<strong><em>Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 27 N.Y.3d 17 (2016)</em></strong></p>

<p class="key-principle">The common interest doctrine, which protects attorney-client communications shared with a third party, applies only if the communication is in furtherance of a common legal interest in pending or reasonably anticipated litigation.</p>

<p><strong>Summary</strong></p>
<p>In a dispute over attorney-client privilege in a merger context, the New York Court of Appeals held that the common interest doctrine requires a reasonable anticipation of litigation. The case involved a monoline insurer, Ambac, suing Countrywide (and later Bank of America after its merger with Countrywide) over mortgage-backed securities. Ambac sought discovery of communications between Bank of America and Countrywide before the merger closed. Bank of America claimed attorney-client privilege, arguing the communications related to common legal issues in the merger. The court, reversing the Appellate Division, found that for the common interest doctrine to apply, the shared legal interest must relate to pending or anticipated litigation, not just the transactional aspects of a merger.</p>

<p><strong>Facts</strong></p>
<p>Ambac insured mortgage-backed securities issued by Countrywide. When the securities failed during the financial crisis, Ambac sued Countrywide and Bank of America (due to its merger with Countrywide) alleging breach of contract and fraud. During discovery, Ambac sought approximately 400 communications between Bank of America and Countrywide before their merger closed. Bank of America asserted attorney-client privilege, arguing that the communications related to legal issues the companies needed to resolve for the merger. The merger agreement directed them to share privileged information related to pre-closing legal issues, aiming to keep the information confidential. Ambac moved to compel production, claiming waiver of privilege because the entities weren't affiliated when sharing the confidential material and didn't have a common legal interest in litigation.</p>

<p><strong>Procedural History</strong></p>
<p>A Special Referee, appointed to handle privilege disputes, ordered the parties to review documents and produce those remaining in dispute for in camera review. Bank of America moved to vacate, arguing that communications were privileged even without pending litigation. Supreme Court denied the motion, holding that New York law required a reasonable anticipation of litigation. The Appellate Division reversed, finding the litigation requirement unnecessary, and remanded the case to the Special Referee. The Court of Appeals reversed the Appellate Division, reinstated the Supreme Court's order, and answered the certified question in the negative.</p>

1. Whether the common interest doctrine applies to protect attorney-client communications shared between parties with a common legal interest, even if litigation is not pending or reasonably anticipated.

1. No, because the common interest doctrine applies only when the shared legal interest relates to pending or reasonably anticipated litigation.

<p>This case reinforces the narrow construction of the common interest doctrine in New York. Attorneys in New York must advise clients that sharing privileged communications with another party (or its counsel) will waive the privilege, unless that other party shares a common legal interest in current or reasonably anticipated litigation. This has practical effects on merger negotiations, where parties will need to be mindful of the potential loss of privilege when sharing communications with the other side. Clients should carefully consider whether the benefits of sharing confidential information outweigh the risk of future disclosure, especially if litigation is not on the immediate horizon. The court's distinction between mergers and litigation emphasizes the importance of documenting the anticipation of litigation in order to ensure that the common interest privilege applies. The ruling also suggests that parties may need to consider using separate counsel to ensure that their communications remain privileged.</p>