United States: New York Court Dispenses With The Litigation Requirement For The Application Of The Common-Interest Privilege: Why Transactional Counsel Should Pay Attention

Last Updated: February 9 2015
Article by Sammi Malek

In a recent decision, the Appellate Division of the Supreme Court of New York, First Judicial Department, broke with other New York courts and joined Delaware and federal courts in applying the common-interest privilege to circumstances where there is no pending, anticipated, or threatened litigation. In a unanimous decision in Ambac Assurance Corp. v. Countrywide Home Loans, Inc.,1. the First Department permitted the application of the common-interest privilege to merger parties' pre-closing communications. The court based its ruling on the need for parties to a transaction to share common legal advice "in order to accurately navigate the complex legal and regulatory process involved in completing the transaction."2.

The First Department's decision is significant because while it is in line with precedent followed by the Second, Third, Seventh and the Federal Circuits, as well as Delaware courts, it is a significant departure from decisions by other New York courts, particularly the Second Department. The Court of Appeals (New York's highest court) has yet to consider the propriety of a litigation requirement for the common-interest privilege, but the First Department's well-reasoned and pragmatic decision, which is consistent with the weight of the authority on the subject in other jurisdictions, as well as the realities of today's business world, makes it likely that the Court of Appeals would follow suit should the issue come before it.

Decisions from the Appellate Division often capture the interest of litigators, but this decision is of particular importance to transactional counsel because the steps that need to be taken for the privilege to be upheld by a court down the road must be considered and executed well before any prospect of litigation arises. Although the decision has some language that could be narrowly construed to limit the application of the common-interest privilege to circumstances similar to Ambac, there are certain best practices, discussed below, that transactional counsel should follow to increase the likelihood that in the event of a dispute, their clients can enjoy the protection of this privilege.

Procedural History and the Lower Court Decision

The underlying lawsuit involves a claim by plaintiff Ambac Assurance Corporation (Ambac), an insurer of residential mortgage-backed securities, against defendants Countrywide Home Loans, Inc., and certain of its affiliated entities (Countrywide). Ambac claimed that Countrywide fraudulently induced it to insure payments on certain residential mortgage-backed securities. Because one of the Countrywide affiliates subsequently merged with a subsidiary of Bank of America Corp. (BOA), Ambac asserted secondary claims against defendant BOA as Countrywide's successor-in-interest.

In connection with its successor liability claims, Ambac sought disclosure of several hundred documents reflecting communications among the BOA subsidiary, the Countrywide affiliate, and their counsel in the period between the signing of the merger agreement and the closing of the merger.3. BOA refused to disclose the documents, arguing that they were protected by the common-interest privilege exception to the waiver of the attorney-client privilege. BOA relied in part on the fact that all information and materials exchanged between the parties under the merger agreement were subject to confidentiality provisions, and the parties had executed a common-interest agreement shortly before they signed the merger agreement.4. BOA claimed that it and Countrywide, "two heavily regulated public financial institutions—required shared legal advice from counsel together in order to ensure their accurate compliance with the law and to advance their common interests in resolving the many legal issues necessary for successful completion of the merger."5.

A special master overseeing the discovery dispute ordered BOA to produce the documents, concluding that "the common interest rule . . . does not apply unless the parties share a common legal interest that impacts potential litigation involving all parties, and that to hold otherwise would be inconsistent with the narrow scope of the attorney-client privilege."6. Justice Eileen Bransten of the commercial division upheld the ruling, holding that there must be "a reasonable anticipation of litigation for the common-interest doctrine to apply" and that none existed in this case.7. BOA appealed.

The First Department's Decision

In a unanimous reversal of the lower court's decision, the First Department held that "in today's business environment, pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege."8. While the court acknowledged a line of cases from other New York courts, particularly the Second Department, where the court had applied a pending or anticipated litigation requirement, the First Department found this requirement to be inconsistent with the purpose of the attorney-client privilege: "The attorney-client privilege is not tied to the contemplation of litigation, because advice is often sought, and rendered, precisely to avoid litigation, or facilitate compliance with the law, or simply to guide a client's course of conduct."9. The court further emphasized the need for the application of the common-interest privilege to a case involving corporate parties, observing that "because of the vast and complicated array of regulatory legislation confronting the modern corporation, corporations, unlike most individuals, constantly go to lawyers to find out how to obey the law, particularly since compliance with the law in this area is hardly an instinctive matter,"10. quoting from the Supreme Court's decision in Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).

The court justified its departure from the holding of other New York courts by observing that those courts had adopted a litigation requirement based on case law applying the common-interest privilege in a criminal context where co-defendants and their counsel "share information in furtherance of a common defense."11. The court found this line of cases to be inadequate in addressing the specific situation presented in Ambac:

[T]wo business entities, having signed a merger agreement without contemplating litigation, and having signed a confidentiality agreement, required the shared advice of counsel in order to accurately navigate the complex legal and regulatory process involved in completing the transaction. . . . [I]mposing a litigation requirement in this scenario discourages parties with a shared legal interest, such as the signed merger agreement here, from seeking and sharing that advice, and would inevitably result instead in the onset of regulatory or private litigation because of the parties' lack of sound guidance from counsel. This outcome would make poor legal as well as poor business policy.12.

Thus the court specifically held that no pending, threatened, or anticipated litigation was required for the application of the common-interest privilege.

Lessons of Ambac

While the Ambac decision is significant in its departure from current New York law in other departments and its alignment with the prevailing precedent on the common-interest privilege law in the federal courts and in Delaware, it is important to note that the decision is controlling law only in the First Department, which includes cases filed in Manhattan and the Bronx. Unless and until the Court of Appeals speaks on the issue, the law in the Second Department (which includes cases filed in Brooklyn and Queens) still requires "reasonable anticipation of litigation"13. before the common-interest privilege can apply.

The decision also raises as many questions as it answers. The language of the opinion itself emphasizes the case-by-case nature of the inquiry at issue.14. And although the legal principles underlying the court's reasoning are stated clearly, the decision's application in each particular case remains far from clear.

For example, the decision focuses a great deal on the execution of the merger agreement between the BOA and Countrywide entities, leaving open the question of whether the common-interest privilege applies to communications during due diligence conducted prior to the signing of the merger agreement. The decision also does not address who controls the privilege after the close of the merger. The court has indicated an inclination to look to Delaware law for guidance, and Delaware law provides that while rights to privileged communications generally pass to the purchaser upon the close of a merger,15. parties to a merger agreement can agree to limit the purchaser's post-merger rights to certain privileged communications.16.

Finally, while the decision does not explicitly limit its application to circumstances where the parties have entered into a common interest, as well as a confidentiality agreement, the court makes it clear that it considered these agreements as important factors in reaching its decision.17. Thus a prudent practitioner in this jurisdiction is well served to keep in mind two main takeaways to ensure the greatest benefit from this business-friendly decision by the First Department:

  • Reach an agreement and memorialize it. As mentioned above, the court implicitly relied upon the merger agreement (and its confidentiality provision) and the common interest agreement as a clear indication of the parties' intent regarding what they viewed as privileged and who owned that privilege. In the context of sophisticated business entities, the courts will likely give considerable weight to the parties' contemporaneous views regarding what information was necessary to exchange in furtherance of their common interest and the characterization of such information as confidential.
  • Separate legal from business interests. The Ambac court specifically held that so "long as the primary or predominant purpose for the communication with counsel is for the parties to obtain legal advice or to further a legal interest common to the parties, and not to obtain advice of a predominately business nature, the communication will remain privileged."18. Counsel and their clients must be mindful of the nature of the communications and/or information they seek to keep confidential under a common-interest privilege theory and maintain rigorous distinctions between legal and business advice in order to protect the former from disclosure down the road.


[1] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 2014 N.Y. Slip Op. 08510, 2014 WL 6803006 at *1 (1st Dep't, Dec. 4, 2014).
[2] Id. at 5.
[3] Ambac also argued that these documents were relevant because "documents [BOA] previously produced . . . suggest that [BOA] may have been put on notice of the prevalence of unreported fraud at Countrywide well before the merger." Id. at *2 (internal citations and quotation marks omitted).
[4] Id. at *1.
[5] Id.
[6] Id. at *2.
[7] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 2013 WL 5629595, at *1-2 (Sup. Ct., N.Y. Cnty. Oct. 16, 2013).
[8] Ambac, 2014 WL 6803006 at *1.
[9] Id. at *3 (internal citations and quotations omitted).
[10] Id. (internal citations and quotations omitted).
[11] Id. at *5.
[12] Id.
[13] Hyatt v. State of Cal. Franchise Tax Bd., 105 A.D.3d 186, 205 (2d Dep't 2013); Hudson Val. Mar., Inc. v. Town of Cortlandt, 30 A.D.3d 377, 378 (2d Dep't 2006).
[14] See, e.g., Ambac, 2014 WL 6803006 at *1 ("Indeed, the circumstances presented in this case illustrate precisely the reason that the common-interest privilege should apply—namely, that business entities often have important legal interests to protect even without the looming specter of litigation.") (emphasis added).
[15] See CFTC v. Weintraub, 471 U.S. 343, 349 (1985).
[16] See Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155, 161 (Del. Ch. 2013) (advising parties "to use their contractual freedom . . . to exclude from the transferred assets the attorney-client communications they wish to retain as their own").
[17] See, e.g., Ambac, 2014 WL 6803006 at *5.
[18] Id. at 4.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.