ACE Securities Corp., HOME EQUITY LOAN TRUST, SERIES 2006-HE4, by HSBC BANK USA, NATIONAL ASSOCIATION, in its capacity as Trustee, Plaintiff,
DB Structured Products, Inc., Defendant.
P. Goldberg, Avi B. Israeli, Michael S. Schuster, Hannah S.
Sholl, and Daniel M. Sullivan of Holwell, Shuster &
Goldberg LLP, for Plaintiff HSBC Bank USA, National
J. Woll, William T. Russell, Isaac M. Rethy, and John A.
Robinson of Simpson Thacher & Bartlett LLP, for Defendant
DB Structured Products, Inc.
Bank USA, National Association ("HSBC"), solely in
its capacity as trustee for the ACE 2006-HE4 trust (the
"Trust"), brought this action against DB Structured
Products, Inc. ("DBSP") for breaches of
representations and warranties DBSP made about residential
mortgage-backed securities contained in the Trust. In Motion
Sequence No. 004, Plaintiff moves to compel production of
DBSP's internal repurchase analysis documents, which DBSP
argues are protected by the attorney-client privilege and the
work-product doctrine. In Motion Sequence No. 006, Defendant
moves to compel the production of documents that HSBC claims
are privileged and protected by the common interest doctrine.
Motion Sequence Numbers 004 and 006 are consolidated for
disposition. For the reasons that follow, HSBC's motion
is granted in part and denied in part, and DBSP's motion
is granted in part and denied in part.
action arises from Defendant's sponsorship of a
securitization of mortgage-backed loans. (Compl. ¶ 1.)
As the sponsor, DBSP initially selected and purchased 3, 826
mortgage loans from third-party originators, then sold the
loans to the depositor, ACE Securities Corporation
("ACE"), pursuant to a "Mortgage Loan Purchase
Agreement" dated September 28, 2006 (the
"MLPA"). (Compl. ¶ 40.) ACE then transferred
the loans to the Trust in accordance with a Pooling and
Servicing Agreement dated as of September 1, 2006 (the
"PSA"). (Compl. ¶¶ 22, 40-42.) In the
MLPA, DBSP made a series of representations and warranties
("R & W") about the characteristics, quality,
and risk profile of the loans.  (Compl. ¶ 43.) If
the representations and warranties were breached with respect
to underlying loans, and such breach materially affected the
value of the loans or the interests of the
certificateholders, DBSP promised to cure the breach or
repurchase the related loans. (Compl. ¶ 44.) In
accordance with the PSA, the Trust held the loans for the
benefit of certificate-holding investors. (Compl. ¶ 42.)
Independent Reviews Reveal Breaches of DBSP's R &
this action was commenced, private certificateholders hired
consultants to review 1, 652 loans contained in the Trust.
(Compl. ¶ 48.) The consultants found 868 breaches of
DBSP's representations and warranties that materially and
adversely affected the value of the loans, including
misrepresentations about borrower income, occupancy status,
debt-to-income ratios, loan-to-value ratios, inclusion of
high cost loans, and other inaccuracies. (Compl. ¶¶
47-49.) A second forensic review scrutinized 288 loans. Of
those, 187 were found to be in breach DBSP's
representations and warranties. (Compl. ¶ 52.)
The Instant Action
September 27, 2012, HSBC filed a summons with notice alleging
breaches as to 912 loans-those loans specifically identified
by Amherst on behalf of the private certificateholder. (Dkt.
No. 1.) On March 4, 2013, after Defendants served a Demand
for Complaint, (Dkt. No. 9.), HSBC filed its Complaint
asserting causes of action for breach of contract and
declaratory judgment, and seeking compensatory and rescissory
damages, and specific performance. (Compl. ¶¶
104-149.) By Order dated April 4, 2014, this Court granted in
part and denied in part DBSP's motion to dismiss,
allowing Plaintiff's third cause of action for breach of
contract to proceed and stating that "Plaintiff's
mortgage loan-related recovery is limited to specific
performance on loan repurchases or equivalent damages."
(April 4, 2014 Order, Dkt. No. 29, at 11.) The parties moved
on to discovery, and the present dispute arose after mutual
Legal Standard Applicable to Both Motions
"[t]here shall be full disclosure of all matter material
and necessary in the prosecution or defense of an
action." CPLR § 3101(a). However, CPLR §
3101(d)(2) also recognizes three categories of protected
materials, namely: "privileged matter, absolutely immune
from discovery; attorney's work product, also absolutely
immune; and trial preparation materials, which are subject to
disclosure only on a showing of substantial need and undue
hardship in obtaining the substantial equivalent of the
materials by other means." Spectrum Systems Intern.
Corp. v. Chemical Bank, 78 N.Y.2d 371, 376-77 (1991).
Since policy favors full disclosure, "the burden of
establishing any right to protection is on the party
asserting it; the protection claimed must be narrowly
construed; and its application must be consistent with the
purposes underling immunity." Id., at 377
HSBC's Motion to Compel
seeks documents related to DBSP's breach analyses. In
opposition to the motion, DBSP argues that the documents
constitute attorney work product or are protected by the
attorney-client privilege. For the reasons that follow,
HSBC's motion is granted in part and denied in part.
Documents Related Only to Other RMBS Cases
preliminary matter, HSBC requests that DBSP produce documents
related to this case, as well as documents related to five
other residential mortgage-backed securities
("RMBS") cases between the same parties: In re
ACE Securities Corp. RMBS Litigation, No.
13-1869-AJN-GWG (S.D.NY), a set of four consolidated RMBS
put-back actions, and ACE Securities Corp. Home Equity
Loan Trust 2007-HE1 v. DB Structured Prods., Inc.,
650327/2013, filed in this court and assigned to Justice
case, involving solely the ACE 2006-HE4 Trust, proceeded on a
parallel schedule with those matters. According to Plaintiff,
the parties agreed that documents produced in any case could
be used in all cases in order to promote efficiency across
all six actions. Defendant argues that the parties agreed to
coordinate the matters for deposition purposes only, but that
the other cases are now stayed pending settlement
discussions. Defendant also notes that Plaintiff fails to
explain how documents related solely to trusts in other
actions are relevant here. 
concedes there may be documents about "general loan
origination standards and practices" that many courts
have deemed relevant in RMBS put-back actions, and this Court
agrees that they are relevant. See, e.g., Woll Aff., Ex. H
(July 9, 2014 Order of Judge Alison Nathan in In re Ace Sec.
Corp. RMBS Litig., No. 13 Civ. 1869, Dkt. No. 138.) Beyond
those general documents, however, the Court agrees with
Defendant that repurchase analysis documents related to
specific loans in trusts that are not at issue in this case
do not need to be produced. Accordingly, that branch of
Plaintiff's motion that seeks documents concerning trusts
not at issue in this case is denied. To the extent
Plaintiff's motion is granted below, it is only with
regards to documents related to the 2006-HE4 Trust.
The Breach Analyses and Bulk Demands
DBSP's Asset Management Unit
its Asset Management unit, DBSP had a "Breach
Management" team to handle and address repurchase
demands made by certificateholders. See Affirmation
of Hannah Sholl in Support of Plaintiff's Motion dated
February 1, 2016 ("Sholl Affirm."), Ex. 5. In 2008,
the team consisted of twelve analysts-non-lawyers-who
operated pursuant to Deutsche Bank's manuals on mortgage
loan breaches. See Sholl Affirm. Exs. 6-8. The
analysts created separate folders for each individual loan
and a master spreadsheet of all reported breaches; both were
stored on DBSP's shared computer hard drive. See
Sholl Affirm. Ex. 7, at 1783235-47. Based on their analysis
of each breach claim, the analysts drafted responses that
were also stored in the shared drive. Id.
Breach Management team was also tasked with uncovering
breaching loans before trustees, investors, or anyone else
provided a breach notice. With respect to loans that DBSP
purchased from originators and placed into securitization
pools, DBSP primarily outsourced its loan-level review to
external re-underwriters. See Sholl Affirm., Ex. 8.
The outsourced breach analyses were uploaded to DBSP's
shared drive. See Sholl Affirm., Ex. 8. Then,
DBSP's own analysts "validated" the findings,
and sent a detailed letter explaining the breach to the
originators, a copy of which was also placed in the shared
drive. See Sholl Affirm., Ex. 8.
maintained a Breach Management database called the Collateral
Performance System ("CPS"). See Sholl
Affirm. Ex. 6. The CPS created an "audit trail" and
"allow[ed] an asset's repurchase timeline to be
tracked and also allow[ed] other analysts to easily become up
to date and knowledgeable regarding an asset."
See Sholl Affirm. Ex. 8, at 187980-81. The CPS also
included a "Breach Analysis Detail" section that
included analysts' evaluation of the breach claims.
See Sholl Affirm. Ex. 8. The CPS could generate
several reports, including a "Breach In Analysis
Review" with internal comments and correspondence
between DBSP and the entity that sent the breach notice.
Sholl Affirm., Ex. 12. All documents generated by DBSP's
internal and external reunderwriters are collectively
referred to herein as "Breach Analyses."
The Bulk Repurchase Demands
received the first bulk repurchase demand from Amherst on
November 21, 2011 (the "Bulk Demands"). (Aulisa
Opp'n Aff., ¶ 20.) This demand was different from
previous Breach In demands because it came from a distressed
debt investor and involved hundreds of loans, far more than a
typical Breach In demand. Id. The investor was also
represented by litigation counsel. Id.
asked Latham & Watkins LLP ("Latham"), who was
already representing it in connection with unrelated
litigation, to advise it in connection with the Amherst Bulk
Demands. Id., ¶ 21. In December 2011 and
January 2012, Latham retained consultants to review the Bulk
Demands, and Defendant contends that Latham and the
consultants "had calls and meetings so that counsel
could provide advice and direction on how to assess the
alleged R & W breaches." Id., ¶ 22.
The re-underwriting consultants worked closely with Latham
and DBSP personnel to "assess which loans were and were
not eligible for repurchase, based on various legal arguments
and defenses." Id., ¶ 24. Thus, DBSP
argues that the Breach In process was significantly different
after the receipt of the first Amherst Bulk Demand.
Id., ¶¶ 30-31. DBSP contends that its
litigation counsel's involvement demonstrates that its
documents were prepared in anticipation of litigation.