N.Y. Court Says BofA, Countrywide Merger Communications Must Be Disclosed

By | June 13, 2016

New York’s highest court ruled on June 9 that Bank of America must disclose to an insurer communications it had with Countrywide Financial six months before the bank bought the mortgage lending company in 2008. The insurer, Ambac Assurance Corp., claims in a lawsuit that Countrywide illegally misrepresented its mortgage-backed securities.

The Court of Appeals ruled attorney-client privilege doesn’t shield hundreds of communications between the two institutions and their lawyers from Ambac as it collects evidence for its fraud lawsuit. The court reinstated the order of a judge in Manhattan, where the fraud case is pending.

Ambac guaranteed payments on securities issued by Countrywide subsidiaries between 2004 and 2006.

“Ambac argues that the very communications Bank of America withheld from disclosure would have revealed that the merging entities structured their transaction to conceal Countrywide’s fraudulent dealings and leave potential victims without recourse,” Judge Eugene Pigott Jr. wrote. “Defendants … respond that there is no evidence of actual abuse in this case.”

Pigott, writing for the four-judge majority, noted that attorney-client privilege in New York is generally lost when communications are shared with third parties, except when they relate to pending or anticipated litigation such as with co-defendants in criminal cases.

He rejected the bank’s argument that privilege should apply more broadly to any common legal interest, concluding that any benefits of that would be outweighed by lost evidence, along with the potential for abuse. Judges Sheila Abdus-Salaam, Leslie Stein and Eugene Fahey agreed with him.

In a dissent, Judge Jenny Rivera wrote there’s already a “crime-fraud exception” to attorney-client privilege that permits disclosure of communications related to future wrongdoing. A referee in the Countrywide case reviewed and distilled the 366 communications at issue to 110 deemed privileged, she noted.

Attorney-client privilege encourages the free flow of information “essential to legal representation,” Rivera wrote. “The majority’s contention that application of the privilege might lead to misuse is purely speculative.”

Judge Michael Garcia agreed with her.

Stephen Younger, attorney for Ambac, said the ruling gives important guidance to courts and litigants on an unsettled question. “By reaffirming the litigation requirement, the court struck the right balance between providing common interest protection to the situations where it’s most needed and denying it where the benefits are marginal and outweighed by the costs to the fact-finding process,” he said.

Calls to Jonathan Rosenberg, attorney for Bank of America, were not immediately returned.

Topics Mergers & Acquisitions New York Fraud

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