Commercial Litigation and Arbitration

Attorney-Client Privilege and Common Interest (Joint Defense) Doctrine — New York vs. Federal Law — Contract as Basis of Common Legal Interest — Lawyer Communications with Non-Client Protected — Oral vs. Written Common Interest Agreement

From HSH Nordbank AG v. Swerdlow, 2009 U.S. Dist. LEXIS 63711 (S.D.N.Y. July 22, 2009):

A. Overview of Attorney-Client Privilege

Under New York law, the attorney-client privilege protects confidential communications between client and counsel where such communications are made for the purpose of providing or obtaining legal advice. See N.Y.C.P.L.R. § 4503(a)(1). ***

[Footnote 6] Because the basis for subject matter jurisdiction in this case is diversity of citizenship, state law provides the rule of decision. See Fed. R. Evid. 501. Accordingly, New York privilege law applies. At any rate, the New York law of attorney-client privilege is, with certain exceptions, substantially similar to the federal doctrine. See Bowne of New York City. Inc. v. AmBase Corp., 150 F.R.D. 465, 470 (S.D.N.Y. 1993).

The burden of establishing attorney-client privilege is on the party asserting it. See Spectrum Sys., 78 N.Y.2d at 377. Likewise, the party asserting the privilege also bears the burden of demonstrating that it has not been waived. See John Blair Commc'ns, Inc. v. Reliance Capital Group. L.P., 182 A.D.2d 578, 579, 582 N.Y.S.2d 720 (1st Dep't 1992). Such a party satisfies its burden of proof where it "establish[es] that the information was a communication between client and counsel, that it was intended to be and was kept confidential, and [that] it was made in order to assist in obtaining or providing legal advice or services to the client." Charter One Bank, F.S.B. v. Midtown Rochester, LLC, 191 Misc. 2d 154, 166, 738 N.Y.S.2d 179 (N.Y. Sup. Ct. 2002); see also United States v. Constr. Prods. Research. Inc., 73 F.3d 464, 473 (2d Cir. 1996).

B. Common Interest Doctrine


The common interest doctrine "is an exception to the general rule that voluntary disclosure of confidential, privileged material to a third party waives any applicable privilege." ... The doctrine "precludes a waiver of the underlying privilege concerning confidential communications between the parties 'made in the course of an ongoing common enterprise and intended to further the enterprise,' irrespective of whether an actual litigation is in progress." ... It does not, however, "encompass a joint business strategy which happens to include as one of its elements a concern about litigation," ... nor does it provide "an independent source of privilege or confidentiality." ... Accordingly, where the underlying "communication is not protected by the attorney-client privilege or the attorney work-product doctrine, the common interest doctrine does not apply." ...

[Footnote 8] Because "New York courts applying the common interest rule to civil proceedings have often looked to federal case law for guidance," both New York and federal case law are instructive here. Allied Irish Banks, P.L.C. v. Bank of America, N.A., 252 F.R.D. 163, 170 (S.D.N.Y. 2008).

[Footnote 9] While federal case law makes clear that the common interest doctrine applies even where there is no litigation in progress, "New York law appears to restrict the doctrine to communications with respect to legal advice 'in pending or reasonably anticipated litigation.'" Allied Irish Banks, 252 F.R.D. at 171, quoting Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd's London, 176 Misc. 2d 605, 612, 676 N.Y.S.2d 727 (N.Y. Sup. Ct. 1998). ***

Demonstrating the applicability of the common interest doctrine requires a two-part showing: "(1) the party who asserts the rule must share a common legal interest with the party with whom the information was shared and (2) the statements for which protection is sought [must have been] designed to further that interest." ... Such a showing often exists in those instances in which "multiple persons are represented by the same attorney," ...or "a joint defense effort or strategy has been decided upon and undertaken by the parties and their respective counsel." ***

Although Nordbank contends that the common interest doctrine is applicable because this case involves a joint legal strategy that it and the non-party lenders decided upon and undertook, defendants argue that the doctrine "does not extend to communication between the first party or its attorneys and the third parties directly," but only to communications between a first party and counsel for one or more third parties. (Jt. Ltr. at 6 (emphasis omitted), citing Schwimmer and Walsh v. Northrop Grumman Corp., 165 F.R.D. 16 (E.D.N.Y. 1996).) Thus, because the non-party lenders were not represented by counsel at the time the communications at issue were made, defendants assert that any common interest privilege that may have existed has been waived. (Id. 6-12.) This position is meritless, and is not supported by the cases cited by defendants.

In United States v. Schwimmer, the Second Circuit noted that in order to apply the common interest doctrine, it is not "necessary for the attorney representing the communicating party to be present when the communication is made to the other party's attorney." 892 F.2d at 244. This passing reference to communications between attorneys, which simply reflects the particular facts of Schwimmer, does not represent a holding, or even a statement by way of dicta, that a communication from one party's attorney directly to a third party exceeds the bounds of the common interest doctrine and thus waives privilege. The Schwimmer court simply did not address, and had no occasion to address, that issue.

While defendants cite Walsh v. Northrop Grumman Corp. as evidence that the Schwimmer court's pronouncement should be read as barring application of the common interest doctrine to this case, Walsh is inapposite. In that case, the court held that communications between parties could not be privileged simply because one of the parties first discussed the information with its attorney and then shared the information with the other party (not the other party's counsel). Walsh, 165 F.R.D. at 18. Here, counsel for one of the parties was actively engaged in the communications at issue. Thus, this is not a situation where the various non-party lenders and Nordbank discussed subject matter previously discussed with counsel and now seek to assert privilege for that reason alone. Compare id. ("To extend the common interest doctrine [in the manner advocated by the non-party asserting privilege] would mean that a party could shield from disclosure any discussions it had with another person about a matter of common interest simply by discussing that matter first with its attorneys."). To the contrary, the asserted basis for privilege is that Nordbank's counsel was directly involved in the communications involving the non-party lenders and — for that reason— all parties expected that the communications would remain confidential. This is precisely the sort of situation the common interest doctrine contemplates.

[Footnote 10] Even if Walsh were relevant, the decision is not binding on this Court.

[Contract as Basis of Common Legal Interest.] Absent any authority to the contrary, it is immaterial that the confidential communications passed from Nordbank's counsel directly to the non-party lenders, rather than passing from Nordbank or its counsel to the non-party lenders' attorneys. Nordbank and the non-party lenders are co-lenders of the Loan and thus share a common interest in enforcing defendants' obligations under the Guaranties. Any doubt regarding this identity of legal interests is resolved by the terms of the Loan itself. Not only does the Loan identify Nordbank as the only party capable of "enforc[ing] or exercis[ing] any of the . . . rights or remedies of or under any of the Loan Documents," (Compl. Ex. A § 17.16), but it also contemplates that Nordbank's counsel will effectively represent the interests of the various lenders, which interests are presumed to be identical. (Id. § 17.17.) When viewed in conjunction with the fact that the relevant communications involve development of the appropriate legal strategy for obtaining relief, and that the parties privy to the communication understood the communication to be confidential on account of attorney-client privilege, these facts bring the communications at issue squarely within the common interest doctrine.

[Footnote 11] The expectation that, under normal circumstances, the lenders' legal interests would be identical is supported by a provision in the Loan permitting a lender to retain separate counsel should it "decide that its interests have become so divergent from the interests of the other Lenders or Administrative Agent [Nordbank] that it does not feel it is prudent to be represented by the same counsel." (Compl. Ex. A § 17.17.)

[Footnote 12] Defendants' argument that the communications cannot be deemed in furtherance of the parties' common legal strategy because Nordbank and the non-party lenders did not enter into a written common interest agreement until well after the communications occurred is wholly unpersuasive. Courts in this circuit have acknowledged that although the common interest doctrine applies only where a party has demonstrated the existence of an agreement to pursue a common legal strategy, the agreement need not be in writing. See, e.g., Denney v. Jenkins & Gilchrist, 362 F. Supp. 2d 407, 415 (S.D.N.Y. 2004); Lugosch v. Congel, 219 F.R.D. 220, 237 (N.D.N.Y. 2003); cf. Doctor's Assocs., Inc. v. PIP Holder LLC, 06 Civ. 1710, 2009 U.S. Dist. LEXIS 55270, 2009 WL 1683628, at *6 (D. Conn. Feb. 26, 2009). Accordingly, while Nordbank and the non-party lenders wisely chose to reduce their common agreement to writing, their decision to do so does not mean that there was no prior agreement. To the contrary, Nordbank he s made a persuasive showing that the parties shared a common interest and were pursuing a joint legal strategy at the time the relevant communications were made. Indeed, given that Nordbank is the only lender that can take legal action on behalf of the group, there is no reasonable argument that there was not common interest.

[Common Business vs. Legal Interest.] Defendants' suggestion that it would be improper to apply the common interest doctrine because Nordbank's common interest with the non-party lenders is a business interest, rather than a legal interest, also fails. While the lenders' business interests may coincide or overlap with their legal interests, the obligations they seek to enforce are grounded in contract and, by definition, involve the pursuit of legal rights and remedies. This is underscored by the fact that the very subject of the communications was what legal strategy would best serve the interests of Nordbank and the non-party lenders. Under these circumstances, Nordbank's showing clearly satisfies the requirements for application of the common interest doctrine. See Strougo v. BEA Assocs., 199 F.R.D. 515, 520 (S.D.N.Y. 2001) ("A community of interest exists among . . . separate corporations where they have an identical legal interest. . . . The key consideration is that the nature of the interest be identical, not similar, and be legal, not solely commercial. The fact that there may be an overlap of a commercial and legal interest for a third party does not negate the effect of the legal interest in establishing [*21] a community of interest.").

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