This article first appeared in the September 2016 issue of International Litigation News, a publication of the International Bar
Association Legal Practice Division, and is reproduced with the permission of the International Bar Association, London, UK.
NEW
YORK’S HIGHEST COURT REJECTS EXTENSION OF ‘COMMON INTEREST PRIVILEGE’ TO TRANSACTIONAL CONTEXTS
© International Bar
Association
Robert A
Schwinger
Chadbourne & Parke,
New York
rschwinger@
chadbourne.com
Jacob Laksin
Chadbourne & Parke,
New York
New York’s highest court
rejects extension of ‘common
interest privilege’ to
transactional contexts
jlaksin@chadbourne.com
L
ast year in this publication, we asked:
‘Are the United States courts moving
towards greater consensus in the
application of the ‘common interest privilege’?’1
A 9 June 2016 decision from the highest court
in New York State in the case of Ambac Assurance
Corp v Countrywide Home Loans, Inc now tells us
that the answer to this question is ‘No’.2
The so-called ‘common interest’ doctrine
– sometimes called the common interest
privilege or ‘joint defence’ privilege –
protects from disclosure in litigation
privileged communications that are shared
between counsel representing different
parties if those parties’ interests are aligned
in certain ways.3 Our question last year was
prompted by a December 2014 decision of a
New York State intermediate appellate court
in the Ambac litigation that had rejected New
York’s historically narrow application of the
common interest doctrine: applying it solely
to communications made in the context of
pending or anticipated litigation. Instead,
Ambac extended the protection to a broader
range of contexts, as a number of US federal
courts have done.4 This June, however, New
York’s highest court reversed that decision,
thus dashing the prospects for moving
towards consensus in how common interest
privilege is applied across the US.5
Because there is often not just one single
answer to the question of which US state
or which US court system (state or federal)
will hear a particular dispute, the Ambac
ruling leaves attorneys continuing to face
considerable uncertainty in advising clients
about when their communications with other
parties will be protected from disclosure by
common interest privilege. As Ambac itself
illustrates, this will especially be the case
when the clients are engaged in complex
commercial transactions such as mergers or
joint ventures.
Signs last year of possible consensus on
the common interest privilege
The scope of the common interest privilege
in US courts varies widely among, and even
within, jurisdictions. New York, considered by
many to be the commercial centre of the US,
is no exception. New York state and federal
courts generally agree that, for the common
interest privilege to apply, the parties must
share an ‘identical’ or ‘nearly identical’ legal,
as opposed to commercial, interest.6 Where
the courts have disagreed is on the issue of
whether such a common legal interest can
arise only in a litigation context.
New York federal courts hold it to be
‘unnecessary that there be actual litigation in
progress for the common interest rule of the
attorney-client privilege to apply’.7 By contrast,
New York state courts have historically limited
the common interest privilege to litigation
contexts,8 frequently citing an influential lower
court decision holding that the ‘“common
interest” privilege must be limited to
communication between counsel and parties
with respect to legal advice in pending or
reasonably anticipated litigation’.9
Consensus appeared to be emerging in
December 2014, when the New York state
intermediate appellate court decision in
Ambac seemed to move the New York state
courts closer to the position taken by US
federal courts, that is, applying the common
interest privilege to common legal interests
outside the litigation context. In this decision,
the Appellate Division, First Department,
of the New York Supreme Court – the
intermediate appellate court in the New York
state court system whose jurisdiction covers
Manhattan in New York City – departed
from the historically conservative approach
of other New York courts on this issue by
rejecting the requirement that litigation
be pending or anticipated in order for the
INTERNATIONAL LITIGATION NEWSLETTER
SEPTEMBER 2016
45
NEW YORK’S HIGHEST COURT REJECTS EXTENSION OF ‘COMMON INTEREST PRIVILEGE’ TO TRANSACTIONAL CONTEXTS
common interest privilege to apply. The First
Department held that parties to mergers or
other transactions may assert the privilege to
protect certain communications among the
parties to such transactions.10
Ambac arose out of the lending practices
that came under scrutiny following the
2008 financial crisis. The plaintiff in Ambac
was a monoline insurer that guaranteed
payments on certain residential mortgagebacked securities issued by the defendant,
Countrywide, which was later merged
into the defendant Bank of America. The
plaintiff insurer alleged that Countrywide
fraudulently induced it to enter into these
agreements. The insurer also asserted
‘successor liability’ claims against Bank of
America, alleging that Bank of America
was liable for any judgment against
Countrywide as Countrywide’s successorin-interest. When the insurer sought
discovery of certain communications
among counsel that occurred after the
Countrywide-Bank of America merger
agreement was signed but before the
merger closed, the defendants opposed this
discovery on common interest privilege
grounds.11 The defendants argued that
these communications, which included
certain documents related to disclosures
and obtaining regulatory approval for the
merger, were protected by the common
interest doctrine because they pertained to
legal issues the two companies needed to
resolve jointly prior to the merger.
The First Department held that the
common interest doctrine protected
defendants’ communications. It
acknowledged it was breaking with the New
York courts’ ‘narrow view’ which permitted
invoking the common interest doctrine only
by parties facing pending or reasonably
anticipated litigation at the time of the
communication.12 The First Department
nonetheless reasoned that an expansion of
the privilege to communications outside of
the litigation context was warranted because
clients often seek the advice of counsel for
the very purpose of avoiding litigation.13
The court further reasoned that ‘imposing
a litigation requirement in [a merger]
scenario discourages parties with a shared
legal interest... from seeking and sharing that
advice, and would inevitably result instead in
the onset of regulatory or private litigation
because of the parties’ lack of sound guidance
from counsel’.14
46
INTERNATIONAL BAR ASSOCIATION
New York’s highest court disagrees
Whatever hopes the First Department’s
Ambac decision created for a more expansive
application of the common interest doctrine
were laid to rest this June when New York’s
highest court, the Court of Appeals, reversed
the First Department’s decision. The New
York Court of Appeals, in a 4-2 decision,
reaffirmed the principle historically followed
in New York with respect to the common
interest doctrine: privileged communications
shared with another party must ‘be in
furtherance of a common legal interest in
pending or reasonably anticipated litigation in
order to remain privileged from disclosure’
(emphasis added).15 The Court of Appeals
refused to ‘expand the common interest
doctrine to protect shared communications
in furtherance of [merely] any common
legal interest’ (emphasis added), as the First
Department had done.16
Significant for attorneys involved in
transactional matters, the Court of Appeals
expressly rejected the argument that the
common interest exception to the rules
governing waiver of attorney-client privilege
should be available in transactional contexts,
such as mergers or joint ventures.17 It
explained that, by confining the common
interest doctrine to situations involving
pending or reasonably anticipated litigation,
the protection given by attorney-client
privilege ‘is limited to situations where
the benefit and the necessity of shared
communications are at their highest, and the
potential for misuse is minimal’.18
In refusing to expand the scope of the
common interest doctrine, the Court of
Appeals was unmoved by the defendants’
argument that commercial transactions
involve communications in furtherance
of common legal interests that deserve
protection from disclosure as much as
communications in a litigation context do.
For example, the defendants argued that
highly regulated institutions ‘constantly face
a threat of litigation’ and therefore ‘the
protection of their shared communications
is necessary to facilitate better legal
representation, ensure compliance with the
law, and avoid litigation’.19 However, the
Court of Appeals concluded that privileged
communication sharing outside the context
of litigation was not necessary to achieve
these objectives. It noted there had been no
evidence presented that restricting common
interest protections to the litigation context
LEGAL PRACTICE DIVISION
NEW YORK’S HIGHEST COURT REJECTS EXTENSION OF ‘COMMON INTEREST PRIVILEGE’ TO TRANSACTIONAL CONTEXTS
prevented complex commercial transactions
like mergers and licensing agreements from
going forward, including the merger at the
heart of the case. Similarly, the Court of
Appeals noted there had been no evidence
presented that corporate clients would cease
to comply with the law if the common interest
doctrine were not expanded.20
The Court of Appeals concluded that
‘when businesses share a common interest in
closing a complex transaction, their shared
interest in the transaction’s completion is
already an adequate incentive for exchanging
information necessary to achieve that end’.21
In addition, pointing out that evidentiary
privileges by their nature obstruct the truthfinding process, the Court of Appeals stated
that expanding the common interest doctrine
was unwarranted in light of New York’s
general policy favoring broad discovery.22
The dissenting opinion
The New York Court of Appeals was not
unanimous in its Ambac decision. Two judges
out of the six dissented, expressing support
for the view of some federal courts that the
privilege should apply even in the absence of
pending or reasonably anticipated litigation.
The dissenters argued the majority’s
insistence on a litigation requirement was
‘doctrinally and pragmatically unpersuasive’,
noting the common interest doctrine
was itself grounded in the attorneyclient privilege, which has no litigation
requirement.23 Moreover, the dissenters
argued that ‘the unique common legal
interests of parties to a merger’ justified
extending the privilege beyond the litigation
context. This would encourage representation
leading to compliance with statutory and
regulatory mandates – with parties submitting
confidential information and complete
compliance documents.24
More broadly, the dissenters argued there
was no meaningful distinction between
parties who reasonably anticipate litigation
and parties committed to the completion of
a merger, stating that ‘[b]oth are incentivised
to collaborate in order to secure a mutually
beneficial outcome’, whether it is a successful
litigation or a successful commercial
transaction.25 Accordingly, the dissenters argued
the ‘better rule’ for making the protections of
the common interest doctrine available should
be ‘grounded not in the rote application of
the ligation requirement, but in the legal
dynamics of modern corporate transactional
practice’, where ‘[t]he legal demands of a
highly regulated financial business environment
affect the management of information shared
between client and attorney’ and ‘separately
represented parties work collaboratively towards
a mutual goal of transforming existing business
entities and relationships’.26
Conclusion
In reconfirming that the common interest
doctrine protects from disclosure only those
communications shared in connection with
pending or reasonably anticipated litigation,
the Court of Appeals’ Ambac decision leaves
unaddressed a number of issues noted in
last year’s article.27 The fact that other states
and various federal courts (including the
appellate court for the New York federal
trial courts) take the contrary approach and
do not limit common interest protections
to communications made in the context
of litigation creates difficult conflict-of-law
quandaries for attorneys advising clients.
It is often unclear in which forum litigation
relating to a transaction could arise. Thus
it is difficult to know which set of rules
regarding common interest privilege will
apply in potential future litigation. It may
be difficult to counsel transactional clients
to take comfort from the more permissive
common interest rules used in federal courts
and other states if there is a possibility that
a dispute relating to the transaction could
be brought in the New York state courts,
where the more restrictive Ambac rule will
apply. As noted in last year’s article, ‘[a]n
uncertain privilege – or one which purports
to be certain, but results in widely varying
applications by the courts – is little better
than no privilege’.28 The lack of consensus in
this area perpetuated by the New York Court
of Appeals’ Ambac decision will continue
to complicate properly advising clients by
making it difficult for attorneys to reach
reliable judgments about when common
interest protections can be safely relied upon
outside the litigation context.
Notes
1 See R.A. Schwinger and S. Consolino, International
Litigation News, ‘Are the US courts moving towards
greater consensus in the application of the “common
interest privilege”?’ April 2015, at 39.
2 Ambac Assurance Corp v Countrywide Home Loans, Inc [2016]
NY Lexis 1649 (NY Ct App).
3 As defined in a leading federal case, the common interest
privilege ‘serves to protect the confidentiality of
communications passing from one party to the attorney
INTERNATIONAL LITIGATION NEWSLETTER
SEPTEMBER 2016
47
‘MAREVA LIGHT’: HOW USEFUL ARE FREESTANDING NOTIFICATION INJUNCTIONS IN PRACTICE IN ENGLAND?
4
5
6
7
8
9
for another party where a joint defense effort or strategy
has been decided upon and undertaken by the parties
and their respective counsel... [when] made in the course
of an ongoing common enterprise and intended to
further the enterprise’. See United States v Schwimmer,
[1989] 892 F2d 237, 243 (2d Cir).
Ambac Assurance Corp v Countrywide Home Loans, Inc
[2014] 124 AD3d 129, 130, 998 NYS2d 329 (NY App Div
1st Dept).
Ambac, [2016] NY Lexis 1649, at *15 (NY Ct App).
See, eg, Bank of Am v Terra Nova Ins Co Ltd [2002] 211 F
Supp 2d 493, 492 (SDNY); Hyatt v State Franchise Tax Bd,
[2013] 105 AD3d 186, 205, 962 NYS2d. 282, 296 (NY App
Div 2d Dept).
See United States v Schwimmer, [1989] 892 F2d 237, 244
(2d Cir).
See, eg, Hudson Valley Marine, Inc v Town of Cortlandt
[2006] 30 AD3d 377, 378, 816, NYS2d 183, 184 (NY App
Div 2d Dept).
See Aetna Cas & Surety Co v Certain Underwriters at Lloyd’s
London [1998] 176 Misc 2d 605, 612, 676 NYS2d 727, 732
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(NY Sup Ct NY Cnty), aff’d, [1999] 263 AD2d 367, 692
NYS2d 384 (NY App Div 1st Dept).
Ambac, [2014] 124 AD3d at 130, 998 NYS2d at 330 (NY
App Div 1st Dept).
Ibid, 124 AD3d at 132, 998 NYS2d at 332.
Ibid, 124 AD3d at 130, 998 NYS2d at 330.
Ibid, 124 AD3d at 133, 998 NYS2d at 333.
Ibid, 124 AD3d at 137, 998 NYS2d at 335.
Ambac, [2016] NY Lexis 1649, at *15 (NY Ct App).
Ibid, at *16.
Ibid.
Ibid.
Ibid, at *17.
Ibid, at *17–18.
Ibid, at *18.
Ibid, at *8.
Ibid, at *34.
Ibid, at *31.
Ibid, at *35.
Ibid, at *31.
See supra, note 1, at 42.
Ibid (citing In re von Bulow [1987] 828 F2d 94, 100 (2d Cir)).
‘Mareva light’: how useful
are freestanding notification
injunctions in practice in England?
T
his article considers whether the new
‘Mareva light’ approach adopted by
the English courts in Holyoake v Candy1
represents a useful alternative for claimants
concerned about the risk of dissipation.
Overview of freezing injunctions
Formerly known as a ‘Mareva injunction’
following the case of Mareva Compania
Naviera SA v International Bulk Carriers SA2,
the English courts’ power to grant a ‘freezing
injunction’ or ‘freezing order’ is long
established. In Mareva, Lord Denning MR
confirmed that statute3 conferred upon the
court a wide general power to grant such an
injunction to preserve a defendant’s assets;
the principle has since been enshrined in the
procedural rules of the English court.4 The
purpose of such an order is not to provide
a claimant with security over a defendant’s
assets5, but to prevent the injustice that
would result from the defendant dissipating
his assets and rendering any potential
judgment unenforceable.
48
INTERNATIONAL BAR ASSOCIATION
What must be shown to obtain a
freezing injunction?
To succeed in an application for a freezing
injunction, in brief, a claimant must
demonstrate a cause of action, a good
arguable case and risk of dissipation of assets.
The English court must also have jurisdiction
to grant the order and the claimant must
be able to provide a cross-undertaking
in damages. Often a cross-undertaking is
required to be ‘fortified’ by the provision or
security, or the payment of money into court.
The purpose of a cross-undertaking is to
compensate the defendant should it later
transpire that the claimant was not entitled
to the relief granted by the court and loss has
resulted. In respect of a permanent freezing
injunction, where a defendant is prevented
from disposing of or dealing with assets until
trial, the potential loss could be substantial; a
cross-undertaking and associated fortification
in the region of millions of pounds could
therefore be required.
A ‘Mareva light’ style injunction, as
considered below, may obviate the need for a
LEGAL PRACTICE DIVISION
Tim Richards
Michelmores, Exeter
tim.richards@
michelmores.com
Naomi Morley
Michelmores, London
naomi.morley@
michelmores.com