The Delaware Court of Chancery decision in In re WeWork Litigation, issued on December 22, 2020, underscores the need for heightened care with respect to corporate communications and the preservation of the attorney-client privilege.
In late 2019, Softbank Group Corp. (“Softbank”) agreed to use reasonable best efforts to effectuate a tender offer of up to US$3 billion of The We Company (“WeWork”) stock. The tender, although commenced, was never consummated. Shareholder litigation followed.
At the time of the failed tender, Softbank owned a majority stake in Sprint, Inc., and a number of Softbank employees were “seconded” to Sprint. Importantly, Sprint had no role in the tender offer. However, Softbank employees had access to Sprint email accounts and used those accounts for privileged communications with Softbank counsel regarding the tender offer. In the WeWork shareholder litigation, the plaintiffs sought to compel production of documents in the Sprint email accounts, on the ground that any privilege had been waived.
In addressing the waiver issue, the Court of Chancery relied predominantly on the four-factor test articulated in In re Asia Global Crossing, Ltd., 322 B.R. 247 (Bankr. S.D.N.Y. 2005) used to determine reasonable expectations of privacy with respect to work-related email communications. The Asia Global factors are as follows:
(1) does the corporation maintain a policy banning personal or other objectionable use, (2) does the company monitor the use of the employee’s computer or email, (3) do third parties have a right of access to the computer or emails, and (4) did the corporation notify the employee, or was the employee aware, of the use and monitoring policies?
Here, Sprint’s Code of Conduct contained express admonitions with respect to an employees’ expectation of privacy in information relayed using Sprint email. And although the record was devoid of evidence of Sprint’s email monitoring practices, the Court noted that the Code of Conduct expressly reserved Sprint’s right to do so. Accordingly, the Court concluded the first and second Asia Global factors were easily met.
The Court also found the third Asia Global factor to weigh in favor of production because Softbank failed to provide “compelling evidence” that its seconded employees took “significant and meaningful steps to defeat” Sprint’s access to their communications, “such as shifting to a webmail account or encrypting their communications.” And finally, with respect to the fourth factor, the Court concluded the seconded employees were aware of Sprint’s email policies and “thus could not have had a reasonable expectation of privacy when they used their Sprint email accounts” to communicate about the business affairs of Softbank.
Although WeWork involved employees who worked across companies with overlapping ownership, the decision provides an occasion for reminding employees/partners of venture capital and private equity firms, as well as outside corporate directors, of the risks of using email from their “day job” for purposes of another entity. Here, the issue arose for employees of Softbank who were seconded to Sprint and using Sprint email. Outside corporate directors sometimes use their email from their primary employer rather than their personal email or an email account with the company on whose board they sit. Most companies, as Sprint here did, have policies on the use of email and other communications transmitted across their networks. And, those companies monitor or, at minimum, reserve the right to monitor, such communications. Moreover, it is standard corporate practice for companies to inform their employees of such policies and procedures, whether through codes of conduct or employee handbooks, and for employees to acknowledge the same. Thus, passing the Asia Global test will often not be hard.
In situations where a fund partner or employee serves in a board or management role for a portfolio company, it is prudent to have clear policies and frequent reminders to use the correct email for the separate companies. For corporate directors, the use of their primary work email for another company’s board business may be a harder habit to kick but also worth addressing. In our experience, it is not unusual to see outside directors occasionally send emails to outside or company counsel, to management, or other directors from their “primary work accounts.” As a general matter, of course, the use of email, texting or other electronic communications among board members, whether for purposes of obtaining legal advice or for communication among themselves, presents its own risks. Board business should, to the extent possible, occur in formal meetings called with appropriate notice and memorialized in board minutes that reflect what was discussed. WeWork adds another layer of risk and suggests such communications present the additional possibility of a privilege waiver. To guard against that risk, to the extent that electronic communications are necessary, the consistent use of board portals — rather than standard email platforms — is a prudent step to avoid waiver concerns. Another step would be to adopt policies requiring outside directors to use personal email addresses, such as Gmail accounts, for any board business, or to provide an email address at the company for each director. As a practical matter, it can be helpful (and less intrusive in the event of litigation) if an outside director sets up a dedicated board-specific personal email address and then consistently uses that account, rather than a general personal email account, for board business. And it is often easier for all involved if a director’s email is on the company’s server and thus available to collect and search in the same manner as employees.
One final note: depending on the circumstances, the potential consequences of waiver may be quite serious. If the communications are protected attorney work product, it may be possible in many jurisdictions to limit the scope of the waiver to the actual documents at issue. However, if the claim is based only on the attorney-client privilege, the waiver of privilege may operate as a general subject-matter waiver on all related privileged communications on the same topic, not simply those that made with another company’s email system. For this reason, meaningful corporate oversight and guidance on these issues is even more important.