Ambac Assurance Corporation, et al., Appellants,v.Countrywide Home Loans, Inc., et al., Respondents, Bank of America Corp., Defendant.BriefN.Y.June 6, 2018To Be Argued By: STEPHEN P. YOUNGER Time Requested: 30 Minutes APL-2015-00061 New York County Clerk’s Index No. 651612 /10 Court of Appeals STATE OF NEW YORK AMBAC ASSURANCE CORPORATION and THE SEGREGATED ACCOUNT OF AMBAC ASSURANCE CORPORATION, Plaintiffs-Appellants, —against— COUNTRYWIDE HOME LOANS, INC., COUNTRYWIDE SECURITIES CORP., COUNTRYWIDE FINANCIAL CORP., Defendants-Respondents, —and— BANK OF AMERICA CORP., Defendant. REPLY BRIEF FOR PLAINTIFFS-APPELLANTS d STEPHEN P. YOUNGER HARRY SANDICK PETER W. TOMLINSON JOSHUA KIPNEES PATTERSON BELKNAP WEBB & TYLER LLP 1133 Avenue of the Americas New York, New York 10036 Telephone: (212) 336-2000 Facsimile: (212) 336-2222 Attorneys for Plaintiffs-Appellants July 8, 2015 i 8065836v.1 TABLE OF CONTENTS Page Preliminary Statement ................................................................................................ 1 Argument.................................................................................................................... 5 POINT I The Litigation Requirement Is a Principled Check on New York’s Common-Interest Doctrine .............................................................................. 5 A. The Litigation Requirement Appropriately Balances the Applicable Interests in Searching for the Truth and Protecting Privileged Communications from Disclosure ....................................... 5 1. The Litigation Requirement Provides a Suitable Balance Between the Benefits and Costs of Extending Privilege Protection Under the Common-Interest Doctrine ....................... 6 2. The Litigation Requirement Allows for Greater Predictability and Ease in Applying the Common-Interest Doctrine ....................................................................................... 9 3. The Litigation Requirement Has Worked in New York for Twenty Years Without Any of the Negative Consequences that BAC Predicts...................................................................... 11 4. BAC Had No Expectation of Confidentiality in the Challenged Communications .................................................... 14 B. The Common-Interest Doctrine Springs from the Litigation- Limited Joint Defense Privilege, Not the Joint Client Privilege ......... 19 C. The Common-Interest Doctrine Is Fundamentally Distinct from the Attorney-Client Privilege .............................................................. 24 D. The Crime-Fraud Exception Is No Substitute for the Carefully Tailored Litigation Requirement ......................................................... 26 E. If the Litigation Requirement Is To Be Jettisoned, that Is a Decision for the Legislature ................................................................ 27 ii 8065836v.1 F. The Litigation Requirement Finds Ample Support in Other Jurisdictions ......................................................................................... 29 POINT II Alternatively, Counterparties to a Merger Do Not Share a Protectable Common Legal Interest in Completing a Lawful Transaction ...................... 33 A. This Court Has Jurisdiction to Review the Sufficiency of BAC and Countrywide’s Purported Common Legal Interest, Which Was a Key Component of the Panel’s Decision Below ...................... 33 B. BAC and Countrywide’s Interest in a Commercial Deal that Had a Secondary Legal Component Does Not Qualify as a Common Legal Interest ....................................................................... 35 Conclusion ............................................................................................................... 40 iii 8065836v.1 TABLE OF AUTHORITIES Page(s) CASES Matter of A&M, 61 A.D.2d 426 (4th Dep’t 1978) ........................................................................... 6 Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s, London, 176 Misc. 2d 605 (Sup. Ct. N.Y. County 1998), aff’d, 263 A.D.2d 367 (1st Dep’t 1999) ....................................................................................passim Bank of Am., N.A. v. Terra Nova Ins. Co., 211 F. Supp. 2d 493 (S.D.N.Y. 2002) ................................................................ 36 Beard v. Ames, 96 A.D.2d 119 (4th Dep’t 1983) ........................................................................... 6 Bluebird Partners, L.P. v. First Fid. Bank, N.A., 94 N.Y.2d 726 (2000) ......................................................................................... 14 Brooklyn Navy Yard Cogeneration Partners, L.P. v. PMNC, 194 Misc. 2d 331 (Sup. Ct. Kings County 2002) ........................................... 8, 23 Electro Sci. Indus. v. Gen. Scanning, Inc., 175 F.R.D. 539 (C.D. Cal. 1997) ........................................................................ 10 Erie R.R. Co. v. Sells, 298 N.Y. 58 (1948) ............................................................................................. 35 In re Fresh & Process Potatoes Antitrust Litig., 2014 U.S. Dist. LEXIS 74936 (D. Idaho May 30, 2014) ............................. 31, 36 In re Grand Jury Subpoena, 274 F.3d 563 (1st Cir. 2001) ............................................................................... 30 In re Grand Jury Subpoenas, 902 F.2d 244 (4th Cir. 1990) .............................................................................. 30 Holland v, Island Creek Corp., 885 F. Supp. 4 (D.D.C. 1995) ............................................................................. 30 iv 8065836v.1 Hudson Valley Marine, Inc. v. Town of Cortlandt, 30 A.D.3d 377 (2d Dep’t 2006) .......................................................................... 17 Hurlburt v. Hurlburt, 128 N.Y. 420 (1891) ........................................................................................... 20 Hyatt v. State of Cal. Franchise Tax Bd., 105 A.D.3d 186 (2d Dep’t 2013) ........................................................................ 13 Integrated Global Concepts, Inc. v. j2 Global, Inc., 2014 U.S. Dist. LEXIS 7294 (N.D. Cal. Jan. 21, 2014) ......................... 32, 38, 39 In re J.P. Morgan Chase & Co. Securities Litig., 2007 U.S. Dist. LEXIS 60095 (N.D. Ill. Aug. 13, 2007) ................................... 36 Matter of Jacqueline F., 47 N.Y.2d 215 (1979) ........................................................................................... 5 Jordan (Berm.) Inv. Co. v. Hunter Green Invs. Ltd., 2005 U.S. Dist. LEXIS 3424 (S.D.N.Y. Mar. 2, 2005) ...................................... 21 Koump v. Smith, 25 N.Y.2d 287 (1969) ........................................................................................... 5 Lamitie v. Emerson Elec. Co., 142 A.D.2d 293 (3d Dep’t 1988) .......................................................................... 6 In re Leslie Controls, Inc., 437 B.R. 493 (Bankr. D. Del. 2010) ................................................................... 10 In re Megan-Racine Assocs., 189 B.R. 562 (Bankr. N.D.N.Y. 1995) ............................................................... 20 Matter of Vanderbilt (Rosner-Hickey), 57 N.Y.2d 66 (1982) ........................................................................................... 24 Miller v. Forge Mench P’ship, 2005 U.S. Dist. LEXIS 1524 (S.D.N.Y. Jan. 31, 2005) ..................................... 27 People ex rel. Mooney v. Sheriff of N.Y. County, 269 N.Y. 291 (1936) ........................................................................................... 28 v 8065836v.1 Motorola Credit Corp. v. Standard Chartered Bank, 24 N.Y.3d 149 (2014) ......................................................................................... 14 New York Times Newspaper Div. of N.Y. Times Co. v. Lehrer McGovern Bovis, Inc., 300 A.D.2d 169 (1st Dep’t 2002) ....................................................................... 28 Parisi v. Leppard, 172 Misc. 2d 951 (Sup. Ct. Nassau County 1997) ......................................... 8, 20 Parnes v. Parnes, 80 A.D.3d 948 (3d Dep’t 2011) .......................................................................... 26 Patrician Plastic Corp. v. Bernadel Realty Corp., 25 N.Y.2d 599 (1970) ......................................................................................... 35 People v. Osorio, 75 N.Y.2d 80 (1989) ..................................................................................... 19, 23 People v. Rivera, 2015 N.Y. LEXIS 931 (N.Y. May 5, 2015) ....................................................... 28 Schaeffler v. United States, 22 F. Supp. 3d 319 (S.D.N.Y. 2014) .................................................................. 37 Spectrum Sys. Int’l Corp. v. Chem. Bank, 78 N.Y.2d 371 (1991) ........................................................................................... 5 Tap Holdings, LLC v. Orix Fin. Corp., 109 A.D.3d 167 (1st Dep’t 2013) ....................................................................... 27 In re Teleglobe Commc’ns Corp., 493 F. 3d 345 (3d Cir. 2007) .................................................................. 18, 21, 22 United States v. Am. Tel. & Tel. Co., 642 F.2d 1285 (D.C. Cir. 1980) .......................................................................... 30 United States v. Gonzalez, 669 F.3d 974 (9th Cir. 2012) ........................................................................ 30, 32 United States v. Schwimmer, 892 F.2d 237 (2d Cir. 1989) ......................................................................... 20, 31 vi 8065836v.1 United States v. United Techs. Corp., 979 F. Supp. 108 (D. Conn. 1997) ...................................................................... 10 United States v. Zolin, 809 F.2d 1411 (9th Cir. 1987) ...................................................................... 31, 32 Wallace v. Wallace, 216 N.Y. 28 (1915) ............................................................................................. 20 Weber v. FujiFilm Med. Sys. U.S.A., 2011 U.S. Dist. LEXIS 6199 (D. Conn. Jan. 21, 2011) ..................................... 36 Yemini v. Goldberg, 12 Misc. 3d 1141 (Sup. Ct. Nassau County 2006) ............................................. 20 Zirn v. VLI Corp., 16 Del J. Corp. L. 1700 (Del. Ch. 1990) ............................................................ 38 RULES CPLR 4503(a) .......................................................................................................... 26 CPLR Article 45 ....................................................................................................... 27 Del. R. Evid. 502(b)(3) ...................................................................................... 15, 18 Tex. R. Evid. 503(b)(1)(C) ...................................................................................... 15 OTHER AUTHORITIES 4-160 Bender’s New York Evidence § 160.02 (2015) ...................................... 13, 23 7 Carmody-Wait 2d § 42:101 (2011) ....................................................................... 13 24 Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice & Procedure § 5493 (1986) ............................................................................ 7, 33 24 Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice & Procedure § 5493 (Supp. 2015) ...................................................................... 11 6 Moore’s Federal Practice § 26.49 (Matthew Bender 2015) ................................. 30 8 Wigmore, Evidence § 2311 (McNaughton rev. 1961) ................................... 24, 25 vii 8065836v.1 The Attorney-Client Privilege in Multiple Party Situations, 8 Colum. J.L. & Soc. Probs. 179 (1971-1972) ................................................................... 15 Craig S. Lerner, Conspirators’ Privilege and Innocents’ Refuge: A New Approach to Joint Defense Agreements, 77 Notre Dame L. Rev. 1449 (2002) ................................................................................................ 24 Fisch on New York Evidence § 524 (Supp. 2008) .................................................. 13 Grace M. Giesel, End the Experiment: The Attorney-Client Privilege Should Not Protect Communications in the Allied Lawyer Setting, 95 Marq. L. Rev. 475 (2011-2012) ............................................................... 22, 25 Restatement (Third) of the Law Governing Lawyers §76 (2000) ........................... 21 Melanie B. Leslie, The Costs of Confidentiality and the Purpose of Privilege, 2000 Wis. L. Rev. 31 (2000) ................................................................ 8 N.Y. Proposed Code Evid. § 503(b)(3) (1980) ........................................................ 28 New York Evidence Proof of Cases 3d § 5:23 (2014-15) ....................................... 13 Uniform R. Evid. 502(b)(3) (1974).......................................................................... 33 8065836v.1 PRELIMINARY STATEMENT 1 The question presented here is, once a party relinquishes the confidentiality inherent in the attorney-client privilege by disclosing information to another who has a shared interest, how much license are New York courts willing to give the disclosing party to shield that information from the truth-seeking process? For twenty years, New York courts consistently reached the same answer: common-interest protection will be granted only when the parties exchanging the communication have a common legal interest in pending or reasonably anticipated litigation. This rule strikes the proper balance between expanding the privilege to protect the sharing of such communications and limiting the disruption to the judicial fact-finding process that any privilege causes. BAC wrings its hands that the litigation requirement will somehow 1 As used herein, “Ambac” refers collectively to Plaintiffs-Appellants Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation; “App. Br.” refers to the opening Brief for Plaintiffs-Appellants dated May 5, 2015; “BAC” refers to Defendant-Respondent Bank of America Corp.; “Challenged Communications” refers to the allegedly privileged documents withheld by BAC that are at issue in this appeal; “Countrywide” refers to Defendant Countrywide Financial Corp. and its subsidiaries, including Defendants Countrywide Home Loans, Inc. and Countrywide Securities Corp., at the relevant time; “Order” refers to the Decision and Order entered December 4, 2014, by the Appellate Division, First Department, from which this appeal is taken; and “Resp. Br.” refers to the Brief for Defendant-Respondent dated June 23, 2015. All other terms not defined herein are used as defined in the Brief for Plaintiffs-Appellants. 2 8065836v.1 disrupt business transactions in our State. Any such concern is belied by the twenty years in which the litigation requirement has remained in effect without any evident impact on New York commerce. Indeed, over seven years ago, BAC found ways to share deal information – as careful lawyers typically do – in a transaction that was negotiated while the litigation requirement was firmly cemented in New York law. As a result, there is simply no proof that expanding the common-interest rule as far as BAC wishes would confer any marginal utility for our State. In contrast, the resulting denial of critical evidence to litigants, courts, and juries would be incontrovertible. Thus, a decision in this matter will not – as BAC would have it (Resp. Br. 27-29, 49) – discourage merger counterparties from making full and frank disclosure to each other. They have been doing so successfully for decades. The litigation requirement that numerous New York courts have imposed on the common-interest doctrine serves a host of policy interests that help keep the protection narrow and keenly focused on its purpose: It limits common-interest protection to those communications most likely to have been discouraged but for the protection – i.e., communications between parties who anticipate discovery requests from adversaries in pending or anticipated litigation. It provides a necessary check against abuse of common-interest protection by parties who would try to use it to shield their personal or business-oriented communications under the guise of remotely “legal” shared interests. 3 8065836v.1 It properly accounts for the difference in scope between the attorney- client privilege and the common-interest doctrine, as well as the differing policy goals that each doctrine serves, and harmonizes the common-interest doctrine with its origins in the joint defense privilege. It serves the public interest by ensuring that damning evidence of wrongdoing will not be hidden from scrutiny under the guise of a common interest. It enhances stability and respect for the law, by following an unbroken series of New York court decisions stretching over two decades. Contrary to BAC’s arguments, this appeal is not about the attorney- client privilege. (Resp. Br. 22-29.) Rather, it is about the common-interest doctrine, which is a different doctrine and has its roots in the joint defense privilege. The realm in which the common-interest doctrine operates is wholly separate from the zone of protection covered by the statutorily framed attorney- client privilege. Even in its most liberal applications, the privilege does not protect communications in which attorney-client confidentiality is forfeited. Put simply, the common-interest doctrine begins only where the attorney-client privilege ends. A fundamental flaw in BAC’s argument is that it assumes its pre- merger communications are worthy of special legal protection and that it is somehow Ambac’s burden to show why disclosure is necessary. But this turns established privilege law on its head. For decades, New York law has required the party asserting a privilege to show that the benefits of applying the privilege outweigh the resulting detriment to the truth-seeking process. BAC’s brief, 4 8065836v.1 however, never even addresses the heavy costs that its proposed expansion of the common-interest doctrine would impose on the judicial process. BAC has simply not met its weighty burden here. As a result, this Court should reaffirm this important litigation limitation. Alternatively, even without the litigation requirement, the common- interest doctrine does not apply to the communications between merger counterparties at issue here. The First Department clearly used the setting of this case to inform its view of what New York’s common-interest doctrine should look like, focusing on areas where BAC and Countrywide were aligned in completing their business deal. But the court below overlooked the fact that the shared interests of parties on opposing sides of a proposed merger are, at bottom, commercial and not legal. Moreover, the Appellate Division completely ignored the plain divergence in the parties’ interests that endured at least until the merger’s closing and even thereafter. BAC and Countrywide were on opposite sides of the table in the proposed merger and thus did not sufficiently share any common legal interest that is worthy of privilege protection. Even BAC seems to recognize this in acknowledging that a single lawyer could not represent both sides of the merger due to conflict-of-interest concerns. (See Resp. Br. 29.) Accordingly, the First Department’s order should be reversed. 5 8065836v.1 ARGUMENT POINT I THE LITIGATION REQUIREMENT IS A PRINCIPLED CHECK ON NEW YORK’S COMMON-INTEREST DOCTRINE A. The Litigation Requirement Appropriately Balances the Applicable Interests in Searching for the Truth and Protecting Privileged Communications from Disclosure As this Court has repeatedly recognized, every evidentiary privilege entails a balance between the interests in truth-finding and protecting certain classes of confidences. See, e.g., Spectrum Sys. Int’l Corp. v. Chem. Bank, 78 N.Y.2d 371, 377 (1991) (“Obvious tension exists between the policy favoring full disclosure and the policy permitting parties to withhold relevant evidence.”); Matter of Jacqueline F., 47 N.Y.2d 215, 218-19 (1979). This Court has held that “the strong policy in favor of full disclosure” places the burden on the party seeking immunity “to show the existence of circumstances justifying its recognition.” Koump v. Smith, 25 N.Y.2d 287, 294 (1969) (citations omitted); see also Spectrum Sys., 78 N.Y.2d at 377 (“[T]he burden of establishing any right to protection is on the party asserting it; the protection claimed must be narrowly construed; and its application must be consistent with the purposes underlying the immunity.”). In order for any privilege to arise, it is essential that the interest in 6 8065836v.1 promoting “full candor” will “outweigh the benefits of the truth-seeking process from disclosure.” Lamitie v. Emerson Elec. Co., 142 A.D.2d 293, 298-99 (3d Dep’t 1988) (declining to recognize “critical self-analysis” privilege where interest in protecting communications did not sufficiently outweigh the cost on the judicial process); Matter of A&M, 61 A.D.2d 426, 434 (4th Dep’t 1978) (recognizing that a privilege arises only if “the injury that would inure to the relation by the disclosure of the communication [is] greater than the benefit thereby gained for the correct disposal of litigation”) (quoting 8 Wigmore, Evidence § 2285, at 527 (McNaughton rev. 1961)). Weighing out this “delicate balancing process” is essential before a claim of privilege can be recognized. Beard v. Ames, 96 A.D.2d 119, 121-22 (4th Dep’t 1983) (remitting for reconsideration of privilege finding where record did “not reveal that Special Term engaged in the delicate balancing process required”). BAC’s brief is entirely devoid of any analysis of this critical balancing test that underlies privilege law. BAC’s default on this key issue alone warrants a reversal. 1. The Litigation Requirement Provides a Suitable Balance Between the Benefits and Costs of Extending Privilege Protection Under the Common-Interest Doctrine In its brief, BAC expounds at length as to why BAC and companies like it would prefer an expanded common-interest doctrine to encourage their 7 8065836v.1 commercial collaborations. But there is no record evidence that any businesses have actually suffered during the decades in which the litigation requirement has remained in effect, and the surging deal flow in New York certainly dispels any such notion. Nor does BAC ever pause to address the other half of the privilege equation – i.e., the harm that discarding the common-interest doctrine’s litigation requirement will have on the ability of litigants, courts, and juries to find the truth. BAC insists dogmatically on the proposition that “open and honest attorney-client communications should always be encouraged” even where attorneys are not communicating with their own clients. (Resp. Br. 30 (emphasis in original).) In doing so, BAC fails to grapple with the huge costs imposed by its expansive rule, particularly in shielding large swaths of previously discoverable information from the light of day. See 24 Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice & Procedure § 5493, at 461 (1986) (noting that while common-interest expansion arguably “increases the flow of information” between separately represented parties, it “also reduces the flow of information to the court”). BAC’s tunnel-vision approach stands in marked contrast to the many New York courts that have engaged in the requisite “delicate balancing process” to decide how far to extend the common-interest doctrine. Time and again, these courts have concluded that restricting the common-interest doctrine to pending or reasonably anticipated litigation strikes the proper balance between secrecy and 8 8065836v.1 full disclosure. See, e.g., Brooklyn Navy Yard Cogeneration Partners, L.P. v. PMNC, 194 Misc. 2d 331, 333-34 (Sup. Ct. Kings County 2002); Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s, London, 176 Misc. 2d 605, 611-13 (Sup. Ct. N.Y. County 1998), aff’d, 263 A.D.2d 367 (1st Dep’t 1999); Parisi v. Leppard, 172 Misc. 2d 951, 955-56 (Sup. Ct. Nassau County 1997). Thus, what BAC derides as an “arbitrary litigation limitation” (Resp. Br. 4) in fact reflects the considered and unanimous views of judges who have repeatedly confronted similar situations. New York’s litigation requirement makes good sense. Parties who expect litigation, and the mandatory disclosure that comes with it, are the ones most likely to refrain from sharing privileged information with other commonly interested parties and are thus the ones most in need of privilege protection. Conversely, parties who do not reasonably anticipate litigation are the ones least likely to be daunted by the amorphous risk that a court will someday choose not to give their communications privileged status. Thus, those parties are far more likely to wield the common-interest doctrine as an ex post facto justification to deny their adversaries discovery of relevant communications – in litigation that they never truly expected – than they are to rely on the doctrine’s protection in choosing to make disclosure in the first instance. See Melanie B. Leslie, The Costs of Confidentiality and the Purpose of Privilege, 2000 Wis. L. Rev. 31, 68 (2000) 9 8065836v.1 (“[W]hen parties share attorney-client communication for planning purposes outside of the specter of anticipated litigation, . . . it is more likely that the parties would have shared information even absent the privilege.” ). Drawing the line of protection at reasonably anticipated litigation thereby prevents the over-assertion of privilege by parties who did not need the immunity guarantee to induce their dialogue and simply want to bury damaging evidence. The litigation standard, in turn, not only limits the volume of evidence that can be withheld from adversaries, the courts, and the public, but provides a compelling justification for a limited incursion on the fact-finding process. Only where litigation is at least on the horizon can it be said that extending privilege protection is sufficiently certain to stimulate desirable communication that the injury to the truth-seeking process ought to be tolerated. 2 2. The Litigation Requirement Allows for Greater Predictability and Ease in Applying the Common-Interest Doctrine The litigation requirement also facilitates trial courts’ application of the common-interest doctrine by giving them a readily discernable test for 2 BAC makes a mockery of the litigation requirement by suggesting that companies are “always under the potential specter of litigation.” (Resp. Br. 31) (emphasis in original). The litigation requirement rightly demands reasonable anticipation of specific litigation – not the amorphous fear that BAC implies. See Aetna, 176 Misc. 2d at 613 (noting that proponents of privilege protection failed to show the commonly interested parties were “expecting this or any other specific litigation” when they shared communications) (emphasis added). 10 8065836v.1 determining whether a proffered “common legal interest” is deserving of protection. A “common legal interest” is neither an established term of art nor a concept that New York courts have experience applying in other contexts. As a result, the litigation requirement lends a measure of structure and predictability to the common-interest inquiry, and it is a criterion that New York courts have ample experience applying through the trial preparation privilege and the attorney work- product doctrine, as well as in twenty years of common-interest cases. While some jurisdictions have adopted the common-interest doctrine without a litigation limitation, their decisions show how unbounded the doctrine thereby becomes. 3 As two prominent commentators have lamented: “Having lost its proper moorings in privilege, the [common-interest] doctrine is spreading like crabgrass to areas the drafters of the Rejected Rule [503(b)(3), which would have codified the doctrine for the Federal Rules of Evidence without any limitation to 3 See, e.g., In re Leslie Controls, Inc., 437 B.R. 493, 500 (Bankr. D. Del. 2010) (holding that “the common-interest doctrine will apply . . . even if there are separate or overlapping commercial interests” and finding a common legal interest in “preserving and maximizing the insurance available to pay asbestos claims,” because this involved interpreting insurance agreements); Electro Sci. Indus. v. Gen. Scanning, Inc., 175 F.R.D. 539, 541-42 (C.D. Cal. 1997) (extending common-interest protection to manufacturer’s disclosure of patent validity opinion to representatives of “customers or prospective customers” of allegedly infringing products, which manufacturer disclosed “for the purpose of advancing its own commercial interests”); United States v. United Techs. Corp., 979 F. Supp. 108, 112 (D. Conn. 1997) (extending common-interest protection to consortium members formulating a strategy to limit tax liability because they were “legally committed to a cooperative venture and seeking to make that venture maximally profitable”). 11 8065836v.1 litigation] could have hardly imagined.” 24 Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice & Procedure §5493, at 283 (Supp. 2015). The tendency of these courts to bestow protection on any claimed common interest that merely touches on legal issues shows why a tighter standard is needed that can withstand the creep toward granting overly broad immunity from disclosure. The litigation requirement is the tool that our courts have fashioned to keep the protections of the common-interest doctrine suitably narrow, as is required for any privilege, and thereby shielded from exploitation by parties who could otherwise frame virtually any shared interest as having a legal component. See, e.g., Aetna, 176 Misc. 2d at 611-12. 3. The Litigation Requirement Has Worked in New York for Twenty Years Without Any of the Negative Consequences that BAC Predicts Despite BAC’s protests to the contrary (Resp. Br. 24-29), the business world will not devolve into a lawless state if New York’s litigation requirement is maintained. Rather, the law will remain exactly where it stood in our State before the First Department’s December 2014 ruling, when New York litigants had no reason to believe that their privilege claims would survive voluntary disclosure to a third party outside the litigation context. BAC seeks to whitewash nearly two decades of unanimity among New York courts about the litigation requirement. This consensus was only 12 8065836v.1 broken when the First Department, in the decision below, consciously chose to deviate from “the New York approach” and the “line of New York cases [that] requires pending or reasonably anticipated litigation for the common-interest privilege to apply.” (R. xi, xx, Order at 2, 11.) BAC posits that twenty New York decisions affirming the litigation requirement (see App. Br. 25-26 & n.9) can be ignored, either because they “did not actually hold that such a requirement exists,” or because their analysis was not sufficient, in BAC’s estimation. (Resp. Br. 34- 37.) As an initial matter, BAC’s untenable reading of New York case law is refuted even by the Appellate Division decision below. While we disagree with the First Department’s willingness to jettison established New York law, there is no question that the panel appreciated that this is what it was doing. (R. xi, Order at 2 (“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.”) (emphasis added).) Similarly meritless is BAC’s attempt to relegate New York courts’ consistent embrace of the litigation requirement to mere dicta. BAC repeatedly claims that no “reasoned” authority is against its position. (See, e.g., Resp. Br. 22, 47, 49.) While BAC may reject the reasoning of the long line of contrary cases, 13 8065836v.1 suffice it to say that in the Hyatt decision that BAC itself cites, the Second Department wrote: “This Court has held that application of the common-interest privilege further requires that the communication be made ‘in reasonable anticipation of litigation.’” Hyatt v. State of Cal. Franchise Tax Bd., 105 A.D.3d 186, 205 (2d Dep’t 2013) (emphasis added) (citing Hudson Valley Marine, Inc. v. Town of Cortlandt, 30 A.D.3d 377, 378 (2d Dep’t 2006)). 4 BAC needs to erase this unbroken history to perpetuate its fiction that the litigation requirement will have a deleterious effect on business in New York. But a decision reaffirming the litigation requirement will merely maintain New York law as it was seven months ago, before the panel’s decision below. For the 4 Every major treatise on New York evidence discussing the common-interest doctrine recognized that the rule was limited to pending or reasonably anticipated litigation. See 4-160 Bender’s New York Evidence § 160.02(6)(e) (2015) (“The privilege is limited to communication between counsel and parties with respect to legal advice in pending or reasonably anticipated litigation in which the joint consulting parties have a common legal interest.”); New York Evidence Proof of Cases 3d § 5:23 (2014-15) (“Any ‘common interest’ exception must be limited to communication between counsel and the parties with respect to legal advice in pending or reasonably anticipated litigation in which the joint consulting parties have a common legal interest. The common legal interest must impact potential litigation against all of the participants . . . .”); 7 Carmody-Wait 2d § 42:101 (2011) (recognizing that “[t]he common interest privilege . . . applies to parties facing common problems in pending or threatened civil litigation” and “is limited to communications between counsel and parties with respect to legal advice in pending or reasonably anticipated litigation in which the joint consulting parties have a common legal interest”); Fisch on New York Evidence § 524 (Supp. 2008) (“A common interest privilege . . . has been recognized in New York” and “has been applied to pending or reasonably contemplated to pending or reasonably contemplated legal action in a civil case.”). 14 8065836v.1 twenty-year period in which the litigation requirement has been embedded in New York’s common-interest case law, there is no reason to think that businesspeople were significantly inhibited by the litigation requirement, or that lawyers urged their clients to avoid it by taking their transactions elsewhere. BAC itself acknowledges this point, conceding that “each party could confer separately and confidentially on parallel tracks with their own counsel” – which is precisely how the deal process works. (Resp. Br. 29.) Rather than take their business elsewhere, New York companies continued to negotiate and close countless transactions against the backdrop of a legal regime that expressly excepted from privilege protection materials that are disseminated to counterparties with no lurking litigation. And even without the expansive privilege protection for which BAC advocates, our State retained its “‘status as the preeminent commercial and financial nerve center of the world,’” as this Court reaffirmed just last year. Motorola Credit Corp. v. Standard Chartered Bank, 24 N.Y.3d 149, 162 (2014) (citing Ehrlich-Bober & Co. v. Univ. of Houston, 49 N.Y.2d 574, 581 (1980)); see also Bluebird Partners, L.P. v. First Fid. Bank, N.A., 94 N.Y.2d 726, 739 (2000) (New York “harbors the financial capital of the world”). 4. BAC Had No Expectation of Confidentiality in the Challenged Communications BAC’s position boils down to an assertion of an entitlement that neither it nor any party residing or doing business in New York had any right to 15 8065836v.1 expect in the first place. There is no common law tradition of extending privilege to commonly interested parties outside of litigation. See The Attorney-Client Privilege in Multiple Party Situations, 8 Colum. J.L. & Soc. Probs. 179, 187 (1971-1972) (reporting that “[n]o American case has allowed a privilege for a joint conference in a situation totally unrelated to litigation”). There is no statute that codifies the common-interest doctrine in New York, despite other states’ initiatives to codify the rule in various forms. Compare, e.g., Tex. R. Evid. 503(b)(1)(C) with Del. R. Evid. 502(b)(3). Until the Appellate Division panel below decided to rewrite New York law, no state or federal court had ever suggested that litigants in this State could expect their voluntary disclosures to commonly interested third parties to retain their privileged status if no litigation was on the horizon. Thus, at the time BAC made the Challenged Communications, it could not have had any expectation of privilege. Rather, the Challenged Communications are now being treated as privileged simply because, after having its privilege claims twice rejected based on existing precedent, BAC was able to convince an Appellate Division panel to change the law. While the panel below wrongly decided what New York law should be, it properly recognized what the law had been up to that point. (R. xi, xx-xxii, Order at 2, 11-13.) BAC is thus plainly wrong in asserting that it “had every reason to believe that the law would recognize the confidentiality of” the Challenged 16 8065836v.1 Communications. (Resp. Br. 32.) The New York courts’ repeated rulings about the legal landscape in which BAC and Countrywide operated destroys any claim that they reasonably expected their pre-merger communications to remain privileged. This legal history also underscores the fallacy of BAC’s exhortation that the litigation requirement “discourage[s] parties with common legal interests from sharing among themselves the benefits of candid legal advice concerning those common interests, thereby frustrating legal compliance rather than facilitating it.” (Resp. Br. 2 (emphasis in original).) Like parties in countless other transactions, the merger counterparties here exchanged all the information they needed to close their deal, notwithstanding the fact that their communications would not have qualified for privilege protection in New York (or, for that matter, in Texas, Florida, or a host of other states (see App. Br. 51 n.16)). This reflects the simple truth that when parties need to exchange information to work toward a common goal – such as “obtaining regulatory approval, filing required disclosures, [or] reviewing the merger’s ramifications on contractual obligations to third parties” (Resp. Br. 4) – they will readily do so. And they do so not because they have any guarantee that in some unknown litigation, a litigation adversary will be denied discovery of that information, but because they want to achieve their common goal. The more necessary the advice – and BAC contends it was essential here – the more likely it is to be shared 17 8065836v.1 irrespective of whether any privilege protects it. There is great irony in BAC’s appeal to the unfairness of having its common-interest claims tested by a New York standard that it claims is less forgiving than that of “other principal business-law jurisdictions.” (Resp. Br. 47.) Out of all of the possible laws that BAC could have chosen to govern its November 2007 confidentiality agreement with Countrywide – pursuant to which the merger parties exchanged the Challenged Communications, and which was incorporated by reference into the Merger Agreement (R. 85) – BAC voluntarily selected New York law. (R. 95 (“This agreement shall be governed and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof.”).) And it did so just one year after the Second Department in Hudson Valley followed a long line of cases holding that the common-interest doctrine has no application absent “reasonable anticipation of litigation.” 30 A.D.3d at 378. BAC cannot claim to have been blindsided by a litigation requirement imposed under the very body of law that it picked to control the scope of its disclosures with Countrywide given the New York courts’ repeated and clear recognition of the litigation requirement. 5 5 Ignoring its own selection of New York law, BAC argues that it “had every reason to believe” it could avail itself of a common-interest rule like Delaware’s, given Delaware’s experience in resolving legal disputes among businesses. (Resp. Br. 32, 46-47.) But at the time when the Challenged Communications were exchanged, BAC had no reason to expect Delaware law would protect those 18 8065836v.1 Moreover, the terms of the Merger Agreement confirm that BAC and Countrywide did not expect that all the communications they might share in effectuating the merger would be legally protected. Section 6.2 of the Merger Agreement, describing the access to information that each party would afford the other, provides that “[n]either [CFC] nor [BAC], nor any of their Subsidiaries, shall be required to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege of such Party or its Subsidiaries . . . .” (R. 85.) This exception from disclosure confirms that the parties fully anticipated that their exchanges of information could indeed work a waiver of privilege, and as a result of that concern, each party reserved the right to resist sharing such privileged information. Thus, under that Agreement, the parties shared all the information they deemed necessary regardless of whether it would communications: six months before the Merger Agreement was signed, the Third Circuit ruled that for the common-interest doctrine to apply under Delaware law, “the communication must be shared with the attorney of the member of the community of interest,” and “[s]haring the communication directly with a member of the community may destroy the privilege.” In re Teleglobe Commc’ns Corp., 493 F. 3d 345, 364 (3d Cir. 2007) (emphasis in original) (citing Ramada Inns, Inc. v. Dow Jones & Co., 523 A.2d 968, 972 (Del. Super. Ct. 1986)); see also Del. R. Evid. 502(b)(3) (protection extends to communications “by the client or the client’s representative or the client’s lawyer or a representative of the lawyer to a lawyer or a representative of a lawyer representing another in a matter of common interest,” notably omitting the commonly interested party itself from the list of permitted recipients). This requirement would be fatal to BAC’s privilege claims here. BAC’s privilege log shows that for the vast majority of the Challenged Communications, BAC and Countrywide did not limit their transmissions of privileged material to attorneys (identified by “Esq.” on the log) but rather circulated them freely to non-attorneys on the other side. (R. 193-359.) 19 8065836v.1 receive any legal protection. As BAC’s own conduct in planning the merger illustrates, even with a litigation requirement, businesses will continue to work together to coordinate their efforts in a transaction – and exchange privileged materials where needed. (See Resp. Br. 29.) B. The Common-Interest Doctrine Springs from the Litigation-Limited Joint Defense Privilege, Not the Joint Client Privilege BAC tries to deny the common-interest doctrine’s genesis in the joint defense privilege in an effort to ignore joint defense cases like People v. Osorio, 75 N.Y.2d 80, 85 (1989), which require that the parties be “mounting a common defense” in litigation. 6 Instead, BAC attempts to re-assign the common-interest doctrine’s origins to the joint client privilege, while nonetheless recognizing that the joint defense setting was “an early . . . illustration of the common-interest doctrine.” (Resp. Br. 38, 40.) Through this fiction, BAC tries to make it appear that New York has long held – under the shared client rule – that privileged communications “may be shared between parties to further a common legal interest 6 BAC claims that the “mounting a common defense” test set out in Osorio was not a holding by this Court but was merely a reflection of “the factual premise” of that case. (Resp. Br. 37.) This is not correct, as shown by this Court’s use of the word “unless” in articulating when an exchange of information will destroy this privilege. Osorio, 75 N.Y.2d at 85 (“If the codefendants are mounting a common defense their statements are privileged but unless the exchange is for that purpose the presence of a codefendant or his counsel will destroy any expectation of confidentiality between a defendant and his attorney.”) (emphasis added). 20 8065836v.1 without waiving the privilege.” (Id. at 20 (citing Wallace v. Wallace, 216 N.Y. 28 (1915), and Hurlburt v. Hurlburt, 128 N.Y. 420 (1891)).) 7 BAC’s exercise in revisionist history fails on several levels. First, courts in our State have consistently drawn their understanding of the common-interest doctrine in the civil context through their reading of criminal joint defense cases, including Osorio. See, e.g., Yemini v. Goldberg, 12 Misc. 3d 1141, 1143 (Sup. Ct. Nassau County 2006); Aetna, 176 Misc. 2d at 611; Parisi, 172 Misc. 2d at 955-56; see also In re Megan-Racine Assocs., 189 B.R. 562, 571 (Bankr. N.D.N.Y. 1995) (applying New York law). Indeed, the Second Circuit’s decision in United States v. Schwimmer, 892 F.2d 237 (2d Cir. 1989) – on which the panel below relied heavily (R. xviii-xix, Order at 9-10), and which BAC argues is “particular[ly] . . . ‘instructive’ as to the scope of the common-interest doctrine” (Resp. Br. 23 n.38) – was “an appeal concerning criminal co-defendants” and their assertion of privilege over communications with counsel in the course of “a joint defense effort or strategy.” (R. xviii, Order at 9 (citing Schwimmer, 892 F.2d at 243).) Furthermore, Schwimmer itself expressly equated the common- interest privilege with the joint defense doctrine. 892 F.2d at 243 (acknowledging that “[t]he joint defense privilege” is “more properly identified as the ‘common 7 Curiously, BAC relies heavily on Wallace and Hurlburt when those cases merely held that the privilege does not protect communications involving parties who jointly retain counsel and thereafter find themselves in a dispute with each other. Wallace, 216 N.Y. at 35-36; Hurlburt, 128 N.Y. at 425. 21 8065836v.1 interest rule’”). Second, BAC has failed to cite a single case in which a court has cited the joint client rule as a basis for its understanding of the common-interest doctrine. See Jordan (Berm.) Inv. Co. v. Hunter Green Invs. Ltd., 2005 U.S. Dist. LEXIS 3424, at *3 (S.D.N.Y. Mar. 2, 2005) (concluding that the common-interest doctrine “is not relevant” in New York where “the communications at issue involve joint clients of the same counsel and are subject to the attorney-client privilege itself”). Third, as even BAC’s authorities make clear, the common-interest doctrine is distinct – both conceptually and developmentally – from the joint client privilege. See, e.g., Restatement (Third) of the Law Governing Lawyers §76 cmts. a, e & Reporter’s Note cmt. B (2000) (noting that the common-interest “rule differs from the co-client rule of § 75 in that the clients are represented by separate lawyers” and thus follows “somewhat different rules,” and that “[u]nlike the relationship between co-clients, the common-interest relationship does not imply an undertaking to disclose all relevant information”); Teleglobe, 493 F. 3d at 355- 56 (“[W]hile the Restatement (confusingly) uses the term ‘common interest’ to describe the congruence of the parties’ interests in both co-client and community- of-interest situations, the concepts are not the same.”). Fourth, the differences between the joint client and common-interest 22 8065836v.1 doctrines highlight the important role that the litigation requirement plays. In the joint client setting, there is complete alignment of interests among the clients; otherwise, the attorney would be ethically barred from representing the parties jointly. Teleglobe, 493 F.3d at 366 (“[B]ecause co-clients agree to share all information related to the matter of common interest with each other and to employ the same attorney, their legal interests must be identical (or nearly so) in order that an attorney can represent them all with the candor, vigor, and loyalty that our ethics require.”). By contrast, in the common-interest setting, the incongruity of client interests renders joint representation impossible; as BAC itself points out, “hir[ing] the same attorney” to handle the merger would present “obvious conflict- of-interest problems, since even parties who share many legal interests may simultaneously have divergent interests in some circumstances.” (Resp. Br. 29.) But the same considerations that make joint representation in the common-interest setting ethically unworkable also require a different privilege analysis. In the joint client setting, there is no question as to the identity of interests that are shared by the co-clients and their common attorney; “the commonality springs from the nature of the joint representation.” Grace M. Giesel, End the Experiment: The Attorney-Client Privilege Should Not Protect Communications in the Allied Lawyer Setting, 95 Marq. L. Rev. 475, 486 (2011- 2012). Thus, any communication made in furtherance of the joint representation is 23 8065836v.1 perforce one that implicates the clients’ common legal interests. In contrast, in the common-interest setting, which involves separately represented parties, the presumption of commonality becomes much more attenuated. Given the assortment of convergent and discordant interests at work in the transactional setting – both legal and non-legal in nature – there is no reason to assume that any exchange of information will implicate the parties’ common interests, much less shared legal interests. In the face of that uncertainty, New York courts since Osorio have turned to the most concrete marker of a legal interest – a common objective in pending or reasonably anticipated litigation – as the appropriate benchmark for separating a protectable interest from those relationships that are less clearly deserving of privilege protection. The fact that the common-interest doctrine derives not from the joint client privilege but the joint defense privilege is fatal to BAC’s position on this appeal. If the common-interest doctrine is subject to the same traditional limitations of the joint defense privilege as this Court announced in Osorio, then there can be no doubt that the doctrine is restricted to pending or reasonably anticipated litigation. See, e.g., Osorio, 75 N.Y.2d at 85; Brooklyn Navy Yard, 194 Misc. 2d at 334 (“[T]he joint defense privilege arises only where the common interest of the parties relates to the joint defense of existing or impending litigation.”); 4-160 Bender’s New York Evidence § 160.02(6)(e) (“The joint 24 8065836v.1 defense privilege . . . is limited to communication between counsel and parties with respect to legal advice in pending or reasonably anticipated litigation in which the joint consulting parties have a common legal interest.”). C. The Common-Interest Doctrine Is Fundamentally Distinct from the Attorney-Client Privilege BAC tries to confuse the issues by equating the common-interest doctrine with the attorney-client privilege. BAC harps on the fact that the attorney-client privilege applies outside the litigation context. Critically, however, the common-interest doctrine does nothing to advance what this Court has identified as the fundamental purpose of the attorney-client privilege: i.e., “to foster openness between counsel and client so that legal problems can be thoroughly and accurately analyzed.” Matter of Vanderbilt (Rosner-Hickey), 57 N.Y.2d 66, 76 (1982) (emphasis added); see also Craig S. Lerner, Conspirators’ Privilege and Innocents’ Refuge: A New Approach to Joint Defense Agreements, 77 Notre Dame L. Rev. 1449, 1480 (2002) (“Facilitating legal representation in every possible way is not the touchstone of the privilege; the touchstone is insuring the secrecy of a client’s disclosures to the client’s lawyer.”) (emphasis in original). Because the common-interest doctrine is not anchored by either the key limitation on, or the principal rationale for, the attorney-client privilege, BAC’s demand for symmetry in their application outside of litigation rings hollow. 8 Wigmore, Evidence § 2311, at 602-03 (“[E]ven if we might predicate a desire for 25 8065836v.1 confidence by the client” when a third party is exposed to an attorney-client communication, “the policy of the privilege would still not protect him, because it goes no further than is necessary to secure the client’s subjective freedom of consultation.”); Giesel, supra, at 546 (recognizing that “[t]he rationale of the [attorney-client] privilege is to create an environment of superior legal advice by encouraging client disclosure to the client’s attorney,” and that extending protection to the common-interest setting “does not . . . further attorney-client communications” because “the clients are not disclosing anything new to their own attorneys”). The privilege’s confidentiality requirement “ensures that the privilege applies only where it is needed as an encouragement.” Giesel, supra, at 499-500; see also 8 Wigmore, Evidence §2311, at 599 (“The reason for prohibiting disclosure . . . ceases when the client does not appear to have been desirous of secrecy. The moment confidence ceases, . . . privilege ceases.”) (citation and quotation marks omitted). This limitation is inherently lost once privileged materials are transmitted outside the orbit of the attorney-client relationship. The litigation requirement fills this void by restricting privilege protection to those communications that are most likely to have been withheld absent an immunity guarantee. The absence of any attorney-client confidentiality from exchanges that 26 8065836v.1 potentially qualify for common-interest protection shows the defect in BAC’s reasoning that the common-interest doctrine is “merely derivative of the attorney- client privilege” and thus its application is already confined by the limits of that privilege. (Resp. Br. 50.) Discarding this confidentiality limitation necessarily expands the protection afforded in the common-interest setting well beyond what the attorney-client privilege currently covers. See CPLR 4503(a) (restricting attorney-client privilege to “a confidential communication made between the attorney and his or her employee and the client”). The litigation requirement thus limits the scope of protection available in the potentially limitless common-interest setting through the application of two decades of New York case law that has kept the common-interest protection reasonably confined. D. The Crime-Fraud Exception Is No Substitute for the Carefully Tailored Litigation Requirement BAC claims that the availability of the crime-fraud exception is protection enough against parties who may abuse the common-interest doctrine by trying to secrete important proof of misconduct. (Resp. Br. 51.) But the crime- fraud exception, as its name indicates, is quite sparingly applied – only in the face of a “probable cause” showing of conduct “of a criminal or dubious nature, not merely mean or dishonorable.” Parnes v. Parnes, 80 A.D.3d 948, 952 (3d Dep’t 2011). The availability of this exception is cold comfort to litigants who are denied discovery based on the common-interest doctrine and thus are prevented 27 8065836v.1 from gaining access to evidence that can show actionable conduct that may or may not rise to the level of a crime or fraud. That is precisely the case here: the pre-merger communications are likely to inform the central inquiry at the root of Ambac’s de facto merger claim – i.e., “whether, in substance, it was the intent of [BAC] to absorb and continue the operation of [Countrywide].” Tap Holdings, LLC v. Orix Fin. Corp., 109 A.D.3d 167, 176 (1st Dep’t 2013) (citation and quotation marks omitted). Significantly, no showing of fraud or wrongful conduct is necessary to find a de facto merger. See Miller v. Forge Mench P’ship, 2005 U.S. Dist. LEXIS 1524, at *38 (S.D.N.Y. Jan. 31, 2005) (under New York law, “no independent showing of fraud or injustice is required under the de facto merger doctrine”). The limited scope of the crime- fraud exception is thus no substitute for the more carefully refined litigation requirement in ensuring disclosure of important evidence. E. If the Litigation Requirement Is To Be Jettisoned, that Is a Decision for the Legislature If the common-interest doctrine is not limited to litigation in the same way as the joint defense privilege, it would create an entirely new evidentiary privilege that needs to be created by the Legislature, not the courts. There simply is no authority in the CPLR or New York case law for recognizing a privilege that can be waived as to certain third parties outside the litigation context but enforced against others. See generally CPLR Article 45; see also New York Times 28 8065836v.1 Newspaper Div. of N.Y. Times Co. v. Lehrer McGovern Bovis, Inc., 300 A.D.2d 169, 172 (1st Dep’t 2002) (“Disclosure of a privileged document generally operates as a waiver of the privilege unless it is shown that the client intended to maintain the confidentiality of the document [and] that reasonable steps were taken to prevent disclosure . . . .”). BAC’s argument that the existing, carefully balanced common- interest rule is judge-made (Resp. Br. 54) misses the point. The issue is whether this Court, as opposed to the Legislature, is the most appropriate body to grant the dramatic widening of privilege protection that BAC seeks. This Court has recognized that the Legislature is best equipped to decide whether public policy calls for such broad-scale expansions of a privilege. See People ex rel. Mooney v. Sheriff of N.Y. County, 269 N.Y. 291, 295 (1936). 8 The public interest is clearly implicated by the rule BAC endorses, which could allow parties to a merger to hide abuses affecting shareholders, creditors, and even consumers by wrapping their pre-merger communications in a cloak of secrecy. Indeed, the Legislature previously considered a common-interest doctrine that is not limited to litigation, and declined to pass it. See N.Y. Proposed 8 This Court recently noted in the parallel context of the physician-patient privilege that the breadth of a statutory privilege is for the Legislature to determine, including when it concerns the waiver doctrine. See People v. Rivera, 2015 N.Y. LEXIS 931, at *6 (N.Y. May 5, 2015) (“[W]henever the Legislature has decided to limit the privilege’s scope, it has done so through the enactment of specific legislation to address the particular subject matter.”). 29 8065836v.1 Code Evid. § 503(b)(3) (1980). That decision is entitled to substantial judicial deference. While BAC contends that the Proposed Code of Evidence that the Legislature rejected would have done much more than alter the terrain of the common-interest doctrine (Resp. Br. 54), it is sufficient that the Legislature had before it the very same principle for which BAC now advocates, yet chose not to adopt it. F. The Litigation Requirement Finds Ample Support in Other Jurisdictions BAC brushes aside the wide range of other jurisdictions that have imposed a litigation requirement because their justifications for doing so are not sufficiently “reasoned” for BAC’s taste. (Resp. Br. 41.) BAC’s effort to minimize these contrary decisions cannot obscure the sizable cohort of jurisdictions that have decided, as New York courts have, that the common-interest doctrine should be limited to the litigation context. (App. Br. 50-52.) First, BAC attempts to minimize the fact that a majority of federal courts of appeals limit the common-interest doctrine to impending litigation. (See App. Br. 50.) BAC claims that these courts recognized the litigation requirement in joint defense cases, or cases in which the underlying basis for protection was the work-product doctrine, or did not rest their express holdings on the existence of such a requirement. (Resp. Br. 43-44.) But BAC fails to explain why a litigation requirement for the joint defense privilege should not also extend to the common- 30 8065836v.1 interest doctrine, given those courts’ equating of the two doctrines. 9 Nor does BAC explain why the common-interest inquiry should differ depending on what the nature of the underlying privilege is 10 or why a court’s statement of the law can be ignored unless it is central to the ultimate holding in the case. BAC’s insistence that one can discern the federal rule from a treatise also cuts against its position, as at least one prominent treatise in fact recognizes the litigation requirement. See 6 Moore’s Federal Practice § 26.49[5][b] (Matthew Bender 2015) (“Two types of communications are protected under the common legal interest privilege: (1) communications between codefendants in actual litigation and their counsel; and (2) communications between potential codefendants and their counsel.”). Second, the minority of federal courts that BAC contends favor its 9 See, e.g., United States v. Gonzalez, 669 F.3d 974, 978 (9th Cir. 2012) (“The [joint-defense] privilege is also referred to as the ‘common interest’ privilege or doctrine . . . .”); In re Grand Jury Subpoena, 274 F.3d 563, 572 (1st Cir. 2001) (“[W]hat the parties call a ‘joint defense’ privilege is more aptly termed the ‘common interest’ rule.”) (citing Schwimmer, 892 F.2d at 243); In re Grand Jury Subpoenas, 902 F.2d 244, 249 (4th Cir. 1990) (“[T]oday the joint defense privilege is more properly identified as the ‘common interest rule.’”) (citing Schwimmer, 892 F.2d at 243) (internal quotation marks omitted). 10 Indeed, BAC’s claim that the D.C. Circuit’s adoption of a litigation requirement in United States v. Am. Tel. & Tel. Co. (“AT&T”), 642 F.2d 1285, 1299 (D.C. Cir. 1980), is confined to cases involving underlying work-product protection is refuted by district courts of that circuit that have imported AT&T’s litigation requirement to common-interest cases involving underlying attorney-client privilege claims. See, e.g., Holland v, Island Creek Corp., 885 F. Supp. 4, 6 (D.D.C. 1995) (“[U]nder the common-interest rule, individuals may share information without waiving the attorney-client privilege if . . . the disclosure is made due to actual or anticipated litigation . . . .”) (citing AT&T, 642 F.2d at 1298-99). 31 8065836v.1 position on the litigation requirement is even smaller than BAC portrays it. For example, Schwimmer does not support BAC’s view that the Second Circuit recognizes the common-interest doctrine when no litigation is anticipated. As the Commercial Division observed below, “the Schwimmer court rejected only the requirement that ‘there be actual litigation in progress for the common interest rule of the attorney-client privilege to apply” (R. 15), and it found the common-interest doctrine applicable in a case involving a joint defense arrangement made among criminal defense attorneys who knew that they were under investigation. See Schwimmer, 892 F.2d at 241, 244. The Second Circuit has never applied the common-interest doctrine outside of anticipated litigation, and a fair reading of Schwimmer indicates that the court required an anticipation of litigation. Id. at 243 (the common-interest doctrine “serves to protect the confidentiality of communications passing from one party to the attorney for another party where a joint defense effort or strategy has been decided upon”). Moreover, contrary to BAC’s position, courts have refused to read United States v. Zolin, 809 F.2d 1411 (9th Cir. 1987), as suggesting a Ninth Circuit rule “that communications need not have been made in anticipation of litigation to fall within the protection of the common interest doctrine.” In re Fresh & Process Potatoes Antitrust Litig., 2014 U.S. Dist. LEXIS 74936, at *34-38 (D. Idaho May 30, 2014) (observing that in Zolin, “the litigation had already commenced or was 32 8065836v.1 very likely to occur, and the third parties to whom the privileged information was disclosed shared a common goal in connection with the identified litigation or litigation threat”). Since Zolin, the Ninth Circuit has recognized that the common- interest doctrine is based on the rationale that “persons who share a common interest in litigation should be able to communicate with their respective attorneys and with each other to more effectively prosecute or defend their claims,” thereby eliminating any doubt as to the need for a threat of litigation to support a common- interest claim. Gonzalez, 669 F.3d at 978 (emphases added) (citation omitted). And the Northern District of California recently confirmed the need for a litigation requirement in a case involving pre-merger communications – just like this one. Integrated Global Concepts, Inc. v. j2 Global, Inc., 2014 U.S. Dist. LEXIS 7294, at *2, *5-6 (N.D. Cal. Jan. 21, 2014). Finally, BAC belittles those states that have adopted a litigation requirement as having done so “without any analysis” or because of the “need those particular states felt to legislate a litigation limitation” for a doctrine that “is naturally not so limited.” (Resp. Br. 47-48.) Again, BAC, as self-appointed arbiter of which judicial decisions are sufficiently “reasoned,” relegates every decision against it to unworthy status. (See id.) But BAC’s critique of how other states have arrived at their litigation rule does not erase the fact that numerous courts and legislatures have in fact adopted that limitation, and that New York would be in 33 8065836v.1 good company if this Court sustains it. (See App. Br. 51 & n.16.) Nor is there any merit to BAC’s notion that there is some “natural[]” read of the common-interest doctrine that operates without any limit to litigation. The states that have codified a litigation requirement have patterned it on the text of Rule 502(b)(3) of the Uniform Rules of Evidence, which was promulgated in 1974 and limits the common-interest doctrine to “a pending action and concerning a matter of common-interest therein.” Our research discloses no decision that applied the common-interest doctrine outside the litigation context prior to 1974, thereby suggesting that the Uniform Rules’ codification of the doctrine is its “natural” form. See 24 Wright & Graham, Federal Practice & Procedure § 5493, at 467 (1986) (noting that “limit[ing] the allied lawyer doctrine to litigation . . . seems to have been the common law rule”). POINT II ALTERNATIVELY, COUNTERPARTIES TO A MERGER DO NOT SHARE A PROTECTABLE COMMON LEGAL INTEREST IN COMPLETING A LAWFUL TRANSACTION A. This Court Has Jurisdiction to Review the Sufficiency of BAC and Countrywide’s Purported Common Legal Interest, Which Was a Key Component of the Panel’s Decision Below BAC is wrong that this Court lacks jurisdiction to consider whether merger counterparties’ shared interests are sufficient to qualify as “common legal 34 8065836v.1 interests.” The court below clearly tailored its determination of what New York’s common-interest doctrine requires based on the circumstances of this case. Specifically, the panel decided to break stride with the New York courts that have confined the common-interest doctrine to “cases that involved either pending or ‘potential litigation’” because they did “not adequately address the specific situation presented here,” and then concluded that “the signed merger agreement here” was “a shared legal interest” deserving of common-interest protection. (R. xxii-xxiii, Order at 13-14.) Thus, the panel’s certification of the question whether its decision was “properly made” (R. ix) necessarily encompasses its determination that the record disclosed “a shared legal interest” in the form of “a signed merger agreement.” The legal sufficiency of that determination is properly reviewable by this Court. 11 This Court long ago held that in appeals from non-final orders under CPLR 5602(b)(1), the Court interprets the question whether the Appellate Division 11 The entwinement of the underlying setting into the panel’s holding also reveals the emptiness of BAC’s refrain that on remand, the Special Referee found most of the Challenged Communications to meet the First Department’s standard for common-interest protection. (See Resp. Br. 1, 56-57.) The panel had already expressed its view that BAC and Countrywide’s pursuit of “shared advice of counsel in order to accurately navigate the complex legal and regulatory process” amounted to a common legal interest. (R. xxiii, Order at 14.) Thus, the panel pre- determined for the Special Referee that any communications relating to the pre- merger “legal and regulatory process” should be privileged. Nothing more should be taken from the Special Referee’s decision on remand than that those communications furthered the supposed “shared legal interest” that had already been identified by the panel. 35 8065836v.1 order was properly made “as posing the issues of law raised by the motion” decided by the Commercial Division that prompted the appeal. Erie R.R. Co. v. Sells, 298 N.Y. 58, 60 (1948). Under this standard, there can be no doubt that the sufficiency of BAC’s evidence of a common legal interest was a legal issue raised on the underlying motion, which can be reviewed by this Court. As a result, BAC’s reliance on Patrician Plastic Corp. v. Bernadel Realty Corp., 25 N.Y.2d 599 (1970), rings hollow. There, this Court held that a question of law raised in an Appellate Division decision was not “decisive of the correctness” of the order being appealed, as there was a critical fact question that controlled the outcome of the decision. Id. at 604. That ruling does not suggest the Ambac is limited to raising on appeal just a single question of law identified in the Appellate Division decision. B. BAC and Countrywide’s Interest in a Commercial Deal that Had a Secondary Legal Component Does Not Qualify as a Common Legal Interest Contrary to BAC’s suggestion that there is “no substantial dispute” that BAC and Countrywide shared common legal interests (Resp. Br. 1), Ambac has vigorously disputed this point throughout. (See, e.g., R. 583.) In its brief, BAC concedes the essential point that undermines its purported common legal interest: it acknowledges that it is “true . . . that a generalized common interest in ‘closing a business deal in compliance with the 36 8065836v.1 law’ is not by itself protected by the common-interest doctrine.” (Resp. Br. 61.) But BAC then asserts that the very things it did to close its deal in compliance with the law are somehow immune from that rule because they related to “specific legal issues” and “the parties had agreed to do” them. (Id. at 61-62.) BAC fails to recognize that in virtually every case in which a common interest in “closing a business deal in compliance with the law” has been rejected, the proponent of the privilege claim, like BAC here, has attempted to pass off that common interest as pertaining to “specific legal issues.” 12 Indeed, the proffered common interests that these courts have rejected as insufficient are strikingly similar to the dubious common interests found to warrant protection in the pre-merger cases that BAC cites. 13 The fact that BAC and Countrywide addressed “specific legal issues” on 12 See, e.g., In re Fresh & Process Potatoes Antitrust Litig., 2014 U.S. Dist. LEXIS 74936, at *19, *30-32 (refusing to extend protection to purported common interest between marketing agent and cooperatives in exchanging “legal advice about the parties’ membership agreements, contracts, and memoranda of understanding with members of cooperatives and non-members” and in “ensuring that [the marketing agent’s] structure and marketing agreements comply with the Capper-Volstead Act’s requirements”); Bank of Am., N.A. v. Terra Nova Ins. Co., 211 F. Supp. 2d 493, 497 (S.D.N.Y. 2002) (refusing to extend protection to purported common interest in “structuring and effectuating a credit agreement that was appropriately supported by reinsurance policies”). 13 See In re J.P. Morgan Chase & Co. Securities Litig., 2007 U.S. Dist. LEXIS 60095, at *15-16 (N.D. Ill. Aug. 13, 2007) (finding “a common legal interest” between merger parties “in ensuring that the newly agreed merger met any regulatory conditions and achieved shareholder approval”); see also Weber v. FujiFilm Med. Sys. U.S.A., 2011 U.S. Dist. LEXIS 6199, at *7 (D. Conn. Jan. 21, 2011) (concluding without further explanation or analysis that the parties’ “merger [was] a matter in which [they] have a common legal interest”). 37 8065836v.1 the road to “legally completing the merger” does not transform their common interests into anything more deserving of protection than “closing a business deal in compliance with the law.” (Resp. Br. 60-61.) Nor does BAC’s and Countrywide’s agreement to work together to close a legally compliant merger create a common legal interest out of thin air. See Aetna, 176 Misc. 2d at 613 (“The mere existence of the cooperation agreements . . . cannot create a privilege that otherwise does not otherwise exist.”); see also Schaeffler v. United States, 22 F. Supp. 3d 319, 334 (S.D.N.Y. 2014) (“[I]f no common legal interest had previously existed, [the parties to the communication] could not create such an interest by fiat.”). Given the absence of a protectable common legal interest undergirding their collaboration, the parties cannot manufacture one by committing it to paper. Indeed, as described above, the obligation to share information to advance the merger was expressly limited so as not to require the disclosure of privileged information. See Point I(A)(4) supra. Even BAC admits that the merger counterparties’ interests were not identical – BAC expressly recognizes that “the parties could in some circumstances have diverging legal interests,” that a single lawyer could not represent them due to “obvious conflict-of-interest problems,” and that “the parties could have rejected the Merger Agreement before closing.” (Resp. Br. 29, 61.) This confirms the fundamental problem with BAC’s assertion of common-interest status. Parties on 38 8065836v.1 the other side of a deal by their very nature want to see issues worked out in their favor. While they may both desire to clear regulatory hurdles, they each want this done on terms that benefit their own self-interest. So, for example, when a regulatory authority requires prospective merger partners to divest a business in order to secure antitrust clearance, each side wants this handled in a way that favors its own interest. 14 These “divergent interests,” as BAC terms them (Resp. Br. 29), preclude any common legal interest worthy of privilege protection. BAC is wrong in claiming that “[n]ot a single court that has addressed the common-interest doctrine in the context of a signed merger agreement has declined to apply the doctrine.” (Resp. Br. 58.) BAC only makes this erroneous assertion by misreading Integrated Global, 2014 U.S. Dist. LEXIS 7294, the most recent case to deny common-interest protection to pre-merger communications. (See Resp. Br. 63.) The mere fact that that decision also involved a separate issue of post-merger communications with a third-party consultant does nothing to undermine the fact that the court refused to protect the pre-merger sharing of privileged communications between the merger counterparties themselves. See Integrated Global, 2014 U.S. Dist. LEXIS 7294, at *2, *6. In this context, the 14 While BAC tries to distinguish Zirn v. VLI Corp., 16 Del. J. Corp. L. 1700, 1714 (Del. Ch. 1990), on the ground that the parties to the proposed merger there “still had adverse interests in negotiating and restructuring the original agreement,” this proves Ambac’s point. (Resp. Br. 63.) Until the deal is closed, issues are bound to arise, as they did in Zirn, creating tensions between the two sides to the deal and requiring further negotiation. 39 8065836v.1 court properly recognized that the common-interest doctrine “may, in rare cases, be extended to situations where there is anticipated joint litigation, but nothing pending imminently,” and held that in the absence of “any evidence of a common legal foe,” the pre-merger communications “fall outside the scope of the common- interest privilege.” Id. at *5-6. That decision – like the others cited in Ambac’s opening brief denying common-interest protection in the pre-merger or pre-acquisition context – reflects the sensible view that disclosures made before closing a business deal are more clearly motivated by the parties’ commercial interests than by legal interests; any legal interest is simply the tail wagging the dog. (See App. Br. 55-57.) Particularly while they are still negotiating at arm’s length and remain at odds in key respects – including in conducting due diligence and in allocating financial responsibility for liabilities being assumed – counterparties to a proposed transaction do not share the sort of close common relationship that courts or legislatures have been willing to cloak in a veil of secrecy. And certainly in New York, there is a complete dearth of precedent for extending privilege protection to disclosures among parties whose alignment is so incomplete and attenuated from purely legal concerns. 40 8065836v.1 CONCLUSION For all the foregoing reasons and those set forth in Ambac’s opening brief, the First Department’s order should be reversed, and the matter remanded to the IAS Court, or at its direction to the Special Referee, for further proceedings consistent with this Court’s order. Dated: July 8, 2015 Respectfully submitted, Stephen P. Younger Harry Sandick Peter W. Tomlinson Joshua Kipnees PATTERSON BELKNAP WEBB & TYLER LLP 1133 Avenue of the Americas New York, NY 10036 (212) 336-2000 Attorneys for Plaintiffs-Appellants F