Under the common interest doctrine, multiple clients (each with its own lawyer) can disclose privileged communications to one another without waiving the privilege protection. Unfortunately, participants in such an arrangement will not know whether the doctrine has worked until a court later analyzes the doctrine’s applicability — by which time the participants have already shared privileged documents, and therefore cannot avoid a waiver if that court takes a narrow view.

In Net2Phone Inc. v. eBay, Inc., Civ. A. No. 06-2469 (KSH), 2008 U.S. Dist. LEXIS 50451 (D.N.J. June 25, 2008) (unpublished opinion), the court examined plaintiff Net2Phone’s claim that it shared a common interest with its lender GE and with its majority shareholder IDT (which later purchased all of Net2Phone). Not surprisingly, the court found that the common interest doctrine did not protect communications between Net2Phone and its lender GE. Somewhat surprisingly, the court also found that the common interest doctrine did not apply between Net2Phone and its controlling shareholder IDT. The court concluded that “before the acquisition [of Net2Phone by IDT], there was no existing legal relationship between the plaintiff and IDT that would permit application of the common interest privilege.” Id. at *27. The court also noted that the two companies had not entered into a common interest agreement or placed any “confidentiality restrictions on each other” before the acquisition. Id. Although the court conceded that the controlling shareholder IDT shared an interest in Net2Phone’s enforcement of its patents, it explained that “this shared economic interest is not a legal interest.” Id. at *30.

Lawyers assuming that the common interest doctrine will protect communications between closely related companies should never take anything for granted, and should remember that a court eventually will analyze the waiver implication of what the participants have already done.

Most courts recognize that clients and lawyers may sometimes share privileged communications with third parties who share a “common interest” with them. This exception to what would otherwise be a waiver can be a tempting defense in some circumstances, but recent case law takes a narrow view of the doctrine.

In In re Stenovich (Stenovich v. Wachtell), 756 N.Y.S.2d 367 (N.Y. Sup. Ct. 2003), a plaintiff alleged that a bank’s board of directors breached its fiduciary duty during a merger with Wells Fargo. The plaintiff claimed that the New York law firm of Wachtell Lipton (who had acted as the bank’s counsel during the merger) waived the privilege by sharing privileged documents with investment advisors JP Morgan and Goldman Sachs. Wachtell cited the common interest doctrine in arguing that there had not been a waiver. However, the court found that any “common interest” among the bank, JP Morgan and Goldman Sachs was “exclusively of a commercial nature.” The court concluded that Wachtell had waived the privilege, and that the sharing created a “subject matter waiver” requiring the bank to produce additional documents.

Clients and lawyers hoping to rely on the “common interest” doctrine should follow the recent trend of the case law taking a narrow view of that doctrine.

Courts have developed an exception to the general rule that sharing privileged communications with third parties waives the attorney-client privilege. The exception is called the “joint defense” or “common interest” doctrine, and applies to communications among separately represented parties in litigation (or in certain other circumstances) who share the identical legal interest. However, lawyers sometimes try to push the doctrine too far.

In Re Diet Drugs Products Liability Litigation, MDL No. 1203, 2001 U.S. Dist. LEXIS 5494, at *19 (E.D. Pa. Apr. 19, 2001), for instance, two companies involved in petitioning the DEA and FDA to deschedule Fenfluramine claimed that communications between them were protected by the “common interest” doctrine. The court rejected their argument, noting that “the only common interest was commercial—if the drug was descheduled, sales would increase.” Because the common interest was commercial and not legal, the court ordered disclosure of communications between the companies.

While companies would be wise to enter into common interest arrangements (with contemporaneous written agreements) if there is an arguable basis for doing so, they should not count on a friendly judicial reception in all courts.</p