Ambac Assurance Corp. v. Countrywide Home Loans, Inc.

• Citation: 998 N.Y.S.2d 329,124 A.D.3d 129,2014 N.Y. Slip Op. 08510
• Parties: AMBAC ASSURANCE CORPORATION, et al., Plaintiffs–Respondents, v. COUNTRYWIDE HOME LOANS, INC., et al., Defendants, Bank of America Corp., Defendant–Appellant.
• Decision Date: 04 December 2014
• Court: New York Supreme Court Appellate Division

?124 A.D.3d 129
998 N.Y.S.2d 329
2014 N.Y. Slip Op. 08510

AMBAC ASSURANCE CORPORATION, et al., Plaintiffs–Respondents,
v.
COUNTRYWIDE HOME LOANS, INC., et al., Defendants,
Bank of America Corp., Defendant–Appellant.

Supreme Court, Appellate Division, First Department, New York.

Dec. 4, 2014

Reversed and remanded.

[998 N.Y.S.2d 330]

O'Melveny & Myers LLP, New York (Jonathan Rosenberg, B. Andrew Bednark, and Anton Metlitsky of counsel), for appellant.

Patterson Belknap Webb & Tyler LLP, New York (Robert P. LoBue, Peter W. Tomlinson, Harry Sandick, and Joshua Kipnees of counsel), for respondents.

PETER TOM, J.P., KARLA MOSKOWITZ, LeLAND G. DeGRASSE, ROSALYN H. RICHTER, BARBARA R. KAPNICK, JJ. MOSKOWITZ, J.

In general, the presence of a third party at a communication between counsel and client is sufficient to deprive the communication of confidentiality. However, there is an exception to this rule:

[998 N.Y.S.2d 331]

the common-interest privilege. Under this doctrine, a third party may be present at the communication between an attorney and a client without destroying the privilege if the communication is for the purpose of furthering a nearly identical legal interest shared by the client and the third party. New York courts have taken a narrow view of the common-interest privilege, holding that it applies only with respect to legal advice in pending or reasonably anticipated litigation. On this appeal, we are asked to decide the continued viability of the New York approach.

We hold that, in today's business environment, pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege. Our conclusion holds particularly true in this case, where the parties have a common legal interest because they were engaged in merger talks during the relevant period and now have a completed and signed merger agreement. Indeed, the circumstances presented in this case illustrate precisely the reason that the common-interest privilege should apply—namely, that business entities often have important legal interests to protect even without the looming specter of litigation.

Facts

This discovery dispute arose from a lawsuit commenced by plaintiff Ambac Assurance Corporation (Ambac), a financial-guaranty, or monoline, insurer that guaranteed payments on certain residential mortgage backed securities (RMBS) issued by defendant Countrywide Home Loans, Inc. and its affiliated entities (together Countrywide). The complaint alleged that between 2004 and 2006, Countrywide fraudulently induced Ambac to enter into agreements to insure RMBS transactions. Ambac further alleged that Countrywide breached, and continues to breach, the terms of those agreements.

Ambac also asserted secondary claims against defendant Bank of America Corp. (BAC), alleging that BAC would be liable for any judgment as Countrywide's successor-in-interest. These secondary claims relate to a merger between a BAC subsidiary and Countrywide Financial Corp. (CFC), a Countrywide entity. After due diligence and negotiations, CFC and BAC signed a merger agreement on January 11, 2008; under the terms of that agreement, CFC would merge into the wholly-owned BAC subsidiary, Red Oak Merger Corporation (the merger). The transaction closed on July 1, 2008, and the companies merged. All information and material exchanged between BAC and CFC under the merger agreement was subject to confidentiality provisions and a common interest agreement the parties entered into shortly before they signed the merger agreement.

The merger agreement bound the parties to work together on several pre-closing issues, including maintaining employee benefit plans, consulting on state and federal tax consequences, and securing the appropriate merger approvals and consents of third parties and regulators. Because all shares of CFC would be converted into BAC shares, BAC and CFC intended to prepare and file a joint proxy and registration statement that would serve both to obtain CFC shareholder approval of the merger and to allow BAC to register its new shares. The joint statement required SEC approval before becoming effective. Because of these and other merger agreement provisions, BAC claims that it and CFC—two heavily regulated public financial institutions—required shared legal advice from counsel together in order to ensure their accurate compliance with the law and to advance

[998 N.Y.S.2d 332]

their common interests in resolving the many legal issues necessary for successful completion of the merger.

The resulting communications between BAC and CFC and their counsel during the pre-merger period of January 11, 2008 to July 1, 2008—some several hundred documents—are at issue on this appeal. Ambac argues that BAC must produce these pre-merger communications because they are significant to Ambac's successor liability claims, which arise from the merger and the merger's associated transfers of assets and liabilities to BAC. Ambac further argues that documents BAC previously produced in the underlying...