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March 8, 1948


The opinion of the court was delivered by: INCH

On or about January 15, 1920, the Guaranty Trust Company of New York became the Trustee of Prudence-Bonds Corporation, First Mortgage Collateral Bonds, Series A Trust (this was one of a series, having other trustees, none of which are here involved). The Guaranty Trust Company continued as such Trustee pursuant to the Trust Agreement (Exhibit B) until June 30, 1938, when the securities then remaining in the Series A Trust Fund were transferred to the City Bank Farmers Trust Company, successor Trustee, pursuant to the order of this court, entered April 27, 1938.

By said order dated April 27, 1938, the Guaranty Trust Company as such Trustee was authorized and directed to then file its account for judicial settlement. Upon due notice, and on September 1, 1938, said Trustee did file its account, verified August 29, 1938, and then duly petitioned this court for a judicial settlement of said account and releasing and discharging it from any and all responsibility with respect to its acts and proceedings as such Trustee.

 On October 2, 1939, objections to the account were filed by Trustee of the debtor Prudence-Bonds Corporation (new corporation), jointly and severally and on behalf of the holders and owners of Prudence-Bonds Series A. Thereupon and on February 26, 1940, said accounting with said objections thereto was referred to James G. Moore, as Special Master, to take testimony and hear and report on the facts and law.

 On or about August 9, 1946, an amended account was duly allowed to be filed, and amended objections thereto were likewise duly filed.

 In substance, the Objectors sought to surcharge the Trustee for a very large sum. This accounting is practically the last accounting of various trustees. Hearings were duly commenced before the Special Master on or about October 22, 1946. A great amount of testimony has been taken, and a large number of exhibits received in evidence. On January 21, 1948, the important question arose which is now presented by this motion.

 It can be seen from the foregoing that the accounting of this Trustee goes back to 1920, and covers a period up to June 30, 1938, approximately eighteen years, and the objections point to specific alleged acts during this time in dealing with the securities of the Trust. Bad faith is neither claimed nor indicated.

 All through this long period the Guaranty Trust Company had counsel, such being the firm of Stetson, Jennings and Russell, and the successor firms of Davis, Polk, Wardwell, Gardiner and Reed, and Davis, Polk, Wardwell, Sunderland and Kiendl. This Trustee duly retained these experienced lawyers in respect of matters, whatever they were, requiring legal advice. It is stated, as undoubtedly is the case, that since 1920, several hundred opinions, oral and written, have been given the client on a great number of different and unrelated matters. The Guaranty Trust Company of New York is one of the large and important trust companies of the United States. It is said that there were at least fifty opinions which relate to Series A Trust.

 The Trust Agreement expressly provides: 'The Trustee may advise with counsel, and any action taken or suffered under this agreement in good faith by the Trustee in accordance with the opinion of counsel, shall be conclusive on the corporation and on all holders of Prudence-Bonds issued hereunder and the Trustee shall be fully protected in respect to any such action'. (Article V, Section 1, Trust Agreement.) Of course, counsel properly included in its compensation payments for legal opinions and for other services. Some of these are set forth in the motion papers and paid out of the Trust Fund as provided.

 Before going into the merits of the motion before me, I should mention that the learned Special Master, who has performed his duties with great industry and skill during these years in which this reorganization has made its way through the courts, stated something in the hearing before him, in excluding certain legal opinions, voluntarily offered by the Trustee as to which all privilege was waived, which, in my opinion, correctly indicates the real issue before him. He said: 'It is my job to interpret the Indenture and say whether what they did (the Trustees) was right or wrong and I don't think that I need the opinion -- I do not think the opinions of counsel are material on the Objectors' case. They may be material in exculpation of the Trustee if the Trustee see fit to offer them'.

 In the course of its administration of the Trust, the Trustee had from time to time sent some opinions to the Prudence-Bonds Corporation, waiving any privilege thereto. It was on one hearing, when the said Objectors did offer some such opinions in support of their contentions, that the Special Master made his above ruling excluding them on the ground that they were irrelevant.

 The Guaranty Trust Company states that it 'has always considered the preservation of 'privilege' to be of the essence of the proper relationship of attorney and client'. It therefore has declined to permit a general inspection of opinions on the informal request by Objectors. On September 7, 1945, the Objectors sought to obtain such inspection of all legal opinions by counsel to its client, the said Trustee, by a number of interrogatories addressed to the Trustee, Interrogatory No. 1 being as follows:

 '1. State whether the Trustee, prior to June 29, 1934, obtained any opinions of attorneys in connection with and to guide it in the administration of the Trust, and, if so, state the time or times when such opinions were obtained, the name or names of the attorney or attorneys who rendered such opinions, the name or names of the director, officer or employee of the Trustee who requested the same, and furnish copies thereof and of any correspondence, memoranda or records relating thereto, or state whether such opinions and any correspondence, memoranda or records relating thereto are available for inspection by the Objectors'.

 The Trustee then made a motion to strike this interrogatory and, after hearing the parties, this court, by order dated October 11, 1945, decided as follows:

 'Ordered, that said interrogatory be and is stricken without prejudice to such determination as may be made by the Special Master in the event that the Trustee in support of the account should rely upon any of ...

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