Delaware Business Litigation Report

CCLD Finds Claims for Pre-Litigation Breaches of Covenants Restricting Speech Exempt From the “Litigation Privilege”

Feenix Payment Sys. LLC v. Blum, C.A. No. 21-05-099 EMD CCLD (Del. Super. Jan. 25, 2021)
Under Delaware law, the litigation privilege prevents potential tort liability for statements that may be actionable (e.g., as defamation) where such statements were made in connection with a legal case. This case finds that the litigation privilege is not necessarily apt, however, to claims for breach of contract based on pre-litigation breaches of non-disparagement clauses or similar covenants.

In this action, the defendant entered into a separation agreement prohibiting him from making disparaging or defamatory statements and/or disclosing confidential company information. The alleged statements for which the plaintiff-companies sued were made from the defendant’s counsel to the plaintiffs’ potential lender. They were made in advance of a judicial proceeding and pertained to its subject matter. They sought to prevent the lender from dealing with the plaintiffs, suggesting that the potential transaction breached duties to the defendant. 

In granting the defendant’s motion to dismiss in part, the Court held the plaintiffs’ claims alleging torts (e.g., defamation and tortious interference) were not actionable. On the other hand, however, their contractual claims survived. Reviewing past Delaware case law concerning the litigation privilege, the Court reasoned that Delaware’s policy in favor of enforcing contracts supported that parties cannot “circumvent these [confidentiality and non-disparagement] provisions by filtering their breaches through a lawyer in the context of potential litigation… [.]” Because such obligations may be enforced, the Court denied the defendant’s motion to dismiss the plaintiffs’ breach of contract claims.

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