In Ambac Assurance Corporation v. Countrywide Home Loans, Inc., (Ambac), the New York Court of Appeals declined to follow Delaware, a number of other states and a majority of the federal courts, each of which extend attorney-client privilege protection to cover communications and information shared between parties to an M&A transaction, without requiring pending or reasonably anticipated litigation.
The common interest doctrine provides an exception to the general rule that disclosure to a third party of attorney-client communications results in a waiver of the attorney-client privilege.
For the privilege to be preserved, the common interest doctrine generally requires that: (1) the underlying communication qualifies for protection under the attorney-client privilege, and (2) the communication is made for the purpose of furthering a legal interest or strategy common to the parties.
Delaware, a number of other states, and a majority of the federal courts that have addressed the issue have eliminated this litigation requirement, permitting parties to mergers, acquisitions and other business transactions to share privileged information without the risk of waiving the privilege.
Under Ambac, where parties to an M&A transaction are represented by separate counsel and there is no pending or reasonably anticipated litigation in which they have a common interest, exchanges of privileged information between the parties will result, under New York law, in waiver of attorney-client privilege.
In support of its decision, the New York Court of Appeals reasoned that the attorney-client privilege must be narrowly construed because it shields pertinent information from disclosure and therefore constitutes an obstacle to the truth-finding process in addition to recognizing that the Uniform Rules of Evidence, as well as sixteen states, have adopted the litigation requirement.
The Ambac decision creates a number of implications practitioners should consider prior to sharing privileged information.
At every stage of an M&A transaction, before a party discloses information or documents to another party, the party should diligently review the information or documents to identify any matters that are subject to privilege.
Parties to M&A transactions should keep in mind that documents and information commonly shared in such transactions, not only between themselves but also with other participants, may lose privilege protection despite express common-interest provisions to the contrary.
Because there is no uniform standard among the jurisdictions in their application of the common interest doctrine, parties may wish to take into account those differences in the choice of law and forum selection provisions included in acquisition, confidentiality and common-interest agreements.