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Bankruptcy Law Firm Client Relationships Litigation

State Attorney-Client Privilege Rule Incorporated into Federal Law

Delaware Bankruptcy Court Protects Communications with Financial Professionals Originating In Delaware

Because state law applies at the time the transaction is negotiated, the parties might assume — reasonably so — that state privilege law will govern communications with their attorneys and financial professionals. But what happens if, years later, a fraudulent transfer plaintiff files suit in federal court and brings claims under federal law? Does state privilege law still apply?

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Fraudulent transfer plaintiffs frequently challenge transactions that they say contributed to the company’s insolvency: leveraged buyouts, cash-out mergers, share redemptions or other major transactions where the company parts with assets or incurs liabilities. State law (often Delaware law) typically governs these types of transactions, and structuring them usually requires the involvement of attorneys, financial professionals and sometimes investment bankers.

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