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Blackrock Allocation Target Shares Series S Portfolio v. Wells Fargo Bank, National Association

United States District Court, S.D. New York

March 9, 2017

BLACKROCK ALLOCATION TARGET SHARES: SERIES S PORTFOLIO, et al., Plaintiffs,
v.
WELLS FARGO BANK, NATIONAL ASSOCIATION, Defendant. ROYAL PARK INVESTMENTS SA/NV, Plaintiff,
v.
WELLS FARGO BANK, N.A., Defendant. NATIONAL CREDIT UNION ADMINISTRATION BOARD, Plaintiff,
v.
WELLS FARGO BANK, N.A., Defendant. PHOENIX LIGHT SF LTD. et al., Plaintiffs,
v.
WELLS FARGO BANK, N.A., Defendant. COMMERZBANK A.G., Plaintiff,
v.
WELLS FARGO BANK, N.A., Defendant.

          OPINION & ORDER

          SARAH NETBURN, United States Magistrate Judge

         In 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.

         I. Wells Fargo's Claw-Back Objection

         In 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.

         II. Expectation of Confidentiality

          The 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.

         It is 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.

         III. Analysis of Privilege

          The 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.

         A. Category 1: Communications Relating to Ordinary Administration of Wells Fargo's Duties

         Plaintiffs 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.

         The 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 omitted)).

         Going 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.

         1. SOC / CTS ...


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