Deal Lawyers Take Note: Allies In Aborted Acquisition Find Their Diligence Wasn’t Privileged

In New Jersey, two parties that were partnering in an acquisition had second thoughts after concluding there were legal risks in working with a third party whose real estate business was intrinsic to the deal. That third party, claiming it has been maligned, sued the two partners and said it wanted to see their communications leading up to their decision to back out. The parties had separate counsel but had worked closely together, and they balked, claiming privilege under the common-interest doctrine. It was denied. The applicable state law in this case requires the parties who have shared the information at issue to demonstrate – in addition to common interest and purposeful confidentiality – that at the time they shared the information they were preparing for litigation, explains Todd Presnell in his privileges blog. That last requirement doomed their case. These determinations vary by state and parties who could potentially find themselves in a similar situation need to research and understand the common-interest doctrine where they are located, Presnell writes. “If it requires actual or pending litigation – as most do – the lesson for aligned parties and their lawyers is that, unless litigation is legitimately anticipated, the sharing of privileged information in pre-deal negotiations waives the privilege.”