When joint defense agreements and tolling agreements make sense for defendants
Many design and construction disputes involve multiple defendants, including architects, engineers, contractors, subcontractors, and consultants. Used in many types of cases, joint defense agreements (JDAs) and tolling agreements can be especially effective in large, multi-party construction actions. These agreements can enable defendants to put aside their internal disputes and work together to their mutual benefit, for example by presenting a united front in attacking the plaintiff’s claims on issues of both liability and damages.
In order to appreciate what a JDA can (and cannot) accomplish, one must first understand the common interest doctrine, which provides the legal basis for such agreements. The common interest doctrine, sometimes referred to as the joint defense privilege or joint prosecution privilege, is not actually a separate privilege or protection, but instead is a recognized exception to the waiver of the attorney-client privilege or work product doctrine, which would otherwise be waived when confidential information is shared with other parties and/or their counsel. While the terminology, scope, and application of the common interest doctrine vary between jurisdictions, the doctrine generally applies where:
[See Matter of Bevill, Bresler & Schulman Asset Management Corp., 805 F.2d 120, 126 (3rd Cir. 1986); and United States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20, 28 (1st Cir.1989)].
Thus, pursuant to the common interest doctrine, parties can exchange confidential information and consult with each other for their mutual benefit without waiving any privilege or protection afforded to the information. The common interest doctrine applies not only to litigation or impending litigation, but also to transactional matters where parties have a common legal interest. [See Restatement (Third) of Law Governing Lawyers, § 76(1)].
Parties may have a common interest as to certain issues in a dispute, but not for other issues. Indeed, the common interest doctrine has even been upheld to protect communications between a plaintiff and a defendant concerning a shared theory from other defendants. [See Visual Scene, Inc. v. Pilkington Bros., plc., 508 So.2d 437, 443 (Fla. 3d DCA 1987), which held that a plaintiff and one defendant had a common interest with respect to their theory of liability against another defendant].
When a JDA Makes Sense
Typically, defendants can demonstrate a sufficient common interest to invoke the doctrine when they share a goal of developing a joint defense strategy to refute a plaintiff’s claims. In this regard, JDAs can be particularly beneficial in multi-party construction claims where a plaintiff has sued multiple defendants alleging an array of design errors and construction defects. By way of example, a JDA might be useful in the following scenario:
A developer builds a condominium complex on an empty lot. The developer contracts with an engineer to design the grading and drainage for the site. The developer also retains a contractor to construct the stormwater management features designed by the engineer.
Following construction, a neighboring business complains its parking lot has begun experiencing flooding during rain events, disrupting its business and causing property damage. The neighboring property owner asserts claims against the developer, engineer, and the contractor, alleging they failed to adequately control runoff from the site and designed and constructed a faulty stormwater system.
In this example, the developer, engineer, and contractor may all benefit from the use of a JDA in order to protect their communications, allowing them to candidly discuss possible causes of any increased flow to the parking lot, and potential defenses to the neighbor’s claims.
Although a JDA can be verbal, in the absence of a written agreement there is a risk that a court will find no such agreement exists. The case of United States v. Weissman serves as a cautionary tale. In Weissman, the defendant and his employer were the subject of a government investigation related to the company’s financial reporting. Eventually, Weissman retained separate counsel from his employer, Empire. At one point, the two parties met with their counsel to discuss strategy, during which Weissman made incriminating statements. The company’s counsel later disclosed their notes of the meeting with the government, and the notes were used in the subsequent indictment of the defendant. Weissman claimed the notes were privileged under the JDA. Weissman’s counsel argued he began the meeting by explicitly stating it was subject to a JDA and that Empire’s counsel concurred; Empire’s lead counsel denied there was any discussion of a JDA (although subsequent notes by other attorneys for the company suggested the joint defense privilege might apply).
Faced with this conflicting evidence, the court held Weissman had failed to establish the existence of a JDA. A written agreement memorializes the parties’ intent to preserve the attorney-client privilege when making disclosures to each other.
A written JDA can also eliminate or minimize the potential risks of engaging in joint defense communications. For example, if the parties engage in joint defense communications but later become adverse to one another, their prior communications may no longer be protected unless the parties explicitly agree the privilege survives after their cooperation ends. [See Restatement (Third) of Law Governing Lawyers, § 76(2)]. Therefore, the JDA should contain clear language stating the joint defense communication will remain privileged and may not be used by the parties in subsequent actions against each other.
A written JDA provides clarity for the parties by outlining the precise terms of the agreement. Key terms and provisions to include in the JDA are:
In evaluating whether it makes sense to enter into a JDA, each party and its counsel must weigh the benefits and risks in light of the facts and circumstances of the particular case. One potential disadvantage is that the JDA may be discoverable. For that reason, parties drafting a JDA should keep the language broad and generic as to the purpose of the agreement (i.e., “to advance the parties’ common interests” or “to aid in the parties’ mutual defense”) and avoid indicating the specific nature of the information to be shared.
Generally, JDAs provide significant benefits in the form of a stronger case and significant cost savings. For example, it can be very advantageous for the parties to either jointly retain an expert or else share their respective experts’ opinions. In this way, the parties can avoid offering conflicting expert testimony that undermines each other’s defenses and allows the plaintiff to exploit contradictory positions and finger-pointing between the defendants.
JDAs can be particularly helpful in construction cases, which often involve multiple technical issues concerning liability, causation, and damages. By working cooperatively, the parties can share legal strategies, streamline their efforts, and drive down the value of the plaintiff’s case. In the hypothetical scenario above, for example, the developer, engineer, and contractor can all benefit by working together to demonstrate why the project did not generate any increased water flow, or by identifying other potential sources and factors contributing to the alleged problem.
Tolling Agreements
Tolling agreements can work hand-in-hand with JDAs by allowing the parties to preserve their potential claims against each other, such as claims for contractual indemnification or contribution, and set them aside in the present action. This can avoid the typical flurry of cross-claims and third-party claims in construction actions, which serve to embolden the plaintiff. By tolling any statutory or contractual limitations periods for their claims, the defendants can avoid expensive and distracting infighting.
A tolling agreement may be a standalone document, or it may be included as a provision within the JDA. The tolling agreement should clearly state what types of claims or potential claims are tolled. The tolling agreement should also indicate its duration. A tolling agreement may be indefinite, or it may identify a specific period of time for which it will be in effect, such as a year. The tolling agreement duration could also be tied to a specific event; for example, a tolling agreement could automatically expire 90 days after the entry of judgment in pending litigation. A tolling agreement may also include provisions for its renewal or termination prior to its expiration. As with a JDA, a tolling agreement can allow defendants in a construction action to avoid unnecessary time and expense and focus their efforts on attacking the plaintiff’s claims.
In deciding whether to enter into a JDA and/or tolling agreement, a party must evaluate what is at stake in the action, consider its exposure relative to that of the other parties, and determine what may be gained from the agreement. Before entering any such agreement, one should always consult with an attorney familiar with the applicable laws in the governing jurisdiction who can carefully craft an appropriate agreement.
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Catherine Bednar is a partner in the Boston office of Freeman Mathis & Gary LLP. cbednar@fmglaw.com
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