In Hyde Park Venture Partners Fund III, L.P. v. FairXchange, LLC, C.A. No. 2022-0344-JTL (Del. Ch. Mar. 9, 2023), the Court of Chancery held that a corporation (FairXchange) was not entitled to assert attorney-client privilege against two former preferred stockholders (together, the Funds), because the privileged materials were generated during the tenure of the Funds' board designee.

In this comprehensive memorandum opinion, Vice Chancellor Laster walks through "longstanding precedent" under Delaware law recognizing the status of "directors as joint clients for purposes of privileged material created during a director's tenure." Delaware courts have also repeatedly recognized that "when a director represents an investor, there is an implicit expectation that the director can share information with the investor." Under these well-established principles, the default rule is that a corporation does not have a reasonable expectation of confidentiality as to either board designees or the stockholders that designated them.

As observed in the opinion, the "joint client approach" has been consistently applied for decades, including in Kalisman v. Friedman, C.A. No. 8447-VCL (Del. Ch. Apr. 17, 2013), an oft-cited opinion also penned by Vice Chancellor Laster. Under this approach, there are only three recognized limitations to a director's access to privileged information: (i) entering into an ex ante agreement with the excluded director; (ii) openly (and with the knowledge of the excluded director) forming a special committee and retaining separate legal counsel; and (iii) putting the excluded director on notice that an adversity of interest exist. In the Hyde Park opinion, the Court granted the Funds' motion to compel the production of privileged materials generated during the tenure of the Funds' board designee, because none of these recognized exceptions to the joint client approach were present.