Guidance Including the Common Interest or Joint Defense Doctrine

In civil litigation, parties frequently communicate with consultants, tax advisors, friends, family, and others concerning the subject matter of the litigation, and such communications raise issues regarding the possible waiver of the attorney-client privilege.  

In 2016, the North Carolina Court of Appeals decided two important cases concerning the application and scope of the attorney-client privilege.  The cases, Berens v. Berens and Friday Investments, LLC v. Bally Total Fitness, address aspects of the attorney-client privilege that are significant for civil litigation, particularly in commercial disputes or estate litigation when the client, whether an entity or an individual, consults and communicates with various third parties. Specifically, these two cases provide guidance for how to maintain the privilege in two common scenarios: agency relationships and common interest agreements.  

Berens v. Berens: Maintaining the Attorney-Client Privilege in Communications with a Party's Agent

The Berens case extends the protections of the attorney-client privilege to communications between clients, attorneys, and a client's agent when the communications are made confidentially and there is an expectation (ideally in writing) that confidentiality will be maintained.  

Berens involved a contentious divorce proceeding.  In defending the suit brought by her husband, the defendant wife relied on the advice and aid of a friend.  The friend was a non-practicing attorney, but during the litigation, the friend acted as a "consultant/agent" on behalf of the defendant and the defendant's law firm.  The friend attended meetings with the defendant and her attorneys and had access to various documents and materials, including emails between the defendant and her attorneys and experts and access to draft pleadings, exhibits, and strategy planning documents.  The friend appears to have had full access to defendant's and defendant's attorneys' case file, as well as access to, and knowledge of, confidential communications and preparations for litigation and trial.  

Significantly, the friend and the defendant's attorneys had memorialized the relationship in a confidentiality and agency agreement.  The confidentiality and agency agreement identified the friend as the defendant's agent and emphasized that privileged information exchanged between the two would be used solely for the litigation or settlement.  The agreement further stated that the friend's presence was "necessary" for the protection of the defendant's interest and that the friend agreed to limit her communication with others to the defendant and her defense team.

The friend's involvement reached the Court of Appeals because prior to trial, the plaintiff issued a subpoena to the defendant's friend, requesting copies of all documents and tangible things within her possession related to the litigation.  The defendant and the friend objected to producing the documents on grounds of the attorney-client privilege, citing the confidentiality and agency agreement.  The trial court ordered the friend to produce the requested documents, and the defendant appealed.

On appeal, the Court of Appeals reversed the trial court, concluding that the lower court "misapprehended the law regarding the extension of the attorney-client privilege and the attorney work product doctrine to communications with a client's agent within the context of the litigation and confidentiality agreement."  The holding was focused on the application of the attorney-client privilege in situations where a third party who receives confidential information protected by the attorney-client privilege is the agent of either the attorney or the client.  

Whether or not the third party qualifies as an agent depends on the nature of the relationship and whether it fits within the definition of agency under North Carolina law. In Berens, the language of the confidentiality and agency agreement made clear that the legal requirements of an agency relationship—manifestation of consent by one person to another that the other shall act on her behalf and subject to her control—were met.  

The Berens case is significant because it offers a roadmap for parties who utilize consultants, friends, or other third parties to assist them in various aspects of litigation. What the third party is called—"consultant," "friend," "family"—is immaterial.  The important question is whether the third party's involvement qualifies the third party as an agent under North Carolina law.  

After Berens, when a party to litigation shares or intends to share privileged communications with an agent, the agency relationship should be memorialized in a confidentiality and agency agreement, and, if memorialized properly, then the sharing of such information will likely not constitute a waiver ofthe attorney-client privilege.  To ensure that the privilege is upheld, the best practice would be to execute a written confidentiality-agency agreement at the outset of the relationship.  

Friday Investments, LLC v. Bally Total Fitness: The History and Application of the Common Interest Doctrine in North Carolina

Shortly after deciding Berens, the Court of Appeals clarified the scope of the common interest doctrine in Friday Investments. The common interest doctrine is not a separate privilege. Rather, it allows an extension of the attorney-client privilege to certain communications between separate parties for the purpose of facilitating the legal representation of both parties.  

The defendant in Friday Investments sold a number of health clubs to a third party. The asset purchase agreement between the defendant seller and the purchaser contained an indemnification clause wherein the purchaser agreed to defend or indemnify the defendant seller from any losses incurred under the real property leases that were included in the purchase.  

Subsequently, the landlord brought suit against the defendant seller for payment of back rent and other alleged violations of the lease. The purchaser agreed to defend the defendant seller pursuant to the indemnification clause. During the course of the discovery, the landlord sought "post-suit correspondence" between the defendant seller and the purchaser. The defendant objected, claiming that post-suit correspondence between it and the purchaser was subject to attorney-client privilege. After in camera review, the trial court disagreed with the defendant, who then appealed.

The Court of Appeals affirmed the trial court, finding that the common interest doctrine did not apply to extend the attorney-client privilege to communications between the defendant and the purchaser. After providing a helpful overview of the history of the common interest doctrine, the court zeroed in on the purpose of the doctrine, which, according to the court, is to extend protections of the attorney-client privilege to parties who share a common legal interest.  

In Friday Investments, the Court of Appeals found that the defendant and the purchaser had a common interest, but it was a common business interest, not a legal interest.  The defendant's argument for application of the common interest doctrine was the indemnification provision in the asset purchase agreement. For the court, the indemnification provision, which it observed was commonplace in business deals and asset purchase agreements, was ancillary to the actual business purpose of the deal.  

An indemnification provision in a contract, standing alone, was insufficient to show an agreement relating to some "shared actual or imminent, specific litigation."  The Court of Appeals also observed that the purchaser was not a party to the actual litigation, and while status as a party defendant does not appear to be a prerequisite for application of the common interest doctrine, the court mentioned this factor more than once in its opinion. Accordingly, a party's actual participation in litigation as a party defendant or plaintiff may strengthen the argument that the common interest doctrine should apply.

Friday Investments provides a number of notable takeaways for commercial litigators.  For one, it provides a helpful overview of the history of the common interest doctrine and the way the doctrine has been interpreted by the North Carolina appellate courts, the North Carolina Business Court, and the federal courts in the Fourth Circuit.  This overview provides practitioners with insight into how the doctrine is intended to work and what it's meant to protect, as well as offering helpful cites to relevant cases applying or rejecting the doctrine.  

More importantly, Friday Investments clarifies the scope of the common interest doctrine in North Carolina, and emphasizes the need for parties desiring an enforceable common interest agreement to have a legitimate, common, legal interest, ideally within threatened, pending, or existing litigation.  Simply having aligned business interests is insufficient to invoke the doctrine.  

Practitioners and parties should use caution when sharing privileged communications with other parties.  Before assuming that a simple common interest agreement will shield all such communications from an adverse party under the common interest doctrine, parties should have some confidence that they share a common legal interest and that they can articulate such interest if pressed by opposing parties or the court.  Lastly, while written common interest agreements have never been required for the doctrine to apply, as the Court of Appeals notes in Friday Investments, "prudent counsel would always put [a common interest agreement] in writing."

Conclusion

In multiparty civil litigation, issues of privilege quickly become complicated. Whether the case is a straightforward will caveat or a complex commercial business dispute, maintaining the attorney-client privilege while simultaneously opening up important lines of communication with agents and/or codefendants with a shared legal interest can be critical to building the strongest case possible for the client.  

The Berens and Friday Investments opinions offer important guidance to North Carolina civil practitioners on strategies to maintain the attorney-client privilege as well as cautionary tales for when the privilege will not be extended.