Ambac v Countrywide: No Pending or Anticipated Litigation? No Common Interest Privilege Protection in M&A Transactions under NY Law

A recent New York Court of Appeals decision has focused attention on the risks faced by parties to an M&A transaction governed by New York law (including private equity buyers and sellers) when exchanging information during a transaction.

Ambac v Countrywide: No Pending or Anticipated Litigation? No Common Interest Privilege Protection in M&A Transactions under NY Law

Specifically, under New York law, where two parties are represented by separate counsel and share privileged communications with each other, the attorney-client privilege will be waived unless such communications relate to pending or reasonably anticipated litigation in which they have a common interest.  

In Ambac Assurance Corporation v. Countrywide Home Loans, Inc., New York state’s highest court held that privileged communications to a third party must be made in the context of pending or reasonably anticipated litigation if the “common interest” doctrine of the attorney-client privilege rule is to apply. 

Because Delaware, a number of other states, and a majority of the federal courts that have also addressed the issue (including the Second Circuit, whose jurisdiction covers the federal courts in New York State) have eliminated the litigation requirement -- permitting parties to mergers, acquisitions and other business transactions to share privileged information without the risk of waiving the privilege -- there is no uniform standard among the jurisdictions in their application of the common interest doctrine. 

Sophisticated parties in M&A transactions and their advisers know well that they must be sensitive to, and take steps to protect against, the risk of inadvertently waiving privilege during pre-closing communications and information exchanges.  Ambac reminds us that this exercise can be significantly impacted by the law applicable to the transaction.  

For a full analysis on this issue, please see our M&A Update, “New York Rejects Extension of Common Interest Doctrine to Parties in M&A Transactions in the Absence of Pending or Anticipated Litigation.

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