Conflicts of Interest and Attorney-Client Privilege Clause
(Merger or Stock Purchase)

Summary

This clause addresses the ownership of attorney-client privilege after the closing both with regard to disputes among the parties and with third parties and allows the seller's existing law firm to continue its representation after the closing without creating a conflict of interest with regard to the sold company or requiring such counsel to create an ethical wall between its attorney for pre- and post-closing representation. This clause includes practical guidance and drafting notes. Delaware courts have held that, absent an express provision to the contrary, control over attorney-client privilege will transfer with the target corporation in a merger or stock acquisition. See Great Hill Equity IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155 (Del. Ch. 2013). This provision provides such an express provision that privilege will remain with the sellers. Without such a provision, in any conflict between the parties relating to the acquisition transaction, the buyer would be able to waive privilege with regard to any pre-closing communications between the target company and its counsel, which would put the sellers at a significant disadvantage. This issue is handled differently in transactions that are structured as asset purchase transactions. For a discussion of these issues and a sample clause, see Conflicts of Interest and Attorney-Client Privilege Clause (Asset Purchase).