Delaware Business Litigation Report

Chancery Addresses When Third Parties Are Within the Scope of the Privilege

Police and Fire Ret. Sys. of the City of Detroit v. Musk, C.A. No. 2020-0477-KSJM (Del. Ch. January 31, 2023)
A communication is privileged under Delaware Rule of Evidence 502(b) if it is confidential and "made for the purpose of facilitating the rendition of professional legal services to the client." Rule 502(a)(2) defines a confidential communication as one "not intended to be disclosed to third persons other than those to whom disclosure is made in furtherance of the rendition of professional legal services to the client or those reasonably necessary for the transmission of the communication." Rule 502(b) makes clear that the presence of a client's "representative" does not waive confidentiality or break privilege, but the rule itself does not define "representative."

In this case, the Court of Chancery evaluated the privilege of documents shared with (i) a third party, Valor, an investment firm affiliated with one of the defendant directors, and (ii) an independent auditor, PriceWaterhouseCoopers (PwC) in the context of an SEC filing. Regarding the documents shared with Valor, the Court cited In re Lululemon Athletica Inc. 220 Litigation as illustrating that a third party is a "representative" in the context of 502(b) if the party shares responsibility for the subject matter underlying the consultation. Reviewing documents in camera, the Court found that Valor's personnel acted as agents of the defendant with whom they communicated about the subject matter of the logged documents and therefore were his "representatives" under 502(b). The Court found, however, that documents shared with independent auditor PwC were not privileged because Delaware courts do not generally consider outside auditors to fall within the ambit of privilege due to the unique responsibility owed by outside auditors to the public at-large. Here, PwC reviewed the documents in question to ensure accurate and compliant disclosures to the SEC. Because of this core public function, the Court found that PwC was not a "representative” for purposes of the privilege. 

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