June 21, 2016 Practice Points

New York Declines to Extend Common Interest Doctrine Beyond Pending or Anticipated Litigation

The doctrine does not apply to communications between participants in corporate transactions.

by Stuart M. Riback

Ordinarily, communications between an attorney and client con­cern­ing legal advice are pro­tected by the attorney-client privilege. But if someone else besides the client is privy to the conversation, that may mean the communication isn’t confidential and the privilege doesn’t apply. There is an exception: if the non-client in the room shares a common legal interest in the matter being dis­cussed, the discussion is still privileged. Thus, under the common interest doctrine, the attorney-client privilege can cover communications between different, separately represented persons whose legal interests are aligned—that is, if they have a common legal interest.  

This month, in Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 2016 NY Slip Op 04439 (N.Y. Ct. App. June 9, 2016), New York’s highest court, the Court of Appeals, restricted the scope of the com­mon interest doctrine. The court held, by a 4–2 vote, that the common interest doctrine applies only if litigation is anticipated or pending. This decision overturned a December 2014 decision by the Appellate Division, First Department (an intermediate New York appellate court), which had held that the common interest doctrine could apply whether or not the communications related to pending or anticipated litigation. The ruling by the court of appeals means that New York privilege law is now definitively different from that of a number of federal circuits and a number of other states.  

Ambac is a dispute arising from the merger of Countrywide Home Loans, Inc. with Bank of America. Countrywide had experienced severe difficulties in late 2007 and early 2008; the merger was announced in January 2008 and closed on July 1 of that year. Unsurprisingly, after the two companies signed the merger plan, they communicated extensively about a number of issues relating to its implementation, including regulatory filings, public disclosures, employment issues, and tax matters. The merger agreement specifically directed the two companies to share privileged information and purported to shield the information from disclosure under the “common interest” doctrine. 

Ambac had insured payments on certain mortgage-backed securities Countrywide issued. Ambac later sued Countrywide and Bank of America, claiming that Countrywide had procured the insurance fraudulently and in breach of its contractual representations. In its discovery requests, Ambac demanded that Bank of America produce documents reflecting its communications with Countrywide before the merger closed, arguing that the documents would show that Bank of America was on notice of the fraud even before the closing. 

The trial court refused to protect the documents from disclosure because the communi­ca­tions did not relate to litigation that was then either underway or in prospect. On appeal, though, the First Department held that the communications were protected by the attorney client privilege, even though they were between different entities, because the two companies had a common legal interest in implementing the merger. This decision put the First Department at odds with at least one other New York intermediate appellate court—the Second Department. So it was no surprise that the court of appeals decided to hear the case. 

The court of appeals held that the communications were not privileged because the common interest doctrine did not apply. As a result, the communications between Bank of America and Countrywide were between different parties and cannot have been confidential.  

The opinion appears to have been driven by several considerations. First, the attorney-client privilege exists to foster open communication between attorneys and clients for purposes of legal ad­vice. Companies that together are actual or potential litigants may need the assurance of confidentiality if they are to be comfortable planning legal strategy together. But in the court’s view, sharing an interest in completing a transaction does not raise such concerns, even in such a heavily regulated industry as finance. The court did not believe transactions would fail if communications between the parties were not privileged. As the court put it, the transacting parties’ “shared interest in the transaction’s completion is already an adequate incentive for exchanging information neces­sa­ry to achieve that end.” 

The court also was concerned that extending the common interest doctrine out of the litigation context would lead to abuses. It would be difficult to separate out communications on common le­gal interests from those primarily on business matters. Given that privilege prevents potentially rele­vant evidence from coming to light, the court thought the risk of shielding potentially pertinent bu­siness evidence was too great—and it noted that in Ambac, the allegation was that the two companies had structured their deal in order to shield Countrywide’s wrongdoing from disclosure.  

It is true that the attorney-client privilege exists when a client seeks legal advice, even if no litigation is pending or anticipated. But that does not mean the common interest doctrine must extend just as far. As the court explained, the common interest doctrine merely means that the privilege is not waived by communicating privileged information to another person who has a common legal interest. It is not itself a form of privilege. 

Ambac places New York into the group of jurisdictions that take a narrow view of the common interest doctrine. Some other states and several federal circuits take a broader view (as did the dissent in Ambac, which cited a number of those authorities). Whether certain kinds of communications involving third parties are protected as privileged by the common interest doctrine may thus turn on the jurisdiction where a lawsuit is filed.  

Key words: Ambac, attorney-client communication, attorney-client privilege, business and commercial, common interest, litigation 

Stuart M. Riback is a partner at Wilk Auslander, LLP, in New York, New York.


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