Ambac Assurance Corp. v. Countrywide Home Loans, Inc.—New York Court of Appeals Declines to Extend Common-Interest Doctrine to Merger Parties’ Pre-Closing Communications: New York’s Highest Court Reverses First Department and Holds That Common-Interest Doctrine Only Applies to Communications That Relate to Pending or Anticipated Litigation

Sullivan & Cromwell LLP - June 15, 2016
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Under the common-interest doctrine, an attorney-client communication disclosed to a third party remains privileged if the third party shares a common legal interest with the client who made the communication and the communication is made in furtherance of that common legal interest.  On June 9, 2016, the Court of Appeals of New York—New York’s highest court—issued Ambac Assurance Corp. v. Countrywide Home Loans, Inc., overturning a December 2014 decision of the Supreme Court of New York, First Judicial Department (“First Department”) and holding that the doctrine is limited to a common interest in pending or anticipated litigation, and other common legal interests do not qualify.   In so doing, the court refused to apply the doctrine to communications by parties to a merger after the merger agreement was signed but before closing.  The court acknowledged that the Restatement and “some federal courts of appeals have eliminated the common law requirement that shared communications relate to pending or anticipated litigation,” but it declined to follow those views.  Recognizing that New York courts had articulated a litigation requirement for over two decades, the court saw no need to expand the doctrine, concluding that transactional parties already have ample incentive to share information.

Ambac clarifies that New York’s common-interest doctrine applies only to communications related to pending or anticipated litigation, and that the doctrine likely will not apply in the case of other legal common interests, including, as was the case in Ambac, a host of common pre-closing communications between merger parties (e.g., communications related to disclosures and regulatory compliance).  Nevertheless, Ambac leaves unanswered a number of important questions, including when New York’s common-interest doctrine will apply (as opposed to less restrictive versions of the doctrine adopted in some other jurisdictions) and when a communication qualifies as being related to pending or anticipated litigation.  Because privilege determinations are often highly context-specific, we encourage transacting parties to consult with their counsel as to the applicability of privilege to their circumstances.