Page 9 - Commercial Litigation

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Commercial Litigation | MONDAY, AUGUST 8, 2016 | S9

varies broadly from jurisdiction to jurisdic- [W]here parties to a merger agreement tory objectives in such transactions, Ambac

tion, most federal courts (as well as the have a common legal interest in the suc- may have a chilling effect on the quality and
Restatement (Third) of the Law Governing cessful completion of the merger, the quantity of the disclosure made by those par- Promote Your
Lawyers) have been consistent in their rejec- privilege should apply to communica- ties to their investors and regulators. Fun-
tion of a litigation requirement to invoke the tions exchanged to comply with legal damentally, as stated in the Ambac dissent, NEW YORK
doctrine. As noted by the majority in Ambac, and regulatory requirements related to “business entities often have important legal
courts in the Second, Third, Seventh, Ninth consummation of the merger . [such a] interests to protect even without the looming
and Federal Circuits do not have a litigation narrowly crafted exception to third-party specter of litigation.”15
requirement.7 In addition, Delaware (by stat- waivers . is justiied because signato-
ute) is aligned with the federal approach— ries to a pre-merger agreement are bound STATE BAR
Conclusion
that is, the attorney-client privilege is recog- with a common interest in completion of
nized as to those communications by clients, the merger.10
As stated by former New York Chief Judge
representatives or their lawyers to a lawyer The majority in the Ambac decision asserts Judith Kaye in Madden v. Creative Services,16
“representing another in a matter of common “[t]here is no evidence . that mergers, licens- “it is the strength of the common law to TUTORIAL
interest.”8
ing agreements and other complex commer- respond, albeit cautiously and intelligently,
cial transactions have not occurred in New to the demands of common sense justice in
York because of our state’s litigation limita- an evolving society.”17 The First Department
Implications and Recommendations
tion on the common interest doctrine; nor in Ambac sought to have the common law
PROGRAM
Imagine that two Delaware corporations is there evidence that corporate clients will adapt to the modern business world in hold-
enter into a merger agreement governed cease complying with the law.”11 The context ing that “in today’s business environment,
by Delaware law. Relying on the common in which the privilege issue arose in Ambac pending or reasonably anticipated litigation
interest doctrine, as adopted under Dela- did not permit such an evidentiary showing is not a necessary element of the common-
ware law, the parties exchange coniden- to be made.12 Regardless, the New York leg- interest privilege.”18 The majority decision in COURSES &
tial, privileged communications prior to islature need not accumulate such evidence the Court of Appeals, however, continued to
closing in order to comply in an effective before taking action, but should instead take a apply the common interest doctrine as it has
manner with their regulatory requirements. common-sense view towards the current busi- been construed for over 20 years, leaving it
After Ambac, a third party can seek to bring ness environment. Due to the rapidly evolv- to the legislature to address.19
SERVICES

those parties into New York state court and ing regulatory landscape, corporations and As discussed above, the New York legisla-
compel disclosure of pre-closing communica- inancial institutions executing transactions ture should take heed of the changing busi- IN THE
tions between counsel for the parties to the in the midst of complex compliance regimes ness environment and rapidly expanding regu-
merger. The discovery risk thereby created will invariably encounter challenges and, as latory landscape and promptly act to expand
could only be avoided either by the parties a result, would beneit from the protection the common interest doctrine to protect from
not sharing conidential information prior that prudent information-sharing without disclosure those communications between
to closing and thereby potentially providing risk of discovery would afford. As the pre- counsel for parties with a common interest
incomplete or inaccurate public disclosure, eminent business center in the world, it is that are made in furtherance of or related to
or by bearing the incremental expense of in New York’s interest to have laws in place satisfaction and compliance with statutory

jointly retaining a special counsel through that make New York a desirable venue for or regulatory requirements.20
which such information could be chan- sound business practices.
•Michael Kalbfell
neled and thereby shielded for privilege Consistent with what the court in Upjohn ••••••••••••••••••••••••••••
purposes.
v. United States13 recognized and appreci- 1. Ambac Assur. v. Countrywide Home Loans, 2016 (212) 457-9533
Ambac creates meaningful ineficiencies ated, “the vast and complicated array of NY Slip Op 04439 (N.Y. June 9, 2016) (hereinafter Ambac
and uncertainties for commercial parties and regulatory legislation confronting the mod- 2016).
[email protected]
presents a strong case for a legislative solu- ern corporation, corporations, unlike most 2. See CPLR §4503(a)(1).
3. Ambac Assur. v. Countrywide Home Loans, 124
tion in New York. To be sure, there is a delicate individuals, constantly go to lawyers to A.D.3d 129 (1st Dep’t 2014).
4. Id. at 137.
balance to be struck. On the one hand, there ind out how to obey the law, particularly 5. Ambac 2016, at *7.
is a pragmatic need for the parties to a merger since compliance with the law in this area 6. Id. at *10.
7. See id. at *20-21 (“To be sure . some federal courts
transaction to share conidential communica- is hardly an instinctive matter.” Further, as of appeals have eliminated the common law requirement
tions between their respective counsel. On the Appellate Division, First Department in that shared communications relate to pending or antici-
the other hand, there are legitimate concerns Ambac understood, “imposing a litigation pated litigation.”) (citing cases from the Second, Third,
about the possible loss of evidence in bona requirement . discourages parties with a Seventh, Ninth and Federal Circuits).
ide third-party litigation. One way to achieve shared legal interest, such as [a] signed merg- 8. Del. Rule of Evidence 502(b).
9. Such a legislative solution could be accomplished
this balance is for the New York legislature er agreement . from seeking and sharing [] through an amendment to CPLR §4503(a)(1), which ad-
to expand the common interest doctrine to advice, and would inevitably result instead in dresses the attorney-client privilege. Of course, the New
York legislature, as a policy matter, could decide to enact
also cover those communications made in the onset of regulatory or private litigation a broad common interest privilege, similar to the one in
furtherance of or related to satisfaction and because of the parties’ lack of sound guid- Delaware, which encompasses communications “by the client or the client’s representative or the client’s lawyer
compliance with statutory or regulatory ance from counsel. This outcome would make or a representative of the lawyer to a lawyer or a repre-
requirements (rather than all privileged com- poor legal as well as poor business policy.”14
sentative of a lawyer representing another in a matter of
munications between or among commercial Commercial parties should have certainty common interest.” Del. Rule of Evidence 502(b).
counterparties).9
that, even when operating in high-risk cor- 10. Ambac 2016, at *10.
11. Id. at *6.
Under this approach, parties with a com- porate transactional situations, the candid 12. Nevertheless, it is worth noting that the U.S.
mon interest in complying with regulatory low of information in furtherance of a com- Chamber of Commerce and the Association of Corpo-
and statutory mandates in connection with mon legal interest shared in a commercial rate Counsel submitted an amicus brief in the Court of Be sure to reserve your space in the
Appeals which noted that “limiting the common-interest
pending transactions (and avoiding ines, liti- transaction will be shielded from disclosure, privilege to situations of anticipated litigation will dis- courage businesses from obtaining and sharing legal
gation and enforcement action through effec- particularly where both parties are seeking to advice that enables them to comply with the law.”
Real Estate Law
tive regulatory compliance) can exchange comply with important regulations. Among 13. 449 U.S. 383, 392 (1981) (internal quotation marks
information in furtherance of that common other things, such an approach would miti- omitted).
objective freely, without waiver of privilege. gate potential impediments to engaging in 14. Ambac, 124 A.D.3d at 137. 15. Id. at 130-31.
& Practice
This approach advances and is consistent higher-risk transactions that may be for the 16. 84 N.Y.2d 738 (1995).
with the origins of the common interest doc- greater good of the U.S. economy, such as the 17. Id. at 744.
trine—the ability of attorneys representing acquisition of a failing inancial institution. 18. Ambac, 124 A.D.3d at 130.
Special Broadsheet Section
19. See Ambac 2016, at footnote 6 (“The Legislature is
co-defendants to share conidential informa- As the majority noted in Ambac, the court’s free to consider alternative arguments articulated by the dissent and to expand the common interest exception as please contact:
tion about defense strategies without waiving decision may not preclude transactions from other state legislatures have done.”).
Mayra Sinchi
the privilege as against third parties.
taking place in (or with a nexus to) New York, 20. The authors intend to forward this article to the (212) 457-9473
Advocating for a similar standard in her but unless the common interest doctrine is New York State Bar Association, the New York County Phone:
Court of Appeals dissent, Judge Jenny Rivera expanded to include conidential discussions Lawyers Association and the New York City Bar, and to encourage those organizations to advocate for legisla- [email protected]
noted:
in furtherance of the parties’ common regula-
tive action.