This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 80
Ambac Assurance Corporation,
et al.,
Appellants,
v.
Countrywide Home Loans, Inc.,
et al.,
Defendants,
Bank of America Corp.,
Respondent.
Stephen P. Younger, for appellants.
Jonathan Rosenberg, for respondent.
New York State Trial Lawyers Association; New York
State Academy of Trial Lawyers; Chamber of Commerce of the United
States of America et al., amici curiae.
PIGOTT, J.:
This discovery dispute involves certain attorney-client
communications that defendant Bank of America Corporation and
defendant Countrywide Financial Corporation shared when the two
entities were in the process of merging. Generally,
communications between an attorney and a client that are made in
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the presence of or subsequently disclosed to third parties are
not protected by the attorney-client privilege. Under the common
interest doctrine, however, an attorney-client communication that
is 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. We hold today, as the courts in New
York have held for over two decades, that any such communication
must also relate to litigation, either pending or anticipated, in
order for the exception to apply.
I.
Plaintiff Ambac Assurance Corporation is a monoline
insurer that guaranteed payments on certain residential mortgage-
backed securities issued by defendant Countrywide Home Loans,
Inc., a wholly-owned subsidiary of Countrywide Financial
Corporation (referred to collectively in this appeal as
"Countrywide"). When the mortgage-backed securities that Ambac
insured failed during the recent financial crisis, Ambac
commenced this action against Countrywide in Supreme Court
alleging that Countrywide breached contractual representations,
fraudulently misrepresented the quality of the loans and
fraudulently induced Ambac to guaranty them.
Ambac named Bank of America as a defendant in the
action, based on its merger with Countrywide. The merger began
to take shape in 2007, as Countrywide faced increasing credit
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losses and negative expectations about its future performance.
The two entities publicly announced a merger plan on January 11,
2008 and closed on July 1, 2008. As a result of the merger,
Countrywide sold substantially all of its assets to Bank of
America through a series of asset transfers, and Countrywide
merged into a wholly-owned subsidiary of Bank of America called
Red Oak Merger Corporation. Ambac alleged that, as a result of
the merger, Bank of America became Countrywide's successor-in-
interest and alter ego and was responsible for Countrywide's
liabilities to Ambac in the underlying action for fraud.
Discovery ensued, and in November 2012, Ambac
challenged Bank of America's withholding of approximately 400
communications that took place between Bank of America and
Countrywide after the signing of the merger plan in January 2008
but before the merger closed in July. Bank of America had listed
the communications on a privilege log and claimed they were
protected from disclosure by the attorney-client privilege
because they pertained to a number of legal issues the two
companies needed to resolve jointly in anticipation of the merger
closing, 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. Although the parties were
represented by separate counsel, the merger agreement directed
them to share privileged information related to these pre-closing
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legal issues and purported to protect the information from
outside disclosure. Bank of America argued that the merger
agreement evidenced the parties' shared legal interest in the
merger's "successful completion" as well as their commitment to
confidentiality, and therefore shielded the relevant
communications from discovery.
Ambac moved to compel production of those documents,
arguing that the voluntary sharing of confidential material
before the merger closed waived any attorney-client privilege
that might have otherwise attached. According to Ambac, Bank of
America and Countrywide waived the privilege because they were
not affiliated entities at the time of disclosure and did not
share a common legal interest in litigation or anticipated
litigation. Ambac further asserted that the allegedly privileged
documents were relevant to its successor-in-interest and alter
ego theories of liability and may have demonstrated that Bank of
America structured the merger so as to conceal Countrywide's
fraud and leave creditors without recourse.
A Special Referee appointed to handle privilege
disputes issued a report on Ambac's motion and ordered the
parties to review the remaining documents in accordance with its
decision (2013 NY Slip Op 32568[U] [Sup Ct, NY County 2013]).
The Referee explained that the exchange of privileged
communications ordinarily constitutes a waiver of the attorney-
client privilege and that the communications at issue would be
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entitled to protection only if Bank of America could establish an
exception to waiver. The Referee discussed one such exception,
the common interest doctrine, which permits a limited disclosure
of confidential communications to parties who share a common
legal (as opposed to business or commercial) interest in pending
or reasonably anticipated litigation (id. at *6, citing Aetna
Cas. & Sur. Co. v Certain Underwriters at Lloyd's, London, 176
Misc 2d 605 [Sup Ct, NY County 1998], affd 263 AD2d 367 [1st Dept
1999]). The Referee concluded that "[i]f there is such
litigation and a common legal interest then the common-interest
doctrine comes into play. If there is not then the doctrine does
not protect the document" (id. at *8 [emphasis in original]).
Having announced this standard, the Referee instructed the
parties to review the withheld documents, update the privilege
log and submit any documents that remained in dispute for in
camera review (id. at *9).
Bank of America moved to vacate the Referee's decision
and order on the ground that its communications with Countrywide
were protected by the attorney-client privilege even in the
absence of pending or anticipated litigation. According to Bank
of America, the items were privileged so long as they involved
matters of a common legal interest between the parties -- i.e.,
closing the merger -- and were otherwise protected by the
attorney-client privilege. Supreme Court denied the motion,
holding that New York law "requires that there be a reasonable
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anticipation of litigation" in order for the common interest
doctrine to apply (41 Misc 3d 1213[A], 2013 NY Slip Op 51673[U]
[Sup Ct, NY County 2013]).
Bank of America appealed, and the Appellate Division
reversed, granted the motion to vacate and remanded for further
proceedings (124 AD3d 129 [1st Dept 2014]). Although the court
recognized that, historically, "New York courts have taken a
narrow view of the common-interest [doctrine], holding that it
applies only with respect to legal advice in pending or
reasonably anticipated litigation," it was unpersuaded by the
reasoning of those courts and concluded that pending or
reasonably anticipated litigation was no longer a necessary
element of the exception (id. at 129). The court observed that
"when a single party seeks advice from counsel, the communication
is privileged regardless of whether litigation is within anyone's
contemplation" but that, under Supreme Court's formulation of the
doctrine, "when two parties with a common legal interest seek
advice from counsel together, the communication is not privileged
unless litigation is within the parties' contemplation" (id. at
135-136). The Appellate Division could not reconcile that
distinction with the purposes underlying the attorney-client
privilege and decided instead to follow the federal courts that
have "overwhelmingly rejected [a litigation] requirement" (id. at
134 [citing cases from the Second, Third, Seventh and Federal
Circuit Courts of Appeals]). The Appellate Division remanded the
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matter to the Special Referee to determine whether the
communications fell within its reformulation of the rule. It
subsequently granted Ambac leave to appeal to this Court,
certifying the following question: "Was the order of this Court,
which reversed the order of Supreme Court, properly made?"
II.
A. The Attorney-Client Privilege
The attorney-client privilege shields from disclosure
any confidential communications between an attorney and his or
her client made for the purpose of obtaining or facilitating
legal advice in the course of a professional relationship (see
CPLR 4503[a][1]). The oldest among the common law evidentiary
privileges, the attorney-client privilege "fosters the open
dialogue between lawyer and client that is deemed essential to
effective representation" (Spectrum Sys. Intl. Corp. v Chemical
Bank, 78 NY2d 371, 377 [1991]). "It exists to ensure that one
seeking legal advice will be able to confide fully and freely in
his attorney, secure in the knowledge that his confidences will
not later be exposed to public view to his embarrassment or legal
detriment" (Matter of Priest v Hennessy, 51 NY2d 62, 67 [1980]).
Despite the social utility of the privilege, it is in
"[o]bvious tension" with the policy of this State favoring
liberal discovery (Spectrum, 78 NY2d at 376-377; see also CPLR
3101[a][1] [directing that there be "full disclosure of all
matter material and necessary in the prosecution or defense of an
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action"]). Because the privilege shields from disclosure
pertinent information and therefore "constitutes an 'obstacle' to
the truth-finding process," it must be narrowly construed (Matter
of Jacqueline F., 47 NY2d 215, 219 [1979]; see Spectrum, 78 NY2d
at 377). The party asserting the privilege bears the burden of
establishing its entitlement to protection by showing that the
communication at issue was between an attorney and a client "for
the purpose of facilitating the rendition of legal advice or
services, in the course of a professional relationship," that the
communication is predominantly of a legal character, that the
communication was confidential and that the privilege was not
waived (Rossi v Blue Cross & Blue Shield, 73 NY2d 588, 593-594
[1989]).
The latter two elements -- confidentiality and waiver -
- are of primary importance in this appeal. "Generally,
communications made in the presence of third parties, whose
presence is known to the [client], are not privileged from
disclosure" because they are not deemed confidential (People v
Harris, 57 NY2d 335, 343 [1982]; see also Baumann v Steingester,
213 NY 328, 333 [1915]). Similarly, a client waives the
privilege if a communication is made in confidence but
subsequently revealed to a third party (see People v Patrick, 182
NY 131, 175 [1905]). The rationale for these rules is to ensure
that the privilege is "strictly confined within the narrowest
possible limits consistent with the logic of its principle" (8
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John Henry Wigmore, Evidence § 2291 at 554 [McNaughton ed 1961]).
A lack of confidentiality and subsequent disclosure also destroy
the privilege as a matter of fairness: "when [the privilege
holder's] conduct touches a certain point of disclosure, fairness
requires that his privilege shall cease whether he intended that
result or not" (id. § 2327 at 636).
As with any rule, there are exceptions. We have held,
for example, that statements made to the agents or employees of
the attorney or client, or through a hired interpreter, retain
their confidential (and therefore, privileged) character, where
the presence of such third parties is deemed necessary to enable
the attorney-client communication and the client has a reasonable
expectation of confidentiality (see People v Osorio, 75 NY2d 80,
84 [1989]). So, too, when one attorney represents multiple
clients concerning a matter of common interest, any confidential
communications exchanged among them are privileged against the
outside world (see Wallace v Wallace, 216 NY 28, 35 [1915],
citing Hurlburt v Hurlburt, 128 NY 420, 424 [1891]).
B. The Common Interest Exception
This case concerns a related, but distinct, exception
to the general rule that the presence of a third party destroys
any claim of privilege: where two or more clients separately
retain counsel to advise them on matters of common legal
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interest, the common interest exception1 allows them to shield
from disclosure certain attorney-client communications that are
revealed to one another for the purpose of furthering a common
legal interest. The doctrine has its roots in criminal law and,
as originally conceived, "allowed the attorneys of criminal co-
defendants to share confidential information about defense
strategies without waiving the privilege as against third
parties" (Teleglobe Communications Corp. v BCE, Inc., 493 F3d
345, 364 [3d Cir 2007]). The first reported case to recognize
the exception permitted criminal attorneys to coordinate the
strategies of their clients, who were under joint indictment for
conspiracy to defraud an estate, and retain the privileged nature
of their communications (see Chahoon v Commonwealth, 62 Va 822,
839-840 [1871]). The rationale for the exception was that the
parties "had the same defen[s]e to make" and therefore "the
counsel of each was in effect the counsel of all" (id. at 841-
842).
Courts eventually replaced this "joint defense"
1
The exception has come to be known by many names:
"common interest arrangement," "common legal interest doctrine,"
"joint litigant privilege," "pooled information privilege,"
"allied lawyer doctrine" and "allied litigant privilege," among
others. "The nomenclature is less important than a determination
of the outer boundaries of the doctrine" (North River Ins. Co. v
Columbia Cas. Co., 1995 WL 5792 at *2 [SD NY 1995]). For
purposes of this appeal, we use the phrase "common interest
doctrine" or "common interest exception," to make clear that the
doctrine is not an independent privilege but an exception to the
general rule that communications shared with third parties are
not privileged.
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doctrine, which applied to criminal codefendants, with a broader
exception that also protected communications between parties to
civil litigation. In Schmitt v Emery (211 Minn 547 [1942]), a
privileged document was exchanged among counsel for several
codefendants in a civil action, in order to prepare objections to
the document's admission into evidence. The Minnesota Supreme
Court held that "[w]here an attorney furnishes a copy of a
document entrusted to him by his client to an attorney who is
engaged in maintaining substantially the same cause on behalf of
other parties in the same litigation," the communication is
protected from disclosure by the attorney-client privilege
because it was "made not for the purpose of allowing unlimited
publication and use, but in confidence, for the limited and
restricted purpose to assist in asserting their common claims"
(id. at 554). The Uniform Rules of Evidence adopted this
formulation of the doctrine, protecting attorney-client
communications "by the client or a representative of the client
or the client's lawyer or a representative of the lawyer to a
lawyer or a representative of a lawyer representing another party
in a pending action and concerning a matter of common interest
therein" (Uniform R. Evid. 502[b][3] [emphasis added]).2
2
"This seems to have been the common law rule" (24 Charles
A. Wright & Kenneth W. Graham, Jr., Federal Practice & Procedure:
Evidence § 5493 at 467 [1986]), and at least eleven states have
statutorily restricted the common interest doctrine to
communications made in furtherance of ongoing litigation (see
Ark. R. Evid. 502[b][3]; Haw. R. Evid. 503[b][3]; Ky. R. Evid.
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Our Court first recognized the common interest doctrine
in 1989 in People v Osorio (75 NY2d 80). In that case, we
considered whether a defendant who communicated with counsel in
the presence of a separately represented codefendant in a pending
criminal prosecution could prevent the codefendant from
testifying as to what he heard. The codefendant was at the time
acting as an interpreter between the defendant and his attorney.
Although we acknowledged that the attorney-client privilege
would, ordinarily, protect communications between codefendants
that are shared for the purpose of "mounting a common defense,"
we ultimately held that it did not apply in that case because the
defendant "was not planning a common defense" and therefore did
not share a common legal interest with him (id. at 85). For
support, we relied on two federal decisions that applied the
common interest doctrine to statements made between codefendants
in furtherance of a joint trial strategy or defense: the court in
United States v McPartlin held that such communications were
privileged because they "were made in confidence to an attorney
for a co-defendant for a common purpose related to both defenses"
(595 F2d 1321, 1336 [7th Cir 1979]), and the court in Hyundee v
United States applied the same reasoning to communications
503[b][3]; Me. R. Evid. 502[b][3]; Miss. R. Evid. 502[b][3]; NH
Evid. R. 502[b][3]; N.D. R. Evid. 502[b][3]; 12 Okla. Stat.
§ 2502[B][3]; S.D. R. Evid. § 19-19-502[a][3]; Tex. R. Evid.
503[b][1][C]; Vt. R. Evid. 502[b][3]; but see D.R.E. 502[b][3]
[permitting disclosure to an attorney or client "representing
another in a matter of common interest"]).
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between the attorneys of persons who were "subject to possible
indictment" (355 F2d 183, 185 [9th Cir 1965]).
After Osorio, New York courts applied the common
interest doctrine in criminal as well as civil matters, to
communications of both coplaintiffs and codefendants, but always
in the context of pending or reasonably anticipated litigation.
Indeed, until the First Department's decision in this case, New
York courts uniformly rejected efforts to expand the common
interest doctrine to communications that do not concern pending
or reasonably anticipated litigation (see e.g., Hyatt v State of
Cal. Franchise Tax Bd., 105 AD3d 186 [2d Dept 2013]; Hudson Val.
Mar., Inc. v Town of Cortlandt, 30 AD3d 377, 378 [2d Dept 2006];
Yemini v Goldberg, 12 Misc 3d 1141, 1143 [Sup Ct, Nassau County
2006]; Aetna Cas., 176 Misc 2d at 612-613; see also Allied Irish
Banks, P.L.C. v Bank of Am., N.A., 252 FRD 163, 171 [SD NY 2008]
[recognizing that New York limits the doctrine "to communications
with respect to legal advice 'in pending or reasonably
anticipated litigation'"]; 4-160 Bender's New York Evidence
§ 160.02[6][e][2015] [stating that the common interest doctrine
in New York is limited "to communication between counsel and
parties with respect to legal advice in pending or reasonably
anticipated litigation in which the joint consulting parties have
a common legal interest"]; Wright & Graham § 5493 n 67 [2015
Supp] [observing that the doctrine does not apply in New York
where clients did not fear litigation at the time the
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communication was made or disclosed]).3
C. The Present Appeal
The question presently before us is whether to modify
the existing requirement that shared communications be in
furtherance of a common legal interest in pending or reasonably
anticipated litigation in order to remain privileged from
disclosure, by expanding the common interest doctrine to protect
shared communications in furtherance of any common legal
interest. We adhere to the litigation requirement that has
historically existed in New York.
As an exception to the general rule that communications
made in the presence of or to a third party are not protected by
the attorney-client privilege, our current formulation of the
common interest doctrine is limited to situations where the
benefit and the necessity of shared communications are at their
highest, and the potential for misuse is minimal. Disclosure is
privileged between codefendants, coplaintiffs or persons who
3
Other jurisdictions have embraced the same limitation
through judicial decision (see e.g., In re Santa Fe Intl Corp.,
272 F3d 705, 711 [5th Cir 2001] [holding that "there must be a
palpable threat of litigation at the time of the communication,
rather than a mere awareness that one's questionable conduct
might some day result in litigation, before communications
between one possible future co-defendant and another . . . could
qualify for protection"]; O'Boyle v Borough of Longport, 218 NJ
168, 193, 198-199 [2014]; Boyd v Comdata Network, Inc., 88 SW3d
203, 214-215 [Tenn App 2002]; Gallagher v Off. of the Attorney
Gen., 141 Md App 644, 676-677 [Ct Special App 2001]; Hicks v
Commonwealth of Va., 17 Va App 535, 538 [1994]; Visual Scene,
Inc. v Pilkington Bros., Plc., 508 So2d 437, 440 [Fla Dist Ct App
1987]).
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reasonably anticipate that they will become colitigants, because
such disclosures are deemed necessary to mount a common claim or
defense, at a time when parties are most likely to expect
discovery requests and their legal interests are sufficiently
aligned that "the counsel of each [i]s in effect the counsel of
all" (Chahoon, 62 Va at 841-842). When two or more parties are
engaged in or reasonably anticipate litigation in which they
share a common legal interest, the threat of mandatory disclosure
may chill the parties' exchange of privileged information and
therefore thwart any desire to coordinate legal strategy. In
that situation, the common interest doctrine promotes candor that
may otherwise have been inhibited.
The same cannot be said of clients who share a common
legal interest in a commercial transaction or other common
problem but do not reasonably anticipate litigation. Bank of
America contends that highly regulated financial institutions
constantly face a threat of litigation and that the protection of
their shared communications is necessary to facilitate better
legal representation, ensure compliance with the law and avoid
litigation. But no evidence has been presented here that
privileged communication-sharing outside the context of
litigation is necessary to achieve those objectives. There is no
evidence, for example, that mergers, licensing agreements and
other complex commercial transactions have not occurred in New
York because of our State's litigation limitation on the common
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interest doctrine; nor is there evidence that corporate clients
will cease complying with the law. Rather, "when parties share
attorney-client communication for planning purposes outside of
the specter of anticipated litigation, such as when parties
cooperate to strengthen or obtain patent protection . . . it is
more likely that [they] would have shared information even absent
the privilege" (Melanie B. Leslie, The Costs of Confidentiality
and the Purpose of Privilege, 2000 Wis L Rev 31, 68 [2000]).
The merger at the heart of this dispute provides the
perfect example: Bank of America and Countrywide obtained
regulatory approval and filed the requisite disclosures in
anticipation of a closing merger, even when New York state courts
had made clear that their joint communications would not remain
privileged unless they were engaged in or anticipated litigation.
Put simply, 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. Defendants have not
presented any evidence to suggest that a corporate crisis existed
in New York over the last twenty years when our courts restricted
the common interest doctrine to pending or anticipated
litigation, and we doubt that one will occur as a result of our
decision today.
In short, we do not perceive a need to extend the
common interest doctrine to communications made in the absence of
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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 difficulty of defining "common legal interests"
outside the context of litigation could result in the loss of
evidence of a wide range of communications between parties who
assert common legal interests but who really have only non-legal
or exclusively business interests to protect. Even advocates of
a more expansive approach admit that "in a nonlitigation setting
the danger is greater that the underlying communication will be
for a commercial purpose rather than for securing legal advice"
(James M. Fischer, The Attorney-Client Privilege Meets the Common
Interest Arrangement: Protecting Confidences While Exchanging
Information for Mutual Gain, 16 Rev Litig 631, 642 [1997]). At
least one commentator has also observed that "[t]he greatest push
to expand the common interest privilege comes from corporate
attorneys representing multiple clients, often in an antitrust
context," and that it is in precisely this context "that the
potential for abuse is greatest" (Edna S. Epstein, The Attorney-
Client Privilege and the Work-Product Doctrine 277 [5th ed
2007]).
Indeed, Ambac argues that the very communications Bank
of America withheld from disclosure would have revealed that the
merging entities structured their transaction to conceal
Countrywide's fraudulent dealings and leave potential victims
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without recourse. Defendants and amici respond that there is no
evidence of actual abuse in this case or in jurisdictions that
have done away with a litigation requirement, but the potential
for abuse is sufficiently great, and the accompanying benefits so
few, that expansion is not warranted.
Bank of America's remaining counterarguments do not
persuade us to the contrary. First, it contends that we should
not limit the common interest doctrine to pending or anticipated
litigation when the attorney-client privilege from which the
doctrine derives is not so limited. While it is true that the
attorney-client privilege is not tied to the contemplation of
litigation, the common interest doctrine does not need to be co-
extensive with the privilege because the doctrine itself is not
an evidentiary privilege or an independent basis for the
attorney-client privilege (see In re Megan-Racine Assocs, Inc.,
189 BR 562, 573 n 8 [Bankr ND NY 1995] [observing that it is not
necessary for the common interest doctrine to conform exactly
with the purposes of the attorney-client privilege]). Rather, it
limits the circumstances under which attorneys and clients can
disseminate their communications to third parties without waiving
the privilege, which our courts have reasonably construed to
extend no further than communications related to pending or
reasonably anticipated litigation.4
4
We need not decide in this appeal what it means to share
common legal interests in pending or anticipated litigation. We
hold only that such litigation must be ongoing or reasonably
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Second, Bank of America argues that our holding will
create an anomalous result: clients who retain separate attorneys
like defendants did here cannot protect their shared
communications absent pending litigation but the same
communications made in the absence of litigation would be
privileged if defendants had simply hired a single attorney to
represent them in the merger. In the joint client or co-client
setting, however, the clients indisputably share a complete
alignment of interests in order for the attorney, ethically, to
represent both parties. Accordingly, there is no question that
the clients share a common identity and all joint communications
will be in furtherance of that joint representation (see Grace M.
Giesel, End the Experiment: The Attorney-Client Privilege Should
Not Protect Communications in the Allied Lawyer Setting, 95 Marq
L Rev 475, 535 [2011-2012]). Not so when clients retain separate
attorneys to represent them on a matter of common interest. It
is less likely that the positions of separately-represented
clients will be aligned such that the attorney for one acts as
the attorney for all (see Chahoon, 62 Va at 841-842), and the
difficulty of determining whether separately-represented clients
share a sufficiently common legal interest becomes even more
obtuse outside the context of pending or anticipated litigation.
Consequently, although a litigation limitation may not be
anticipated, and the exchanged communication must relate to it,
in order for the common interest exception to apply.
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necessary in a co-client setting where the fact of joint
representation alone is often enough to establish a congruity of
interests, it serves as a valuable safeguard against separately-
represented parties who seek to shield exchanged communications
from disclosure based on an alleged commonality of legal
interests but who have only commercial or business interests to
protect (see Megan-Racine, 189 BR at 573 [concluding that
"although total identity of interest is not necessary, the
parties asserting the privilege must have a common legal
interest," which "exists where the parties asserting the
privilege were co-parties to litigation or reasonably believed
that they could be made a party to litigation"] [emphasis in
original]).
Finally, Bank of America urges us to follow the lead of
the federal courts that have considered the question and extended
the common interest exception to communications in furtherance of
any common legal interest. To be sure, the Restatement and some
federal courts of appeals have eliminated the common law
requirement that shared communications relate to pending or
anticipated litigation (see Restatement [Third] of the Law
Governing Lawyers § 76[1] [1997]; Teleglobe, 493 F3d at 364;
United States v BDO Seidman, LLP, 492 F3d 806, 816 [7th Cir
2007]; In re Regents of the Univ. of Calif., 101 F3d 1386, 1390-
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1391 [Fed Cir 1996]).5 Like Proposed Rule 503(b)(3) of the
Federal Rules of Evidence -- which was proposed in 1972 but never
adopted -- they allow "attorneys representing different clients
with similar legal interests to share information without having
to disclose it to others . . . in civil and criminal litigation,
and even in purely transactional contexts" (Teleglobe, 493 F3d at
364). In their view, "[a]pplying the common interest doctrine to
the full range of communications otherwise protected by the
attorney-client privilege encourages parties with a shared legal
interest to seek legal assistance in order to meet legal
requirements and to plan their conduct accordingly" (BDO Seidman,
492 F3d at 816 [internal quotations and citation omitted]).
But this expansion of the doctrine has not been
uniformly received (see nn 2,3, supra), and one treatise has
observed that the common interest exception in these
jurisdictions "is spreading like crabgrass to areas the drafters
of the Rejected Rule could have hardly imagined" (Wright & Graham
§ 5493 [2015 Supp]).
We conclude that the policy reasons for keeping a
litigation limitation on the common interest doctrine outweigh
5
Although the Second and Ninth Circuits have made clear
that actual or ongoing litigation is not required, they do not
appear to have expressly decided whether there must be a threat
of litigation in order to invoke the exception (see Schaeffler v
United States, -- F3d --, 2015 WL 6874979 at *4-5 [2d Cir 2015],
citing United States v Schwimmer, 892 F2d 237 [2d Cir 1989];
United States v Zolin, 809 F2d 1411, 1417 [9th Cir 1987], affd in
part and vacated in part on other grounds, 491 US 554 [1989]).
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any purported justification for doing away with it, and therefore
maintain the narrow construction that New York courts have
traditionally applied.6 Accordingly, the order of the Appellate
Division should be reversed, with costs, the order of Supreme
Court reinstated and the certified question answered in the
negative.
6
The Legislature is free to consider the alternative
arguments articulated by the dissent and to expand the common
interest exception as other state legislatures have done (see
e.g., D.R.E. 502[b]).
- 22 -
Ambac Assurance Corp., et al. v Countrywide Home Loans Inc.,
et al.
No. 80
RIVERA, J.(dissenting):
The purpose of the attorney-client privilege is to
encourage candid and open communication between client and
attorney to promote the public interest "in the observance of law
and administration of justice" (Upjohn Co. v United States, 449
US 383, 389 [1981]). The assumption justifying this oldest of
common law evidentiary privileges is that it "fosters the open
dialogue between lawyer and client that is deemed essential to
effective representation" (Spectrum Sys. Intern. Corp. v Chem.
Bank, 78 NY2d 371, 377 [1991] [internal citations omitted]).
Effective representation furthers the goal of compliance with the
law, thus benefitting not only clients but society in general.
Whether this privilege should extend to confidential
communications between separately represented parties, in which
they have a common legal interest in a transaction, not involving
pending or reasonably anticipated litigation, is the question
posed in this appeal, and one which I would answer in the
affirmative under the circumstances presented here. Given that
the attorney-client privilege has no litigation requirement and
the reality that clients often seek legal advice specifically to
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comply with legal and regulatory mandates and avoid litigation or
liability, the privilege should apply to private client-attorney
communications exchanged during the course of a transformative
business enterprise, in which the parties commit to collaboration
and exchange of client information to obtain legal advice aimed
at compliance with transaction-related statutory and regulatory
mandates.
I.
The attorney-client privilege recognized at common law
and codified at Civil Practice Law and Rules § 4503 "protects
confidential communications between a lawyer and client related
to legal advice sought by the client" (In re Nassau County Grand
Jury Subpoena Duces Tecum Dated June 24, 2003, 4 NY3d 665, 678
[2005]; see CPLR 4503). The privilege "encourage[s] full and
frank communication between attorneys and their clients and
thereby promote[s] broader public interests in the observance of
law and administration of justice" (Upjohn Co., 449 US at 389;
Rossi v Blue Cross and Blue Shield of Greater New York, 73 NY2d
588, 592 [1989]; Matter of Jacqueline F., 47 NY2d 215, 218
[1979]). The free flow of information promotes effective
representation based on "sound legal advice or advocacy,"
leading, optimally, to the salutary goal of lawfully compliant
behavior (see Upjohn Co., 449 US at 389-390; Spectrum Sys.
Intern. Corp., 78 NY2d at 381; United States v Schwimmer, 892 F2d
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237, 243 [2d Cir 1989]). This goal justifies treatment of the
privilege "as an exception to the general requirement that all
persons give testimony upon facts within their personal knowledge
inquired of in a court of law" (Jacqueline F., 47 NY2d at 219).
Notably, the privilege "is not tied to the
contemplation of litigation" (Spectrum Sys. Intern. Corp., 78
NY2d at 380) because litigation may not be the motivating factor
leading to a client's communication of private information.
Rather, "[l]egal advice is often sought, and rendered, precisely
to avoid litigation, or facilitate compliance with the law, or
simply to guide a client's course of conduct" (id.). All the
more so in the corporate context, where corporate staff attorneys
"may serve as company officers, with mixed
business-legal responsibility; whether or not
officers, their day-to-day involvement in
their employers' affairs may blur the line
between legal and nonlegal communications;
and their advice may originate not in
response to the client's consultation about a
particular problem but with them, as part of
an ongoing permanent relationship with the
organization"
(Rossi, 73 NY2d at 592-593).
In determining "what is encompassed by the privilege,
courts . . . must look to the common law" (Spectrum Sys. Intern.
Corp., 78 NY2d at 377). However, our inquiry considers the
circumstances of each case, relevant general principles, and
public policy informing the proper application of the privilege
(Matter of Priest v Hennessy, 51 NY2d 62, 68-69 [1980]; Spectrum
Sys. Intern. Corp., 78 NY2d at 380). In our analysis, just as we
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are cautious not to extend the privilege beyond the bounds of
necessity, we also carefully measure waivers of the privilege to
protect the parties' reasonable expectations in the privacy of
their communications (People v Osario, 75 NY2d 80, 84-85 [1989]).
As the majority well details, third-party
communications destroy the privilege (majority op., at 8). This
waiver rule is subject to limitations that promote communication
and effective legal representation, as well as the parties
reasonable expectations in confidentiality (Osario, 75 NY2d at
84-85; see majority op., at 9).
Those same concerns were present in People v Osario,
when this Court recognized an exception to the waiver rule in the
criminal context -- referred to as the "joint defense exception"
-- by which a court treats as privileged any statements disclosed
by one defendant in the presence of a codefendant, where the
disclosure is for the purpose of mounting a common defense (75
NY2d at 85). The Court concluded that under those circumstances
a defendant has an expectation of the continued confidentiality
between attorney and defendant (id.).
Not long thereafter New York courts extended the
underlying rationale of Osario to civil cases (see Parisi v
Leppard, 172 Misc 2d 951, 956 [Sup Ct, New York County 1997];
Aetna Cas. & Sur. Co. v Certain Underwriters at Lloyd's, London,
176 Misc 2d 605, 612-613 [Sup Ct, NY County 1998], affd 263 AD2d
367 [1st Dept 1999], lv dismissed 94 NY2d 875 [2000]). Those
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courts generally required pending or reasonably anticipated
litigation in order to apply what was often termed a common
interest privilege (see e.g. Hyatt v State of Cal. Franchise Tax
Bd., 105 AD3d 186, 205 [2d Dept 2013]; Hudson Val. Mar., Inc. v
Town of Cortlandt, 30 AD3d 377, 378 [2d Dept 2006]).
However, it is worthy of note that the majority of
federal courts that have addressed the issue, and a significant
number of state jurisdictions, either through case law or by
statute, have held that the privilege applies even if litigation
is not pending or reasonably anticipated.1 Several legal
commentators also support a broad application of the privilege.
For example, the Restatement (Third) of the Law Governing Lawyers
1
See United States v Zolin, 809 F2d 1411, 1417 (9th Cir
1987) ("Even where the non-party who is privy to the
attorney-client communications has never been sued on the matter
of common interest and faces no immediate liability, it can still
be found to have a common interest with the party seeking to
protect the communications."), affd in part, vacated in part on
other grounds, 491 US 554 (1989); United States v BDO Seidman,
LLP, 492 F3d 806, 816 (7th Cir 2007); In re Teleglobe
Communications Corp., 493 F3d 345, 364 (3d Cir 2007); In re
Regents of Univ. of California, 101 F3d 1386, 1390-1391 (Fed Cir
1996); Schaeffler v United States, 806 F3d 34, 40 (2d Cir 2015);
Hanover Ins. Co. v Rapo & Jepsen Ins. Servs., Inc., 449 Mass 609,
616 (2007) (rejecting a litigation limitation on the common
interest doctrine); S.F. Pac. Gold Corp. v United Nuclear Corp.,
143 NM 215, 222 (NM Ct App 2007) ("A third party to whom
privileged disclosures are made under the common interest
doctrine may be a nonparty to any anticipated litigation and may
be a legal entity distinct from the client who receives the legal
advice"); see also D.R.E. 502 (b) (extending the attorney-client
privilege to confidential communications made by the client to a
lawyer "representing another in a matter of common interest").
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has adopted a rule that applies the attorney-client privilege to
disclosures by clients with a common interest in litigated or
nonlitigated matters (Restatement [Third] of the Law Governing
Lawyers § 76 [2000]). Similarly, Weinstein's on Evidence
explains that the common interest doctrine "should apply not only
if litigation is current or imminent but whenever the
communication is made in order to facilitate the rendition of
legal services to each of the clients involved in the conference"
(3-503 Weinstein's Federal Evidence § 503.21 [2015]). Indeed,
many courts and commentators recognize the important interests
served by the free flow of information between parties with a
common legal interest, even without the threat of litigation (see
BDO Seidman, LLP, 492 F3d at 816; In re Regents of Univ. of
California, 101 F3d at 1390-1391).
Given the purpose of the attorney-client privilege to
encourage communication essential to the rendition of adequate
legal advice, I agree with the majority that we should stamp our
imprimatur on a "common interest doctrine" and its application in
civil cases (majority op., at 1, 14). I part company from the
majority in its adoption of a pending or reasonably anticipated
litigation requirement. Such requirement does not derive from
the common law roots of the attorney-client privilege, which
lacks any litigation requirement. Further, the rule adopted by
the majority ignores the unique common legal interests of parties
to a merger, and the statutory and regulatory compliance mandates
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as motivating factors for client exchanges in these types of
commercial transactions. The better rule is grounded not in the
rote application of a litigation requirement, but in the legal
dynamics of a modern corporate transactional practice.
II.
A.
The legal demands of a highly-regulated financial
business environment affect the management of information shared
between client and attorney where separately represented parties
work collaboratively towards a mutual goal of transforming
existing business entities and relationships. Confidences shared
with attorneys under an appropriate common law privilege may
further compliance with legal mandates.
Where the government imposes regulatory and legal
requirements that invariably, if not specifically, anticipate
disclosure of information that is best developed by cooperation
among clients, application of the attorney-client privilege
strikes an appropriate balance between the benefits of
disclosure--ensuring legal advice that advances the creation of
accurate and compliant legally mandated information--and the
costs to the truth-seeking process of our legal system from
barring discovery of certain information. The privilege should
apply where disclosure of client communications facilitates the
provision of legal services to advance a joint strategy developed
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to ensure compliance with regulatory or other legal mandates for
the production of documents, and the framing of legal positions,
necessitated by regulatory and legal obligations. It should
apply to nonlitigation transactional matters in which the
separately represented parties share a common legal interest in
the transfer of liability to a successor, and in furtherance of
which the parties exchange information in the presence of a third
party to facilitate legal advice on a common strategy for
compliance with statutory and regulatory requirements,
necessarily accomplished by production of joint representations
essential to the transformative enterprise (see Anne King, The
Common Interest Doctrine and Disclosures During Negotiations for
Substantial Transactions, 74 U Chi L Rev 1411, 1417 [2007]).
As relevant to this appeal, where parties to a merger
agreement have a common legal interest in the successful
completion of the merger, the privilege should apply to
communications exchanged to comply with legal and regulatory
requirements related to consummation of the merger. This
application of the privilege functions as a narrowly crafted
exception to third-party waivers in the merger context, and is
justified because signatories to a pre-merger agreement are bound
with a common interest in completion of the merger. In such
case, the privilege would maximize the quality of disclosure
necessary for accurate and competent representation leading to
compliance with regulatory and legal mandates. In other words,
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the privilege encourages parties committed to a merger to
disclose confidential information to avoid submission of
incomplete or noncompliant documents.
B.
The majority concludes that the common interest
doctrine should apply solely to "codefendants, coplaintiffs or
persons who reasonably anticipate that they will become
colitigants" because for these actors, the threat of litigation
"may chill the exchange of privileged information" necessary to
"coordinate legal strategy" or "mount a common claim or defense"
(majority op., at 14-15). The majority's reasoning for adopting
a litigation requirement is doctrinally and pragmatically
unpersuasive.
First, the common interest doctrine is grounded in the
attorney-client privilege, which has no litigation requirement.
Indeed, the majority's underlying premise--that the privilege is
necessary to entice parties to share confidential information
they would otherwise refuse to divulge--is true for any person
who seeks legal advice without the threat of litigation. Yet,
this Court has rejected this limitation on the common law and
statutory privilege (Spectrum Sys. Intern. Corp., 78 NY2d at
380). The majority responds that the common interest doctrine
need not be coextensive with the attorney-client privilege
because it is not an evidentiary privilege or an independent
basis for the attorney-client privilege (majority op., at 18).
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Putting aside that the doctrinal status of the common interest
doctrine is contested (see Katharine Traylor Schaffzin, An
Uncertain Privilege: Why the Common Interest Doctrine Does Not
Work and How Uniformity Can Fix It, 15 BU Pub Int LJ 49, 53
[2005]), the fact is that we are called upon in this case not to
create subclassifications for client-attorney communications, but
to determine "what is encompassed by the [attorney-client]
privilege" (Spectrum Sys. Intern. Corp., 78 NY2d at 377).
Which leads to the second flaw in the majority's
analysis, namely its limited view of the attorney-client
privilege in a transaction such as a merger. The majority
rejects the application of the privilege in this case as
unnecessary because parties to a business deal already have an
incentive to share information that will close the transaction.
However, the majority fails to identify any distinction between
coparties or persons who reasonably anticipate litigation, and
parties committed to the completion of a merger. Both are
incentivized to cooperate in order to secure a mutually
beneficial outcome -- one a successful litigation outcome, the
other a successful commercial outcome. No rational basis exists
to recognize the expectations for maintaining confidences in the
former but not the latter.
Furthermore, to the extent the majority attempts to set
a bright-line rule, that the common interest doctrine should
apply only where parties with a common legal interest share
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information in reasonable anticipation of litigation, it ignores
the inherent vagueness in the term. Indeed, whether the parties
reasonably anticipated litigation inevitably requires judicial
consideration of case-specific facts.
Third, the majority's contention that application of
the privilege might lead to misuse is purely speculative
(majority op., at 17). The majority notes the "potential for
abuse" of the common interest doctrine in the context of
corporate attorneys representing multiple clients (id.).
However, there is certainly as much or more such potential in
assertions of the common interest doctrine by those
"anticipating" litigation and seeking to shield communications
from a potential adversary. In any event, the majority fails to
explain why a party's attempted abuse of the privilege cannot be
addressed through our legal system's existing methods for
preventing and sanctioning obstruction of proper discovery (see
e.g. CPLR 3126 [authorizing court to penalize for refusal to
comply with order or to disclose]).
There is also nothing to support the majority's
contention that the privilege will sweep too broadly due to the
difficulty of differentiating between common legal interests and
strictly business interests (id.). To the contrary, courts
realize that while the privilege encourages and protects an open
flow of communication, its scope extends only as necessary to
achieve its common law and statutory purposes of compliance with
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the law and effectuating the orderly administration of justice
(see Spectrum Sys. Intern. Corp., 78 NY2d at 380; Rossi, 73 NY2d
at 592). As a consequence the privilege is limited to matters of
common legal interest, and does not protect from discovery
communications exchanged to further commercial or personal
interests in the business deal, or efforts to leverage
information to enhance a client's financial position. The fact
is that courts are fully equipped to take on this challenge and
it is what they regularly do in discovery: separate privileged
communications from nonprivileged. This is certainly the case in
numerous federal and state courts that have adopted a
nonlitigation version of the common interest doctrine without
disastrous results,2 and there is no reason to presume New York
Courts are any less capable of making these same determinations.
Hence, in a corporate merger case, like the one before us, the
common interest doctrine applies to communications made in the
presence of third parties in order to obtain legal advice on the
preparation of a joint proxy statement and federal securities
registration, but would not shield from discovery client
information shared during negotiations related solely to
commercial interests.
Significantly, the common interest doctrine is also
2
See Zolin, 809 F2d 1411 (9th Cir 1987); BDO Seidman, LLP,
492 F3d 806 (7th Cir 2007); In re Teleglobe Communications
Corp., 493 F3d 345 (3d Cir 2007); In re Regents of Univ. of
California, 101 F3d 1386 (Fed Cir 1996).
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circumscribed by two requirements. First, "the communication
must satisfy the requirements of the attorney-client privilege"
(Schwimmer, 892 F2d at 244 [holding that a "claim resting on the
common interest rule requires" the same showing as "all claims of
privilege arising out of the attorney-client relationship"]).
Second, the communication must "further[] a common legal
interest" -- rather than commercial interest -- of the relevant
parties (Schaeffler v United States, 806 F3d 34, 40-41 [2d Cir
2015]).
The discovery process in the present case is
instructive. The challenged communications at issue consist of
366 communications made during the six-month period between the
signing of the pre-merger agreement and the merger. After Bank
of America withdrew the claim of privilege with respect to 28 of
those communications, a special referee conducted a review to
determine whether the remaining communications were properly
withheld. Those communications were distilled down to
corresponding documents, and the special referee reviewed a total
of 117 documents to determine whether (1) each qualified for
protection under the attorney-client privilege; and (2) if so,
whether that document was made for the purpose of furthering a
legal interest or strategy common to Bank of America and
Countrywide. As a result, three of the documents were found not
to qualify for the privilege because no legal advice was given or
requested, and an additional three were determined to contain
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both privileged and non-privileged material, requiring
redaction. The remaining 110 documents were deemed privileged
under the common interest doctrine. Clearly the process served
to ensure that only this very limited universe of documents from
a finite period in the transaction, fell squarely within the
bounds of the common interest doctrine and were therefore
properly withheld.
As an additional layer of protection, the crime-fraud
exception to the attorney-client privilege continues to permit
discovery of communications "when the advice sought relates 'not
to prior wrongdoing, but to future wrongdoing' " (BDO Seidman,
LLP, 492 F3d at 818, quoting Zolin, 491 US at 562-563 [internal
quotation marks omitted]; see In re New York City Asbestos
Litig., 109 AD3d 7, 10-11 [1st Dept 2013] [crime-fraud exception
applies to communications made in furtherance of the fraud or
crime]).
III.
Here, the privileged communications were made in
furtherance of consummating the merger of defendant Countrywide
Financial Corporation (Countrywide Financial) and its
subsidiaries with defendant Bank of America Corporation's wholly-
owned subsidiary, Red Oak Merger Corporation. Defendant Bank of
America is a public holding company regulated by the Bank Holding
Company Act (12 USC §§ 1841 et seq.), and its subsidiary, Bank of
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America, N.A., is a federally chartered bank, governed by the
National Bank Act (12 USC §§ 22 et seq.) and regulated by the
Office of the Comptroller of the Currency and the Federal Reserve
Board (see 12 USC § 1828).3 Countrywide Financial's subsidiary
bank was regulated by the Office of Thrift Supervision (see 12
USC §§ 1467 et seq. [Home Owners Loan Act]).4 Both Countrywide
Financial and Bank of America were public reporting companies
and, in anticipation of the merger, were required to satisfy US
Securities and Exchange Commission (SEC) regulations,
necessitating filing of a proxy statement to stock holders, the
SEC's Form 8-K (i.e. to notify investors of the status of the
target company's outstanding stock) and Form S-4 (i.e. to
register newly issue shares acquired from the target company).
The documents for which defendants assert the privilege
thus fit neatly within the attorney-client privilege as refined
by the common interest doctrine. The defendants' attorneys
prepared disclosures required by federal law, including SEC joint
proxy statements and a Form S-4 registration statement.
3
The Holding Company Act also requires prior written
approval from the Federal Reserve Board to acquire and to merge
with another bank holding company (see 12 USC § 1842).
4
In 2011, Office of Thrift Supervision was transferred to
the Office of the Comptroller of the Currency by the Dodd–Frank
Wall Street Reform and Consumer Protection Act (Pub. L. 111–203,
§§ 1046, 1047[b]; 124 U.S. Stat. 1376, 2017 [2010]), and has
ceased to exist (see 12 USC § 5413).
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Countrywide was required to obtain the approval of its public
shareholders by soliciting proxies, which in turn required it to
file a proxy statement. Bank of America Corporation registered
the newly issued Bank of America shares it was using to pay for
Countrywide's outstanding shares. Bank of America and Countrywide
Financial also prepared preliminary and amended disclosures
necessary for this joint proxy/registration statement filing.
Bank of America and Countrywide attorneys provided
legal advice regarding notice of the acquisition to Countrywide's
subsidiary bank account holders via the filing of a proxy
statement, and Bank of America and Countrywide consulted on
providing legal advice regarding draft written testimony in
preparation for and in response to Federal Reserve hearings.
Additionally, Bank of America and Countrywide attorneys
communicated regarding analyses of lending and servicing
practices to ensure that immediately after the merger's closing,
the new mortgage business would comply with all applicable
mortgage lending and servicing regulations, including
fair-lending laws, consumer-protection laws, foreign registration
requirements, and conform to changes in the governing state and
federal regulations. Under these circumstances, the privilege
should extend to defendants' pre-merger client communications,
exchanged to secure legal advice in furtherance of defendants'
common interest in the merger.
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IV.
The attorney-client privilege is a long-standing
exception to the general rule promoting discovery as part of the
truth-finding process, and one tolerated because it serves the
individual and societal goals of furthering the proper
administration of justice by encouraging the free flow of
information essential to legal representation. It has never been
limited to client communications involving pending or anticipated
litigation. Even so, the privilege is deemed waived where a
client shares information with a third party, under circumstances
that reflect the client's disinterest in the continued protection
of the confidences. However, where parties to a merger seek to
comply with legal requirements and agree to treat as confidential
any exchanges of information made for purposes of seeking legal
and regulatory advice to complete the merger, the parties cannot
be assumed to have vitiated the private nature of the
information, or to harbor an unreasonable expectation of privacy
in these exchanges. Therefore, extension of the attorney-client
privilege to these communications is fully in line with the goals
of our common law and the needs of our complex system of
commercial regulation.
* * * * * * * * * * * * * * * * *
Order of the Appellate Division, First Department, reversed, with
costs, order of Supreme Court, New York County, reinstated and
certified question answered in the negative. Opinion by Judge
Pigott. Judges Abdus-Salaam, Stein and Fahey concur. Judge
Rivera dissents in an opinion in which Judge Garcia concurs.
Chief Judge DiFiore took no part.
Decided June 9, 2016
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