District Court Finds Communications and Documents Concerning Defendant’s Post-Filing Acquisition Are Not Protected by the Common Interest Privilege
Published: December 10, 2020
In 10x Genomics, Inc. v. Celsee, Inc., 1-19-cv-00862 (DDE 2020-12-04, Order) (Colm F. Connolly), the District Court ordered the defendant to produce documents and give testimony about communications between defendant and its new corporate owner concerning the litigation and the provisions in the acquisition agreement that concern the litigation.
Specifically, during the pendency of the litigation, nonparty Bio-Rad Laboratories had acquired 100 percent of Defendant Celsee, Inc.’s stock pursuant to an acquisition agreement. The acquisition agreement had disclosures and provisions related to the litigation. At two depositions, Celsee refused to let witnesses answer questions about documents Celsee disclosed to BioRad and communications it had with Bio-Rad during the negotiations that resulted in the acquisition agreement. The disclosures and communications occurred after Celsee and Bio-Rad had signed a non-binding letter of intent to engage in the acquisition negotiations. Celsee cited the common interest privilege and the attorney work product doctrine as the bases for its refusal to allow the witnesses to answer the questions posed to them.
In response, Plaintiff 10x Genomics, Inc. asked the Court to order Celsee to reproduce one of the witnesses for no more than four hours of deposition and to compel that witness to produce and testify about any communications between Celsee and Bio-Rad concerning the litigation and the provisions in the acquisition agreement that concern the litigation. Celsee argued that all its communications with Bio-Rad were protected from disclosure by the attorney work product doctrine and the common interest doctrine.
As some background, the common interest privilege is an extension of the attorney-client privilege. It protects from discovery communications among clients and attorneys allied in a common legal cause, and can apply in civil and criminal litigation, and even in purely transactional contexts. Indeed, the common interest doctrine is defined as “an exception to the general rule that the attorney-client privilege will be waived following disclosure of privileged materials to a third party.” However, whether described as an extension of the attorney-client privilege or an exception to the waiver of that privilege, the underlying principle-to protect the confidentiality of communications among attorneys and clients allied in a common legal cause-is the same.
But, the Court also noted that since the privilege is an exception to the general rule of broad discovery, “it is construed narrowly” and “caution must be exercised to ensure that the privilege is contained within appropriate boundaries.” Therefore, as the party asserting the privilege, Celsee bears the burden of establishing that the privilege applies. To meet that burden, the Court stated Celsee must demonstrate, among other things, that the interests it claims to hold in common with Bio-Rad are “identical, not similar, and [are] legal,” and that the communications it seeks to protect “would not have been made but for the sake of securing, advancing, or supplying legal representation.”
The Court found Celsee failed to meet this burden here. The Court reasoned that Celsee has not contended, let alone established, that it and Bio-Rad shared an identical legal interest or that its communications with Bio-Rad were made for the purpose of securing, advancing, or supplying legal representation. Further, Celsee and Bio-Rad were not engaged in legal strategy sessions but instead were negotiating a commercial transaction from the opposite sides of a bargaining table.
In response, Celsee argued that the common interest privilege covers any discussions between a company and a prospective purchaser of the company or the company’s assets about litigation or potential litigation that could affect the company or the assets if the contemplated purchase were consummated, citing HewlettPackard Company. v. Bausch & Lomb, Inc., 115 F.R.D. 308 (N.D. Cal. 1987) as support. However, the Court rejected this line of argument for two reasons. First, protecting merger and acquisition negotiations from future disclosure does not advance the common interest privilege’s purpose of “encourag[ing] full and frank communication between attorneys and their clients [to] thereby promote broader public interests in the observance of the law and administration of justice.” And, second, extending a cloak of secrecy to merger and acquisition negotiations would substantially curtail truth seeking in criminal and civil proceedings.
Therefore, the Court ordered Celsee to produce a witness for no more than four hours of deposition and to produce documents and give testimony about communications between Celsee and Bio-Rad concerning the litigation and the provisions in the acquisition agreement that concern the litigation, except insofar as the documents or testimony would reveal directly the mental impressions of Celsee’s attorneys.
Thus, this case serves as a strong reminder to always be careful what you disclose regarding legal matters to others, even when you believe your interests with them may be aligned or towards a common purpose because that alone may not protect those communications from discovery.