The Common Interest Privilege

Below is a post from Michael Temin, senior counsel with Fox Rothschild.  Michael's post looks at a recent decision by Judge Sontchi in the Leslie Controls bankruptcy.

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A discovery dispute gave the bankruptcy court an opportunity to rule on the common interest privilege which, the court said, has completely replaced the joint defense privilege for information sharing among clients with different attorneys, citing In re Teleglobe Communications Corp., 493 F.3d 345, 364 n. 20 (3d Cir. 2007). Leslie Controls, Inc., Case No. 10-12199 (Bankr. D. Del. 9/21/10)(Sontchi, B.J.).

The question presented was whether privileged communications between the debtor and its counsel which were shared pre-petition with the ad hoc committee of asbestos plaintiffs and the proposed future claimants’ representative remained protected from discovery.

During pre-petition negotiations the debtor shared with counsel to the committee and the proposed futures rep a memorandum prepared by insurance coverage counsel for the debtor giving advice on the effect of the insurers’ likely position on insurance recoveries under various bankruptcy scenarios. Subsequently the parties exchanged emails referencing the privileged material.

The documents were privileged since they reflected insurance coverage counsel’s legal analysis and mental impressions concerning insurance issues and strategies in anticipation of possible litigation with the insurers in a bankruptcy proceeding and/or subsequent coverage litigation. Was the privilege waived because the information was shared with the committee and the proposed futures rep?

The common interest doctrine allows attorneys representing different clients with similar legal interests to share information without having to disclose it to others. It expands the reach of the attorney-client and work product doctrine by providing that, under certain circumstances, the sharing of privileged communications with third parties does not constitute a waiver of the privilege. The doctrine is only applicable if an underlying privilege has been established.

To invoke the protection of the common interest doctrine a party must establish:

1. the communication was made by separate parties in the course of a matter of common interest;

2. the communication was designed to further that effort; and

3. the privilege has not otherwise been waived.

The common interest of the parties must be at least a substantially similar legal interest, but the parties need not be in complete accord. The insurers argued that the parties shared a common commercial interest, not a legal interest. The court disagreed. The interest of the debtor, the committee and the proposed futures rep at the time the documents were shared was in preserving and maximizing the insurance available to pay asbestos claims, an inherently legal question. It involved analysis of the insurance documents, as well as contract, insurance and bankruptcy law. It required the involvement of the bankruptcy court. 

The common interest privilege is limited by the scope of the parties common interest. The insurers argued that the parties could not share a common interest since they were involved in negotiations with each other. Commonality is to be measured on a case by case basis. Here the debtor, the committee and the proposed futures rep had a common legal interest against the insurers, their common enemy, even though they had conflicting interests relating to the distribution of the assets, including the insurance proceeds. The information contained in the documents that were shared goes to the size of the asset pool—a matter of common interest.

The court held that the documents were protected from discovery.