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New York Court of Appeals Declines to Expand Common Interest Exception to Waiver of Privilege

06.23.16
(Article from Insurance Law Alert, June 2016)

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The New York Court of Appeals ruled that to maintain privilege under the common interest doctrine, it is not enough that the parties share a common legal interest; rather, the communication at issue must also relate to pending or anticipated litigation.  Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 2016 WL 3188989 (N.Y. June 9, 2016).

Ambac Assurance sued Countrywide Home Loans, alleging breach of contract and fraudulent misrepresentation based on the failure of mortgage-backed securities.  Ambac named Bank of America as a defendant based on its merger with Countrywide.   During litigation, Ambac challenged Bank of America’s withholding of several hundred communications between Bank of America and Countrywide that took place after the merger plan was signed, but before the transaction closed.  Bank of America claimed that the documents were protected by attorney-client privilege because they contained legal advice relating to the merger.  Bank of America further argued that, although the documents were shared with Countrywide, privilege was not waived because the parties shared a common legal interest.

A Special Referee concluded that the common interest exception to privilege waiver applied only if the parties shared a common legal interest in pending or reasonably anticipated litigation.  Bank of America moved to vacate the Referee’s decision on the basis that pending or anticipated litigation was not required under the common interest doctrine.  A New York trial court denied the motion.  An intermediate appellate court reversed, ruling that pending or anticipated litigation was  no longer a necessary element of the common interest exception under New York law.  The New York Court of Appeals reversed.

In declining to expand the common interest doctrine to protect shared communications in furtherance of any common legal interest, the New York Court of Appeals stated that:

we do not perceive a need to extend the common interest doctrine to communications made in the absence of pending or anticipated litigation, and any benefits that may attend such an expansion of the doctrine are outweighed by the substantial loss of relevant evidence, as well as the potential for abuse.

The court acknowledged that other jurisdictions have employed a less stringent standard for application of the common interest doctrine, but concluded that the policy reasons for maintaining a litigation limitation on the doctrine outweighed any purported justification for eliminating it.