The Common Interest Privilege May Offer More Protection Than You Thought.
Consider for a moment a situation when an Owner and a General Contractor want to exchange confidential communications relating to a potential legal matter. When the Owner and Contractor are not both parties in a suit, what protections might they have?
One possible consideration (depending upon the specific facts and state that governs the matter) is the common interest privilege.
The common interest privilege is an extension of the attorney-client privilege and work product doctrine. It is a way for parties who are represented by different counsel to keep communications confidential when they share “nearly identical” legal interests. The common interest privilege has its roots in criminal law, where co-defendants (and later co-plaintiffs) represented by separate counsel have an interest in confidentially sharing information in order to develop a legal strategy or defense. In many states, this privilege has evolved to include protection of common interest communications in civil matters when there is a shared legal interest in “pending” or “reasonably anticipated litigation.” Since, the protections of the common interest privilege are state specific, it is necessary to consult an attorney to examine the specific state case law and to determine how broadly the doctrine will apply.
In New York, the applicability of the common interest doctrine continues to grow. The New York courts have held that the common interest doctrine may apply at any stage where litigation is feared, if there is a “real prospect of litigation.” Yet, for the privilege to apply, the courts caution that communications must be more than a joint business strategy or a commercial interest which “happens to include as one of its elements a concern about litigation.”
In December 2014, the New York Appellate Court further expanded the reach of the common interest privilege by holding that the privilege applies in transactional contexts when there is a shared legal interest, irrespective as to whether or not there is a threat of potential litigation. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 124 A.D.3d 329 (N.Y. App. Div. 2014) http://www.nycourts.gov/reporter/3dseries/2014/2014_08510.htm
In the case of Ambac, Bank of America Corporation (BAC) and Countrywide Financial Corporation (CFC) agreed to exchange information “subject to confidentiality provisions” in order to facilitate a merger agreement. BAC and CFC “shared legal advice from counsel together in order to ensure their accurate compliance with the law and to advance their common interests in resolving the many legal issues necessary for successful completion of the merger.” In this case, the Court upheld the confidentiality of the parties’ communications under the common-interest doctrine, despite the fact that litigation was not anticipated at the time the information was exchanged. In reaching this holding, the Court significantly expanded New York’s construction of the common interest doctrine.
The Ambac court explains that the criteria of “pending” or “anticipated litigation” is no longer a necessary element for the common-interest privilege in New York because “business entities often have important legal interests to protect even without the looming specter of litigation.” The court explains that since advice is often sought in order to avoid litigation it serves the public interest by providing parties with a shared legal interest the privilege of common interest protections.
Although Ambac has broadened the scope of the privilege, parties must still satisfy the following criteria in order to receive its protection:
- The communication must: a) “qualify for protection under the attorney client privilege,” and b) “be made for the purpose of furthering a legal interest or strategy common to the parties.” A legal interest or strategy must be more than merely a “common interest” or shared concerns over potential litigation. In New York, the legal interest or strategy is currently defined as a “cooperative enterprise toward an identical legal strategy” among parties.
- The parties must show that the communications were “given in confidence,” and that the parties understood this to be the case. In order to make this showing the parties must demonstrate that there was agreement to pursue a joint legal defense. The agreement can be formal or informal, written or oral
- The parties who are claiming the privilege have the burden of providing facts to support the criteria for the privilege.
Since this ruling is merely six months old, it is as yet unclear how widely the New York courts will cast the net for transactional matters. That said, Ambac’s precedence is likely to set the stage for broader applications of the common interest privilege and may generate new opportunities for confidential communications between parties involved in a construction project.