New York Court of Appeals Holds That the Common Interest Doctrine Applies Only to Litigation Matters. This year, in Ambac Assurance Corp. v. Countrywide Home Loans, Inc., No. 80, 2016 N.Y. Lexis 1649 (N.Y. June 9, 2016), New York’s highest court clarified the scope of the “common interest” doctrine, under which attorney-client communications remain privileged if they are disclosed to a third party who shares a common legal interest with the client and the communication furthers that common legal interest. In Ambac, the New York Court of Appeals held that the doctrine applies only where the parties’ common interest is in pending or anticipated litigation, and not to other common legal interests.
As discussed in our July 2015 practice update, the Ambac litigation involved a dispute over insurance policies issued on certain residential mortgage-backed securities by Ambac Assurance Company to Countrywide Home Loans. Ambac alleged that Countrywide misrepresented the quality of the loans underlying the bonds and argued that, because of a merger between Bank of America (“BOA”) and Countrywide, BOA was responsible for Countrywide’s liabilities. BOA withheld from discovery hundreds of documents relating to its merger with Countrywide, arguing that its attorney-client communications in the documents fell under the common interest doctrine, because Countrywide and BOA shared a common legal interest in the success of the merger.
The trial-level Supreme Court ruled against BOA, holding that the doctrine did not apply because the parties did not reasonably anticipate litigation at the time of the merger. Ambac Assurance Corp. v. Countrywide Home Loans, Inc., Index No. 651612/2010, 2013 N.Y. Misc. LEXIS 4570, at *2-3 (Sup. Ct. N.Y. Cnty. Oct. 16, 2013). On BOA’s interlocutory appeal, the Appellate Division, First Department unanimously reversed. Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 124 A.D.3d 129 (1st Dep’t 2014). The appellate court held that while other New York courts had imposed a pending-or-anticipated-litigation requirement, the Court of Appeals had not ruled on the issue. The First Department held that the “better approach” was to reject the requirement, as most federal courts have done, and stating that the purpose of the doctrine—“to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice”—applied with equal force in the absence of litigation.
In a split decision, issued on June 9, 2016, the Court of Appeals reversed. The court rejected the First Department’s reasoning, holding that when “two or more parties are engaged in or reasonably anticipate litigation in which they share a common legal interest, the threat of mandatory disclosure may chill the parties’ exchange of privileged information,” such that applying the common interest doctrine “promotes candor that may otherwise have been inhibited.” The court distinguished this situation from parties like BOA and Countrywide who shared a common legal interest in a commercial transaction. “Put simply,” the court wrote, “when businesses share a common interest in 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.” Moreover, the court reasoned, abandoning the pending-or-anticipated-litigation requirement “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.”
Judge Rivera dissented, joined by Judge Garcia. Judge Rivera wrote that “the privilege should apply to private client-attorney communications exchanged during the course of a transformative business enterprise, in which the parties commit to collaboration and exchange of client information to obtain legal advice aimed at compliance with transaction-related statutory and regulatory mandates.” Judge Rivera observed that the attorney-client privilege itself can be invoked without pending or anticipated litigation, and argued that such a requirement not be necessary to protect that privilege through the common interest doctrine. Moreover, Judge Garcia observed, “[l]egal 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.” In a footnote, the majority noted that the New York legislature “is free to consider the alternative arguments articulated by the dissent and to expand the common interest exception as other state legislatures have done.”
The Ambac court explicitly did not decide the full scope of the common interest doctrine. It stated: “We need not decide in this appeal what it means to share common legal interests in pending or anticipated litigation. We hold only that such litigation must be ongoing or reasonably anticipated, and the exchanged communication must relate to it, in order for the common interest exception to apply.” Consequently, in future litigation governed by New York law, one can expect litigants to dispute what it means to “reasonably anticipate” litigation and whether the contemporaneous evidence shows that the parties had that expectation at the relevant time.