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

Decision Date09 June 2016
Citation27 N.Y.3d 616,57 N.E.3d 30,2016 N.Y. Slip Op. 04439,36 N.Y.S.3d 838
PartiesAMBAC ASSURANCE CORPORATION et al., Appellants, v. COUNTRYWIDE HOME LOANS, INC., et al., Defendants, and Bank of America Corp., Respondent.
CourtNew York Court of Appeals Court of Appeals

Patterson Belknap Webb & Tyler LLP, New York City (Stephen P. Younger, Harry Sandick, Peter W. Tomlinson, Alexander Michaels and Joshua Kipnees of counsel), for appellants.

O'Melveny & Myers LLP, New York City (Jonathan Rosenberg, B. Andrew Bednark and Anton Metlitsky of counsel), and O'Melveny & Myers LLP, Washington, D.C. (Walter Dellinger and Jonathan D. Hacker of counsel), for respondent.

Evan Goldberg, New York State Trial Lawyers Association, New York City, for New York State Trial Lawyers Association, amicus curiae.

Michael J. Hutter, Albany, and Mitchell Proner, New York State Academy of Trial Lawyers, Albany, for New York State Academy of Trial Lawyers, amicus curiae.

Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C. (Jonathan G. Cedarbaum and Leon T. Kenworthy of counsel), for Chamber of Commerce of the United States of America and another, amici curiae.



This discovery dispute involves certain attorney-client communications that defendant Bank of America Corporation and defendant Countrywide Financial Corporation shared when the two entities were in the process of merging. Generally, communications between an attorney and a client that are made in the presence of or subsequently disclosed to third parties are not protected by the attorney-client privilege. Under the common interest doctrine, however, an attorney-client communication that is disclosed to a third party remains privileged if the third party shares a common legal interest with the client who made the communication and the communication is made in furtherance of that common legal interest. We hold today, as the courts in New York have held for over two decades, that any such communication must also relate to litigation, either pending or anticipated, in order for the exception to apply.


Plaintiff Ambac Assurance Corporation is a monoline insurer that guaranteed payments on certain residential mortgage-backed securities issued by defendant Countrywide Home Loans, Inc., a wholly-owned subsidiary of Countrywide Financial Corporation (referred to collectively in this appeal as Countrywide). When the mortgage-backed securities that Ambac insured failed during the recent financial crisis, Ambac commenced this action against Countrywide in Supreme Court alleging that Countrywide breached contractual representations, fraudulently misrepresented the quality of the loans and fraudulently induced Ambac to guaranty them.

Ambac named Bank of America as a defendant in the action, based on its merger with Countrywide. The merger began to take shape in 2007, as Countrywide faced increasing credit losses and negative expectations about its future performance. The two entities publicly announced a merger plan on January 11, 2008 and closed on July 1, 2008. As a result of the merger, Countrywide sold substantially all of its assets to Bank of America through a series of asset transfers, and Countrywide merged into a wholly-owned subsidiary of Bank of America called Red Oak Merger Corporation. Ambac alleged that, as a result of the merger, Bank of America became Countrywide's successor-in-interest and alter ego and was responsible for Countrywide's liabilities to Ambac in the underlying action for fraud.

Discovery ensued, and in November 2012, Ambac challenged Bank of America's withholding of approximately 400 communications that took place between Bank of America and Countrywide after the signing of the merger plan in January 2008 but before the merger closed in July. Bank of America had listed the communications on a privilege log and claimed they were protected from disclosure by the attorney-client privilege because they pertained to a number of legal issues the two companies needed to resolve jointly in anticipation of the merger closing, such as filing disclosures, securing regulatory approvals, reviewing contractual obligations to third parties, maintaining employee benefit plans and obtaining legal advice on state and federal tax consequences. Although the parties were represented by separate counsel, the merger agreement directed them to share privileged information related to these pre-closing legal issues and purported to protect the information from outside disclosure. Bank of America argued that the merger agreement evidenced the parties' shared legal interest in the merger's “ successful completion” as well as their commitment to confidentiality, and therefore shielded the relevant communications from discovery.

Ambac moved to compel production of those documents, arguing that the voluntary sharing of confidential material before the merger closed waived any attorney-client privilege that might have otherwise attached. According to Ambac, Bank of America and Countrywide waived the privilege because they were not affiliated entities at the time of disclosure and did not share a common legal interest in litigation or anticipated litigation. Ambac further asserted that the allegedly privileged documents were relevant to its successor-in-interest and alter ego theories of liability and may have demonstrated that Bank of America structured the merger so as to conceal Countrywide's fraud and leave creditors without recourse.

A Special Referee appointed to handle privilege disputes issued a report on Ambac's motion and ordered the parties to review the remaining documents in accordance with its decision (2013 N.Y. Slip Op. 32568[U], 2013 WL 5692013 [Sup.Ct., N.Y. County 2013] ). The Referee explained that the exchange of privileged communications ordinarily constitutes a waiver of the attorney-client privilege and that the communications at issue would be entitled to protection only if Bank of America could establish an exception to waiver. The Referee discussed one such exception, the common interest doctrine, which permits a limited disclosure of confidential communications to parties who share a common legal (as opposed to business or commercial) interest in pending or reasonably anticipated litigation (id. at *7, citing Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd's, London, 176 Misc.2d 605, 676 N.Y.S.2d 727 [Sup.Ct., N.Y. County 1998], affd. 263 A.D.2d 367, 692 N.Y.S.2d 384 [1st Dept.1999] ). The Referee concluded that [i]f there is such litigation and a common legal interest then the common-interest doctrine comes into play. If there is not then the doctrine does not protect the document” (id. at *7). Having announced this standard, the Referee instructed the parties to review the withheld documents, update the privilege log and submit any documents that remained in dispute for in camera review (id. at *7).

Bank of America moved to vacate the Referee's decision and order on the ground that its communications with Countrywide were protected by the attorney-client privilege even in the absence of pending or anticipated litigation. According to Bank of America, the items were privileged so long as they involved matters of a common legal interest between the parties—i.e., closing the merger—and were otherwise protected by the attorney-client privilege. Supreme Court denied the motion, holding that New York law “requires that there be a reasonable anticipation of litigation” in order for the common interest doctrine to apply (41 Misc.3d 1213[A], 2013 N.Y. Slip Op. 51673 [U], *2, 2013 WL 5629595 [Sup.Ct., N.Y. County 2013] ).

Bank of America appealed, and the Appellate Division reversed, granted the motion to vacate and remanded for further proceedings (124 A.D.3d 129, 998 N.Y.S.2d 329 [1st Dept.2014] ). Although the Court recognized that, historically, “New York courts have taken a narrow view of the common-interest [doctrine], holding that it applies only with respect to legal advice in pending or reasonably anticipated litigation,” it was unpersuaded by the reasoning of those courts and concluded that pending or reasonably anticipated litigation was no longer a necessary element of the exception (id. at 130, 998 N.Y.S.2d 329 ). The Court observed that “when a single party seeks advice from counsel, the communication is privileged regardless of whether litigation is within anyone's contemplation” but that, under Supreme Court's formulation of the doctrine, “when two parties with a common legal interest seek advice from counsel together, the communication is not privileged unless litigation is within the parties' contemplation” (id. at 135–136, 998 N.Y.S.2d 329 ). The Appellate Division could not reconcile that distinction with the purposes underlying the attorney-client privilege and decided instead to follow the federal courts that have “overwhelmingly rejected [a litigation] requirement” (id. at 134, 998 N.Y.S.2d 329 [citing cases from the Second, Third, Seventh and Federal Circuit Courts of Appeals] ). The Appellate Division remanded the matter to the Special Referee to determine whether the communications fell within its reformulation of the rule. It subsequently granted Ambac leave to appeal to this Court, certifying the following question: “Was the order of this Court, which reversed the order of the Supreme Court, properly made?”

A. The Attorney–Client Privilege

The attorney-client privilege shields from disclosure any confidential communications between an attorney and his or her client made for the purpose of obtaining or facilitating legal advice in the course of a professional relationship (see CPLR 4503[a][1] ). The oldest among the common-law evidentiary privileges, the attorney-client privilege “fosters the open dialogue between lawyer and client that is deemed essential to effective representation” (Spectrum Sys. Intl. Corp. v. Chemical Bank, 78 N.Y.2d 371, 377, 575 N.Y.S.2d 809, 581 N.E.2d 1055 [1991] ). “It exists to ensure that one...

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