Last Thursday, the New York Court of Appeals issued a stark reminder to transactional lawyers: no matter how much “common interest” two parties may have with respect to a transaction, the common interest doctrine may not protect their communications.

In Ambac Assurance Corp. v. Countrywide Home Loans, Inc., New York’s highest court held, in a 4-2 decision, that a party waives its attorney-client privilege if it shares privileged information with another party unless (i) those two parties share a common legal interest, (ii) the communication between the parties was made in furtherance of that legal interest, and (iii) the communication relates to pending or anticipated litigation. Plaintiff Ambac insured residential mortgage-backed securities issued by defendant Countrywide. When those securities failed during the financial crisis, Ambac sued Countrywide under various breach of contract and fraud theories. Ambac also sued Bank of America, which acquired the assets of Countrywide in a merger in 2008. At issue in the decision were approximately 400 documents Bank of America withheld from production during discovery. The documents comprised attorney-client privileged communications that the bank and Countrywide shared with each other during the period between entering into the merger agreement and the closing of the merger six months later. The bank argued the documents pertained to a number of legal issues the two companies needed to resolve jointly in anticipation of the merger closing, such as filing disclosures, securing regulatory approvals, and reviewing contractual obligations to third parties, and thus, were protected from disclosure under the common interest doctrine. As is common in such transactions, the bank and Countrywide agreed to share such information and that their communications were confidential and subject to a common interest privilege, ostensibly preserving the attorney-client privilege in the documents.

The Appellate Division, First Department, overturned a lower court decision that had ordered the production of the documents. It ruled that New York’s common-interest doctrine, which has always applied only to shield communications concerning pending or reasonably anticipated litigation, was too narrow.  Instead, the appellate court decided to follow several federal circuit courts that have held that a common interest in a transaction is enough to create a common interest privilege and there is no need for the communications between the parties to relate to litigation.

The Court of Appeals reversed the Appellate Division, declining to expand New York’s common interest doctrine. In doing so, the Court attempted to balance the competing public policies at issue – i.e., the policy of keeping attorney-client communications privileged so as to foster full and effective legal representation vs. the policy favoring liberal discovery in lawsuits – and determined that the common interest doctrine should only apply “to situations where the benefit and the necessity of shared communications are at their highest, and the potential for misuse is minimal.” The Court then reasoned that the presence of litigation creates the appropriate situation because when parties are co-litigants, “in order to mount a common claim or defense, their legal interests are sufficiently aligned that ‘the counsel of each [i]s in effect the counsel of all.” And, the Court found, that if there were a threat that the parties’ privileged communications would be discoverable, it would chill the parties’ exchange of information and thwart their ability to coordinate their legal strategy.

The bank argued that the same policy reasons should apply even when there is no litigation in sight because two merging parties need to share privileged information to comply with the law and regulations and to facilitate better legal representation. The Court of Appeals rejected this argument, finding that there was no evidence in the record that parties to complex commercial transactions, such as mergers and licensing agreements, need to share privileged information in order to achieve those goals or that without a privilege covering their communications, they would not share the necessary information. The Court reasoned that if this were the case, there would be evidence that such transactions did not take place in New York due to the state’s limitation on the common interest doctrine. Rather, the Court found that “when businesses share a common interest in the closing a complex transaction, their shared interest in the transaction’s completion is already an adequate incentive for exchanging information necessary to achieve that end.”[1]

The Court of Appeals, recognizing that numerous other states and federal circuits have expanded the common interest doctrine, invited the Legislature to consider whether to expand the doctrine statutorily. Until then, however, parties and counsel involved in commercial transactions in (or that may be the subject of a lawsuit in) New York, such as mergers, must give careful consideration before sharing privileged information with their counterparty because those communications will be discoverable in the future unless they concern actual or anticipated litigation.[2]

______________________________________________

[1] The Court also reasoned that if it were to expand the common interest doctrine to situations where there was no litigation present, the potential for abuse would be too great because it would be too difficult to determine where to draw the line between what is a communication for the purposes of seeking legal advice and what is a communication concerning a commercial purpose. As the dissent pointed out, however, courts in New York already deal with that issue routinely in discovery disputes.

[2] It is worth noting, as the Court of Appeals did, that several other states have a similarly limited version of the common interest doctrine, including Arkansas, Florida, Hawaii, Kentucky, Maine, Maryland, Mississippi, New Hampshire, New Jersey, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Vermont, and Virginia.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Jordan B. Leader Jordan B. Leader

Jordan Leader is a senior counsel in the Litigation Department. He is a member of the Commercial Litigation, Sports Law, and International Arbitration Groups.

Jordan regularly represents clients in a variety of complex litigation matters, including contract, joint venture, licensing, fraud, antitrust, and…

Jordan Leader is a senior counsel in the Litigation Department. He is a member of the Commercial Litigation, Sports Law, and International Arbitration Groups.

Jordan regularly represents clients in a variety of complex litigation matters, including contract, joint venture, licensing, fraud, antitrust, and other commercial disputes. He handles cases in state and federal court, and in domestic and international arbitrations.

Recent litigation representations include:

A managed long term care provider in an arbitration against service providers, and obtaining a favorable settlement after defeating a summary judgment motion; and representing the provider in additional arbitration and litigation matters.
Former employees of a manufacturer of automobile racing parts, obtaining dismissal of all claims, including breach of contract, unjust enrichment, tortious interference in contract, unfair competition, misappropriation of trade secrets, civil theft, and conversion.
An international provider of marketing and business optimization services, obtaining a TRO and ultimately a successful resolution in connection with a former employee’s misappropriation of trade secrets.
A healthcare products distributor, obtaining summary judgment dismissing misappropriation of trade secrets, unfair competition, and breach of contract claims brought by a manufacturer of an oral cancer screening product, which was upheld on appeal by the Second Department.
A REIT, obtaining summary judgment dismissing antitrust and RICO claims brought by the former owner of a hotel in New York City, and obtaining sanctions against the law firm that filed the complaint, both of which were upheld on appeal by the Second Circuit.

Jordan is the co-editor of Proskauer’s commercial litigation blog, “Minding Your Business,” and is a co-author of a chapter on the use of graphics and demonstratives at trial in the leading commercial litigation treatise in New York.

A significant portion of Jordan’s practice is dedicated to representing and counseling professional sports leagues and teams in a wide variety of areas, including antitrust and competition issues, arena leases, and general contractual and governance issues. Among the firm’s industry clients he has represented are the ATP Tour, the WTA Tour, Major League Baseball, the National Football League, Major League Soccer, the National Hockey League, and the New Jersey Devils. For more than ten years, Jordan co-authored a bimonthly column entitled “Letter from America” in Sports Law Administration and Practice, a leading industry publication in Europe.

Recent sports representations include:

ATP Tour, in a breach of contract action in the District of Delaware, brought by one of its tournament members, which was favorably resolved.
WTA Tour, obtaining an order enjoining parties from proceeding with an action they had filed in a foreign court and compelling them to arbitrate their claims, and a related order by a foreign court dismissing claims filed there for lack of jurisdiction.
Major League Soccer, obtaining summary judgment dismissing federal antitrust and RICO claims brought by a former promoter of international exhibition soccer matches.
ATP Tour, winning a full defense verdict on antitrust and state law claims after a two week federal jury trial, which was upheld on appeal by the Third Circuit Court of Appeals.

Jordan also focuses on complex cross-border commercial disputes, most of which are resolved through international arbitration and related litigation.

Recent international arbitration representations include:

ABI Bank Ltd, a Caribbean bank, securing a complete victory for the bank in an ICC arbitration in Miami brought by Andrade Gutierrez, one of the largest Brazilian construction companies, which sought over $35 million in connection with an airport rehabilitation and corresponding long-term bond financing.
Satyam Computer Services, in numerous proceedings against its joint venture partner, Venture Global Engineering (VGE), including: a full victory in an LCIA arbitration in London, which was recognized and enforced by the U.S. District Court for the Eastern District of Michigan; prevailing on three separate appeals brought by VGE to the Sixth Circuit Court of Appeals.
sanofi-aventis, in a Swiss Rules arbitration in Zurich with U.S. pharmaceutical company Watson concerning the expiration of distribution and supply rights to a major drug that generates hundreds of millions of dollars in revenue annually, prevailing on nine out of ten claims.

Jordan maintains a significant pro bono caseload, most recently focusing on immigration issues. He also is active in the Harlem community and sits on the JCC Harlem Advisory Board.