Court Opinion

ID: 9838828
Source: CourtListenerOpinion
Date Created: 2023-09-08 14:03:57.829378+00
Date Added: 2024-06-11T09:02:12.502111
License: Public Domain

COURT OF CHANCERY
                                   OF THE
                             STATE OF DELAWARE
  LORI W. WILL                                               LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR                                                500 N. KING STREET, SUITE 11400
                                                              WILMINGTON, DELAWARE 19801-3734

                        Date Submitted: September 1, 2023
                         Date Decided: September 8, 2023

 Srinivas M. Raju, Esquire                     Lewis H. Lazarus, Esquire
 Kyle H. Lachmund, Esquire                     Albert J. Carroll, Esquire
 Naseeba Saeed, Esquire                        Barnaby Grzaslewicz, Esquire
 Richards, Layton & Finger, PA                 Samuel E. Bashman, Esquire
 920 North King Street                         Morris James LLP
 Wilmington, Delaware 19801                    500 Delaware Avenue, Suite 1500
                                               Wilmington, Delaware 19801

                                               Kenneth J. Nachbar, Esquire
                                               Megan Ward Cascio, Esquire
                                               Alexandra M. Cumings, Esquire
                                               Emily C. Friedman, Esquire
                                               Morris, Nichols, Arsht &
                                                  Tunnell LLP
                                               1201 North Market Street
                                               Wilmington, Delaware 19801

      RE:    Enhabit, Inc., et al. v. Nautic Partners IX, L.P., et al.,
             C.A. No. 2022-0837-LWW
Dear Counsel:

      This letter decision considers the plaintiffs’ motion to compel the production

of certain documents withheld or redacted by the defendants as privileged. The

plaintiffs insist that the documents cannot be privileged since they were shared with

a third party and her counsel (who also represented the defendants). The defendants,

in response, argue that a common interest or joint client privilege attached.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 2 of 23

      After considering the categories of documents at issue, I conclude that each

side is partly right. Communications with the third party about her restrictive

covenants must be produced because the parties’ mutual interests were primarily

commercial—not legal. But the defendants’ privileged exchanges with counsel

about the structure and governance of their new business are protected unless they

were disclosed to the third party. My reasoning is described below.

I.   BACKGROUND

      This litigation concerns Encompass Home Health & Hospice (together with

its then subsidiaries, “Encompass Health”) and a competitor called VitalCaring

Group (the “New Venture”).        It follows litigation in Texas state court where

Encompass Health’s former CEO, April K. Anthony, was found to have violated

certain restrictive covenants in her employment agreement.1 The present litigation

brings claims for breach of fiduciary duty, aiding and abetting, and usurpation of

corporate opportunity against individuals and entities that allegedly conspired with

Anthony to form the New Venture.

      Around late 2020 and early 2021, private equity firms Nautic Partners, LLC

(with Nautic Partners IX, L.P., “Nautic”) and The Vistria Group, LP (with Vistria

1
 Verified Am. Compl. (Dkt. 62) (“Am. Compl”) ¶¶ 11, 13, 100-02. My description of the
background is drawn from the complaint and the limited record submitted in connection
with the present motion. In providing context for my analysis, I am not making findings
of fact.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 3 of 23

Fund III, LP, “Vistria”) purportedly began exploring a partnership in the home

healthcare and hospice space with the advice of counsel at Ropes & Gray LLP.2 The

same lawyers at Ropes had previously (separately) represented Anthony and Vistria

on unrelated matters.3

         In January 2021, Ropes advised Anthony, Nautic, and Vistria on a joint bid to

acquire Encompass Health.4 The bid expired by its terms on February 12, 2021.5

The defendants assert that Ropes continued to advise Nautic and Vistria, along with

Anthony, after efforts to acquire Encompass Health ceased. At that point, the focus

of Nautic and Vistria (and perhaps Anthony) shifted to exploring the formation of

the New Venture.

2
  Pls.’ Mot. to Compel the Produc. of Docs. Improperly Redacted and Withheld as
Privileged (Dkt. 238) (“Pls.’ Mot.”) Ex. 2.
3
 Pls.’ Mot. ¶ 3 (describing Ropes as Anthony’s “longtime personal counsel”); Defs. Vistria
Fund III, LP, The Vistria Group LP, TVG NP Homecare Topco, LP, and C. Walker’s
Opp’n to Pls.’ Mot. to Compel the Produc. of Docs. Improperly Redacted and Withheld as
Privileged and Joinder in the Nautic Defs.’ Opp’n to Mot. to Compel (Dkt. 281) (“Vistria
Defs.’ Opp’n”) ¶ 2 (describing Ropes as “Vistria’s long-time counsel” on “other matters
and transactions”).
4
  Nautic Defs.’ Opp’n to Pls.’ Mot. to Compel the Produc. of Docs. Improperly Redacted
and Withheld as Privileged (Dkt. 283) (“Nautic Defs.’ Opp’n”) Ex. 5 (Jan. 13, 2021 bid
letter); see also Nautic Defs.’ Opp’n Ex. 3 (Jan. 2021 email describing Anthony, Vistria,
and Nautic as Ropes’ “clients”).
5
    Nautic Defs.’ Opp’n Ex. 5.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 4 of 23

          As early as December 2020, Nautic and Vistria began preparing a draft term

sheet for the New Venture.6 The initial draft term sheet addressed, among other

things, the amount of equity to be contributed by the investors (including a

“Founding Manager”), governance terms, the terms of a management equity

incentive plan, and the amount of the Founding Manager’s compensation.7 Other

iterations of the term sheet were prepared in February 2021 and exchanged among

Ropes, Nautic, and Vistria, along with an outline Ropes prepared analyzing

Anthony’s restrictive covenants.8 Both the draft term sheet and outline were sent by

Ropes to Anthony on February 24 and 25.9

6
    Nautic Defs.’ Opp’n Ex. 6 (draft term sheet for “Newco”).
7
    Id.
8
  Pls.’ Mot. Ex. 8 (“Nautic Privilege Log”) at Row 103 (“Confidential email chain
requesting and providing confidential legal advice from outside counsel regarding multiple
provisions of NewCo term sheet, including board grants, anti-dilution, resignation and
MEIP vesting provisions.”); e.g., id. at Rows 103-05, 108-11, 113-128, 130-34, 302-05,
1642-43. Ropes prepared another memorandum regarding Anthony’s restrictive covenants
and sent it to Nautic and Vistria in March 2021. Nautic Privilege Log at Rows 148-49.
Vistria withheld the same (or similar) documents pertaining to Anthony’s restrictive
covenants. Pls.’ Mot. Ex. 7 (“Vistria Privilege Log”) at Row 145 (“Confidential document
drafted by Ropes & Gray providing legal advice re: restrictive covenants in April
Anthony’s employment agreement.”); e.g., id. at Rows 113, 161-63, 176, 181-83, 188-89,
229-36, 240, 243-44. Vistria also withheld draft term sheets and redacted related
communications. E.g., id. at Rows 148-60, 164-70, 174-75, 177-80, 184-87, 190-202.
9
 E.g., Nautic Privilege Log at Rows 300-01 (describing documents as containing legal
advice “regarding restrictive covenant terms” in Anthony’s employment agreement); id. at
Rows 333, 375.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 5 of 23

         In March, Anthony announced her intention to resign from Encompass

Health, effective June 18, 2021.10

         By April and May, Ropes was advising Vistria and Nautic on the formation

of an entity (Topco) to facilitate the acquisitions of three home healthcare businesses

later consolidated into the New Venture: Homecare Holding, Vital Caring, and Kare-

in-Home.11 Anthony was involved in certain discussions about the New Venture

during this time.12 On May 24, Nautic executed an engagement letter with Ropes

contemplating that Nautic and Vistria would be the firm’s joint clients.13 Work on

Topco’s acquisition of the three companies continued throughout the remainder of

the year.

         In June and July, Ropes communicated with Nautic and Vistria about the

organizational structure for Topco. Their exchanges focused on options for entities

affiliated with the newly-acquired companies—such as the creation of “Sponsorco”

to sit above Topco, the entities’ corporate forms, and rollover equity for certain

acquired companies.14 Separately, in July, Ropes and Anthony emailed about the

10
     Am. Compl. ¶ 8.
11
     See id. ¶ 51. Topco is TVG NP Homecare Topco, LP.
12
     E.g., Pl.’s Mot. Ex. 14.
 Nautic Defs.’ Opp’n Ex. 10 (engagement letter). It seems that Vistria had long engaged
13

Ropes and did not sign a new engagement letter at this time.
14
  See, e.g., Nautic Privilege Log at Rows 207-09, 224, 262, 1250-52, 1276-78, 1488, 1490,
1492, 1501-04, 1512, 1612, 1804; Vistria Privilege Log at Rows 658, 1793, 2144, 2605;
C.A. No. 2022-0837-LWW
September 8, 2023
Page 6 of 23

noncompete provision in her Encompass Health employment agreement.15 This

email morphed into a chain among Ropes, Nautic, and Vistria (excluding Anthony)

on the same subject.16

         Anthony’s noncompete covenant (as reformed by the Texas court) expired on

June 18, 2022.17 In mid-August 2022, Anthony funded her investment and was

publicly named the CEO of the New Venture.18 This litigation was filed the next

month, on September 19.19

see also Pls.’ Reply in Supp. of Mot. to Compel the Produc. of Docs. Improperly Redacted
and Withheld as Privileged (Dkt. 304) (“Pls.’ Reply”) Ex. 32 (email chain among Ropes,
Vistria, and Nautic regarding “equity documents”); Tr. of Oral Arg. on Pls.’ Mot. to
Compel (Dkt. 311) (“Hr’g Tr.”) 54-56.
15
   See Nautic Privilege Log at Row 289 (“Confidential email chain requesting and
providing confidential legal advice from outside counsel regarding parameters of non-
compete provisions in A. Anthony’s employment agreement.”). Counsel for Nautic
represented at oral argument that the early portions of the chain included Anthony. See
Hr’g Tr. 44. Nautic’s privilege log reflects the top chain exchange that excluded Anthony.
16
     Nautic Privilege Log Row 289.
17
   Opening Br. in Supp. of Defs. Nautic Partners IX, L.P., Nautic Partners, LLC, and C.
Corey’s Partial Mot. to Dismiss (Dkt. 95) Ex. 1 (Findings of Fact and Conclusions of Law)
¶ 179.
18
  Am. Compl. ¶ 14; Defs.’ Nautic Partners IX, L.P., Nautic Partners, LLC and C. Corey’s
Answer to Verified Am. Compl. (Dkt. 92) ¶ 14; Defs. Vistria Fund III, L.P., The Vistria
Group, LP, D. Schuppan, and TVG NP Homecare Topco, LP’s Answer to Verified Am.
Compl. (Dkt. 94) ¶ 14; Nautic Defs.’ Opp’n Ex. 9.
19
     Dkt. 1. Anthony is a non-party in this action.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 7 of 23

II.      LEGAL ANALYSIS

         Currently before me is the plaintiffs’ motion to compel the defendants to

produce in full certain documents redacted or withheld as privileged.20 The plaintiffs

ask that I order the defendants to produce “all communications prior to August 2022

with April Anthony and her attorneys (including [Ropes]) concerning [her]

investment in or employment by the New Venture.”21

         The plaintiffs say that Nautic and Vistria’s invocation of a shared privilege

with Anthony reveals they are trying to “have it both ways.”22 On one hand, the

defendants maintain that after the Encompass Health bid expired in February 2021,

Nautic, Vistria, and Anthony were not partners until she officially joined the New

Venture in August 2022. They aver that Anthony, Nautic, and Vistria were simply

“consider[ing] ways of working together in the future.”23 On the other hand, the

defendants claim privilege over communications with Anthony predating August

2022.

20
     Dkt. 238.
21
  [Proposed] Order Granting Pls.’ Mot. to Compel the Produc. of Docs. Improperly
Redacted and Withheld as Privileged (Dkt. 238).
22
     Pls.’ Mot. ¶ 7.
23
     Pls.’ Mot. Ex. 16 (letter from Nautic’s counsel).
C.A. No. 2022-0837-LWW
September 8, 2023
Page 8 of 23

          Nautic and Vistria reject the plaintiffs’ casting of their pre-August 2022

relationship with Anthony. They insist that “Anthony, Vistria, and Nautic shared

common legal interests protected by the joint-client and common-interest

privileges.”24 And they argue that the joint client relationship continued after the

expiration of the early 2021 proposal to acquire Encompass Health while the three

explored “a joint investment platform in light of Anthony’s restrictive covenants.”25

          Broadly speaking, then, I must resolve whether Ropes’ legal advice to Nautic

and Vistria about the New Venture can be withheld as privileged. To be clear, this

query does not involve every communication with Ropes that Nautic and Vistria

included on their privilege logs. The plaintiffs are not seeking documents from the

January 2021 to February 12, 2021 period concerning the bid to acquire Encompass

Health.26 Nor are they seeking every withheld document exchanged between Ropes

and Nautic and/or Vistria regarding the Topco acquisitions.27 Rather, they seek “pre-

24
     Nautic Defs.’ Opp’n ¶ 11.
25
     Id. ¶ 17.
26
  Pls.’ Reply in Supp. of Mot. to Compel the Produc. of Docs. Improperly Redacted and
Withheld as Privileged (Dkt. 304) (“Pls.’ Reply) ¶ 3 (“Plaintiffs are not disputing the
assertion of privilege over communications pertaining to the Encompass Home Health bid,
which expired by its terms in mid-February 2021.”); Hr’g Tr. 10.
27
     Hr’g Tr. 10.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 9 of 23

August 2022 communications with Anthony or [Ropes, as a ‘conduit’ for Anthony]

relating to Anthony’s role at the New Venture.”28

         This subset of documents breaks down into two main categories. The first are

those prepared in and around February 2021 regarding a draft investment term sheet

and Anthony’s restrictive covenants, which I refer to as the “Term Sheet

Documents.”29 The second are what I call the “Sponsorco Documents”: those from

June and July 2021 about structuring Topco’s acquisitions of the three home

healthcare companies.30 I begin with an overview of the overarching legal principles

at play before considering each category of documents and discussing next steps.

         A.     The Common Interest and Joint Client Doctrines

         The attorney-client privilege protects “communications made for the purpose

of facilitating the rendition of professional legal services to the client” that are

intended to be confidential.31 Generally, disclosure of privileged information to a

28
     Pls.’ Reply ¶ 17.
29
  See supra notes 8 & 9 (providing a non-exhaustive list of representative log entries) and
accompanying text. This category mostly consists of documents post-dating the expiration
of the Encompass Health bid but may also include a small number of documents from early
February 2021. See Hr’g Tr. 56-58. The documents from March 2021 mentioned above
are included in this category. Supra note 8.
30
   See supra note 14 (providing a non-exhaustive list of representative log entries) and
accompanying text. There could potentially be documents from a slightly earlier or later
time period that fall into this category.
31
  D.R.E. 502; see also Riggs Nat’l Bank of Washington, D.C. v. Zimmer, 355 A.2d 709,
713 (Del. Ch. 1976) (“The attorney-client privilege protects the communications between
C.A. No. 2022-0837-LWW
September 8, 2023
Page 10 of 23

third party waives the attorney-client privilege.32 The common interest doctrine, an

extension of the attorney-client privilege, provides an exception.

      As codified in Rule 502 of the Delaware Rules of Evidence, communications

“by the client . . . or the client’s lawyer” to another lawyer “representing another in

a matter of common interest” may be withheld if the communication was “made for

the purpose of facilitating the rendition of professional legal services.” 33 This

exception to the general rule of waiver is not broad; the common interest must

involve “primarily legal issues.”34 The doctrine “does not protect communications

between parties, or even between their attorneys, when those communications

primarily concern ‘a common commercial objective.’”35

a client and an attorney acting in [their] professional capacity where the communications
are intended to be confidential, and the confidentiality is not waived.”).
32
   See The Cove on Herring Creek Homeowners’ Ass’n, Inc. v. Riggs, 2001 WL 1720194,
at *3 (Del. Ch. Dec. 28, 2001).
33
  D.R.E. 502(b); see also Restatement (Third) of the Law Governing Lawyers § 76(1) (“If
two or more clients with a common interest in a litigated or nonlitigated matter are
represented by separate lawyers and they agree to exchange information concerning the
matter, a communication of any such client . . . is privileged[.]”).
34
  In re Lululemon Athletica Inc. 220 Litig., 2015 WL 1957196, at *9 (Del. Ch. Apr. 30,
2015).
35
  Glassman v. Crossfit, Inc., 2012 WL 4859125, at *3 (Del. Ch. Oct. 12, 2012) (quoting
Titan Inv. Fund II, L.P. v. Freedom Mortg. Corp., 2011 WL 532011, at *4 (Del. Super.
Feb. 2, 2011)).
C.A. No. 2022-0837-LWW
September 8, 2023
Page 11 of 23

      The common interest privilege concerns separately represented clients.36

Where co-clients seek to protect privileged communications with their shared

counsel, a joint client privilege may attach.37 A joint client relationship “is limited

by ‘the extent of the legal matter of common interest.’”38 “If counsel simultaneously

represents two parties to the same transaction who do not share a common legal

interest, privilege does not attach.”39

      Here, the defendants predominately invoke the joint client privilege.40 For

purposes of resolving the Motion, though, the differences between common interest

36
   See Rembrandt Techs., L.P. v. Harris Corp., 2009 WL 402332, at *8 (Del. Super. Aug.
12, 2009) (“[S]eparately represented clients sharing a common legal interest may, at least
in certain situations and under the close supervision of counsel, communicate directly with
one another regarding that shared interest.”); see also D.R.E. 502(b)(3).
37
   See In re Teleglobe Commc’ns Corp., 493 F.3d 345, 359 (3d Cir. 2007) (applying
Delaware law and explaining that “[w]hen co-clients and their common attorneys
communicate with one another, those communications are ‘in confidence’ for privilege
purposes.”); Restatement (Third) of the Law Governing Lawyers §75(1) (“If two or more
persons are jointly represented by the same lawyer in a matter, a communication of either
co-client that otherwise qualifies as privileged and relates to matters of common interest
is privileged as against third persons.”).
38
  Teleglobe Commc’ns, 493 F.3d at 363 (quoting Restatement (Third) of the Law
Governing Lawyers § 75 cmt. c.).
39
  Buttonwood Tree Value P’rs, L.P. v. R.L. Polk & Co., Inc., 2021 WL 3237114, at *11
(Del. Ch. July 30, 2021).
40
   The parties’ arguments center on Ropes’ joint representation of Vistria, Nautic, and
Anthony. The defendants appear to invoke the common interest privilege in discussing
communications that included Nautic’s other outside counsel. See Nautic Defs.’ Opp’n
¶ 19. There is no suggestion that Anthony or Vistria had counsel other than Ropes.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 12 of 23

and joint client privileges are inconsequential.41 Neither is a standalone privilege;

the underlying communication must be confidential and “for the purpose of

facilitating the rendition” of legal advice.42 In addition, the party asserting the

privilege must meet its burden of demonstrating that the shared interest is legal—

not commercial.43

         B.     The Term Sheet Documents

         There is no dispute that Nautic, Vistria, and Anthony shared a legal interest

when they were jointly bidding on Encompass Health.44 This particular interest

expired along with the bid in mid-February 2021. The defendants assert that,

afterwards, the three continued to enjoy the protections of a joint privilege since

Ropes advised them on “whether, how, and when they could together pursue an

41
   Delaware courts often discuss the two concepts interchangeably given the overlap. E.g.,
Lululemon, 2015 WL 1957196, at *9 (“As a general rule, disclosing privileged
communications to a third party will waive privilege. One exception to that rule involves
situations where a lawyer represents more than one client, or two lawyers represent
different clients in a ‘matter of common interest.’” (quoting D.R.E. 502(b))).
42
  D.R.E. 502(b); see also In re Quest Software Inc., 2013 WL 3356034, at *4 (Del. Ch.
July 3, 2013).
43
  See, e.g., Moyer v. Moyer, 602 A.2d 68, 72 (Del. 1992) (“The burden of proving that the
privilege applies . . . is on the party asserting the privilege.”); Quest Software., 2013 WL
3356034, at *4 (“The party attempting to withhold discovery bears the burden of showing
that the communications fall within the scope of the common-interest doctrine.”).
44
     Pls.’ Mot. ¶ 3; Nautic Defs.’ Opp’n ¶ 11.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 13 of 23

alternative home health and hospice co-investment or venture” without violating

Anthony’s restrictive covenants.45 This argument falls short for two reasons.

          First, the parties’ common interests were predominately commercial.

Although I do not doubt their shared desire to avoid running afoul of Anthony’s

restrictive covenants, the goal—at bottom—was to pursue the New Venture.

“[C]ommunications about a business deal, even when the parties are seeking to

structure a deal so as to avoid the threat of litigation, will generally not be privileged

under the common interest doctrine.”46 Several cases are instructive.

          In Glassman v. Crossfit, Inc., the Court of Chancery considered whether the

common interest doctrine applied to communications between the 50% owner of

Crossfit, Inc. (who was embroiled in a divorce from the other 50% owner) and a

private equity firm that agreed to buy the stake.47 The stock sale counterparties

purportedly shared legal interests in an Arizona court approving the divorce and in

avoiding possible litigation with Crossfit’s other owner.48            Vice Chancellor

Glasscock rejected the defendants’ argument that a common interest privilege

applied because the sale “might be affected by the Arizona litigation or . . . subject

45
     Nautic Defs.’ Opp’n ¶ 12.
46
     Glassman, 2012 WL 4859125, at *4.
47
     Id. at *1.
48
     Id. at *3.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 14 of 23

to litigation.”49 None of the defendants’ privilege log descriptions suggested that the

withheld communications were related to “a joint legal defense or strategy.”50

Instead, they vaguely described advice about the transaction, suggesting that the

parties’ interests were predominately commercial.51

           In Titan Investment Fund II, L.P. v. Freedom Mortgage Corp., the court

considered whether the common interest doctrine protected legal advice shared

between a mortgage finance company and one of its investors about their prospective

partnership.52 It concluded that the proponent of the privilege had not met its burden

to show a “common legal interest.”53 The court noted that neither “a common

commercial objective” nor a “common legal interest in receiving legal advice on the

issues concerning a transaction” is sufficient “to extend the protection of the

common interest doctrine.”54 As such, “[t]he parties’ interests in ensuring that the

transaction was structured in a way that is legally appropriate [wa]s not sufficient to

warrant the extension of the common interest privilege.”55

49
     Id. at *4.
50
     Id. at *3-4.
51
     Id. at *3.
52
     2011 WL 532011, at *2.
53
     Id. at *5.
54
     Id. (citation omitted).
55
     Id.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 15 of 23

          More recently, in American Bottling Company v. Repole, the court considered

whether a company’s sharing of privileged communications with its merger

counterparty (the plaintiff’s parent company) post-signing and pre-closing broke

privilege.56 The plaintiff argued that the common interest privilege applied because

the parties shared a legal interest in protecting the company’s rights under a

distribution agreement.57 Then-Judge LeGrow concluded that the plaintiff had not

demonstrated that the interest was primarily legal because “even if one aspect of [the

parties’] interest was avoiding litigation, the primary focus of the interest plainly

was commercial.”58

          Here, Ropes was advising Nautic, Vistria, and Anthony on a joint investment

in the home healthcare and hospice industry. The parties’ collective interests turned

on commercial—not legal—matters. This is apparent from the bulk of the privilege

log entries for the Term Sheet Documents, which discuss “board grants, anti-

dilution, resignation, and MEIP vesting provisions.”59 In connection with the

potential investment, Ropes also advised on “restrictive covenants in [ ] Anthony’s

56
     2020 WL 2394906 (Del. Super. May 12, 2020).
57
     Id. at *2.
58
     Id. at *5.
59
   Nautic Privilege Log at Row 108; see supra note 8; see also Crossfit, 2012 WL 4859125,
at *3 (discussing that privilege log entries regarding commercial issues cut against finding
that the documents concerned a legal interest).
C.A. No. 2022-0837-LWW
September 8, 2023
Page 16 of 23

employment agreement.”60 But “[i]t is of no moment that the parties may have been

developing a business deal that included as a component the desire to avoid

litigation.”61

         Second, insofar as Anthony’s compliance with her restrictive covenants was

a legal interest, Anthony’s particular interest differs from Nautic and Vistria’s. Our

law does not require that common legal interests be “identical”62 for privilege

between separate parties to remain intact. But the interests must be “substantially

similar”63—so much that the parties “may be regarded as acting as joint venturers.”64

         Anthony, as the CEO of Encompass Health, owed contractual and fiduciary

obligations to the company. Compliance with these obligations was an interest

personal to Anthony. No such obligations were owed by Nautic or Vistria. In this

60
     Nautic Privilege Log at Row 116; see supra note 8.
61
  Titan, 2011 WL 532011, at *4 (quoting Bank of America, N.A. v. Terra Nova Ins. Co.,
211 F. Supp. 2d 493, 497 (S.D.N.Y. 2002)).
62
   Am. Legacy Found. v. Lorillard Tobacco Co., 2004 WL 2521289, at *4 (Del. Ch. Nov.
3, 2004).
63
  Rembrandt Techs., 2009 WL 402332, at *7 (quoting Teleglobe Commc’ns, 493 F.3d at
365).
64
   Jedwab v. MGM Grand Hotels, Inc., 1986 WL 3426, at *2 (Del. Ch. Mar. 20, 1986)
(“Rule 502(b) is a recognition that a disclosure may be regarded as confidential even when
made between lawyers representing different clients if in the circumstances, those clients
have interests that are so parallel and non-adverse that, at least with respect to the
transaction involved, they may be regarded as acting as joint venturers.”).
C.A. No. 2022-0837-LWW
September 8, 2023
Page 17 of 23

way, the precedent that the defendants rely on to support a shared legal interest is

inapposite.

          In In re Lululemon Athletica Inc. 220 Litigation, the court held that sharing

legal advice with third parties did not waive privilege where the parties had a

common legal interest in responding to a newspaper inquiry about certain stock

trades.65 The parties “were not adversaries negotiating an arm’s-length transaction”

but “were attempting to coordinate a statement after the Wall Street Journal raised

questions about the propriety” of the trades.66 They faced the same “questions of

potential wrongdoing” and shared an interest in responding “within the parameters

of the securities laws and in the reasonable anticipation that litigation might ensue.”67

          In In re Quest Software Inc. Shareholders Litigation, the plaintiffs argued that

unredacted copies of special committee minutes could not be withheld as privileged

because the minutes were shared with non-committee board members and the

company’s financial advisor.68           The redacted information concerned legal

perspectives on proposed transactions. The court held that the attorney-client

65
     2015 WL 1957196, at *8-9.
66
     Id. at *9.
67
  Id. Lululemon is also unhelpful to the defendants because the interests considered by the
court were—unlike those raised here—primarily legal rather than commercial. Id. at *9.
68
     2013 WL 3356034, at *4-5.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 18 of 23

privilege was not waived because the parties had mutual interests in the “potential

legal risk” from the transactions, which would require the full board’s approval.69

          The parties in Lululemon and Quest Software were confronted with

comparable legal risks. Here, by contrast, only Anthony owed contractual and good

faith obligations to Encompass Health. Nautic and Vistria might have desired that

Anthony comply with her duties to avoid litigation. But Nautic and Vistria did not

owe such obligations to Encompass Health and consequently faced distinct risks.

          Accordingly, the Term Sheet Documents that were shared with or

communicated to Anthony must be produced.70

          C.      The Sponsorco Documents

          The analysis is different for at least some of the Sponsorco Documents, in

which Nautic and Vistria sought legal advice from Ropes about structuring the three

Topco acquisitions. These documents (generally) exclude Anthony.71 Still, the

69
     Id. at *5.
70
  The defendants also have not shown that the July 2021 email chain about Anthony’s
noncompete that initially included and dropped her is privileged. See supra note 15 and
accompanying text. I find it difficult to accept that Nautic or Vistria believed that this
communication was in confidence relative to Anthony, given that it was a continuation of
an email where advice about her obligations was conveyed to her. See In re Info. Mgmt.
Servs., Inc. Deriv. Litig., 81 A.3d 278, 285 (Del. Ch. 2013) (“A party’s subjective
expectation of confidentiality must be objectively reasonable under the circumstances.”).
71
  I qualify this statement since it is possible Anthony was included on documents falling
within this set.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 19 of 23

plaintiffs maintain that Nautic and Vistria could not have reasonably believed that

these communications with Ropes were confidential given Ropes’ representation of

Anthony.

         I disagree. Ropes represented Anthony at various points,72 but it had a

separate relationship with Vistria. Vistria’s founding partner and co-CEO testified

at his deposition that Ropes has been Vistria’s outside counsel “for a long time.”73

By the time that the Topco acquisitions were being explored, Nautic had likewise

engaged Ropes to jointly represent it with Vistria.74 I have no reason to believe that

Ropes was disqualified from representing Nautic and Vistria on the acquisitions due

to its relationship with Anthony.

         The defendants have sufficiently demonstrated that Ropes’ advice on

structuring the acquisitions is privileged as to Nautic and Vistria.75 The Sponsorco

Documents were part and parcel of this deal-related advice. Nautic and Vistria could

72
  Ropes had represented Anthony as early as 2014 in a separate transaction and afterwards
in employment-related matters with the plaintiffs. See Pls.’ Mot. ¶ 17 n.4; Pls.’ Mot.
Ex. 18; see also id. Exs. 19-20.
73
     Vistria Opp’n Ex. F (Excerpt, Kirkpatrick Tr.).
74
   See supra note 13 and accompanying text. Anthony is not a party to this engagement
letter.
75
  Of course, this assumes that the documents were attorney-client privileged in the first
place. See Titan, 2011 WL 532011, at *3 (“The presence of a lawyer does not transform a
non-privileged communication into a privileged one[.]”).
C.A. No. 2022-0837-LWW
September 8, 2023
Page 20 of 23

reasonably have expected that such privileged communications with their counsel

would not be disclosed to Anthony.76

         The plaintiffs say that they are not asking for the production of emails about

deal structure or related due diligence.77 Rather, they seek documents withheld for

privilege pertaining to “Anthony’s role at the New Venture.”78 They focus on certain

emails among Ropes, Vistria, and Nautic with the subject “Equity Documents,”

which they suspect concern Anthony’s equity in the New Venture. But Delaware

counsel for the defendants represent that the documents relate to equity in Sponsorco

in connection with the Topco acquisitions, the first of which was set to close in

July.79 The defendants’ privilege logs support this assertion.80

76
   See D.R.E. 502(a) (“A communication is ‘confidential’ if not intended to be disclosed to
third persons other than those to whom disclosure is made in furtherance of the rendition
of professional legal services to the client or those reasonably necessary for the
transmission of the communication.”).
77
     Hr’g Tr. 64-65.
78
     Pl.’s Reply ¶ 17.
79
   See Hr’g Tr. 42-44, 52-54. Some of these documents may no longer be at issue. See id.
at 43 (“This was the category of documents we mooted.”). The defendants were also
apparently, during this time, considering whether Anthony would invest in Sponsorco if
and when she invested. Id. at 52-53. But counsel represents that Anthony was not included
in the discussion until later. Id.
80
   E.g., Vistria Privilege Log at Row 1709 (“Confidential email providing legal advice of
Ropes & Gray in the preparation of equity award agreements for the HCH, Vital and KIH
Projects.”); Nautic Privilege Log at Row 207 (“Confidential email chain requesting and
providing confidential legal advice from outside counsel regarding revisions to capital
structure provisions in governance documents in connection with Homecare Holdings,
Vital and Kare transactions, including but not limited to anti-dilution provisions.”).
C.A. No. 2022-0837-LWW
September 8, 2023
Page 21 of 23

      To the extent that the defendants withheld documents pertaining to Anthony’s

potential investment or role at the New Venture that were shared with her before

August 2022, the documents should be produced.81 Anthony was a transactional

counterparty vis-à-vis Nautic and Vistria on the matter.82 Their interests were

opposed: Anthony’s gain would be Nautic and Vistria’s loss as equityholders. The

same is true when Anthony was negotiating her potential employment at the New

Venture “across the table” from Nautic and Vistria.83

      D.     Next Steps

      The above is my attempt at providing guidance so that the parties can

productively meet and confer about the documents that can be withheld or must be

produced.    I do not pretend to know the full universe of documents on the

defendants’ privilege logs falling into the two categories I analyzed, and there are

undoubtedly other documents around the edges. My references to specific log

 See Pls.’ Reply ¶ 15; Nautic Opp’n ¶ 13. That is, if the “equity documents” were about
81

Anthony’s equity and disclosed to her, privilege was waived.
82
  See Buttonwood, 2021 WL 3237114, at *9 (concluding that no privilege existed between
a CEO and the company as counterparties to a self-tender); In re Cote d’Azur Est. Corp.,
2022 WL 17574747, at *12 (Del. Ch. Dec. 12, 2022) (“When parties are engaged in
adversarial negotiation, they do not share a common interest sufficient to support
privilege.”).
83
  Cincinnati Bell Cellular Sys. Co. v. Ameritech Mobile Phone Servs. of Cincinnati, Inc.,
1995 WL 347799, at *2 (Del. Ch. May 17, 1995) (holding that “employment negotiations”
between the company and an employee were not privileged). Any Term Sheet Documents
of this nature would not be privileged for similar reasons.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 22 of 23

entries should not be read as an edict on whether the corresponding documents are

privileged. Rather, the defendants’ counsel should re-review them (and similar or

related documents) to make privilege calls consistent with this decision. That

process should begin as soon as possible.

      At present, I decline to order the defendants to undertake a complete re-review

of the roughly 8,000 logged documents. The parties should cooperatively attempt

to identify specific criteria that the defendants can use to guide their reassessment of

the withheld documents.84 If this proves ineffective, we can revisit the scope of the

review.

      Finally, if there are remaining disputes over specific log entries after the

parties meet and confer, I invite a joint letter outlining the disagreements. I will

likely undertake an in camera review of the challenged documents and render a

prompt decision on whether production is warranted.

84
  For example, they can review documents copying Anthony, run certain search terms
about the covenants and term sheet, and skip due diligence materials. If the defendants’
counsel find that a complete re-review is more effective, they are welcome to proceed.
C.A. No. 2022-0837-LWW
September 8, 2023
Page 23 of 23

III.   CONCLUSION

       The Motion is granted in part and denied in part. The parties are directed to

proceed as described above. To the extent necessary for this decision to take effect,

IT IS SO ORDERED.

                                             Sincerely yours,

                                             /s/ Lori W. Will

                                             Lori W. Will
                                             Vice Chancellor