Hedge fund managers regularly seek and rely on the advice of counsel, and the confidentiality of those communications is of paramount importance and is frequently taken for granted. The so-called “common interest doctrine,” when applicable, extends the protection of that privilege to third parties and their counsel when the parties share a common legal interest and objective. Relying upon this extended scope of the attorney-client privilege, it has become accepted practice for investment managers and other parties in a wide range of transactions to align themselves in pursuit of mutual objectives, pooling their ideas and invoking a collaborative approach. In a much-anticipated decision rendered in June 2016, New York’s highest court added clarity to the parameters of the common interest doctrine. In doing so, however, the court created myriad everyday ambiguities and potential pitfalls for the uninformed hedge fund manager, including uncertainty about whether a hedge fund manager would be protected by the doctrine at the time that privileged communications are shared with others. In a guest article, David M. Levy, partner at Kleinberg, Kaplan, Wolff & Cohen, discusses the significance of the decision, analyzes its potential ramifications on the hedge fund industry and proposes a potential solution to issues arising from the decision. For additional commentary from Kleinberg Kaplan attorneys, see “How to Draft Key Hedge Fund Documents to Take New Partnership Rules Into Account
” (Feb. 11, 2016); “Modified High Water Mark Provisions May Be Difficult for Managers to Market and Implement (Part Two of Two)
” (Jun. 11, 2015); and “Recent Cases Reduce the Impact of Newman on Insider Trading Enforcement
” (May 7, 2015). For more on the attorney-client privilege, see “Six Recommendations for Hedge Fund Managers Seeking to Protect Themselves From Waiver of Attorney-Client Privilege When Faced With SEC Document Requests
” (Jan. 17, 2013).