United States: New York's Highest Court Reverses Appellate Division, Reaffirms Litigation Requirement For Common-Interest Privilege

In a recent decision reversing the Appellate Division of the Supreme Court of New York, First Judicial Department, the New York Court of Appeals definitively held that the common-interest privilege may be used in New York only in circumstances where the communication at issue relates to either pending or reasonably anticipated litigation. In a 4-2 decision in Ambac Assurance Corp. v. Countrywide Home Loans, Inc.[1] the Court adhered "to the litigation requirement that has historically existed in New York" because any "benefits that may attend such an expansion of the [common-interest] doctrine are outweighed by the substantial loss of evidence, as well as the potential for abuse."[2]

The Court's decision breaks from precedent followed by the Second, Third, Seventh and Federal Circuits, as well as Delaware courts, which do not have a "litigation requirement" for the common-interest doctrine to apply, as discussed in a previous client alert.[3] Both litigators and transactional counsel should be aware of the strict requirements in New York their clients must satisfy to enjoy the protection of the privilege.

Procedural History and the Supreme Court's Decision

Generally, communications between an attorney and client either made in the presence of or subsequently disclosed to third parties are not protected by the attorney-client privilege.[4] But under the common-interest doctrine, an attorney-client communication remains privileged if the third party shares a common legal interest with the client and the communication is made in furtherance of the common legal interest.[5] The Court of Appeals confirmed there is a third element to the doctrine in New York – the communication must relate to pending or reasonably anticipated litigation.

The underlying lawsuit in Ambac involved a claim by Ambac Assurance Corporation (Ambac), a financial guaranty insurer, against Countrywide Home Loans, Inc. and related entities (Countrywide), relating to insurance contracts that guaranteed payments on certain residential mortgage-backed securities issued by Countrywide. During the financial crisis, some of the Ambac-insured, Countrywide-issued mortgage-backed securities failed. After one of the Countrywide related entities merged with a Bank of America Corp. (BOA) subsidiary, Ambac filed a lawsuit against Countrywide and Bank of America alleging that Countrywide "breached contractual representations, fraudulently misrepresented the quality of the loans and fraudulently induced Ambac to guaranty them", and asserted claims against BOA as Countrywide's successor-in-interest and alter ego.[6]

During the course of discovery, BOA withheld approximately 400 communications that took place between BOA, Countrywide and their respective counsel after the two entities signed a merger plan, but before the merger closed months later. BOA listed these communications on a privilege log, claiming the documents were protected by the common-interest doctrine. Ambac challenged the withholding.

BOA argued the documents at issue pertained to legal issues the two companies needed to resolve for the merger to close, and that the merger agreement "directed [the parties] to share privileged information related to these pre-closing legal issues" and contained confidentiality provisions to prohibit the disclosure of privileged information to any outside parties.[7] In response, Ambac argued that BOA and Countrywide were not affiliated entities at the time of the disclosure and did not share a common legal interest in pending or reasonably anticipated litigation, thereby waiving any applicable privilege.

A Special Referee appointed to handle the privilege dispute ordered BOA to produce the documents, concluding that the common-interest doctrine could apply only if the parties shared a "common legal (as opposed to business or commercial) interest in pending or reasonably anticipated litigation."[8] BOA moved to vacate the Referee's decision, but the Supreme Court denied the motion, holding that under New York law there must "be a reasonable anticipation of litigation" for the common-interest doctrine to apply.[9]

Appeal to the Appellate Division, First Department

BOA appealed and the Appellate Division, First Department, reversed, granted BOA's motion to vacate the Referee's decision and remanded to the Supreme Court for further proceedings. The First Department held unanimously that even though, historically, "New York courts have taken a narrow view of the common-interest [doctrine] . . . in today's business environment, pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege."[10]

The First Department's detailed discussion of the attorney-client privilege informed its holding, as the court found that the litigation requirement was at odds with the underlying purpose of the 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."[11] To emphasize the need to apply the common-interest doctrine without a litigation requirement, the court relied on the Supreme Court's decision in Upjohn Co. v. United States, 449 U.S. 383, 389 (1981), and noted that due to "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. . . ."[12]

The Court of Appeals' Decision

On June 9, 2016, a divided 4-2 Court of Appeals reversed the First Department, holding that "as the courts in New York have held for over two decades, [] any such communication must [] relate to litigation, either pending or anticipated," for the common-interest doctrine to apply.[13] Writing for the majority, Judge Pigott began by providing a brief background of the attorney-client privilege, explaining that despite "the social utility of the privilege, it is in obvious tension with the policy of this State favoring liberal discovery."[14] Moving on to the common-interest doctrine, which has its roots in criminal law, Judge Pigott discussed it as a distinct "exception to the general rule that the presence of a third party destroys any claim of privilege."[15] As the doctrine was originally conceived, it allowed criminal co-defendants to share confidential information about their defense strategy without the co-defendants waiving the attorney-client privilege.[16] New York courts eventually replaced the so-called joint-defense doctrine with the common-interest doctrine, which extended to both criminal and civil cases.[17] But until the First Department's decision in this case, "New York courts uniformly rejected efforts to expand the common interest doctrine to communications that do not concern pending or reasonably anticipated litigation."[18]

The Court reasoned that when two or more parties reasonably anticipate or are engaged in litigation, "the threat of mandatory disclosure may chill the parties' exchange of privileged information and thwart any desire to coordinate legal strategy."[19] In that context, the common-interest doctrine "promotes candor that may otherwise have been inhibited."[20] In contrast, when two or more parties share a common legal interest in a commercial transaction but do not reasonably anticipate litigation, "their shared interest in the transaction's completion is already an adequate incentive for exchanging information necessary to achieve that end."[21] The Court was not persuaded by the fact that while it was limiting the common-interest doctrine to pending or threatened litigation, the attorney-client privilege from which it derives is not so limited. Nor was the Court moved by the "anomalous result" that clients who retain separate attorneys cannot protect their shared communications absent pending or anticipated litigation, but if clients jointly retain a single attorney the same communication would be privileged in the absence of litigation.

At its core, the Court's decision is based on a policy rationale: "any benefits that may attend [] an expansion of the doctrine are outweighed by the substantial loss of evidence, as well as the potential for abuse," such as shielding from discovery purely commercial communications rather than legal advice.[22] The Court noted that there has not been a "corporate crisis" in New York while the litigation requirement existed and doubted that such a crisis would occur as a result of the decision.[23]

In dissent, Judge Rivera would have expanded the common-interest doctrine to coexist more in line with the attorney-client privilege, writing that an extension of the doctrine to confidential communications made "for the purposes of seeking legal and regulatory advice to complete the merger . . . is fully in line with the goals of our common law and the needs of our complex system of commercial regulations."[24] Judge Rivera also thought it "worthy of note that the majority of federal courts that have addressed the issue," along with a number of state jurisdictions, do not have a litigation requirement as part of the common-interest doctrine.[25]

Lessons of Ambac

With the Court of Appeals' decision, the elements of New York's common-interest doctrine have now been articulated. A disclosed attorney-client communication remains privileged if: (i) the party to whom disclosure is made shares a common legal interest with the client; (ii) the communication is made in furtherance of that common legal interest; and (iii) the communication relates to either pending or anticipated litigation.[26]

Now that Ambac has delineated the elements of New York's common-interest doctrine, pre-closing transacting parties in New York should be aware that exchanging attorney-client privileged communications that do not relate to pending or anticipated litigation will likely waive the attorney-client privilege and open the communications to discovery by third parties. As a result, counsel and clients should consider jointly retaining a single law firm to serve as special counsel to address sensitive common legal issues. And regardless of the now-narrowed version of the common-interest doctrine, parties and counsel should still:

  • Separate legal interests from business interests. Under Ambac, two transacting parties may be able to claim the common-interest doctrine if they can show that their communication relates to anticipated litigation, but only if the communication is "predominately of a legal character" as opposed to communication that assists the client in furthering a business interest. [27] Counsel should articulate and document the specific legal interests being served when making communications.
  • Maintain confidentiality of communications. Even if the communication relates to pending or anticipated litigation, as Ambac requires, the communication must still retain the hallmarks of the attorney-client privilege and be maintained as confidential between client and counsel, or the privilege can be deemed waived. New York courts will require that the attorney-client privilege and common-interest doctrine are "strictly confined within the narrowest possible limits consistent with the logic" of their principles, so parties and counsel must maintain vigorous controls over access to and subsequent dissemination of potentially privileged information. [28]

Footnotes

[1] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 2016 N.Y. Slip Op. 04439, 2016 WL 3188989 (N.Y. 2016).

[2] Id. at *4–5.

[3] See Sammi Malek and Samuel Light, New York Court Dispenses with the Litigation Requirement for the Application of the Common-Interest Privilege: Why Transactional Counsel Should Pay Attention (Feb. 2, 2015), https://www.bakerlaw.com/alerts/new-york-court-dispenses-with-the-litigation-requirement-for-the-application-of-the-common-interest-privilege-why-transactional-counsel-should-pay-attention.

[4] Ambac Assurance Corp., 2016 WL 3188989, at *1.

[5] Id.

[6] Id.

[7] Id.

[8] Id. at *2 (internal citation omitted).

[9] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 980 N.Y.S.2d 274, 2013 WL 5629595, at *2 (Sup. Ct. N.Y. Cnty. Oct. 16, 2013).

[10] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 998 N.Y.S.2d 329, 331 (1st Dep't 2014).

[11] Id. at 333 (internal quotations and citations omitted).

[12] Id.

[13] Ambac Assurance Corp., 2016 WL 3188989, at *1.

[14] Id. at *2 (internal quotations and citations omitted).

[15] Id.

[16] Id.

[17] Id. at *2–3; see People v. Osorio, 75 N.Y.2d 80 (1989).

[18] Id.

[19] Id. at *4.

[20] Id. at *4–5.

[21] Id. at *5.

[22] Id.

[23] Id.

[24] Id. at *11 (dissenting opinion).

[25] Id. at *8 (dissenting opinion).

[26] Id. at *1.

[27] See id.

[28] Id.

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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.

Disclaimer

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.

Registration

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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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.