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Areas of Interest
June 16th, 2016
Watch What You Say: New York Court Rule Will Expose More Attorney-Client Communications
Anyone who has ever had to litigate a dispute knows how important the attorney-client privilege is. The privilege is a powerful evidentiary shield - protecting communications between an attorney and a client made for the purpose of obtaining legal advice in the course of a professional relationship. If these communications are voluntarily disclosed to third parties, however, the privilege may be lost - except in cases where the parties are said to have a "common interest." But a recent New York Court of Appeals decision substantially limits the "common interest" exception, exposing many more communications to possible disclosure to opposing parties. Here's a summary of what you need to know.
What is the "Common Interest" Exception?
Under the "common interest" exception, parties who have a common legal interest may share privileged communications that are made in furtherance of that common legal interest, without sacrificing the privilege. The "common interest" exception does not create a new, independent basis for asserting privilege; it merely extends the protections of an existing privilege to third parties who share a common legal interest. In other words, for the "common interest" exception to apply, the communication must already be protected by an existing privilege.
The Court's Decision Restricts the Common Interest Exception to the Litigation Context
In Ambac Assurance Corp. v. Countrywide Home Loans, Inc., Ambac sued Countrywide in connection with Ambac's insurance for certain residential mortgage-backed securitizations offered by Countrywide prior to its merger with Bank of America Corp. Ambac also sued Bank of America, arguing that it was liable for Countrywide's damages as a so-called "successor-in-interest" following the merger. Ambac asked the court to force Bank of America to disclose approximately 400 documents which reflected communications between and among the defendants and their counsel during the period of time between the signing of the merger agreement and the closing of the merger.
Bank of America opposed Ambac's disclosure demands. The bank argued that the "common interest" exception applied to the parties' communications during that period and, therefore, the documents were protected by attorney-client privilege. Specifically, Bank of America argued that the communications pertained to legal issues the two companies needed to resolve jointly in anticipation of closing the merger, 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."
The Court held that these communications relating to the merger were not protected by the "common interest" exception to the attorney-client privilege rules. The Court distinguished clients who share a common legal interest "in a commercial transaction or other common problem but do not reasonably anticipate litigation," like Bank of America and Countrywide here, from clients that do anticipate litigation or are co-litigants in pending litigation. The Court emphasized that the "common interest" exception protects communications between co-defendants, co-plaintiffs, or persons who reasonably anticipate that they will become co-litigants, because such disclosures are necessary to mount a common claim or defense.
What This Means
The Ambac Assurance case should serve as a reminder to all business people to exercise caution in how they communicate sensitive or confidential information to third parties, even when working together with a deal partner to address regulatory concerns. Be aware that the rules governing disclosure are complicated and different rules may apply. For example, unlike Ambac Assurance (a New York State case), federal courts applying the "common interest" exception do not require that the communications be made in anticipation of litigation. The calculus can also change when parties to a transaction are jointly represented by the same law firm.
If you have questions about how to safeguard sensitive communications from disclosure, or about any other commercial litigation matters, please contact Nicole Hyland at (212) 826 5552 or firstname.lastname@example.org, Ronald Minkoff at (212) 705 4837 or email@example.com, John Harris at (212) 705 4823 or firstname.lastname@example.org, Richard Maltz at (212) 705 4804 or email@example.com, or any other member of the Frankfurt Kurnit Legal Ethics and Professional Responsibility Group.
Other Legal Ethics and Professional Responsibility Alerts
Third Annual Litigation Ethics Summit
On November 13, 2020, Frankfurt Kurnit held its Third Annual Litigation Ethics Summit, consisting of three hour-long panels, earning the attendees three ethics CLE credits in New York and California. Read more.
November 19 2020
A Primer On New York’s COVID-19 Executive Orders and What They Mean for Your Practice
This past week, New York has taken a number of steps to restrict movement in and around the State in an effort to contain the COVID-19 crisis. Governor Andrew Cuomo has issued executive orders and the chief judges of the state and federal courts have issued administrative orders that have had a sweeping impact on the legal industry as well as the business community at large. Read more.
March 22 2020
ABA Opinion Limits Restrictions on Departing Partners
There’s important news for law firm leaders who have recently revised partnership and shareholder agreements to restrict partner departures. In ABA Formal Opinion 489, the ABA Standing Committee on Ethics and Professional Responsibility spells out new limits on notice periods, on rules governing communications with clients, and on so-called “ownership” of clients. Here’s what firm managers need to know to stay on the right side of the ethics rules. Read more.
February 6 2020