Protecting pre-closing merger discussions against disclosure in the event of later litigation can be critically important. Although the attorney-client privilege is implicated in communications between one party and its attorney, several parties often participate in merger discussions and require shared legal advice. Under these circumstances, the common interest exception may shield these communications from disclosure, even where the parties did not anticipate litigation when they communicated. (See Ambac Assurance Corp. v. Countrywide Home Loans, Inc., (1st Dep't Dec. 4, 2014).)

For information about how the attorney-client privilege passes between entities after a merger, see Article, Seller Beware: Protecting Privileged Communications After a Corporate Transaction.

The attorney-client privilege generally shields from disclosure communications between an attorney and her client. That protection is usually destroyed, however, once the communications are shared with a third party. The common interest doctrine serves as a notable exception to this rule and may allow a third party to be present at communications between counsel and client without destroying the privilege. To fall within this exception, communications generally must:

For more information about the common interest doctrine generally, see Practice Note, Attorney-Client Privilege: Common Interest Doctrine (Federal).

It remains unsettled, however, whether application of the common interest doctrine also requires that the communications at issue relate to pending or reasonably anticipated litigation. A New York appellate court recently answered this question in the negative, holding that litigation need not be actual or imminent for communications to fall within the common interest doctrine. In doing so, the court rejected the weight of New York State authority and relied on:

(Ambac Assurance Corp., , at *3-*6.)

Protecting discussions among several parties and counsel can be of critical importance in the merger context, even where litigation is not anticipated. In Ambac Assurance Corp., a wholly owned Bank of America subsidiary and Countrywide Financial Corporation had signed merger, confidentiality and common interest agreements and required the shared advice of counsel to accurately navigate the complex legal and regulatory process involved in completing the transaction (, at *1). The court held that resulting communications should be entitled to protection under the common interest doctrine even absent the "looming specter of litigation." Indeed, under these circumstances, the court ruled that imposing a litigation requirement would prohibit the parties from seeking and sharing necessary advice, inevitably leading to the onset of regulatory or private litigation because of an initial lack of sound guidance from counsel. (Ambac Assurance Corp., , at *1, 5.) For more information related to Ambac Assurance Corp. v. Countrywide Home Loans, Inc., see Legal Update, New York Appellate Court Extends Privilege under Common Interest Doctrine to Pre-closing Merger Discussions.

The decision provides new comfort to practitioners advising parties domiciled in New York that they can communicate with their clients in the presence of their contractual counterparts before closing without risking waiver of the attorney-client privilege, even where litigation is not anticipated. Nonetheless, the decision leaves unsettled the questions of:

The New York Court of Appeals has not yet spoken to the issue.