Early 2016, the New York Court of Appeals, the highest court in New York, decided a case involving Bank of America's acquisition of Countrywide - Ambac Assurance Corp. v. Countrywide Home Loans (New York 2016). A third-party plaintiff wanted access to privileged communications which had been shared in the course of the diligence and planning process under a carefully-drafted common interest agreement. The third party asserted that the privilege was nevertheless waived when Countrywide disclosed the information to Bank of America, which subsequently acquired Countrywide. The Court of Appeals, after some historic analysis of the common interest exception, held that the common interest exception to privilege waiver only applies when the common interest is the defense, essentially as co-defendants, of a pending or reasonably anticipated litigation. Economic common interest is not sufficient. The fact that the party to whom the information is disclosed will shortly own the company that's the subject of a claim and will therefore bear the economic risks of the matter is not sufficient. In essence, the court took the world back to the traditional common law view of the privilege waiver. It noted that the common interest exception to waiver was intended originally only for common criminal defendants in a single proceeding, and that the great liberalization in New York had been to extend it to common defendants in civil litigation. But the court wasn't prepared to go any further than that, notwithstanding that fact that, as it recognized in its opinion, quite a number of jurisdictions take a more liberal view.
Can you avoid the problem simply by selecting a governing law for your agreement other than New York and a forum for disputes other than New York? The unfortunate fact is you cannot. Privilege is an evidentiary rule as to which the governing law is not entirely clear. It may be the law of the forum, or the law of some other jurisdiction that the forum court determines has a greater interest in the matter or as to which the parties reasonably relied. More importantly, the case in which the waiver is going to be asserted isn't likely to be a case under the acquisition agreement, or a case in which the acquisition agreement's venue provisions or choice of forum provisions control. It's going to be, as was the case in Countrywide, a third-party claim, whether a governmental claim or a private claim. If that claim is brought in New York, the court may well apply the Ambac decision.
There are a couple of things you can do to reduce risk. One, if this is a diligence issue and maintaining the privilege is important, try to recreate the legal advice. If the contingency you're trying to examine is a governmental investigation, provide another expert regulatory counsel retained by the buyer all the non-privileged information that's been generated in the course of the matter - all the communications with the government, all the facts provided by the company to its counsel - and let that counsel come up with its own view. This might be too expensive and time-consuming.
Another option is available if the issue involved is one that arises from the particular transaction, such as possible violation of the rights of a third party or the antitrust laws. The Court of Appeals expressly recognized in its Ambac opinion that the privilege is protected if the parties engage common counsel to review the matter. You could engage a neutral law firm to analyze, for example, the transaction from an antitrust perspective. That law firm can collect information from both parties, write a report that analyzes the transaction and give it to both parties. The parties can then negotiate the deal on the basis of the conclusions that are reached in that report.
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