Mergers and Acquisitions
Buyers need to understand a seller’s legal exposure to potential litigation or government enforcement actions. The seller may need to disclose privileged legal analyses to the buyer’s executive team and attorneys, which would normally terminate the privileged nature of the analyses. However, these communications may remain privileged under the “common interest” exception. This exception protects privilege in situations where it would otherwise be waived if the communication is to promote a shared legal interest between the parties.
Such shared legal interest may arise during a transaction. Determinations of whether the parties share a common legal interest are often highly contextual. Specialty pharmacies should always consult with their attorneys on how best to maintain privilege in these circumstances. Generally, information shared early in negotiations—particularly when the parties are not engaged in exclusive negotiations and there are multiple suitors—are not likely to be privileged.
Some courts have even required a signed purchase agreement for privilege to apply. Specialty pharmacies should also consider how the acquired company’s privileged information will be handled post-acquisition. States apply the law on this issue differently. Some courts find that the seller retains control of pre-merger privileged communications that relate to the merger and its negotiations.
Scenario: After several months of financial diligence led 2 parties to enter into a contract generally outlining the terms of a deal and requiring exclusivity, a seller specialty pharmacy’s attorney and CEO meet with a buyer specialty pharmacy’s attorney and CEO to discuss a prior arrangement with a pharmaceutical manufacturer. The seller’s attorney advises that she worked with the seller to implement the arrangement and determine if it is defensible under the anti-kickback statute.
She further states that she could envision a regulator misunderstanding the relationship and finding a kickback. The acquisition occurs, and months later, the government files an action against the buyer specialty pharmacy, claiming that the arrangement was a kickback. The buyer would like to use an “advice of counsel” defense and rely on the seller specialty pharmacy attorney’s advice as a defense. Unless the seller agrees to this strategy, or the parties negotiated which party “owns” the privilege in the acquisition agreement, the court will likely get involved.
In that event, a court may find (1) that seller specialty pharmacy waived privilege by sharing the information with the buyer, (2) that the seller did not waive privilege but that the privilege transferred to the buyer in the acquisition, or (3) the seller did not waive privilege and still maintains the privilege after the transaction.
Conclusion
Determining whether attorney–client privilege can be invoked depends greatly on the details of the situation. It is not a way to shield “bad facts” from scrutiny. Taking advice from counsel on how to preserve attorney–client privilege can ensure that your specialty pharmacy is protected appropriately, if a government investigation or private litigation puts you under the microscope.
Specialty Pharmacy Times previously published this article on May 11, 2017. The original publication may be accessed with a free login by visiting Specialty Pharmacy Times.