The New York Court of Appeals, the state’s highest court, recently rejected an attempt to apply the “common interest doctrine,” an exception to the general rule that communicating privileged information to a third party waives the attorney-client privilege, to situations where separately represented parties communicate attorney-client privileged information in connection with transactions or other circumstances other than in anticipation of litigation. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., No. 80, 2016 WL 3188989 (N.Y. June 9, 2016). As this case shows, companies should be mindful of what information they share outside the litigation context, because the common interest doctrine may not be available to protect that information.
The case involved Ambac’s demand for documents and communications shared between Countrywide and Bank of America during the negotiations for Bank of America’s purchase of Countrywide. Although Bank of America and Countrywide were represented by separate counsel, they entered a merger agreement that directed them to share privileged information related to pre-closing legal issues, and to protect the information from outside disclosure. Consequently, Bank of America withheld confidential documents it believed were protected from disclosure by the attorney-client privilege, because those 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, reviewing contractual obligations to third parties, maintaining employee benefit plans, and obtaining legal advice on state and federal tax consequences.
Ambac moved to compel, arguing that voluntarily sharing confidential material before the merger closed waived any attorney-client privilege, because Bank of America and Countrywide were not affiliated entities at the time of disclosure and did not share a common legal interest in litigation or anticipated litigation. Conversely, Bank of America argued that the merger agreement evidenced the parties’ shared legal interest in the merger’s “successful completion,” as well as their commitment to confidentiality, and therefore shielded the relevant communications from discovery.
In a 4-2 ruling, the New York Court of Appeals held that the attorney-client privilege for the documents that Countrywide and Bank of America shared was waived, and Ambac was entitled to disclosure of them in discovery. The court noted that although it recognized the common interest doctrine, New York courts have uniformly rejected efforts to expand the common interest doctrine to communications that do not concern pending or reasonably anticipated litigation.
Bank of America argued that highly regulated financial institutions constantly face a threat of litigation, and that the protection of their shared communications was necessary to facilitate better legal representation, ensure compliance with the law, and avoid litigation. The court rejected this argument, stating that there was no evidence presented that privileged communication-sharing outside the context of litigation was necessary to achieve those objectives. The court also noted that mergers, licensing agreements, and other complex commercial transactions have continued to occur in New York, despite the state’s litigation limitation on the common interest doctrine: “when parties share attorney-client communication for planning purposes outside of the specter of anticipated litigation . . . it is more likely that [they] would have shared information even absent the privilege.”
Finally, the court held that the public policy justifications for restricting the common interest doctrine to litigation or anticipated litigation outweighed any purported justification for doing away with the limitation. The court reasoned that the difficulty of defining “common legal interests” outside the context of litigation could result in the loss of evidence of a wide range of communications between parties who assert common legal interests, but who really have only non-legal or exclusively business interests to protect.
This case has important implications for attorneys, clients, and professionals in a range of disciplines, in particular those practicing or operating in the corporate, transactional, and insurance spheres. As financial and corporate regulations become more strict, attorneys and their clients will often find themselves working more closely and desiring to share confidential, sometimes privileged, information with their counterparts.
Clients purchasing commercial insurance, whether cyberliability, directors and officers, error and omissions, product liability, or other types of liability coverage, are routinely asked to disclose potentially privileged information to prospective insurers in increasingly lengthy and complex insurance applications. Attorneys and other professionals who negotiate and assist with the underwriting, negotiation and placement of insurance contracts must be mindful of the risks that the disclosure of information to an insurer in the application and underwriting process may later be deemed to have been a waiver of privilege as to all third parties.
Parties should also be aware that traditional information protection measures such as nondisclosure agreements may not protect the parties’ shared privileged communications in subsequent litigation. Likewise, while other courts and the Restatement [Third] of the Law Governing Lawyers § 76  have taken a more expansive view of the common interest doctrine, i.e., removing the litigation context requirement, attorneys operating outside of the context of litigation must be mindful that many courts, such as New York, have not adopted this wider exception. Clients must be advised of the potential consequences of sharing in such circumstances. Likewise, attorneys and clients must give careful thought to the scope of information they share with their counterparts.