United States District Court, S.D. New York
BLACKROCK ALLOCATION TARGET SHARES: SERIES S PORTFOLIO, et al., Plaintiffs,
WELLS FARGO BANK, NATIONAL ASSOCIATION, Defendant. ROYAL PARK INVESTMENTS SA/NV, Plaintiff,
WELLS FARGO BANK, N.A., Defendant. NATIONAL CREDIT UNION ADMINISTRATION BOARD, Plaintiff,
WELLS FARGO BANK, N.A., Defendant. PHOENIX LIGHT SF LTD. et al., Plaintiffs,
WELLS FARGO BANK, N.A., Defendant. COMMERZBANK A.G., Plaintiff,
WELLS FARGO BANK, N.A., Defendant.
OPINION & ORDER
NETBURN, United States Magistrate Judge
their January 26, 2017 letter to the Court, plaintiffs claim
that Wells Fargo improperly asserted privilege with regard to
documents (1) relating to the ordinary administration of its
contractual duties; (2) containing factual trust-related
information; and (3) containing legal advice provided for the
benefit of the trust or certificate holders. Plaintiffs cite
several exemplar documents reflecting Wells Fargo's
purportedly improper privilege assertions. Wells Fargo
responds that (1) communications relating to Wells
Fargo's duties as trustee are privileged; (2) the
withheld documents contain more than purely factual
information; and (3) the fiduciary exception to the
attorney-client privilege does not apply because Wells Fargo
was seeking legal advice on its own behalf and not on behalf
of the certificateholders. In disposing of these privilege
issues, the Court presumes the parties' familiarity with
the underlying facts.
Wells Fargo's Claw-Back Objection
addition to challenging the merits of plaintiffs' claim,
Wells Fargo raises the procedural objection that plaintiffs
failed to identify entries from Wells Fargo's privilege
log and instead submitted under seal seven documents that
Wells Fargo designated as privileged. Wells Fargo had
previously clawed back all seven documents and argues that
plaintiffs violated the Protective Order by refusing to
destroy or sequester the documents. But the Court, at the
January 17, 2016 teleconference, had asked that the parties
submit exemplar documents. See Jan. 17, 2017 Tr. at
15:24-16:8 (ECF No. 324) (“And then my practice for
reviewing privilege issues is to allow both sides to select a
certain number of documents. Usually I allow five for each
side to select documents for me to review, so that gives the
party both who's asserting the privilege to select five
that they think are representative of the type of documents
that they have been seeking to protect and the plaintiff can
select five that they think is representative of the
overreach. And then those documents are submitted in camera
for my review.”). Plaintiffs were free to select as
their five exemplars those documents that were on Wells
Fargo's privilege log and for which it has exercised its
claw back rights. In addition, the Protective Order allows
for a party to submit disputed material under seal for a
privilege determination by the Court. See Royal Park Inv.
SA/NV v. Wells Fargo Bank, N.A., No. 14 Civ. 9764
(KPF)(SN), Amended Stipulation and Agreed Protective Order,
¶ 14(d) (ECF No. 52). Accordingly, plaintiffs'
conduct was proper.
Expectation of Confidentiality
Court addresses first plaintiffs' general assertion that
Wells Fargo failed to establish the privilege because it
lacked any expectation of confidentiality. Plaintiffs cite a
books and records provision of an exemplar PSA that states,
“The Trustee shall afford . . . each Certificateholder
upon reasonable notice during normal business hours, access
to all records maintained by the Trustee in respect of its
duties hereunder.” ABFC 2006-OPT1 PSA, § 8.12(b).
According to plaintiffs, this provision placed Wells Fargo on
notice that all of its records and documents relating to its
duties as trustee are available for inspection, including
documents of a legal nature.
implausible that a sophisticated entity like Wells Fargo
would allow a boilerplate books and records provision
providing for inspection to serve as a generalized waiver of
attorney-client privilege. See Gulf Ins. Co. v.
Transatlantic Reinsurance Co., 13 A.D.3d 278, 278 (1st
Dep't 2004) (declining to rule that “a standard
access to records clause in a contract waives any claim of
privilege with respect to those documents”). Indeed,
plaintiffs have cited no authority for such a proposition.
Accordingly, Wells Fargo has not waived privilege by dint of
a standard provision in the PSAs allowing for inspection.
Analysis of Privilege
attorney-client privilege protects communications “(1)
between a client and his or her attorney (2) that are
intended to be, and in fact were, kept confidential (3) for
the purpose of obtaining or providing legal
assistance.” Brennan Ctr. for Justice at NYU School
of Law v. U.S. Dep't of Justice, 697 F.3d 184, 207
(2d Cir. 2012) (internal citation omitted). With regards to
asserting the privilege, the “burden of establishing
any right to protection is on the party asserting it.”
Vector Capital Corp. v. Ness Techn., Inc., No. 11
Civ. 6259 (PKC), 2014 WL 171160, at *1 (S.D.N.Y. Jan. 9,
2014) (citing Spectrum Sys. Internat'l Corp. v.
ChemicalBank, 78 N.Y.2d 371, 377 (1991). Therefore, the
burden is on Wells Fargo to demonstrate why the disputed
documents should not be produced.
Category 1: Communications Relating to Ordinary
Administration of Wells Fargo's Duties
assert that Wells Fargo categorically withheld documents
regarding the ordinary administration of its trustee duties
any time an attorney was involved in or appeared on a
communication. For example, members of the Default and
Restructuring Group (“DRG”) reviewed repurchase
demands and notices of default and regularly sought the input
of external and internal counsel in doing so. Wells Fargo
responds that communications regarding its obligations under
the governing agreements, including how to interpret
provisions, constitute privileged legal advice.
Court's review of privilege is complicated by the
particular context in which these allegedly privileged
conversations occurred. By 2007 and 2008, all the players in
the residential mortgage-backed securities sector knew that
the industry was under stress and that litigation was highly
likely. The Court is sensitive to the possibility that, to
mitigate exposure and liability as a result of its business
practices, entities such as Wells Fargo may have engaged
counsel in decisions that were previously made by business
people without the advice of counsel. Accordingly, the
Court's review centers on whether the documents at issue
were created primarily for a business purpose or for the
purpose of obtaining legal counsel. See, e.g.,
In re Grand Jury Subpoena Duces Tecum Dated Sept. 15,
1983, 731 F.2d 1032, 1037 (2d Cir. 1984)
(attorney-client privilege attaches only where legal advice,
not business advice, is sought and given); Colton v.
United States, 306 F.2d 633, 638 (2d Cir. 1962);
Strategem Dev. Corp. v. Heron Internat'l, N.V.,
153 F.R.D. 535, 543 (S.D.N.Y. 1994). Advice relating to
“ordinary business functions, ” such as whether
or not a loan should be repurchased, is not privileged simply
by virtue of “outsourcing those business functions to
counsel, or to third-parties, with counsel serving as an
intermediary.” U.S. Bank Nat'l Ass'n v.
Citigroup Global Mkts. Realty Corp., No. 13 Civ. 6989
(GBD)(DCF), Dec. 7, 2016 Order at 4 (ECF No. 167). Legal
advice, on the other hand, “involves the interpretation
and application of legal principles to guide future conduct
or to assess past conduct” and is therefore not subject
to disclosure. In re Cnty. of Erie, 473 F.3d 413,
419 (2d Cir. 2007); see also JA Apparel Corp. v.
Abboud, No. 07 Civ. 7787 (THK), 2008 WL 111006, at *1
(S.D.N.Y. Jan. 10, 2008) (communications regarding “the
parameters of the client's rights and obligations”
under a contract are generally privileged); Upjohn Co. v.
United States, 449 U.S. 383, 392 (1981) (“In light
of the vast and complicated array of regulatory legislation
confronting the modern corporation, corporations, unlike most
individuals, constantly go to lawyers to find out how to obey
the law. . . .” (internal citation and quotation marks
forward, the Court sets forth the following guidance for the
parties with regards to this category of privilege
assertions. Documents, including emails, created in
connection with a request for advice from in-house counsel
regarding courses of action in connection with loan
repurchase requests or requests for compliance documents may
be withheld. See Fed. Hous. Fin. Agency v. HSBC N. Am.
Holdings Inc., No. 11 Civ. 6189 (DLC), 2014 WL 1327952,
at *3 (S.D.N.Y. Apr. 3, 2014) (“FHFA”).
But to the extent business records created in the ordinary
course of business are attached to requests for legal advice,
those business records do not become privileged simply
because they were sent to counsel unless they were created
solely for the purpose of obtaining legal advice.
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