Expected Litigation Isn't Requirement For Common Interest Doctrine to Apply

Dec. 8 — The common interest doctrine can apply in New York even when there was no pending or anticipated litigation, the New York Appellate Division, First Department, decided Dec. 4, disagreeing with New York cases that say otherwise (Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 2014 BL 340444, N.Y. App. Div. 1st Dep't, No. 651612/10, 12/4/14).

Accordingly, legal communications shared by financial institutions preparing to merge may be protected by the attorney-client privilege even though no litigation was on the horizon at the time, the court said in an opinion by Justice Karla Moskowitz.

Although normally the privilege is destroyed when legal communications are shared with a third party, an exception prevents waiver when the senders and recipients share a common legal interest in the subject matter of the communications.

“[I]n today's business environment, pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege.”Justice Karla Moskowitz

New York law has been unclear as to whether the common interest doctrine applies only when the sharing occurs in the face of an existing or threatened lawsuit.

Merger Talks

The ruling means that at this point an insurer suing Countrywide Home Loans Inc. and Bank of America to recover losses on mortgage securities can't insist on seeing communications exchanged between the companies and their counsel in talks leading up to their 2008 merger.

Overturning a discovery order, the court said the communications were not outside the common interest doctrine merely because there was no pending or reasonably anticipated litigation at the time.

“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,” Moskowitz wrote.

The shared communications must be reviewed on remand for the purpose of determining which documents, if any, remain privileged, the court directed.

‘Better Policy.'

While acknowledging that a line of New York cases requires pending or reasonably anticipated litigation as a condition for the common interest doctrine to apply, the court said “the better policy requires that we diverge from this approach.”

“We hold that, in today's business environment, pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege,” Moskowitz wrote.

The court said the circumstances presented in this case illustrate precisely why the common interest doctrine should apply—“namely, that business entities often have important legal interests to protect even without the looming specter of litigation.”

Bank of America and Countrywide needed the shared advice of their respective counsel to navigate the complex legal and regulatory process involved in completing the merger transaction, the court said. Imposing a litigation requirement would discourage them from seeking and sharing such advice, and the lack of guidance from their attorneys would inevitably result in litigation, it said.

Litigation Isn't Required

Moskowitz said the propriety of a litigation requirement for the common interest doctrine has never been considered by the First Department or New York's highest court. She reviewed other sources and pointed out that:

• the common interest doctrine applies either to a “litigated or nonlitigated matter” under Section 76 of the Restatement (Third) of the Law Governing Lawyers (2000);

• federal courts that have addressed the issue have overwhelmingly rejected a litigation requirement for the common interest doctrine; and

• Delaware's version of the doctrine recognizes that disclosure may be confidential even when made between lawyers representing different clients if those clients have a common interest.


The attorney-client privilege itself isn't tied to contemplation of litigation because advice is often sought and received precisely to avoid litigation or to facilitate compliance with the law, Moskowitz said.

Justices Leland G. DeGrasse and Barbara R. Kapnick concurred in Moskowitz's opinion.

O'Melveny & Myers LLP represented Bank of America Corp. Patterson Belknap Webb & Tyler LLP represented Ambac Assurance Corp.

Full text at http://www.bloomberglaw.com/public/document/Ambac_Assurance_Corp_v_Countrywide_Home_Loans_Inc_No_65161210_201/1.


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