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Be Careful Before Relying on the Common Interest Doctrine

The common interest doctrine (CID), also known as the community-of-interest doctrine, is an exception to the general rule that attorney-client privilege (ACP) is waived when privileged information is shared with a third party. The CID allows attorneys representing different clients with the same or substantially similar legal interests to agree to (and do) share privileged information without waiving the ACP.

For the CID to apply, (1) there must generally be co-parties (that is, co-plaintiffs or co-defendants—but the CID may also apply to communications between parties and nonparties, and sometimes in nonlitigation matters), (2) the co-parties must be represented by separate counsel (the CID is different from the co-client (or joint-client) privilege, which applies when multiple clients hire the same attorney to represent them on a matter of common interest), and (3) the co-parties must share a common legal interest, not merely a common commercial interest. Courts are divided on whether interests must be legally identical or somewhat less than that, such as substantially similar. And, of course, there must be an agreement among attorneys to share information.

If the above requirements are met, separate counsel for separate parties (or clients) may share information without waiving the ACP. In other words, the CID only protects communications between counsel, not between parties. Communications between parties are protected under the CID, however, if counsel is present during the communications.

Originally, the CID only applied in criminal matters—out of necessity—so that co-defendants’ counsel could work together and share critical, but privileged information, to prepare a joint defense without waiving the ACP. Now, although it is still evolving, the CID also applies to a variety of civil matters—not just between counsel for co-parties in litigation, but also in nonlitigation matters, including, for example, between clients who share a common interest in a patent application, as well as clients who share similar business interests in a merger.

In those nonlitigation contexts, the CID may be used to protect communications made during a patent application process or merger, which may become subject to discovery in a future lawsuit.

The CID is not currently recognized in Pennsylvania. Although many lower courts and federal courts in Pennsylvania have discussed and sometimes followed the CID, the Pennsylvania Supreme Court has yet to address if and when the CID applies.

The U.S. District Court for the Eastern District of Pennsylvania has recognized the CID, citing to In re Teleglobe Communications, 493 F.3d 345 (3d Cir. 2007), a leading U.S. Court of Appeals for the Third Circuit decision that recognized the CID under Delaware law; see, CAMICO Mutual Insurance v. Heffler, Radetich & Saitta, C.A. No. 11-4753 (E.D. Pa. Jan. 28, 2013); In re Domestic Drywall Antitrust Litigation, (E.D. Pa. Oct. 9, 2014); Alliance Industries Limited v. A-1 Specialized Services & Supplies, C.A. No. 13-2510 (E.D. Pa. Apr. 8, 2015); and In re Processed Egg Products Antitrust Litigation, 278 F.R.D. 112, 124 n.20 (E.D. Pa. 2011).

Although the Teleglobe opinion applied Delaware law on several issues, in addressing the CID issues, the Third Circuit looked to case law from numerous jurisdictions, as well as general principles relating to the CID. “In fact, Teleglobe has been cited by courts around the country as a leading opinion on the common-interest doctrine,” as in Hoffmann-La Roche v. Roxane Labs, (D.N.J. May 11, 2011).

On Feb. 5, in Gelman v. W2 Limited, No. 14-6548, U.S. District Judge Berle M. Schiller of the Eastern District of Pennsylvania issued an opinion in which he concluded that: (1) the Pennsylvania Supreme Court would recognize and adopt the CID in some form; (2) based on the facts of the case, the CID applied because the plaintiff’s and a nonparty’s legal interests were substantially similar; and (3) therefore, communications between the plaintiff’s counsel and the nonparty’s counsel were protected.

In Gelman, the plaintiff, Jonathan J. Gelman, sued W2 Limited and other defendants on a promissory note, which had been signed by nonparty, Jeffrey Greenwalt, on behalf of W2. W2 contended that the note was invalid because Greenwalt did not have the authority to bind it. In a separate action, Greenwalt sued the same defendants, but that action had nothing to do with the note that was at issue in Gelman. Gelman’s counsel and Greenwalt’s counsel entered into a common-interest agreement, in which, Gelman argued, communications between the counsel after the complaint was filed were protected because Gelman and Greenwalt shared the same interests.

The court found that the Pennsylvania Supreme Court would recognize the CID because (1) it had cited favorably before in dicta to the applicable restatement provisions pertaining to the CID (Restatement Third Law Governing Lawyers Section 76); and (2) Pennsylvania codified the ACP (42 Pa.C.S.A. Section 5928) to foster candid communications with the counsel, which the CID is likewise designed to do.

Gelman provided a wrinkle to the general application of the CID. Usually, the CID applies to co-parties in litigation and those who share common business interests in limited, nonlitigation contexts. Yet none of these circumstances existed in Gelman, as Gelman and Greenwalt were not parties in the same litigation and did not share similar business interests.

Further, the court was not sure if Gelman’s and Greenwalt’s interests were required to be identical or substantially similar. The court decided to apply a “substantially similar” standard, and in doing so, noted that on one hand, Gelman’s and Greenwalt’s interests were not identical because one action involved the note and the other did not. On the other hand, the court noted both lawsuits involved the same defendants, witnesses, and similar claims. Thus, the court concluded that Gelman and Greenwalt had substantially similar interests, and therefore, the CID applied.

The court ultimately held that only communications between Gelman’s and Greenwalt’s counsel made in anticipation of or after the initiation of litigation were protected by the CID; and, further, that communications between Gelman and Greenwalt outside the presence of counsel were not protected.

Although the Gelman court predicted the high court would recognize and adopt the CID, the court did not predict to what extent the CID would be recognized in Pennsylvania.

If the rule set forth in Gelman becomes the standard, then only communications made in anticipation of litigation, or after the initiation of litigation, between counsel of different clients (that is, co-parties or parties and nonparties) with substantially similar interests will be protected. This standard, however, covers only a subset of those situations mentioned above where a common interest exists between multiple clients. For example, communications between separate clients related to a patent application or merger would not be entitled to the protection of the CID under the Gelman formulation.

By contrast, some jurisdictions recognizing the CID have adopted a more expansive interpretation of the CID, such as New York. In a 2014 decision, Ambac Assurance v. Countrywide Home Loans, 124 A.D.3d 129 (App. Div. 2014), the New York’s intermediate appellate court held that “in today’s business environment, pending or reasonably anticipated litigation is not a necessary element of the [CID].” The court found that the circumstances presented in that case illustrated the precise reason the CID should apply even when litigation is not anticipated—namely, that business entities often have important legal interests to protect even without the “looming specter of litigation.” In Ambac Assurance, two entities signed a merger agreement in 2008, which was subject to confidentiality provisions and a common-interest agreement entered into shortly before the merger agreement. The plaintiff argued that pre-merger communications between the two entities were subject to discovery because they were significant to the plaintiff’s successor liability claims. The trial court held that the CID did not protect the communications from discovery because New York law required pending or reasonably anticipated litigation for the CID to apply.

On appeal, the appellate court noted that the ACP is not tied to the contemplation of litigation because “advice is often sought, and rendered, precisely to avoid litigation, or facilitate compliance with the law, or simply to guide a client’s course of conduct.” This was particularly true for corporations, whose counsel were required to share advice to accurately navigate the complex legal and regulatory process involved in completing transactions. Further, the court found that although the CID applied most frequently in the context of litigation, it was also successfully invoked with respect to joint legal strategies in nonlitigation settings. Because the CID was an extension of the ACP, the court held that litigation need not be actual or imminent for communications to be within the CID.

In light of Gelman and Ambac Assurance, it will be interesting to see if and when adopting the CID, the Pennsylvania Supreme Court requires that communications be made in anticipation of litigation. Furthermore, we will need to wait and see what kind of similar interests must exist before co-parties’ counsel could share privileged information under the CID. For now, however, given the Pennsylvania Supreme Court has not yet adopted the CID, counsel should be extra careful before sharing privileged information with a co-party’s counsel. •


By Edward T. Kang

Reprinted with permission from the April 16 edition of The Legal Intelligencer”© 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com

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