Ambac Assurance Corp. v. Countrywide Home Loans, Inc.:  New York Appellate Court Applies Common-Interest Privilege to Merger Parties’ Pre-Closing Communications; First Judicial Department Breaks With Other New York Courts and Applies Common-Interest Privilege to Communications not Related to Litigation

Sullivan & Cromwell LLP - December 10, 2014

On December 4, 2014, the Appellate Division of the Supreme Court of New York, First Judicial Department (“First Department”), issued Ambac Assurance Corp. v. Countrywide Home Loans, Inc.,  a decision holding that parties to mergers or other transactions may, in some circumstances, assert privilege over communications shared among the merger counterparties, even if no litigation is pending or anticipated concerning the issue.  In doing so, the First Department joined Delaware and federal courts and departed from prior decisions by some other New York courts that had limited the common-interest privilege for transactions to communications involving pending or anticipated litigation.  The First Department based its ruling on the needs of parties to transactions to share common legal advice “in order to accurately navigate the complex legal and regulatory process involved in completing the transaction.”

Ambac will assist transactional parties in confidentially sharing privileged communications in furtherance of a common legal interest.  However, even among New York appellate courts there are divergent rulings as to whether invocation of the common-interest privilege requires litigation.  In addition, although Ambac leaves unanswered a number of questions as to the scope of the common-interest privilege under New York law, there are several steps that transacting parties can take that might increase the likelihood that their shared privileged communications will remain protected.  Because privilege determinations are often highly context-specific, we encourage transacting parties to consult with their counsel as to the applicability of the common-interest or other privilege to their circumstances.