First Department Broadens Common Interest Privilege

New York Law Journal | April.16.2015

The Appellate Division, First Department, recently issued a ruling in Ambac Assur. Corp. v. Countrywide Home Loans, 124 A.D.3d 129, 998 N.Y.S.2d 329 (1st Dept. 2014), expanding the reach of New York's common interest doctrine, which preserves the attorney-client privilege in situations where privileged information is shared among different parties with a common legal interest.

The Second Department as well as several New York state trial courts had previously held that the common interest doctrine applies only where the interest shared by the parties relates to pending or anticipated litigation. In contrast, most federal courts applying federal common law have held that "joint legal strategies in non-litigation settings" are sufficient to trigger the application of the common interest doctrine. This led at least one federal trial court to comment that the state of the common interest doctrine in New York was "unsettled." The Ambac decision removes that uncertainty, at least within the First Department.

Common Interest

The common interest doctrine is an exception to the principle that the presence of a third party destroys the confidentiality of a communication between attorney and client, and therefore precludes that communication from being privileged. It is generally recognized that for the doctrine to apply, two criteria must be satisfied: (1) the communication must otherwise qualify for protection under the attorney-client privilege (i.e., it must be a confidential communication between lawyer and client for the purpose of rendering legal advice); and (2) the communication must be made for the purpose of furthering a legal interest or strategy common to the parties.

A key question, therefore, is what constitutes a legal interest or strategy common to the parties—i.e., a "common interest"—for purposes of the doctrine? Courts generally agree that the common interest must be nearly identical rather than merely overlapping or similar, and that the shared interest must be legal in nature, rather than economic or commercial. Generally, a joint business strategy that includes a concern about legal issues does not constitute a common legal interest. Beyond this, however, there has historically been a dearth of appellate case law in New York defining what exactly constitutes a common interest.


In Ambac, the First Department rejected a litigation requirement for the application of the common interest doctrine, holding: "[I]n today's business environment, pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege." In so doing, the court rejected the prior Second Department and trial court rulings to the contrary, and joined the federal courts in recognizing a broader scope for the doctrine.

The factual setting in Ambac was relatively straightforward. Plaintiff Ambac Assurance sued Countrywide, alleging that Countrywide had fraudulently induced Ambac to guarantee payments for a number of residential mortgage backed securities. Ambac not only sought a recovery from Countrywide, but also sought to impose successor-in-interest liability on Bank of America, which had acquired Countrywide before Ambac commenced its suit.
Ambac sought in discovery to obtain communications between Countrywide, Bank of America, and their counsel concerning shared legal advice given for purposes of completing the merger. Countrywide and Bank of America resisted this discovery, invoking the common interest privilege and pointing to confidentiality provisions of their merger agreement and a common interest agreement that they had entered into shortly before signing the merger agreement.

Ambac moved to compel, and a referee supervising discovery ordered that the communications be produced. When Bank of America moved to vacate the referee's order, the Supreme Court denied that motion based on the prior New York state authorities holding that the common interest doctrine applies only if the parties share a common legal interest concerning existing or anticipated litigation, rather than a transaction.

The First Department reversed, and remanded the action to the trial court with instructions to apply its newly announced legal standard. The court recognized that there is a tension between New York's policy favoring full disclosure in litigation, on the one hand, and the competing goal of fostering full and frank communications between attorney and client—which counsels in favor of a broader application of the privilege, and thus immunizing a wider swath of communications from discovery—on the other.

The court resolved this tension by observing that there is no litigation requirement for the privilege to apply in the traditional attorney-client context,1 and no rationale for adding such a requirement in the common interest context. As the First Department explained, "imposing a litigation requirement in this scenario discourages parties with a shared legal interest, such as the signed merger agreement here, from seeking and sharing that advice, and would inevitably result instead in the onset of regulatory or private litigation because of the parties' lack of sound guidance from counsel." Thus, "[s]o 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."

Ambac has filed a motion for leave to appeal the First Department's ruling to the Court of Appeals, which motion is still pending as of the date of this publication. One of the potential grounds for that motion is that the Ambac holding is directly at odds with the aforementioned Second Department ruling issued in 2013, creating a "department split" that may require resolution by the Court of Appeals.

Looking Ahead

Future litigants may attempt to persuade courts that Ambac should be limited to the mergers and acquisitions context. Indeed, the Ambac court reasoned that a litigation requirement would be particularly unsuitable in the context of a merger, in which the entities being merged "required the shared advice of counsel in order to accurately navigate the complex legal and regulatory process involved in completing the transaction." The broad Ambac holding is not limited to the facts of the case, however, which suggests that such efforts will be unlikely to succeed.

Parties should nonetheless bear in mind that the common interest doctrine requires that the parties share a nearly identical legal interest. Merely overlapping or similar interests do not suffice. Furthermore, parties should be aware that while the execution of a joint defense or common interest agreement may help to memorialize and potentially defend the assertion of the common interest doctrine, such an agreement cannot create a common interest where one does not already exist.

1. This is in contrast to the attorney work product doctrine, which applies only to materials prepared in anticipation of litigation.
Steven J. Fink is a commercial litigation partner in the New York office of Orrick, Herrington & Sutcliffe. Alvin Y. Lee is a managing associate in the commercial litigation group of the firm's New York office.
Reprinted with permission from the April 16, 2015 edition of New York Law Journal © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 - [email protected] or visit
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