not representing him as to that topic. Because the communications between Silva and Dickerson concerned matters outside of the scope of their attorney-client relationship, they were not privileged communications. As such, waiver was not an issue.

Court Allows Discovery of Financial Information

Plaintiffs also sought the production of financial information for the purpose of quantifying their damages. Defendants argued that the Court should wait to decide this issue until it considered Defendants' recently filed motion for summary judgment. The Court disagreed stating that :         '[a]lthough these documents are relevant only as to damages, Plaintiffs deserve adequate time to allow their experts to properly analyze and extrapolate the relevant damages due under each of the theories that they have put forward.' Accordingly, Plaintiffs' motion to compel production of the relevant financial information was granted.

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on April 20, 2010 (boomark / email).