Commercial Division Blog

Posted: December 9, 2014 / Categories Commercial, Privilege/Work Product

Joint Defense Privilege Can Exist in Absence of Threatened or Pending Litigation

On December 4, 2014, the First Department issued a decision in Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 2014 NY Slip Op. 08510, ruling that a party withholding documents from production based on the "common interest privilege" need not show that the communications at issue were made in the context of "pending or reasonably anticipated litigation."

The common interest privilege is a "limited exception" to the general rule that the presence of a third-party waives the attorney-client privilege. The party invoking the privilege must establish that: (1) the communication qualify for protection under the attorney-client privilege, and (2) the communication be made for the purpose of furthering a legal interest or strategy common to the parties. Some New York courts, including the Second Department, had held that the common interest privilege is further limited to situations where there is actual or anticipated litigation. See, e.g., Hyatt v. State of Cal. Franchise Tax Bd., 105 A.D.3d 186, 205 (2d Dep’t 2013). In Ambac Assurance Corp., the First Department rejected this approach, holding that "in today's business environment . . . business entities often have important legal interests to protect even without the looming specter of litigation." The Court explained:

The attorney-client privilege is not tied to the contemplation of litigation, because 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. For that reason, and because of the vast and complicated array of regulatory legislation confronting the modern corporation, corporations, unlike most individuals, constantly go to lawyers to find out how to obey the law, particularly since compliance with the law in this area is hardly an instinctive matter.

Similarly, the Restatement of the Law Governing Lawyers notes that the common interest privilege is not tied to the contemplation of litigation, but rather that the privilege applies either to a "litigated or nonlitigated matter.” This conclusion flows logically from the attorney-client privilege, from which the common-interest privilege derives, and furthers its same basic purpose — namely, it encourages parties with a shared legal interest to seek legal assistance in order to meet legal requirements and to plan their conduct accordingly, and therefore serves the public interest by advancing compliance with the law,
facilitating the administration of justice and averting litigation.

Neither this Court nor the Court of Appeals has yet considered the propriety of a litigation requirement for the common-interest privilege. However, the federal courts that have addressed the issue have overwhelmingly rejected that requirement.

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Accordingly, because the federal approach extends logically from the attorney-client privilege, we adopt this approach, the weight of which holds that litigation need not be actual or imminent for communications to be within the common interest doctrine So long as the primary or predominant purpose for the communication with counsel is for the parties to obtain legal advice or to further a legal interest common to the parties, and not to obtain advice of a predominately business nature, the communication will remain privileged.

We acknowledge that a line of New York cases requires pending or reasonably anticipated litigation for the common-interest privilege to apply. . . .

However, the better policy requires that we diverge from this approach. These cases provide that 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; on the other hand, when a single party seeks advice from counsel, the communication is privileged regardless of whether litigation is within anyone's contemplation. We cannot reconcile this contradiction, as it undermines the policy underlying that attorney-client privilege.

(Citations and internal quotation marks omitted.)