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Great Hill Equity IV, LP v. SIG Growth Equity Fund I, LLLP

Court of Chancery of Delaware, New Castle

October 15, 2013, Submitted; November 15, 2013, Decided

Civil Action No. 7906-CS

Opinion

 [*155]  STRINE, Chancellor.

The plaintiffs, Great Hill Equity Partners IV, LP, Great Hill Investors LLC,  [*156]  Fremont Holdco, Inc., and Bluesnap, Inc. (for clarity, collectively the "Buyer"), have filed this suit alleging that the defendants, former shareholders and representatives of Plimus, Inc.  [**2] (for clarity, collectively the "Seller"), fraudulently induced the Buyer to acquire Plimus, Inc. ("Plimus") in September 2011. Plimus was the surviving corporation in the merger.

After the Buyer brought this suit in September 2012 — a full year after the merger — it notified the Seller that, among the files on the Plimus computer systems that the Buyer acquired in the merger, it had discovered certain communications between the Seller and Plimus's then-legal counsel at Perkins Coie regarding the transaction. During that year, the Seller had done nothing to get these computer records back, and there is no evidence that the Seller took any steps to segregate these communications before the merger or excise them from the Plimus computer systems, the control over which was passing to the Buyer in the merger. It is also undisputed that the merger agreement lacked any provision excluding pre-merger attorney-client communications from the assets of Plimus that were transferred to the Buyer as a matter of law in the merger, and the merger was intended to have the effects set forth in the Delaware General Corporation Law ("DGCL").1 Nonetheless, when the Seller was notified that the Buyer had  [**3] found pre-merger communications on the Plimus computer system, the Seller asserted the attorney-client privilege over those communications on the ground that it, and not the surviving corporation, retained control of the attorney-client privilege that belonged to Plimus for communications regarding the negotiation of the merger agreement. Before the court is a motion by the Buyer seeking to resolve this privilege dispute and determine, among other things, that the surviving corporation owns and controls any pre-merger privilege of Plimus or, alternatively, that the Seller has waived any privilege otherwise attaching to those pre-merger communications.2

The question before the court is thus an issue of statutory interpretation in the first instance. Section 259 of the DGCL provides that following a merger, "all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the surviving or resulting corporation . . . ."3 Nonetheless, the Seller contends that the statutory term "all ... privileges" does not include the attorney-client privilege, and claims that the Seller still retains control over that particular subset of Plimus's privileges, or, as shall be seen, at least the portion of that subset consisting of attorney-client communications regarding  [**5] the merger negotiations.  [*157]  At oral argument, the Seller suggested without citation that the General Assembly actually intended the "privilege" referred to in § 259 of the DGCL to include only certain property rights, and that it did not extend to privileges established by a rule of evidence.4 But, when asked, the Seller was not able to cite any legislative history that supported its narrow reading of the statute,5 and the court has not been able to find any evidence for its suggested interpretation in the leading treatises.6 Most importantly, the Seller's reading is not a plausible interpretation of the plain statutory language. That language uses the broadest possible terms to make sure that "all" assets of any kind belong to the surviving corporation after a merger. The Seller's attempt to interpret the word "privileges" to mean "property rights" ignores the reality that the word "property" is already specifically used in the statute, as is the term "rights" — and then these terms are expanded still further to include  [*158]  "all and every other interest." ] The definition of "all" is well known, and means "the whole amount, quantity, or extent of."7 ] There is a presumption that the General  [**6] Assembly carefully chose particular language when writing a statute, and this court will not construe the statute to render that language mere surplusage if another interpretation is reasonably possible.8 ] The term "privilege" is commonly defined as "a right or immunity granted as a peculiar benefit, advantage, or favor,"9 and one of the most obvious examples is the attorney-client privilege.10 To indulge the Seller's argument would conflict with the only reasonable interpretation of the statute, which is that all means all as to the enumerated categories, and that this includes all privileges, including the attorney-client privilege.

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80 A.3d 155 *; 2013 Del. Ch. LEXIS 280 **; 2013 WL 6037329

GREAT HILL EQUITY PARTNERS IV, LP, GREAT HILL INVESTORS LLC, FREMONT HOLDCO, INC., AND BLUESNAP, INC. (F/K/A PLIMUS), Plaintiffs, v. SIG GROWTH EQUITY FUND I, LLLP, SIG GROWTH EQUITY MANAGEMENT, LLC, AMIR GOLDMAN, JONATHAN KLAHR, HAGAI TAL, TOMER HERZOG, DANIEL KLEINBERG, IRIT SEGAL ITSHAYEK, DONORS CAPITAL FUND, INC., AND KIDS CONNECT CHARITABLE FUND, Defendants.

Subsequent History: Motion granted by, in part, Motion denied by, in part, Dismissed by, in part Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2014 Del. Ch. LEXIS 243 (Del. Ch., Nov. 26, 2014)

Partial summary judgment denied by Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2017 Del. Ch. LEXIS 128 (Del. Ch., July 26, 2017)

Motion denied by, Without prejudice Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2017 Del. Ch. LEXIS 799 (Del. Ch., Nov. 13, 2017)

Findings of fact/conclusions of law at, Judgment entered by Great Hill Equity Partners IV, LP v. Sig Growth Equity Fund I, LLLP, 2018 Del. Ch. LEXIS 550 (Del. Ch., Dec. 3, 2018)

Judgment entered by Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2020 Del. Ch. LEXIS 76 (Del. Ch., Feb. 27, 2020)

CORE TERMS

merger, Seller, attorney-client, communications, surviving corporation, privileges, negotiation, Buyer, pre-merger, waived, transferred, parties, rights, terms

Civil Procedure, Discovery, Privileged Communications, Attorney-Client Privilege, Evidence, Privileges, General Overview, Mergers & Acquisitions Law, Liabilities & Rights of Successors, Attorney-Client Privilege, Scope, Governments, Legislation, Interpretation, Inferences & Presumptions, Presumptions, Creation, Waiver