Why it matters

In an opinion from a unanimous New York appellate panel, the court expanded the state’s previously narrow view to recognize that litigation is not required for protection of the common interest privilege. The court held that the common interest doctrine applies even though the subject communications occurred in a purely transactional context and not in anticipation of litigation. In doing so, the court departed from prior decisions by other New York courts that had limited the common interest protection to communications involving pending or anticipated litigation. The court based its ruling on the needs of parties to transactions toshare common legal advice "in order to accurately navigate the complex legal and regulatory process involved in completing the transaction."

Detailed Discussion

Financial guaranty Ambac Assurance Corporation sued Countrywide Home Loans and Bank of America Corp. (BAC), its successor-in-interest, asserting claims related to mortgage fraud. The basis for the claims asserted against BAC arises from a merger between a BAC subsidiary and Countrywide Financial Corp. (CFC), a Countrywide entity. Ambac claimed that between 2004 and 2006 Countrywide fraudulently induced the insurer to enter into agreements that guaranteed payments on certain residential mortgage-backed securities issued by Countrywide.

Prior to signing a merger agreement, BAC and CFC entered into a common interest agreement. Further, the merger agreement provided that all information exchanged between BAC and CFC “was subject to confidentiality provisions.”

Ambac filed a motion to compel several hundred documents composed of communications between Countrywide, BAC, and their counsel during the premerger time period. BAC claimed that the communications were protected by the common interest doctrine because, among other things, BAC and CFC “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.”

The court reviewed the history and purpose of the attorney client privilege (from which the exception derives), public policy interests and federal precedent, and concluded that the better policy requires that we diverge from the former approach requiring that before the common interest doctrine can be invoked the communication must affect pending or anticipated litigation.

Specifically, the court stated: “These [former] cases provide that when two parties with a common legal interest seek advice from counsel together, the communication is not privileged unless litigation is within the parties’ contemplation; on the other hand, when a single party seeks advice from counsel, the communication is privileged regardless of whether litigation is within anyone’s contemplation. We cannot reconcile this contradiction, as it undermines the policy underlying the attorney-client privilege.”

Imposing a litigation requirement would discourage parties with a shared legal interest – such as the merger agreement between BAC and Countrywide – from seeking and sharing advice, the panel noted, and could result in regulatory or private litigation because the parties lacked sound guidance. “This outcome would make poor legal as well as poor business policy,” the court stated.

The panel remanded the case for the trial court to conduct a review to determine which, if any, documents are subject to the privilege.

To read the order in Ambac Assurance Corp. v. Countrywide Home Loans, click here.