Defining a Common Interest Agreement
A common interest agreement, also known as a joint defense agreement, is a contract that protects the confidentiality of communications between two or more individuals or businesses who share a common legal interest. This typically occurs in situations where the individuals or businesses are involved in some sort of legal dispute or potential legal dispute. The agreement is essentially an anti-waiver agreement, meaning that it prevents any communication between them from constituting a waiver of any applicable attorney-client privilege or attorney work product immunity. The point of these agreements is to allow the parties to engage in open and candid communications with each other with an understanding that they will not otherwise be disclosed to any third party .
Common interest agreements are commonly used in insurance and liability contexts in which there are multiple parties who are seeking coverage or guidance on related matters. Because there are truly a whole host of situations in which common interest agreements can be used, they should always be carefully drafted by legal counsel.
In addition to parties with aligned legal interests, common interest agreements can also cover experts who have been retained by any of the participating parties. Such agreements may allow the parties to share confidential information obtained by their expert witnesses during depositions or other interrogatories. This is true even in circumstances where multiple parties might not have a legal interest in common with one another, but with the expert. In that sense, common interest agreements are also commonly used to prevent waivers of trial preparation privileges such as work-product protection.
Basic Features of Common Interest Agreements
Common interest agreements – also referred to as common interest disclosures – are precise documents. In order to fall under the protections accorded by the work-product doctrine, the agreement must include a number of essential elements as follows:
First, the agreement must contain provisions of confidentiality. Second, it must limit the scope of the information to be shared. Third, it must restrict the scope of the participating parties. Fourth, it must be based on cost-sharing for benefits rendered. Fifth, it should describe the parties’ fear of material prejudice if the information is disclosed. Sixth, it should explain the facts which are the subject of the fear of disclosure. Seventh, it should further set forth the purpose – the collective objective – of the agreement.
In addition, prior to full-blown litigation, the agreement should be strictly enforced, and it should contain a clear and expressed option of retraction. The exception to these rules is, of course, as will be discussed in the next section, where the disclosure significantly carries the ability to fraud and misrepresentation.
How Common Interest Agreements Benefit You
The primary benefit of a common interest agreement is the protection of the attorney-client privilege. This protection allows the parties to a common legal interest to communicate about the matter without having to worry that their communications will be discoverable by others outside the group. Conservation of precious resources, such as financial resources, information, work product and other strategic planning can also be facilitated by a properly drafted common interest agreement. Once the common interest is established in writing, the parties are free to share information freely.
Common interest agreements do not need to be a burdensome process. The small amount of effort required to negotiate and draft a common interest agreement that is unique to the circumstances of the parties can pay meaningful dividends to the parties in terms of real time, cost, and the ability to explore joint strategies and resources without losing the protections of the attorney-client privilege.
Common Applications of Common Interest Agreements
Common interest agreements (CIAs) are not just the exclusive domain of government investigations or litigation. They are frequently used by parties contemplating closing a deal, such as a corporate merger or acquisition, joint venture, development agreement, credit agreement, or consulting/independent contractor agreement. They may also be used by parties in a lawsuit with more than two participants or by parties with a common proceeding involving multiple, distinct lawsuits. Much of the application of CIAs to pre- and post-closing matters is guided by the legal concept of "joint defense," which does not require that the parties view the same sides of the coin (= an adversarial relationship). The concept of joint defense permits a party to retain common counsel to represent more than one party. The parties can be represented by counsel from different law firms or in-house counsel, so long as the lines of communication involving privileged information are identified and defined. Joint defense communications regard issues of fact as well as issues of law. The joint defense concept allows the parties to share litigation strategy and evidentiary information, which would otherwise be the subjects of pre-trial or trial discovery.
The corporate applications of CIAs include, for example, the use of CIAs by more than one lender via inter-creditor agreements to create a common interest. Lender loan documents often contain express provisions concerning the sharing of information between the lenders (typically a bank syndicate). Another example of corporate applications of CIAs is the creation of a collaborative relationship required by antitrust laws. That is: without the CIA among competing parties, their exchange of certain information would violate various U.S. and state (e.g. California) antitrust laws. Similar CIAs are used among parties in joint ventures, to facilitate communication and ensure a common interest. In addition, in-house counsel from different parties to an M&A deal frequently make use of a CIA to permit protocol relating to the sharing of privileged information. The CIA, in such an instance, might permit an in-house lawyer at Company A, for example, to attend an M&A meeting or discussion between Company X’s and Company Y’s outside counsel, when the meeting or discussion involves the contract negotiation of terms or compensation of a target company’s employees.
In a litigation context, for example, parties who are both sued in the same case (or in multiple cases involving common issues), or multiple defendants who are targets of a government investigation, may joint defense agreements in order to maintain the confidentiality of legally protected information and/or privileged information, and to avoid waiver of attorney-client communications. Examples in the litigation context have included the criminal prosecution of Rite Aid, where the retailer was prosecuted for the actions of an individual store manager, and the recent indictment of dozens of individuals and several medical clinics involved in fraud against Medicare. The accused doctors and medical clinics have been represented by different firms, but they have a common defense counsel (with the consent of the Other Firms’ and clinics’ counsel). Joint defense and common interest agreements may be implemented in a number of ways, depending on the needs of the parties to the matter. For example, the parties may decide to pool their resources and share retained and ongoing costs, or they may choose to bear responsibility for their own costs.
Steps in Drafting a Common Interest Agreement
The drafting of a common interest agreement is not difficult but care must be exercised in its preparation so as to ensure that it is clear, enforceable, binding and conforms to relevant legal standards. To this end:
- Statements of opinion or conjecture are to be avoided – the IRS has taken the position that such statements have the effect of implying that the parties are not in agreement.
- Parties are to confirm the relationship of confidence and trust, herein referred to as common interest and are to state their intention to maintain the privacy of all communications.
- The agreement may be broad or narrow. It is suggested that a form be used that allows for unlimited sharing of information , but that parties be warned to protect their joint defense privileges at all costs.
- The agreement will specify the sharing of information. It may be thought that parties can rely on their existing privilege without giving up privilege by sharing information; however, such sharing could constitute a waiver if the action of the party waiving is clearly intentional so that it cannot be mistaken for an inadvertent waiver.
- The agreement will generally provide for the continued confidentiality of communications made prior to and during the agreement.
- Legal fees are to be discussed.
- If there is a payment for services, it is to be a flat fee.
Common Problems and Restrictions Related to Common Interest Agreements
Challenges and Limitations on Common Interest Agreements
Commonality of interest is typically not enough to create an enforceable common interest among parties to actually preserve flow of information and a corporation’s privilege.
In evaluating whether parties have an actual common interest to establish a common defense and common interest exception to the waiver rule, we note that some courts allow parties to a common interest agreement to successfully assert that issues they are litigating against each other with respect to a third party involve a common legal or factual issue without any further refinement or detail. This result however is often very limited because the general formulation of common interest and issue has been found to be too broad and instead, courts look for factual situations where application of the privilege would foster candid discussion between the two parties whose common goals are to both defend themselves against the same FDC. So for example, if the two clients are charged with failing to report a safety violation, the court might find their interests are not necessarily aligned to permit the application of the so-called common interest privilege exception where the clients have differing interests in the case. The parties, therefore, must take care to narrow the focus of the common interest agreement and clearly demonstrate throughout the duration of the anticipated legal action that they share a common interest in the factual and legal issues relevant to the case. If they allow the common interest between them to diverge into their own unique legal positions, there is a danger that they will lose their privilege in the information exchanged during the time their information was admittedly shared. This problem can be exacerbated where jurisdictions vary in their interpretations of common interest among those clients involved in litigation representation.
As an additional example, some jurisdictions have recognized some exceptions to these principles like the one in California where an agreement to share privileged and confidential information between clients who are "jointly contemplated to be liable," as long as the communication is made to assist legal counsel in "specific litigation" and the sharing is only among the parties to the joint representation. In other jurisdictions, the courts have found that where the joint interest does not relate to a particular transaction, the sharing of information among clients does not create a common interest that will allow them to share privileged documents. For example, if two separate borrowers are in separate transactions with a Lender Bank and there is no common transaction that involves both of them but they each share a common interest with the Lender Bank to receive favorable loan modifications on their respective loans, courts have found that they cannot share communications among them and jointly protect their privileged discussions. This highlights the need for care and attention in crafting a common interest agreement.
Key Legal Issues to Consider
One important factor to keep in mind with any common interest agreement is that the law potentially varies not only by the substantive and procedural rules of the relevant jurisdiction, but also from one case to another within the same jurisdiction. There may be some case law that states a privilege may exist with respect to certain types of information, excluding it from discovery, while there is similarly-situated case law that states that information may still be discoverable in some cases. For example, in Florida, there is some case law which suggests that expert witness materials prepared by a party to litigation and shared with another party to the litigation as part of a common interest agreement may be protected from discovery by a common interest privilege, but conflicting case law exists as well. In New Jersey, the court has suggested that expert witness materials produced between parties to litigation in connection with a common interest agreement will be protected if they are not relied upon by either party. Georgia courts also recognize the common interest doctrine, and have held that communications between two attorneys representing co-defendants in an action are protected from discovery . New York, on the other hand, holds a stricter view and generally will not apply the common interest doctrine where litigation is not pending or contemplated, nor will it protect communications between parties represented by the same attorney with respect to a pending litigation. Many other jurisdictions do not have case law directly on point, making any common interest agreement uncertain.
An additional legal consideration involves the type of documents such common interest agreements seek to protect from disclosure to third parties. Examples of types of documents that are potentially within the scope of a common interest agreement and court decisions recognizing their privileged status include: expert reports, tax documents, legal opinions, slides, marketing strategies, and internal reports and memoranda, among others. Depending on the underlying purpose and goals of a given common interest agreement, the parties may choose to protect only some, and not all, of these types of documents. However, it is crucial that any common interest agreement be negotiated at the outset, with the input and guidance of counsel for each party. Otherwise, the likelihood of a successful claim of privilege in the event of a third-party discovery request is decreased.