Hodes v. Mohammad Emad Mostaque

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CYRUS HODES,

Plaintiff,

v. C.A. No. 2024-0015-JTL

MOHAMMAD EMAD MOSTAQUE,
and STABILITY AI, INC. a Delaware
Corporation,

Defendants.

OPINION ADDRESSING SPOUSAL COMMUNICATIONS PRIVILEGE
Date Submitted: May 19, 2026
Date Decided: June 15, 2026

Raymond J. DiCamillo, Kelly E. Farnan, RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware; Avi Weitzman, Jennifer Conn, Sripriya Narasimhan, Jackson
Herndon, Sarah Kim, PAUL HASTINGS LLP, New York, New York; Attorneys for
Plaintiff.

E. Wade Houston, Joshua D. Courtney, Chen Wang, ABRAMS & BAYLISS LLP,
Wilmington, Delaware; Attorneys for Defendant Mohammad Emad Mostaque.

LASTER, V.C.
Mohammad Emad Mostaque, a former hedge fund manager, and Cyrus Hodes,

a globally recognized thought leader in the artificial intelligence space, co-founded an

artificial intelligence company. They agreed that Mostaque would lead the day-to-day

operations and Hodes would use his global business connections to promote the firm.

After a year and a half, Hodes feared the business would never get off the

ground and that Mostaque had engaged in questionable behavior. He approached

Mostaque about leaving the company, and they agreed that the company could buy

Hodes’ shares. But in two transactions that took place seven months apart, Mostaque

himself purchased all of Hodes’ 1,000,000 shares for a grand total of $100.

Meanwhile, behind the scenes, Mostaque had been developing an AI-powered

technology. A few months after the repurchase, the company raised $101 million at a

$1 billion valuation.

This litigation ensued. During discovery, Mostaque invoked the spousal

privilege over text strings with his wife, who served as the company’s head of public

relations and chief operating officer. Hodes moved to compel production. This decision

grants that motion as to one text string and denies it as to the others.

I. FACTUAL BACKGROUND

The facts are drawn from the parties’ submissions in connection with the

motion to compel.1 Given the procedural posture, this decision does not make formal

1 Citations in the form of “PX ___ at ___” refer to exhibits the plaintiff filed in

support of its motion. Dkts. 147, 167. Citations in the form “DX ___ at ___” refer to
exhibits the defendant filed with its opposition to the motion. Dkt. 163. Page
references cite internal pagination.
findings of fact. Instead, the following summary reflects how the record appears at

this stage of the proceedings for purposes of the discovery ruling.

A. The Formation Of The Company

Hodes and Mostaque met in early 2019 at the World Governance Summit.

Later that year, they began developing a business plan for an artificial intelligence

company.

In October 2020, Hodes, Mostaque, and a third co-founder incorporated

Stability AI, Inc. (the “Company”) as a Delaware corporation. Mostaque received 70%

of the equity. Hodes and the third co-founder received 15% each. They agreed that

Hodes would use his professional connections to promote the Company and secure

strategic partnerships while Mostaque ran the business as CEO.

Zehra Qureshi, Mostaque’s wife, also worked at the Company. Between 2020

and 2023, she officially held the title of Head of Public Relations and Luxury Brands.

She described herself internally and externally as the Chief Operating Officer. She

was also a director.2

Mostaque and Qureshi regularly talked about business. They often

communicated by text and email using their personal devices. Their communications

contain a mix of business and personal topics.3

2 See PX 6 at 12.

3 See, e.g., PX 7.

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B. Hodes Decides To Leave.

For a year and a half, Hodes worked full time to help build the Company. He

invested some of his own money and contributed to the success of one of the

Company’s first projects.

Hodes alleges that although he worked diligently, Mostaque allegedly did not.

Hodes claims Mostaque was repeatedly absent from work, missed key deadlines

without explanation, and used Company funds for personal expenses.

Hodes grew increasingly frustrated with Mostaque and decided to leave the

Company. Hodes believed that the Company was essentially worthless and would

likely be wound down due to Mostaque’s poor leadership.

In mid-July 2021, Hodes approached Mostaque about exiting. Mostaque and

Hodes agreed that the Company would buy Hodes’ shares.

Instead, Mostaque bought them personally. The repurchase took place in two

transactions. In October 2021, Mostaque bought 800,000 shares from Hodes for a

total of $80. In May 2022, Mostaque bought the remaining 200,000 shares for $20. In

total, Mostaque paid $100 for 1 million shares, reflecting a price of one ten-

thousandth of a cent per share. Hodes earned no return on his investment, even after

putting substantial time and additional capital into the Company.

C. Mostaque’s Alleged Misrepresentations

Hodes alleges that a week before the October 2021 repurchase, Mostaque told

him that the Company was going to pivot to work on climate change. Hodes now

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believes that statement was false. He claims that Mostaque had secretly decided to

focus on developing text-to-image software using generative AI, had been working on

the technology for over a year using Company resources, and expected that the

technology would be valuable.

Hodes alleges that before the May 2022 repurchase, Mostaque told Hodes that

the Company planned to support a grassroots, nonprofit research company that was

working on artificial intelligence issues. To Hodes, that meant the Company would

be moving in a direction that did not contemplate meaningful profits. Hodes now

believes that Mostaque’s statement was false. He claims that before that

conversation, Mostaque had made significant progress on the text-to-image

technology and had entered into a multimillion-dollar contract with Amazon Web

Services to secure sufficient computing power to operate the technology. He also

believes that Mostaque had created projections that envisioned $100 to $200 million

in profits and had pitched the technology to investors in April 2022 at a $100 million

valuation.

In August 2022, three months after the repurchase, the Company raised $101

million from venture capital firms at a valuation of $1 billion. The valuation hinged

on the text-to-image technology.

D. This Litigation

In January 2024, Hodes filed this action. He asserted claims for fraud (Count

I), negligent misrepresentation (Count II), breach of fiduciary duty (Count III), unjust

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enrichment (Count IV), and quantum meruit (Count V). Mostaque and the Company

moved to dismiss all of the counts under Rule 12(b)(6).4 The court granted the motion

to dismiss as to Counts IV and V, but otherwise denied it.5

After that ruling, the parties engaged in discovery. In July 2025, the Company

produced over 47,000 documents. In December, Mostaque sought to claw back

seventeen text strings on the basis of spousal privilege. Hodes disputed the claw back,

and the parties reached an agreement on redactions for most of the text strings. Five

remain in dispute. In April 2026, Hodes moved to compel production of the remaining

text strings.

II. LEGAL ANALYSIS

Court of Chancery Rule 26(b) governs the scope of discovery. Under Rule

26(b)(1):

Parties may obtain discovery regarding any non-privileged matter that
is relevant to any party’s claim or defense and proportional to the needs
of the case, including the existence, description, nature, custody,
condition and location of any documents, electronically stored
information, or tangible things and the identity and location of persons
having knowledge of any discoverable matter.

Mostaque argues that he can withhold information because discovery only extends to

“non-privileged matter.” He relies on the spousal privilege.

4 The court granted Stability AI Ltd.’s motion for dismissal under Rule 12(b)(2).

5 See Transcript of September 11, 2024 Oral Argument on Defendants’ Motion

to Dismiss. Dkt. 39.

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A. The Scope Of The Spousal Privilege

The common law recognizes two marriage-related privileges. One protects one

spouse from being compelled to testify adversely against the other in a criminal

proceeding (the “Adverse Testimony Privilege”). 6 The other protects spouses in

criminal or civil actions from having to testify about confidential communications

during the marriage (the “Spousal Communications Privilege”).7

Delaware Rule of Evidence 504 combines both common law privileges into a

single framework labeled the “Spousal Privilege.” Rule 504(c) states: “General Rule

of Privilege. An individual has a privilege to refuse to testify and to prevent the

individual’s spouse from testifying as to any confidential communication between the

individual and the spouse during the marriage.” 8 The rule defines “spouse” as a

“present or former spouse” and “confidential communication” as “a communication

6 See Emily Crawford Sheffield, Note, Rationalizing a Spousal Confidential

Communications Privilege Fit for the Twenty-First Century, 74 Vand. L. Rev. En Banc
187, 192–93 (2021) (describing Adverse Testimonial Privilege); Amanda H. Frost,
Updating the Marital Privileges: A Witness-Centered Rationale, 14 Wisc. Women’s L.
J. 1, 12–15 (1999) (same); Developments in the Law—Privileged Communications
[hereinafter Developments], 98 Harv. L. Rev. 1450, 1567–71 (1985) (same); Stewart
Repalje, The Competency, as Witness, of Husband and Wife, 25 Am. L. Reg. 353 (1886)
(same).
7 See Sheffield, supra, at 193–97 (describing Spousal Communications
Privilege); Frost, supra, at 9–12 (same); Developments, supra, at 1574 (same).
8 Del. R. Evid. 504(c).

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that an individual made privately to the individual’s spouse that was not intended

for disclosure to any other person.”9

Delaware Rule of Evidence 504 thus recognizes a single “Spousal Privilege,”

but that singular privilege encompasses both the Adverse Testimony Privilege and

the Spousal Communications Privilege. Mostaque invokes the Spousal

Communications Privilege.

The Spousal Communications Privilege differs from other privileges that the

Delaware Rules of Evidence recognize. The attorney-client privilege,10 the physician-

patient privilege,11 the religious privilege,12 the political vote privilege,13 the trade-

secret privilege, 14 and the informer’s identity privilege 15 all speak in terms of a

9 Del. R. Ev. 504(a)(1)–(2).

10 Del.
R. Ev. 502(b) (“A client has a privilege to refuse to disclose and to
prevent any other person from disclosing confidential communications . . . .”).
11 Del. R. Ev. 503(b) (“A patient has a privilege to refuse to disclose and to

prevent any other person from disclosing confidential communications . . . .”).
12 Del. R. Ev. 505(b) (“An individual has a privilege to refuse to disclose and to

prevent another from disclosing a confidential communication . . . .”).
13 Del. R. Ev. 506(a) (“Every person has a privilege to refuse to disclose how the

individual voted during a political election conducted by secret ballot.”).
14 Del. R. Ev. 507(a) (“A person has a privilege to refuse to disclose and to

prevent other persons from disclosing a trade secret owned by the person.”).
15 Del. R. Rev. 509 (“The United States or a state or subdivision thereof has a

privilege to refuse to disclose the identity of a person . . . .”).

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privilege not to disclose information. Only the Spousal Communications Privilege

speaks in terms of a privilege “to refuse to testify and to prevent the individual’s

spouse from testifying.”

A privilege against disclosing information logically extends to the production

of documents and electronically stored information that could result in disclosure. A

privilege against testifying does not self-evidently extend beyond testifying.

The parties have briefed the motion on the assumption that the Spousal

Communications Privilege applies not only to testimony but also to the production of

documents and electronically stored information. That is understandable, and the

law could hardly be otherwise. When spouses communicate frequently in written

form, producing those materials can be equally if not more intrusive than testifying.

Just as Rule 504 could be clearer about the Spousal Communications

Privilege’s application to discovery, it likewise could be clearer in its application to

spousal communications. All of the privileges recognized in the Delaware Rules of

Evidence have at least three requirements. First, an individual must have

communicated in a protected capacity (the “Capacity Requirement”). Second, the

communication must further or sufficiently relate to a protected relationship (the

“Relationship Requirement”). Third, the communication must have been made

confidentially and remain confidential (the “Confidentiality Requirement”). Some

privileges have more requirements, but those three apply universally across the

privileges that the Delaware Rules of Evidence recognize.

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Take the attorney-client privilege under Rule 502. To meet the Capacity

Requirement, the individual must be a “client.” 16 To meet the Relationship

Requirement, the communication must be “made for the purpose of facilitating the

rendition of professional legal services to the client.” 17 To meet the Confidentiality

Requirement, the communication must both be “confidential”18 and have taken place

between one of five enumerated combinations of persons.19 As a result, “the attorney-

client privilege is properly invoked when ‘the attorney is acting as lawyer giving

advice with respect to the legal implications of a proposed course of conduct.’” 20 The

privilege does not apply when an attorney acts in a non-attorney role, like a business

agent.21

16 Del. R. Evid. 502(a)(1) & (b).

17 Del. R. Evid. 502(b).

18 Del. R. Evid. 502(a)(2).

19 Del. R. Evid. 502(b).

20 Rembrandt Tech., L.P. v. Harris Corp., 2009 WL 402332, at *6 (Del. Super.

Feb. 12, 2009) (quoting Hercules v. Exxon Corp., 434 F. Supp. 136, 147 (D. Del. 1977));
see also id. (explaining that “counsel must ‘infuse’ the communication with legal
advice” (citing In re Ford Motor Co., 110 F.3d 954, 966 (3d Cir. 1997)).
21 See Restanca, LLC v. House of Lithium, Ltd., 2023 WL 4306074, at *14 (Del.

Ch. June 30, 2023) (“The attorney-client privilege protects legal advice, as opposed to
business or personal advice” (quotations and citation omitted)); Thermo Fisher Sci.
PSG Corp. v. Arranta Bio MA, LLC, 2023 WL 300150, at *5 (Del. Ch. Jan. 18, 2023)
(“Privilege does not apply to an attorney who is acting as a business agent of a party.”
(citing Int’l Paper Co. v. Fireboard Corp., 63 F.R.D. 88, 93 (D. Del. 1974) (cleaned up));
Morris v. Spectra Energy P’rs (DE) GP, LP, 2018 WL 2095241, at *2 (Del. Ch. May 7,

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Although not as clearly stated in Rule 504, the Spousal Privilege has

comparable requirements. The easiest is the Confidentiality Requirement. To meet

it, the communication must have been made privately and not intended for disclosure

to any other person. Next comes the Capacity Requirement. To meet it, the individual

asserting the privilege must have both been a spouse and communicating as a spouse

when the communication took place. The Capacity Requirement dovetails with the

Relationship Requirement. The Spousal Privilege does not protect every confidential

communication between spouses. 22 The communication must have been from one

spouse to another “in furtherance of and in reliance on the marital relationship.”23

That means in furtherance of or in reliance on the private relationship of emotional

trust that society associates with a marital relationship and strives to protect. That

said, as long as the communication is private, the spouses need not be exhibiting a

relationship of emotional trust at the time of the communication, because “the

spousal confidential communications privilege is not concerned with protecting this

2018) (“The attorney-client privilege protects legal advice only; it does not shield
business advice.”); In re Estate of Tigani, 2013 WL 1136994, at *4 n.8 (Del. Ch. Mar.
20, 2013) (explaining that the privilege “does not apply to a communication between
attorney and client when the attorney is acting in a non-attorney role”).
22 E.g., D.R.E. 504(e) (identifying types of proceedings where spousal privilege

does not apply); Frost, supra, at 10–11 (identifying exceptions to the spousal
privilege).
23 Sheffield, supra, at 195.

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marriage now but rather encouraging and protecting marital communication in

general.”24 But the spouses must be communicating as spouses.

The Capacity Requirement and the Relationship Requirement operate

together to recognize that people have multiple roles. The Spousal Communications

Privilege protects communications in the spousal role. Communications between

spouses to which no one else is a party are presumptively made in the spousal role

and subject to the privilege. One way that a party challenging the Spousal

Communications Privilege can defeat its application is to show that the

communication was not made in a spousal role.

B. Applying The Privilege

Mostaque and Qureshi are spouses, and all of the communications at issue took

place during the marriage. But they also occupied important roles at the Company.

Mostaque was CEO, and Qureshi was Head of PR and COO. When they

communicated privately, they did not only communicate as spouses. Often, they

communicated as executives of the Company.

Purely business communications do not warrant protection under the Spousal

Communications Privilege. Examples include

statements about business agreements between the spouses, or about
business matters transacted by one spouse as agent for the other, or
about property or conveyances. Usually such statements relate to facts
that are intended later to become publicly known. To cloak them with

24 Id. at 194.

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privilege when the transactions come into litigation would be productive
of special inconvenience and injustice.25

Mostaque and Qureshi communicated privately as executives while running the

business, and the Spousal Communications Privilege does not protect those

communications.

Unfortunately, there is no easy proxy to determine when Mostaque and

Qureshi communicated as executives rather than as spouses. Gone are the days—if

ever they existed—when business communications only happened in the office

between the hours of 9:00 a.m. and 5:00 p.m. Mostaque and Qureshi communicated

by text, and their text strings intermix obvious business communications, obvious

spousal communications, and varying degrees in between.

Nor is it possible to adopt a brightline rule to the effect that anything related

to the business falls outside the Spousal Communications Privilege. A spouse may

come home after a difficult day, share details about what happened, and ask for

advice. Just because the spouse is talking about work does not mean that the spouse

is not seeking support in furtherance of or in reliance on the private relationship of

emotional trust that society associates with a marital relationship and strives to

protect. Some of the most important spousal communications involve sharing what

25 1 McCormick on Evid. § 80 (9th ed.), Westlaw (database updated Feb. 2025)

(footnotes omitted).

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took place after a hard day at work. That remains true even when both spouses are

senior corporate officers at the same firm.

To understand the complexity, envision spouses who serve as CEO and CFO of

a family-owned company that needs to cut staff:

CFO Spouse: I’m struggling with whether we let Mike or Amy go. I really
like Mike, but every set of forecasts he gives me has mistakes. Amy is
stronger, but Mike is more senior.

CEO Spouse: I get it. I hate letting people go. But we should fire Mike.
He’s not meeting standards.

CFO Spouse: I hate firing people. This is going to be hard. Mike’s kid is
sick too.

CEO Spouse: I hear you. Get it done and then go home. We should order
in. Maybe Thai food?

In this example, the communication has both business and spousal components.

There are at least two factors that can guide a court’s analysis of spousal

communications. One is whether the communication is uniquely spousal. If non-

married corporate spouses could just as easily have had the communication, then it

likely reflects their work roles rather than their spousal roles. In the example above,

the communication could just as easily happen between startup co-founders who were

friends and roommates. A second factor is the emotional valence of the

communication. If the emotional valence is low, then it is more likely to reflect work

roles rather than spousal roles. In the example above, the communication carries

meaningful emotional valance, but not enough to overcome the fact that the

communication could have taken place between non-married colleagues.

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Applying the Spousal Communications Privilege requires a fact-specific

analysis. To counsel’s credit, the lawyers addressed the problem constructively. Their

agreed-upon approach included sharing documents on a non-waiver, attorney’s-eyes-

only basis so they could confer about what constituted business communications as

opposed to spousal communications. They worked out virtually all of their disputes.

In doing so, they upheld the best traditions of the Delaware bar.

What remain are five difficult judgment calls involving mixed communications.

For purposes of those communications, the two factors this decision has cited drive

the analysis: whether non-spouses could realistically have had the same

communication, and the emotional valence of the messages. Other cases may suggest

different or additional factors.

Four of the five text strings at issue involve Mostaque and Qureshi speaking

primarily as spouses. 26 The communications predominantly concern their private

relationship and include sensitive exchanges about their interpersonal dynamic.

They are emotionally charged, and the references to business matters are ancillary

to the emotional content. The Spousal Communications Privilege protects these

exhibits.

26 Using Mostaque’s designations, they are Exhibits E, F, G, and H.

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One includes a lengthier exchange. 27 In the text strings on the pages

designated Stability_048173, Stability_048175, Stability_048176, Stability_048177,

and Stability_048178, Mostaque and Qureshi are communicating primarily in a

business capacity. They discuss certain employees’ attendance at a conference and

Qureshi’s frustration that Mostaque permitted them to attend the conference without

asking her. Qureshi expresses disappointment in the employees’ work product and

the possibility of making personnel changes if the employees do not improve.

Those are conversations that any two co-workers might have had. Some of the

messages reflect frustration, so the emotional valence is higher than professional

office communications, but business partners can get frustrated with one another.

The level of frustration in the messages reflects that type of emotion. It is also true

that one message was sent after 10:30 pm. To reiterate, the workday no longer stops

at 5:00 pm. Particularly for executives in a startup, sending a message at 10:30 pm

is ordinary course. Mostaque will re-produce those pages with the redactions that

Hodes has proposed.

On the remaining pages, Mostaque and Qureshi engage in extended dialog

about marital frustrations. The messages are not the types of communications that

unmarried co-workers might have and carry a strong emotional valence. They

introduce business topics from time to time only in the context of deeper, more

27 Using Mostaque’s designations, it is Exhibit D.

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sensitive disputes. The Spousal Communications Privilege protects those portions of

the text string. When Mostaque re-produces the exhibit, the redacted sections on

these pages can remain redacted.

III. CONCLUSION

Counsel are commended again for their success in managing the difficult issues

that this dispute presented. On the limited exhibits where counsel could not agree,

Hodes’ request for production of anything relating to the business is denied as

inconsistent with the scope of Spousal Communications Privilege. Hodes’s motion is

granted as to the specified portions of one exhibit. Otherwise, the motion is denied.

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