An important ruling by the federal district court in New York expands on the protection provided to the communications of a bank's attorneys with syndicate members in the context of analyzing litigation strategies. In HSH NordBank AG v. Swerdlow, No. 08-CV-6131, 2009 WL 2223476 (S.D.N.Y. July 24, 2009).
The issue in HSH NordBank was the extent to which the attorney/client privilege (as extended by the common interest doctrine) protected communications by agent bank's counsel to the agent and various members of a lending syndicate.
The case arose following several defaults, after which the agent bank determined to proceed in a breach of guaranty action against various guarantors. During discovery, certain documents were inadvertently disclosed, which revealed communications by counsel for the agent bank to both the agent bank and/or various syndicate bank members. The communications were not directed to the syndicate bank members' counsel; the communications were made directly to the syndicate bank members.
These inadvertent disclosures were sought to be reclaimed pursuant to "claw back" provisions in the protective order entered among the parties, as well as under the applicable rules of civil procedure. After the attempted recovery was unsuccessful, the parties submitted the matter to the court for determination.
The defendants asserted, among other things, because the communications were directly with the individual syndicate bank members (and not through their respective counsel), that the communications constituted a waiver of the attorney/client privilege; therefore, the common interest doctrine could not apply.
Prior cases suggested that communications among parties represented by separate counsel—and communications among their counsel—would not waive otherwise applicable privileges. In other words, to the extent that an attorney for one party communicated information that would otherwise be subject to the attorney/client privilege, or the attorney work-product privilege, to counsel for another party in a common interest, the communication would not waive the original underlying privilege.
This is the crux of the common interest doctrine.
The defendants asserted that because the communications were to individual bank syndicate members directly (and not to their respective counsel), the common interest doctrine could not apply.
The court ruled that there is no requirement that the communications occur on a counsel-to-counsel basis to justify the application of the common interest doctrine. The court noted that the "common interest doctrine is an exception to the general rule that voluntary disclosure of confidential, privileged material to a third party waives any applicable privilege." Id. at *4.
The communication to all of the lenders addressed the enforcement of the bank groups' rights against the guarantors under the guarantees. The communications were for the purpose of determining the proper enforcement mechanism, and all parties believed that the communications would remain confidential. Further, the underlying loan documents (which were executed by the original borrower) noted that the agent bank's counsel would effectively represent the interest of all the lenders whose interests would be presumed to be identical.
Legal v. Business Interests
Under the common interest doctrine, the common interest must be "legal" in nature and cannot be limited solely to business strategies. The defendants asserted that the interest to be protected was solely a business interest, and therefore the common interest doctrine did not apply.
The court did note that only communications made in the course of an ongoing common legal enterprise, and which were intended to further that enterprise, would be protected. This is the case, however, regardless of whether actual litigation is pending. The court ruled that because the communications in the current case related to the analysis of the enforcement of rights grounded in contract (i.e., the guaranty), the communications involved the pursuit of legal rights and remedies.
While the analysis of the legal rights may overlap with the bank group's business interests, the common interest was not solely for business interest—it had a legal facet.
Communications involving the analysis of syndicate issues and pursuit of legal strategies by agents' counsel to all of the bank syndicate members must be protected. This case is further security for members of bank syndicates to ensure the free-flow of information and strategy concerning the exercise of rights and remedies with agent's counsel.
The court's conclusion that the communications were protected (and did not require the conduit of an individual syndicate member's counsel and could be direct to syndicate bank members), reinforces current business practices, and should help the ongoing free-flow of information as syndicate lenders evaluate how to proceed in connection with their syndicate borrowers.
While the opinion is not a panacea for exchange of information among bank members (i.e., the common interest doctrine only applies to communications that otherwise have an underlying privileged nature), it does help to ensure that attorneys and their clients can continue to have the honest dialogue and frank analysis with members of the bank syndicate that the attorney/client privilege is meant to foster.