Page 8 - Commercial Litigation

S8 | MONDAY, AUGUST 8, 2016 | Commercial Litigation
| NYLJ.COM

with the SEC and to secure approvals from

various inancial services regulators.
Later, a lawsuit was brought against Bank
of America and Countrywide by a inancial
guarantor. In Ambac Assurance v. Country-
wide Home Loans,3 plaintiff Ambac Assurance
Corporation, which guaranteed payments on
certain residential mortgage-backed securi-
ties issued by Countrywide, claimed that
Countrywide fraudulently misrepresented

the quality of underlying mortgage loans and
that, as a result of the merger, Bank of America
became Countrywide’s successor-in-interest
and was responsible for Countrywide’s liabili-
ties to Ambac.
During discovery, Bank of America withheld
certain pre-closing communications between
its counsel and counsel for Countrywide on

the basis that these communications were
protected by the common interest exception
to the attorney-client privilege because they
pertained to common legal issues that the
parties shared in connection with complet-
ing the merger. Ambac, however, argued that
the voluntary sharing of such conidential
communications before the closing of the
merger waived any attorney-client privilege
YLJ
because Bank of America’s and Countrywide’s ; N
common legal interest did not relate to pend- OCK
ing or anticipated litigation, as required by iST
prior New York case law. The Appellate Divi-
sion, First Department, agreed with Bank of
America and held that the common interest
exception applied to the pre-closing com-
munications, regardless of the presence of
Attorney-Client Privilege pending or anticipated litigation.
Preserving 4
On appeal, the New York Court of Appeals
reversed the decision of the Appellate Divi-
sion, First Department, stating that the litiga-
In M&A Transactions
tion requirement has been the rule in New
York for over two decades. In rejecting an
expansion of the common interest excep-
tion to commercial transactions, the court
noted that the interests of counterparties to

a commercial transaction are not necessar-
ily aligned to the same extent as those of
co-defendants in a litigation and that “any litigation in reliance on the “common inter- between an attorney and his or her client.
beneits that may attend such an expansion BY STEWART D. AARON, est doctrine” (also known as the “common Generally, communications between a client
of the doctrine are outweighed by the sub- JOSHUA BERICK
interest exception”). In New York, however, and an attorney that are shared with a third
stantial loss of relevant evidence, as well as AND CHRISTIAN D. CHESLAK
the state’s highest court recently ruled, in party are not protected by the attorney-client
the potential for abuse.”5
Ambac Assurance Corporation v. Countrywide privilege. The presence of a third party to the
The dissent, however, reasoned that the Upon the signing of a merger agreement, Home Loans,1 that the attorney-client privilege communication generally acts as a waiver to
common interest exception to the privilege the parties and their advisors—adver- afforded by the common interest doctrine the privilege.

should have applied because the attorney-cli- saries during the negotiation process— extends only to those communications relat- However, under the common interest doc-
ent privilege itself is not tied to the presence immediately become allies that must work ing to pending or anticipated litigation, and trine, attorney-client communications that are
of actual or threatened litigation and because closely together to complete the transaction. not those relating to transactional matters.
disclosed to a third party that is separately
clients often seek legal advice speciically in To that end, they will coordinate their efforts As discussed below, this decision does not represented by counsel will remain privileged
order to avoid litigation. More speciically, the on a broad range of contractual requirements, relect the commercial reality of transactional if the third party shares a common legal inter-
dissent argued that, during the course of a including regulatory approvals, third-party practices in a highly regulated environment, est with the client who made the communi-
corporate transaction, separately represented consents and ilings with the SEC, typically and accordingly the New York state legislature cation and the communication is made in
parties should be able to exchange privileged under signiicant time constraints. In doing so, should adopt a statutorily crafted common furtherance of that common legal interest.
and conidential information in order to bet- it is often prudent and eficient for the parties interest exception that would remove the

ter comply with their legal and regulatory and their advisors to share attorney-client litigation requirement articulated in Ambac.
The Ambac Decision
requirements, thereby jointly producing more privileged communications in order to achieve
complete and accurate disclosure for their legal and regulatory compliance (e.g., to The Common Interest Doctrine
In January 2008, Bank of America and
investors and regulators in relation to the ensure that disclosures related to the contrac- Countrywide Financial announced that they
transaction. The dissent further noted that tual requirements are complete and accurate).
The attorney-client privilege may be entered into a plan of merger whereby Coun-
the “better rule is grounded not in the rote In most state and federal jurisdictions, par- invoked where there exists a communication trywide, which was then facing serious inan-
application of a litigation requirement, but ties to a transaction can share such commu- made between clients and their attorneys (or cial challenges, would merge into a wholly
in the legal dynamics of a modern corporate nications without risk of discovery in later
their respective agents), in conidence, for owned subsidiary of Bank of America. In prep-

transactional practice.”6
the purpose of obtaining or providing legal aration for the closing of the merger, which
assistance for the client.2 The purpose of the occurred in July 2008, Bank of America and
Approaches in Other Jurisdictions
STEWART D. AARON and JOSHUA BERICK are partners, privilege is to protect the sacred tenet of the Countrywide exchanged certain privileged
and CHRISTIAN CHESLAK is an associate, at Arnold & attorney-client relationship—i.e., conidential- communications relating to their shared pre-
Although the manner and extent to which Porter in New York. CARINA BERGAL, an attorney at ity. The shield of this privilege is held by the closing undertakings, including their obliga-
the common interest doctrine is recognized
the irm, assisted in the preparation of this article.
client and is the keystone of open dialogue
tions to make the appropriate public ilings