Blackrock Allocation Target Shares: Series S Portfolio et al v. Wells Fargo Bank, National Association et al
Filing
722
OPINION AND ORDER re: (405 in 1:14-cv-10067-KPF-SN) MOTION to Vacate Notice of Plaintiffs' Rule 72 Objection and Motion to Vacate the Magistrate Judge's Orders Concerning Defendant Wells Fargo Bank, N.A.'s Discovery and Know ledge of Breaches. filed by Graeme W. Bush, National Credit Union Administration Board, (441 in 1:14-cv-09764-KPF-SN) MOTION to Vacate Notice of Plaintiffs' Rule 72 Objection and Motion to Vacate the Magistrate Judge's Orders Concerning Defendant Wells Fargo Bank, N.A.'s Discovery and Knowledge of Breaches. filed by Royal Park Investments SA/NV, (656 in 1:14-cv-09371-KPF-SN) MOTION to Vacate Notice of Plaintiffs' Rule 72 Objection and Motion to V acate the Magistrate Judge's Orders Concerning Defendant Wells Fargo Bank, N.A.'s Discovery and Knowledge of Breaches. filed by PIMCO FUNDS: PIMCO GLOBAL MULTI-ASSET FUND, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, EMERGING LOCAL BON D FUND, PIMCO FUNDS: PIMCO UNCONSTRAINED BOND FUND, Pimco Cayman Trust: Pimco Cayman Global Ex-Japan (Yen- hedged) Bond Fund, PIMCO FUNDS: PIMCO TOTAL RETURN FUND III, TIAA-CREF Life Insurance Company, PIMCO FUNDS: GLOBAL INVESTORS SERIES P LC, STRATEGIC INCOME FUND, PIMCO CAYMAN TRUST: PIMCO CAYMAN GLOBAL AGGREGATE EX-JAPAN (YEN-HEDGED) BOND FUND II, Pimco Corporate & Income Oppurtunity Fund, Pimco Cayman SPC Limited: Pimco Cayman Unconstrained Bond Segregated Portfolio, PIMCO FUNDS: PIMCO LONG-TERM CREDIT FUND, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, INFLATION STRATEGY FUND, Pimco High Income Fund, Pimco Low Duration Portfolio, Pimco ETF Trust: Pimco Total Return Active Exchange-Traded Fund, Pimco Variable Ins urance Trust: Pimco Unconstrained Bond Portfolio, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, DIVERSIFIED INCOME FUND, PIMCO FUNDS: PIMCO INCOME FUND, Brookfield Mortgage Opportunity Income Fund Inc., PIMCO FUNDS: PIMCO INTL LOW VOLATILITY RAFI -PLUS AR FUND, Pimco Funds: Pimco Small Cap Stockplus AR Strategy Fund, THE PRUDENTIAL SERIES FUND, Pimco Funds: Private Account Portfolio Series high Yield Portfolio, CREF BOND MARKET ACCOUNT, PIMCO FUNDS: PIMCO LOW DURATION FUND III, PI MCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES ASSET-BACKED SECURITIES PORTFOLIO, Pimco Tactical Oppertunities Master Fund LTD, PIMCO ABSOLUTE RETURN STRATEGY 3D OFFSHORE FUND LTD., PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, TOTAL RETURN BOND FUND, BLACKROCK US MORTGAGE, Pimco Global Income Oppertunities Fund, Pimco Funds: Private Account Portfolio Series Real Return Portfolio, Pimco Funds: Pimco International Stockplus AR Strategy Fund (Unhedged), PIMCO CAYMAN TRUST: PIMCO CAYMAN GL OBAL AGGREGATE BOND FUND, LVS I LLC, Kore Advisors, L.P., Pimco ETF Trust: Pimco Enchanced Short Maturity Active Exchange-Traded Fund, PIMCO BERMUDA TRUST: PIMCO EMERGING MARKETS BOND FUND (M), PIMCO FUNDS: PIMCO WORLDWIDE FUNDAMENTAL ADVAN TAGE AR STRATEGY FUND, PIMCO LARGE CAP STOCKSPLUS ABSOLUTE RETURN FUND, AST PIMCO TOTAL RETURN BOND PORTFOLIO, PCM Fund, Inc., PIMCO FUNDS: PIMCO GLOBAL ADVANTAGE STRATEGY BOND FUND, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, PIMCO DIVIDEND AND INCOME BUILDER FUND, BLACKROCK TOTAL RETURN PORTFOLIO (INS- SERIES), THE PRUDENTIAL INVESTMENT PORTFOLIOS INC., Pimco Funds: Pimco Stockplus Absolute Return Fund, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, GLOBAL BOND FUND, PIMCO FUNDS: PIMCO LOW DURATION FUND, PIMCO ETF TRUST: PIMCO LOW DURATION ACTIVE EXCHANGE-TRADED FUND, Pimco Funds: Private Account Porfolio Series Emerging Markets Portfolio, PIMCO VARIABLE INSURANCE TRUST: PIMCO REAL RETURN PORTFOLIO, Fixed Incomes Shar es: Series M, PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES INTERNATIONAL PORTFOLIO, Pimco Offshore Funds: Pimco Absolute Strategy V Alpha Fund, PIMCO FUNDS: PIMCO INVESTMENT GRADE CORPORATE BOND FUND, Pimco Real Return Strategy Fund, PIMCO CAYMAN SPC LIMITED: PIMCO CAYMAN JAPAN COREPLUS STRATEGY SEGREGATED PORTFOLIO, Blackrock Core Bond Portfolio, Pimco Bermuda Trust IV: Pimco Bermuda Global Bond Ex-Japan Fund, Blackrock Allocation Target Shares: Series S Portfolio, BLACKROCK COREPLUS BOND FUND B, Pimco Absolute Return Strategy II Master Fund LDC, PIMCO COMBINED ALPHA STRATEGIES MASTER FUND LDC, PIMCO ABSOLUTE RETURN STRATEGY IV IDF LLC, PACIFIC BAY CDO, LTD., PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, GLOBAL IN VESTMENT GRADE CREDIT FUND, TIAA-CREF BOND PLUS FUND, PIMCO FUNDS: PIMCO DIVERSIFIED INCOME FUND, FIXED INCOME SHARES: SERIES M, BLACKROCK COREALPHA BOND MASTER PORTFOLIO, PIMCO DYNAMIC CREDIT INCOME FUND, PIMCO FUNDS: PIMCO EMERGING LOCA L BOND FUND, Prudential Bank & Trust, FSB, PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES DEVELOPING LOCAL MARKETS PORTFOLIO, PIMCO FUNDS: PIMCO EM FUNDAMENTAL INDEXPLUS AR STRATEGY FUND, PIMCO FUNDS: PIMCO LOW VOLATILITY RAFI- PLUS AR FUND, Pimco Funds: Pimco International Stockplus AR Strategy Fund (U.S. Dollar- Hedged), PIMCO FUNDS: PIMCO FOREIGN BOND FUND (U.S. DOLLAR-HEDGED), TIAA-CREF BOND FUND, BLACKROCK DYNAMIC HIGH INCOME - STRUCTURED CREDIT PORTFOLIO, LVS II LLC, FIX ED INCOME SHARES: SERIES C, PIMCO DYNAMIC INCOME FUND, Pimco Funds: Global Investors Series Plc, emerging markets bond funds, The Gilbraltar Life Insurance Company, Ltd., PIMCO ABSOLUTE RETURN STRATEGY IV MASTER FUND LDC, PIMCO FUNDS: PIMC O FOREIGN BOND FUND (UNHEDGED), PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, GLOBAL ADVANTAGE REAL RETURN FUND, THE PRUDENTIAL INVESTMENT PORTFOLIOS 2;, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, UNCONSTRAINED BOND FUND, THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC. 17, PIMCO FUNDS: PIMCO INTERNATIONAL FUNDAMENTAL INDEXPLUS AR STRATEGY FUND, PIMCO FUNDS: PIMCO REAL RETURN FUND, PIMCO FUNDS: PIMCO FUNDAMENTAL ADVANTAGE ABSOLUTE RETURN STRATEGY FUND, PIMCO VARIABLE INSURANCE TRUST: PIMCO EMERGING MARKETS BOND PORTFOLIO, Pimco Funds: Global Investors Series PLC, Stockplus Fund, PIMCO FUNDS: PIMCO GLOBAL BOND FUND (UNHEDGED), The Prudential Insurance Company of America, TIAA-CREF SHORT-TERM BOND FUND, PIMCO FUNDS: PIMCO REAL ESTATE REAL RETURN STRATEGY FUND, Blackrock Enchanted Government Fund, Inc., PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES U.S. GOVERNMENT SECTOR PORTFOLIO, TIAA-CREF Social Choice Bond Fund, PIMCO FUNDS: PIMCO COMMODITY REAL RETURN STRATEGY FUND, PIMCO FUNDS: PIMCO CREDIT ABSOLUTE RETURN FUND, PIMCO VARIABLE INSURANCE TRUST: PIMCO LOW DURATION PORTFOLIO, PIMCO CAYMAN SPC LIMITED: PIMCO CAYMAN GLOBAL AGGREGATE BOND SEGREGATED PORTFOLIO, FIXED INCOME SHARES: SERIES LD, PIMCO FUN DS: GLOBAL INVESTORS SERIES PLC, PIMCO CREDIT ABSOLUTE RETURN FUND, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, DIVERSIFIED INCOME DURATION HEDGED FUND, Pimco Funds: Pimco Stockplus AR Short Strategy Fund, TIAA GLOBAL PUBLIC INVESTMENTS, MBS LLC, PIMCO FUNDS: PIMCO TOTAL RETURN FUND, PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES MORTGAGE PORTFOLIO, Pimco Funds: Pimco Global Bond Fund (U.S. Dollar- Hedged), PIMCO MULTI-SECTOR STRATEGY FUND LTD., PIMCO FUNDS: PIMCO SMALL COMPANY FUND AMENTAL INDEXPLUS AR STRATEGY FUND, Pimco Offshore Funds- Pimco Absolute Return Strategy IV Efund, BLACKROCK LONG DURATION ALPHAPLUS BOND FUND, Blackrock Strategic Income Oppurtunities Portfolio, PIMCO FUNDS: PIMCO FLOATING INCOME FUND, PIM CO BERMUDA TRUST II: PIMCO BERMUDA INCOME FUND (M), PIMCO FUNDS: PIMCO UNCONSTRAINED TAX MANAGED BOND FUND, PIMCO CORPORATE & INCOME STRATEGY FUND, BLACKROCK INCOME TRUST, INC., Pimco Income Oppertunity Fund, PIMCO FUNDS: PRIVATE ACCOUNT PO RTFOLIO SERIES SHORT-TERM PORTFOLIO, CREF SOCIAL CHOICE ACCOUNT, PIMCO CAYMAN SPC LIMITED: PIMCO CAYMAN JAPAN COREPLUS SEGREGATED PORTFOLIO, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, EURO INCOME BOND FUND, Pimco Funds: Pimco Real Return Asset Fund, PIMCO VARIABLE INSURANCE TRUST: PIMCO GLOBAL BOND PORTFOLIO (UNHEDGED), BLACKROCK FIXED INCOME GLOBALALPHA MASTER FUND LTD., Prudential Retirement Insurance and Annuity Company, Pimco Distressed Senior Credit Oppurtunites Fund II, L.P. , PIMCO FUNDS: PIMCO LOW DURATION FUND II, PIMCO FUNDS: PIMCO TOTAL RETURN FUND IV, PIMCO FUNDS: PIMCO LONG DURATION TOTAL RETURN FUND, BLACKROCK COREALPHA BOND FUND E, PIMCO FUNDS: PIMCO SHORT-TERM FUND, PIMCO CAYMAN SPC LIMITED: PIMCO C AYMAN JAPAN LOW DURATION SEGREGATED PORTFOLIO, PIMCO VARIABLE INSURANCE TRUST: PIMCO FOREIGN BOND PORTFOLIO (U.S. DOLLAR HEDGED), PIMCO GLOBAL CREDIT OPPORTUNITY MASTER FUND LDC, PIMCO GLOBAL STOCKSPLUS & INCOME FUND, PIMCO INCOME STRATEGY FU ND II, PIMCO FUNDS: PIMCO MODERATE DURATION FUND, Prudential Trust Company, Pimco Variable Insurance Trust: Pimco Short-Term Portfolio, Pimco Equity Series: Pimco Balanced Income Fund, PIMCO CAYMAN TRUST: PIMCO CAYMAN GLOBAL AGGREGATE EX-JA PAN BOND FUND, PIMCO ABSOLUTE RETURN STRATEGY III MASTER FUND LDC, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, INCOME FUND, PIMCO FUNDS: PIMCO MORTGAGE OPPORTUNITIES FUND, BLACKROCK MASTER TOTAL RETURN PORTFOLIO OF MASTER BOND LLC, PIMCO VARI ABLE INSURANCE TRUST: PIMCO GLOBAL ADVANTAGE STRATEGY BOND PORTFOLIO, PIMCO FUNDS: PIMCO EMG INTL LOW VOLATILITY RAFI-PLUS AR FUND, Fixed Income Shares (Series R), Pimco Funds: Pimco Long--Term U.S. Government Fund, Pimco Variable Insurance T rust: Pimco Long Term U.S. Government Portfolio, PIMCO ABSOLUTE RETURN STRATEGY V MASTER FUND LDC, PIMCO VARIABLE INSURANCE TRUST: PIMCO TOTAL RETURN PORTFOLIO, PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, EURO BOND FUND, MILLERTON ABS CDO LTD., PIMCO VARIABLE INSURANCE TRUST: PIMCO COMMODITY REAL RETURN STRATEGY PORTFOLIO, PIMCO FUNDS: PIMCO TOTAL RETURN FUND II, PIMCO FUNDS: PIMCO COMMODITIESPLUS STRATEGY FUND, BLACKROCK MULTI-SECTOR INCOME TRUST, PIMCO STRATEGIC INCOME FUND, IN C., TIAA-CREF LIFE BOND FUND, PIMCO INCOME STRATEGY FUND, THE PRUDENTIAL INVESTMENT PORTFOLIOS 9, (462 in 1:14-cv-09764-KPF-SN) ORAL LETTER MOTION for Oral Argument on Plaintiffs' Rule 72 Objection and Motion to Vacate the Magistrate Judge's Orders Concerning Defendant Wells Fargo Bank, N.A.'s Discovery and Knowledge of Breaches addressed to Judge Kather filed by Royal Park Investments SA/NV, (430 in 1:14-cv-10102-KPF-SN) MOTION to Vacate Notice of Plai ntiffs' Rule 72 Objection and Motion to Vacate the Magistrate Judge's Orders Concerning Defendant Wells Fargo Bank, N.A.'s Discovery and Knowledge of Breaches. filed by Blue Heron Funding II Ltd., Silver Elms CDO plc, Silver Elms CDO II Limited, Phoenix Light SF Limited, Blue Heron Funding V Ltd., C-Bass CBO XIV Ltd., Kleros Preferred Funding V Plc, Blue Heron Funding IX Ltd., C-Bass CBO XVII Ltd., (377 in 1:15-cv-10033-KPF-SN) MOTION to Vacate Noti ce of Plaintiffs' Rule 72 Objection and Motion to Vacate the Magistrate Judge's Orders Concerning Defendant Wells Fargo Bank, N.A.'s Discovery and Knowledge of Breaches. filed by Commerzbank AG. Given the foregoing, Plaintiffs ' motion to vacate Judge Netburn's December 18, 2017 and January 2, 2018 Orders is DENIED. The Clerk of Court is directed to terminate the motions appearing in Case Number 14 Civ. 9371 at Docket Entries #656 and #679; 14 Civ. 9764 at Doc ket Entries #441 and #462; Case Number 14 Civ. 10067 at Docket Entries #405 and #413; Case Number 14 Civ. 10102 at Docket Entries #430 and #447; and Case Number 15 Civ. 10033 at Docket Entries #377 and #397. (Signed by Judge Katherine Polk Failla on 8/13/2018) (kgo)
<![CDATA[
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------------------------------- X
:
BLACKROCK ALLOCATION TARGET SHARES:
:
SERIES S PORTFOLIO, et al.,
:
:
:
Plaintiffs,
:
v.
:
:
:
WELLS FARGO BANK, NATIONAL
:
ASSOCIATION, et al.,
:
:
Defendants.
:
--------------------------------------------------------------- X
:
:
ROYAL PARK INVESTMENTS SA/NV,
:
Individually and on Behalf of all Others
:
Similarly Situated,
:
:
Plaintiffs,
:
:
v.
:
:
WELLS FARGO BANK, N.A,
:
as Trustee,
:
:
Defendant.
:
--------------------------------------------------------------- X
:
NATIONAL CREDIT UNION ADMINISTRATION
:
:
BOARD, as Liquidating Agent of U.S. Central
:
Federal Credit Union, Western Corporate Federal
Credit Union, Members United Corporate Federal
:
Credit Union, Southwest Corporate Federal Credit :
:
Union, and Constitution Corporate Federal Credit
:
Union,
:
:
Plaintiff,
:
:
v.
:
:
WELLS FARGO BANK, NATIONAL
:
ASSOCIATION,
:
:
Defendant.
:
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: August 13, 2018
______________
14 Civ. 9371 (KPF) (SN)
OPINION AND ORDER
14 Civ. 9764 (KPF) (SN)
14 Civ. 10067 (KPF) (SN)
and
:
:
:
NCUA GUARANTEED NOTES TRUST 2010-R1,
NCUA GUARANTEED NOTES TRUST 2010-R2,
:
NCUA GUARANTEED NOTES TRUST 2010-R3,
:
:
NCUA GUARANTEED NOTES TRUST 2011-R2,
:
NCUA GUARANTEED NOTES TRUST 2011-R4,
:
NCUA GUARANTEED NOTES TRUST 2011-R5,
:
and NCUA GUARANTEED NOTES TRUST 2011:
M1,
:
:
Nominal
:
Defendants.
:
--------------------------------------------------------------- X
:
:
PHOENIX LIGHT SF LIMITED, et al.,
:
Plaintiffs,
:
:
;
v.
:
:
:
WELLS FARGO BANK, N.A.,
:
:
Defendant.
:
--------------------------------------------------------------- X
:
:
COMMERZBANK AG,
:
:
Plaintiffs,
:
:
v.
;
:
WELLS FARGO BANK N.A.,
:
:
Defendant.
:
--------------------------------------------------------------- X
14 Civ. 10102 (KPF) (SN)
15 Civ. 10033 (KPF) (SN)
KATHERINE POLK FAILLA, District Judge:
Pending before the Court is a motion by the Coordinated Plaintiffs in the
above actions to vacate two orders issued by Magistrate Judge Sarah Netburn
on December 18, 2017, and January 2, 2018 (respectively, the “December 18,
2
2017 Order” and the “January 2, 2018 Order”). Both Orders implicate Wells
Fargo’s purported discovery and/or knowledge of breaches of representations
and warranties (“R&Ws”) contained in loan agreements for which it served as
trustee. For the reasons that follow, Plaintiffs’ motion is denied.
BACKGROUND 1
The Court presumes the parties’ familiarity with the factual and
procedural history of these related cases. See BlackRock Allocation Target
Shares: Series S. Portfolio v. Wells Fargo Bank, Nat’l Ass’n, 247 F. Supp. 3d
377, 383-88 (S.D.N.Y. 2017) (“BlackRock Series S”), objections overruled sub
nom. BlackRock Allocation Target Shares: Series S Portfolio v. Wells Fargo Bank,
Nat’l Ass’n, No. 14 Civ. 9371 (KPF) (SN), 2017 WL 3610511 (S.D.N.Y. Aug. 21,
2017); BlackRock Allocation Target Shares v. Wells Fargo Bank, Nat’l Ass’n,
No. 14 Civ. 9371 (KPF) (SN), 2017 WL 953550, at *2-3 (S.D.N.Y. Mar. 10,
2017), order clarified sub nom. BlackRock Allocation Target Shares: Series S
Portfolio v. Wells Fargo Bank, Nat’l Ass’n, No. 14 Civ. 9371 (KPF) (SN), 2017 WL
3610511 (S.D.N.Y. Aug. 21, 2017). The Court therefore incorporates its prior
factual recitations by reference and limits its discussion of factual and
procedural histories to the specific orders by Judge Netburn that Plaintiffs have
moved to vacate.
1
Except where otherwise specified, the docket citations in this Opinion are to entries in
Case No. 14 Civ. 9764. For clarity, the Court will not also cite to the correlative docket
entries in the related cases. As mentioned above, Plaintiffs’ motion challenges Judge
Netburn’s Orders of December 18, 2017 (“Dec. 18, 2017 Order” (Dkt. #431)), and
January 2, 2018 (“Jan. 2, 2018 Order” (Dkt. #435)). For ease of reference, the Court
refers to the Consolidated Plaintiffs’ Memorandum in Support of Their Motion to Vacate
as “Pl. Br.” (filed under seal), and Wells Fargo’s Memorandum of Law in Opposition to
Plaintiffs’ Motion to Vacate as “Def. Opp.” (redacted version at Dkt. #458).
3
A.
The December 18, 2017 Order
In these coordinated litigations, Wells Fargo has invoked the attorney-
client privilege to withhold from production communications containing its
counsel’s opinions and advice. (See Def. Br. 1). According to Plaintiffs,
however, Wells Fargo has improperly invoked the attorney-client privilege to
protect certain documents concerning its awareness of R&W breaches and
events of default, while at the same time contending that “it did not learn of
such Breaches[.]” (Dkt. #420). On October 31, 2017, Plaintiffs filed a letter
with the Court requesting a pre-motion conference in anticipation of a motion
“to exclude evidence or argument that [Wells Fargo] failed to obtain discovery or
receipt of notice of breaches of representations and warranties … , and actual
knowledge of Events of Default” in the underlying loan documents at issue.
(Id.). Alternatively, Plaintiffs urged the Court to “find that Wells Fargo waived
any privilege over documents underlying its state-of-mind claim and defense
[that] it placed directly at issue in this action.” (Id.).
Determining that Plaintiffs’ requests were “substantially evidentiary,” the
Court directed Plaintiffs to re-file the letter with Magistrate Judge Netburn
(Dkt. #421), after which Wells Fargo filed a responsive letter opposing Plaintiffs’
request (Dkt. #423). After a hearing on the parties’ submissions on
December 12, 2017 (see Wood Decl., Ex. A), Judge Netburn denied Plaintiffs’
requests, reasoning that (i) “Wells Fargo is not relying on privileged material for
its defense,” and (ii) Plaintiffs bore the burden of establishing Wells Fargo’s
4
knowledge “and not Wells Fargo’s state of mind concerning whether its legal
obligations were triggered” (Dec. 18, 2017 Order at 3-4).
B.
The January 2, 2018 Order
The second challenged order pertains to Plaintiffs’ responses to
interrogatories. Wells Fargo had served on Plaintiffs various interrogatories,
including the following, to which the Court refers as the “Contention
Interrogatory”:
As to each R&W Breach that You contend Wells Fargo
discovered, State and Describe the facts and evidence
supporting that contention, Including Identifying each
Loan in each Covered Trust that you contend is
evidence of an R&W Breach, the nature of the particular
R&W breach(es) You contend are evidence by each such
Loan (with references to the particular relevant R&W(s)
in the relevant [Governing Agreement]), the date on
which You contend the Trustee discovered each R&W
Breach identified, [and] a description of your contention
as to how each identified R&W breach at the time of its
discovery materially and adversely affected the interests
of Certificateholders or Noteholders.
(Wood Decl., Ex. B at 8 (emphasis added)). On June 21, 2017, Judge Netburn
issued an order overruling Plaintiffs’ objections to this interrogatory, except to
excise the final clause requiring Plaintiffs to provide “a description of your
contention as to how each identified R&W breach at the time of its discovery
materially and adversely affected the interests of the Certificateholders or
Noteholders[.]” (Dkt. #353). Judge Netburn thus ordered Plaintiffs to respond
to the Contention Interrogatory within 60 days of the June 21, 2017 Order.
(Id.).
5
Plaintiffs, save for the BlackRock Plaintiffs, thereafter sought
reconsideration of Judge Netburn’s June 21, 2017 Order with respect to the
Contention Interrogatory, seeking an extension of time to answer it until after
expert discovery had provided “expert identification of the breaching loans[.]”
(Dkt. #373). Although Judge Netburn denied the request for an extension of
time, she allowed Plaintiffs to respond to the Contention Interrogatory “for a
sample of a hundred (100) loans for each plaintiff group,” rather than every
loan at issue. (Id.).
On October 10, 2017, Wells Fargo sought to compel supplemental
responses to the Contention Interrogatory, claiming that Plaintiffs’ answers
were “deficient and evasive, particularly as to the date of discovery” of each
R&W breach identified. (See Jan. 2, 2018 Order at 2). 2 As characterized by
Judge Netburn, Plaintiffs deemed these responses proper because (i) “the
willful blindness standard authorized by Judge Failla in a prior order means
that discovery is not pinned to a specific date but rather is a gradual
development”; (ii) “further supplementation is disproportionate under Federal
Rule of Civil Procedure 33(d)”; (iii) “Wells Fargo’s privilege claims prevent
Plaintiffs from identifying dates of discovery”; and (iv) “establishing the dates of
discovery [is] part of Wells Fargo’s affirmative burden.” (Id. at 2-3). In the
January 2, 2018 Order, Judge Netburn rejected Plaintiffs’ explanation,
reasoning that “[e]ven under a willful blindness theory, there must be a
2
Plaintiffs had responded to this portion of the Contention Interrogatory by stating, as
one example, “that Wells Fargo discovered R&W breaches ‘by January 2009 and
thereafter’ or ‘on or before’ a specific date[.]” (Pl. Br. 19).
6
moment when Plaintiffs claim that Wells Fargo’s failure to act constituted a
breach of the governing agreements,” and therefore ordered Plaintiffs to provide
the supplemental responses that Wells Fargo sought. (Id. at 3).
C.
The Motion to Vacate
On January 16, 2018, Plaintiffs filed objections and a motion to vacate
the December 18, 2017 and January 2, 2018 Orders “concerning [Wells
Fargo’s] discovery and knowledge of breaches.” (Dkt. #441 (capitalization
removed)). As to the December 18, 2017 Order, Plaintiffs argue that because
Wells Fargo asserts privilege over certain documents that may include attorney
opinions as to whether R&W breaches occurred, the Court should preclude
Wells Fargo from submitting evidence and argument that it failed to discover or
lacked knowledge of those breaches, or alternatively, the Court should find that
Wells Fargo implicitly waived the attorney-client privilege as to those
documents. (See Pl. Br. 8-16). For similar reasons, Plaintiffs urge the Court to
vacate the January 2, 2018 Order, while simultaneously arguing that the Order
contravenes this Court’s prior statements regarding Plaintiffs’ burden of proof.
(Id. at 18). Wells Fargo filed an opposition to the motion to vacate on
February 14, 2018, arguing that it was entitled to argue that it lacked
knowledge of R&W breaches and events of default, and that the January 2,
2018 Order was not erroneous. (Dkt. #458-59). 3
3
On February 20, 2018, Plaintiffs requested oral argument on the motion (Dkt. #462)
and the Court reserved ruling on the request the following day (Dkt. #463). As the
Court does not find that oral argument would have been useful in ruling on the motion,
that request is now denied.
7
DISCUSSION
A.
The Standard of Review Is Clear Error
As an initial matter, the parties dispute the applicable standard of
review. While Wells Fargo maintains that the Court must review the Orders for
clear error (Def. Opp. 8-10), Plaintiffs seek a more demanding de novo review
(Pl. Br. 8). Wells Fargo has the better of this argument.
The standard of review that a district court applies to a magistrate’s
orders “depends on whether the issue decided by the magistrate judge is
dispositive or nondispositive.” Hughes v. LaSalle Bank, N.A., No. 02 Civ. 6384
(MBM) (HBP), 2004 WL 414828, at *1 (S.D.N.Y. Mar. 4, 2004). Whereas
dispositive orders are subject to de novo review, if a party timely objects to a
magistrate’s nondispositive order, a district court may only “modify or set aside
any part of the order that is clearly erroneous or is contrary to law.” Fed. R.
Civ. P. 72(a); see also 28 U.S.C. § 636(b)(1)(A). “An order is clearly erroneous
only when the reviewing court on the entire evidence is left with the definite
and firm conviction that a mistake has been committed” and “contrary to law if
‘it fails to apply or misapplies relevant statutes, case law or rules of
procedure.’” Khaldei v. Kaspiev, 961 F. Supp. 2d 572, 575 (S.D.N.Y. 2013)
(citations omitted).
Orders involving discovery, such as those here involving privilege issues,
are nondispositive rulings subject to review for clear error or rulings that are
contrary to law. Eisai Ltd. v. Dr. Reddy’s Labs., Inc., 406 F. Supp. 2d 341, 342
(S.D.N.Y. 2005). Plaintiffs argue that they are entitled to de novo review
8
because the orders at issue involve “legal conclusions.” (Pl. Br. 8). But legal
questions involved in a nondispositive order do not transform the order into a
dispositive one. To the contrary, the standard applicable to nondispositive
orders specifically addresses legal questions, as “[t]he ‘contrary to law’ prong …
is concerned with the magistrate judge’s legal conclusions[.]” Peterson v.
Katonah Lewisboro Sch. Dist., No. 13 Civ. 51 (VB), 2014 WL 3891253, at *1
(S.D.N.Y. June 27, 2014) (alterations in original) (quoting Pall Corp. v. Entegris,
Inc., 655 F. Supp. 2d 169, 172 (E.D.N.Y. 2008)). “Indeed, courts in this Circuit
have routinely applied a clear error standard of review to a magistrate judge’s
nondispositive pretrial order even when the appellate standard of review for the
underlying questions of law would be de novo.” Progress Bulk Carriers v. Am.
S.S. Owners Mut. Prot. & Indem. Ass’n, Inc., 2 F. Supp. 3d 499, 502 (`S.D.N.Y.
2014) (collecting cases). Thus, because the Orders at issue are nondispositive,
the Court will review them for clear error or rulings that are contrary to law.
B.
Plaintiffs’ Motion to Vacate Is Denied
1.
The December 18, 2017 Order Is Neither Clearly Erroneous Nor
Contrary to Law
The correctness of the December 18, 2017 Order boils down to one issue:
whether Wells Fargo has relied on or otherwise placed at issue privileged
information in mounting its defense. As discussed below, if the answer to this
question is, “Yes,” then Wells Fargo may have implicitly waived the attorneyclient privilege and may also be precluded from relying on defense theories that
9
hinge on the privileged information. 4 As it happens, however, the answer to
this question is, “No.”
a.
Applicable Law
“The attorney-client privilege generally forbids an attorney from
disclosing confidential communications that pass in the course of professional
employment from client to lawyer.” United States v. Schwimmer, 892 F.2d 237,
243 (2d Cir. 1989). The purpose of the privilege is “to encourage full and frank
communication between” attorney and client, with the recognition “that sound
legal advice or advocacy serves public ends and that such advice or advocacy
depends upon the lawyer’s being fully informed by the client.” Upjohn Co. v.
United States, 449 U.S. 383, 389 (1981). “In order to balance this protection of
confidentiality with the competing value of public disclosure, however, courts
‘apply [the privilege] only where necessary to achieve its purpose’ and ‘construe
the privilege narrowly because it renders relevant information undiscoverable.’”
United States v. Mejia, 655 F.3d 126, 132 (2d Cir. 2011) (alteration in original)
(quoting In re Cty. of Erie, 473 F.3d 413, 419 (2d Cir. 2007)).
One instance in which courts do not apply the privilege is “known as
‘implied waiver’ or ‘at-issue waiver,’” under which a party may give up an
4
Because both the primary and alternative forms of relief that Plaintiffs seek hinge on a
single issue, the Court rejects Plaintiffs’ contention that the Magistrate “fail[ed] to
address the primary relief sought” (Pl. Br. 8), as Judge Netburn denied “Plaintiffs’
motion for preclusion or waiver” based on her determination that “Wells Fargo is not
relying on privileged material for its defense” (Dec. 18, 2017 Order at 3, 5 (emphasis
added)). Indeed, the principal case on which Plaintiffs rely in seeking to preclude Wells
Fargo from submitting evidence or argument draws from the same implied-waiver
doctrine that underlies Plaintiffs’ alternative requested relief. (See Pl. Br. 9-10
(discussing Arista Records LLC v. Lime Grp. LLC, No. 06 Civ. 5936 (KMW) 2011 WL
1642434 (S.D.N.Y. Apr. 20, 2011)).
10
asserted privilege if “‘the party attempts to use the privilege both as a shield
and a sword’ by ‘partially disclosing privileged communications or affirmatively
relying on them to support its claim or defense and then shielding the
underlying communications from scrutiny.’” Newmarkets Partners, LLC v. Sal.
Oppenheim Jr. & Cie. S.C.A., 258 F.R.D. 95, 106 (S.D.N.Y. 2009) (internal
alterations omitted) (quoting In re Grand Jury Proceedings, 219 F.3d 175, 182
(2d Cir. 2000)). “The quintessential example is the defendant who asserts an
advice-of-counsel defense and is thereby deemed to have waived his privilege
with respect to the advice that he received.” In re Grand Jury Proceedings, 219
F.3d at 182-83 (quoting In re Kidder Peabody Sec. Litig., 168 F.R.D. 459, 470
(S.D.N.Y. 1996)). Other examples include where “a client testifies concerning
portions of the attorney-client communication, … a client places the attorneyclient relationship directly at issue, … and when a client asserts reliance on an
attorney’s advice as an element of a claim or defense[.]” In re Cty. of Erie, 546
F.3d 222, 228 (2d Cir. 2008) (quoting Sedco Int’l S.A. v. Cory, 683 F.2d 1201,
1206 (8th Cir. 1982)). “The key to a finding of implied waiver in the third
instance is some showing by the party arguing for a waiver that the opposing
party relies on the privileged communication as a claim or defense or as an
element of a claim or defense.” Id.
b.
Analysis
As this Court has previously stated, Plaintiffs bear the burden of proving
the underlying R&W breaches “on a ‘loan-by-loan and trust-by-trust basis.’”
BlackRock Allocation Target Shares, 247 F. Supp. 3d at 390-91 (quoting
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Phoenix Light SF Ltd. v. Deutsche Bank Nat’l Tr. Co., 172 F. Supp. 3d 700, 713
(S.D.N.Y. 2016)). And as the December 18, 2017 Order recognized, Plaintiffs
must also prove “what Wells Fargo knew (or discovered)” with respect to such
breaches, “not Wells Fargo’s state of mind concerning whether its legal
obligations were triggered.” (Dec. 18, 2017 Order at 4). As a defense to
Plaintiffs’ claims, Wells Fargo asserts that it lacked knowledge of the R&W
breaches and events of default; Wells Fargo disclaims any intention to “rely
upon any privileged or work product protected-material at trial” or to “assert[ ]
an advice of counsel or state of mind defense.” (Def. Opp. 11).
Rejecting these disclaimers, Plaintiffs contend that, in fact, “Wells Fargo
intentionally injected counsel into all R&W and [Event of Default] discussions
and determinations in order to cloak such ordinary business operations in
privilege claims.” (Pl. Br. 3). Plaintiffs thus argue that (i) the December 18,
2017 Order erred by imposing a requirement that Wells Fargo affirmatively rely
on privileged communication to effect waiver; (ii) alternatively, even assuming
waiver requires such reliance, Wells Fargo has relied on privileged
communications in mounting its defense; and (iii) the Order “is contrary to law
because it ignores the primacy of fairness in holding Wells Fargo did not forfeit
its privilege protection.” (Id. at 11-18). As explained here, Plaintiffs have not
demonstrated that the Order is clearly erroneous or contrary to law.
At the outset, the Court agrees with Plaintiffs that implied waiver does
not always require affirmative reliance on purportedly privileged information.
In United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991), for example, the
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Second Circuit held that a defendant’s testimony asserting his good faith belief
in the legality of his actions put at issue his knowledge of the law and thus
waived any privilege over his communications with counsel on the subject.
926 F.2d at 1292-93. Nevertheless, the Court clarified that the waiver
depended on the defendant’s testimony supporting his claims of good faith; he
would not have waived the privilege merely by denying his criminal intent. Id.
at 1293 (“Defendant was free to deny criminal intent either without asserting
good faith or to argue his good faith defense by means of defense counsel’s
opening and closing statements and by his examination of witnesses.”).
It follows from this quoted passage in Bilzerian that, by asserting its lack
of knowledge as to the underlying R&W breaches and events of default, Wells
Fargo is not “us[ing] the privilege both as a shield and a sword” in this
litigation. In re Grand Jury Proceedings, 219 F.3d at 182. To be sure,
“privileged information may be in some sense relevant to any lawsuit,” and the
information that Wells Fargo maintains as privileged could very well be relevant
to Plaintiffs’ claims. Cty. of Erie, 546 F.3d at 229. But “[a] mere indication of a
claim or defense certainly is insufficient to place legal advice at issue.” Id. Had
Wells Fargo maintained that its lack of knowledge was based on counsel’s
advice, it likely would have waived the privilege over any evidence relevant to
that advice, yet that is not Wells Fargo’s position.
And although courts have held that the assertion of a “state of mind”
defense may waive the privilege, this is only so where such an assertion
renders the privileged information “vital” to disproving the defense. Cty. of Erie,
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546 F.3d at 229. Here, Plaintiffs must prove not only the existence of R&W
breaches for each loan within each trust at issue, but also that Wells Fargo, at
least, “should have been aware” of such breach. BlackRock Allocation Target
Shares: Series S Portfolio, 2017 WL 3610511, at *10 (emphasis removed).
Plaintiffs’ burden thus depends on the underlying loan documents and data
related to those documents, not on any legal opinion that Wells Fargo may or
may not have received in relation to those documents. See, e.g., Standard
Chartered Bank PLC v. Ayala Int’l Holdings (U.S.) Inc., 111 F.R.D. 76, 82
(S.D.N.Y. 1986) (holding defendant did not waive privilege by bringing
counterclaims alleging reliance on plaintiff’s oral agreement, where plaintiff
sought communications from defendant’s counsel regarding whether such
agreement was binding). Indeed, Plaintiffs’ counsel conceded before Judge
Netburn that any legal advice that Wells Fargo received would not establish the
existence vel non of an R&W breach. (See Wood Decl., Ex. A, at 15:9-11 (“I
don’t think, for example, that this is an issue where we are trying to say that
there was an event of default, period, because [Wells Fargo’s] lawyer said so.”)).
Separately, the Court rejects Plaintiffs’ argument that the December 18,
2017 Order “is contrary to law because it ignores the primacy of fairness in
holding Wells Fargo did not forfeit its privilege protection.” (Pl. Br. 15). Courts
do indeed consider notions of fairness in determining whether a party has
waived its attorney-client privilege. Cty. of Erie, 546 F.3d at 229. But “[t]he
unfairness courts have found which justified imposing involuntary forfeiture
generally resulted from a party’s advancing a claim to a court or jury … while
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relying on its privilege to withhold from a litigation adversary materials that the
adversary might need to effectively contest or impeach the claim.” John Doe
Co. v. United States, 350 F.3d 299, 303 (2d Cir. 2003), as amended (Nov. 25,
2003). As discussed above, and as Judge Netburn recognized, Plaintiffs have
numerous avenues by which they may attempt to prove Wells Fargo’s
knowledge with respect to R&W breaches that do not impinge on the attorneyclient relationship, including in particular the terms of the underlying loans
and data relevant to those loans. Depriving Plaintiffs of access to Wells Fargo’s
privileged communications is thus not unfair.
For all of these reasons, Plaintiffs’ motion to vacate the December 18,
2017 Order is denied.
2.
The January 2, 2018 Order Is Neither Clearly Erroneous Nor
Contrary to Law
The January 2, 2018 Order requires Plaintiffs to identify “a moment
when Plaintiffs claim that Wells Fargo’s failure to act constituted a breach of
the governing agreements” (Jan. 2, 2018 Order at 3), in response to an
interrogatory seeking “the date on which [Plaintiffs] contend [Wells Fargo]
discovered each R&W Breach identified” (Wood Decl., Ex. B at 8). Plaintiffs
raise three grounds for vacating this Order, each of which fails.
First, Plaintiffs argue that the Order “only compounds the fundamental
unfairness resulting from” the December 18, 2017 Order. (Pl. Br. 18). The
Court has already rejected Plaintiffs’ argument that the December 18, 2017
Order caused Plaintiffs any “fundamental unfairness,” and the Court thus
rejects this argument as well.
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Second, Plaintiffs argue that the Order is inconsistent with this Court’s
prior pronouncements regarding Plaintiffs’ burden of proof as to Wells Fargo’s
knowledge of each alleged R&W breach. (Pl. Br. 19-20). Specifically, this Court
held that in order to show Wells Fargo’s “discovery” of an R&W breach,
Plaintiffs must prove, at least, “conscious avoidance,” meaning “when it can
almost be said that the defendant actually knew because he or she suspected a
fact and realized its probability, but refrained from confirming it in order later
to be able to deny knowledge,” or “implied actual knowledge,” meaning
“knowledge of information that would lead a reasonable person to inquire
further[.]” BlackRock Allocation Target Shares, 2017 WL 3610511, at *10
(internal quotation marks, citations, and emphasis omitted). Plaintiffs contend
that this holding obviates the need to provide a particular date in response to
the Contention Interrogatory, and instead permits Plaintiffs to provide
approximations, such as “by January 2009 and thereafter” or “‘on or before’ a
specific date[.]” (Pl. Br. 19). It does not.
To prove that Wells Fargo “almost … actually knew” of an R&W breach,
or that Wells Fargo acquired “information that would lead a reasonable person
to inquire further,” Plaintiffs must bring forth facts showing that Wells Fargo
acquired data at least suggesting that a given R&W breach had occurred. Such
facts will inherently involve timing, as Plaintiffs will be unable to satisfy this
burden without showing the relevant information came to Wells Fargo’s
attention at some point. And the discovery that Wells Fargo seeks is within the
ambit of discoverable information defined by the Federal Rules of Civil
16
Procedure. See Fed. R. Civ. P. 26(b)(1) (“Parties may obtain discovery regarding
any nonprivileged matter that is relevant to any party’s claim or defense and
proportional to the needs of the case[.]”). Thus, although Plaintiffs’ response to
the Contention Interrogatory need not provide the exact hour and minute that
Wells Fargo discovered an R&W breach, it must be more precise than such
open-ended statements as “by January 2009 and thereafter” or “on or before” a
given date.
Third, Plaintiffs argue that the Order “improperly shifts Wells Fargo’s
burden to prove its affirmative statute of limitations or other defenses to
[P]laintiffs” by requiring Plaintiffs “to change their contentions simply to
conform to Wells Fargo’s defenses or incorrect standard for discovery of
Breaches.” (Pl. Br. 20). The Order does no such thing. To be sure, Plaintiffs’
responses to the Contention Interrogatory may very well prove dispositive of
Wells Fargo’s statute of limitations defense. But by propounding
interrogatories on the issue, Wells Fargo was engaging in proper discovery in
order to satisfy its burden of proof.
Plaintiffs have therefore failed to show that the January 2, 2018 Order is
clearly erroneous or contrary to law, and their motion to vacate that Order is
denied.
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CONCLUSION
Given the foregoing, Plaintiffs’ motion to vacate Judge Netburn’s
December 18, 2017 and January 2, 2018 Orders is DENIED. The Clerk of
Court is directed to terminate the motions appearing in Case Number 14 Civ.
9371 at Docket Entries #656 and #679; 14 Civ. 9764 at Docket Entries #441
and #462; Case Number 14 Civ. 10067 at Docket Entries #405 and #413; Case
Number 14 Civ. 10102 at Docket Entries #430 and #447; and Case Number 15
Civ. 10033 at Docket Entries #377 and #397.
SO ORDERED.
Dated:
August 13, 2018
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
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