Can Misused Email Accounts of Sponsor‑Appointed Directors on Portfolio Company Boards Jeopardize Attorney‑Client Privilege?

PE sponsors often obtain one or more board seats at portfolio companies in connection with their investments. Sponsor-appointed directors are typically fund employees who often use their fund email accounts for communications involving the portfolio company. Those directors may want to consider having their board designees use modes of communication that cannot be monitored by sponsors, however, after the Delaware Court of Chancery (Chancery Court) found the attorney-client privilege did not exist when employees of the defendant company used certain email accounts. Specifically, the Chancery Court held that emails containing legal advice about litigation between a conglomerate holding company and an underlying portfolio company were not protected by attorney-client privilege because the conglomerate’s employees communicated using their email accounts at a separate entity at which they were also employed. Loss of privilege in that scenario could potentially apply to outside directors, including sponsor-appointed directors on the boards of portfolio companies. This article summarizes the ruling and provides insights from attorneys about the implications for PE sponsors that appoint employees to portfolio company boards. See our two-part series on preserving privilege for in-house counsel: “Communications and Common Issues” (Jun. 1, 2021); and “Internal Investigations and Depositions” (Jun. 8, 2021).

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