In re Quest Software Inc. S'holders Litig., C.A. No. 7357-VCG (Del. Ch. July 3, 2013) (Glasscock, V.C.)

In this decision, the Court of Chancery denied plaintiffs’ motion to compel the discovery of privileged documents and communications, finding that the “at issue” exception to the attorney-client privilege did not apply and that the common interest doctrine did apply.

This dispute arose out of a stockholder class action in which plaintiffs, stockholders of Quest Software Inc. (“Quest”), sought to enjoin a proposed acquisition of Quest by Insight Venture Management LLC (“Insight”).  In response to a proposal from Insight, Quest’s board of directors (the “Board”) formed a special committee that negotiated a merger agreement with Insight.  The merger agreement contained a post-agreement, go-shop provision.  During the go-shop period, plaintiffs commenced the litigation.  Subsequently, Dell, Inc. (“Dell”) offered a substantially higher price to purchase Quest.  Quest accepted Dell’s offer and terminated its merger agreement with Insight.

The termination of the Insight merger agreement rendered plaintiffs’ claims moot.  Plaintiffs then sought an award of attorneys’ fees and expenses under the corporate benefit doctrine.  Plaintiffs contended that the litigation influenced defendants’ negotiations with Dell.  Defendants maintained that the litigation had no effect on their negotiations with Dell and the decision to accept Dell’s offer.

In their motion to compel, Plaintiffs sought to gain access to privileged documents.  Plaintiffs argued that the “at issue” exception to the attorney-client privilege applied because defendants received status updates about the litigation but took the position that those updates had no impact on their negotiations with Dell.  Plaintiffs also contended that defendants waived the attorney-client privilege by divulging privileged communications to third parties—including Board members who were not on the special committee.

The Court denied plaintiff’s motion to compel.  The Court first held that the “at issue” exception did not apply.  The Court reasoned that defendants’ admission that they received litigation status updates from counsel did not place privileged material “at issue” because defendants were not asserting reliance on the substance of those status updates.  The Court similarly reasoned that the statement that the litigation status updates had no effect on their negotiations with Dell also did not constitute reliance on the substance of privileged communications.

The Court then held that the common interest doctrine did apply—including with respect to Board members who were not on the special committee.  The Court reasoned that the third parties and defendants shared a common legal interest due to risks in accepting the Dell offer, among other things.

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