ABIGAIL M. LeGROW, Master.
This report is the second of two privilege rulings I have made in this relatively short-lived case in which the beneficiaries of a trust contend that the former corporate trustee breached its duties by, among other things, improperly treating the trust as a directed trust and thereby acceding to what turned out to be patently unsuccessful investment decisions made by the individual trustee. By my count, the parties collectively have spilled more than 180 pages of ink on a series of motions to compel regarding whether the corporate trustee properly has invoked attorney-client privilege to shield from discovery a number of documents. The latest issue arises from the beneficiaries' request that I clarify an earlier privilege ruling in light of the corporate trustee's decision to invoke an advice of counsel defense to the beneficiaries' claims. Notwithstanding the verbosity of the parties' submissions and the corporate trustee's efforts to unduly complicate the issue, my decision largely remains a relatively straightforward application of the facts to established precedent. For that reason, and in view of the expedited schedule in this case, I have endeavored to confine my analysis to the issue at hand, leaving aside the corporate trustee's exaggerated contentions that construing waiver as the beneficiaries urge me to do is "unprecedented," would toll the death knell for honest and forthright communications between clients and their counsel, and would stand as an outlier from earlier decisions defining the scope of waiver that results when a party invokes an advice of counsel defense. As set forth below, I recommend that the Court enter an order finding that Wilmington Trust waived attorney-client privilege for all of its communications with counsel regarding its powers and duties under the trust agreement, aside from those communications in which counsel provides advice directly evaluating Wilmington Trust's potential exposure or its litigation strategy.
This action was filed in March 2013 by Kathryn Mennen, Sarah Mennen, John Mennen, Shawn Mennen, and Alexandra Mennen
This action (the "Beneficiary Action") was preceded by a petition for instructions that Wilmington Trust filed on May 25, 2012 to remove Jeff as the individual co-trustee of the Trust (the "Petition Action"). In the Petition Action, Wilmington Trust alleged that the Trust was a directed trust that required Wilmington Trust to follow the instructions of the individual trustee with respect to certain trustee powers and responsibilities, and that investment decisions directed by Jeff had caused the Trust to lose a substantial portion of its value. In the Petition Action, Wilmington Trust sought (1) removal of Jeff as individual trustee, (2) an order authorizing the adult beneficiaries of the Trust to appoint a successor individual co-trustee, and (3) access to certain investment information Jeff allegedly was withholding. Although the Beneficiaries were identified as interested parties and received notice of the Petition Action, they did not participate in that case. It was not until this action was filed in March 2013 that the Beneficiaries appeared in this Court. At that point, the Petition Action was stayed by agreement of the parties.
An expedited schedule then was entered in the Beneficiary Action, and the parties proceeded to conduct discovery. On June 12, 2013, the Beneficiaries filed a motion to compel against Wilmington Trust and Jeff, seeking production of certain categories of documents that Wilmington Trust and Jeff had withheld on the basis that the documents were shielded from discovery by attorney-client privilege and/or the work product doctrine. The motion to compel raised three issues regarding Wilmington Trust's assertion of privilege: (1) whether Wilmington Trust could withhold documents related to the Petition Action (the "Petition Action Documents"), or whether those documents were not privileged as to the Beneficiaries under Riggs National Bank of Washington, D.C. v. Zimmer;
Wilmington Trust argued that the first two categories of documents were privileged, but as to its advice of counsel defense, Wilmington Trust argued that the Beneficiaries' motion was premature because Wilmington Trust had not determined whether it would pursue that defense. In its opposition to the first motion to compel, Wilmington Trust affirmatively represented that it "recognize[d] that it [would] have to waive its privilege to withhold confidential communications regarding its powers and duties if it elect[ed] to pursue an advice-of-counsel defense."
Two days before I issued my final report, Wilmington Trust ended its equivocation regarding the advice of counsel defense, and alerted the parties that it intended to pursue its advice of counsel defense and therefore would withdraw its claim of privilege with regard to "advice and documents related to the Co-Trustees[`] duties and powers."
Wilmington Trust's advice of counsel defense is based on Article TENTH of the Trust Agreement, which provides:
Although the precise nature of Wilmington Trust's defense may not be articulated until dispositive motions are filed or this case is tried, Wilmington Trust apparently will argue that for each of the investment decisions challenged in the Beneficiary Action (except one such decision after the Wave2Wave bankruptcy), Wilmington Trust received advice from its counsel regarding Jeff's power under the Trust Agreement to direct Wilmington Trust and Wilmington Trust's duty to follow Jeff's investment direction.
After receiving Wilmington Trust's letter and my final report, which did not address the July 23, 2013 letter, the Beneficiaries sought clarification of what Wilmington Trust was required to produce in light of its decision to pursue its advice of counsel defense. Specifically, the Beneficiaries contended that Wilmington Trust's advice of counsel defense had placed all the Powers and Responsibilities Documents at issue, even those after the Wave2Wave bankruptcy, and that Wilmington Trust should be required to produce the documents it had not yet produced.
So began a letter writing campaign in which Wilmington Trust argued that the only advice of counsel it was relying on in defense of the Beneficiaries' claims was the advice Wilmington Trust received when deciding "whether to follow Jeff's directions for a given investment action alleged in the Complaint."
I feel compelled to point out that the parties' request for "clarification" was something of a misnomer, as my report on the first motion to compel did not address in any real sense the scope of Wilmington Trust's waiver if it elected to advance its advice of counsel defense, because at the time I issued my report the parties did not appear to be disputing the scope of the waiver. In any event, this dispute became, in essence, a second motion to compel that culminated in a hearing on August 9, 2013. At the conclusion of that hearing, I issued a draft report from the bench. In my draft report, I recommended that the Court enter an order finding that, by invoking an advice of counsel defense regarding the directed nature of the Trust, Wilmington Trust had waived attorney-client privilege as to all Powers and Responsibilities Documents, regardless of when those documents were created.
Wilmington Trust filed a notice of exception to that draft report, which the parties briefed in short order. While the parties were briefing the exceptions, Wilmington Trust produced a privilege log, followed by a revised privilege log that corrected a few small errors (the "Privilege Log").
Attorney-client privilege operates as an exception to the broad and far-reaching scope of discovery permitted under Rule 26(b). The privilege exists for the purpose of encouraging "full and frank communications" between counsel and client, recognizing that such open communication is necessary if attorneys are to render effective legal assistance.
Wilmington Trust first argues that my draft report defined far too broadly the scope of the subject matter of Wilmington Trust's waiver. In Wilmington Trust's view, because Article TENTH allows a trustee to rely on advice of counsel for particular actions that it took, and Wilmington Trust only is asserting an advice of counsel defense for actions it took before the Wave2Wave bankruptcy, only advice it received before the Wave2Wave bankruptcy falls within the scope of the waiver. In other words, Wilmington Trust contends that "[t]he subject matter of Wilmington Trust's advice-of-counsel defense here is limited to the actions as to which it is asserting the defense — the following of Jeff Mennen's directions for particular investment."
If I were to agree with Wilmington Trust's proposed constraints on the scope of its waiver, Wilmington Trust would not be required to produce any privileged communications after it learned of the Wave2Wave bankruptcy in February 2012, unless the privileged communication disclosed information known or provided to Wilmington Trust before that date.
A party's decision to rely on advice of counsel as a defense in litigation is a conscious decision to inject privileged communications into the litigation.
There is a manifest risk to allowing a party asserting an advice of counsel defense to self-define the scope of the waiver. That, however, is precisely what Wilmington Trust seeks to do in this case. As the Third Circuit explained, a party asserting an advice of counsel defense
By attempting to confine the advice it placed at issue to the particular investments or actions challenged in the Beneficiary Action — at least those actions that occurred before the Wave2Wave Bankruptcy — Wilmington Trust describes the advice on which it relied in an illogical and inconsistent manner. The advice that Wilmington Trust received — and the advice on which it relied — was the extent to which the trust agreement required the corporate trustee to follow investment directions from the individual trustee. In other words, the advice of counsel that Wilmington Trust placed at issue by pursuing this defense is the issue of whether, and to what extent, the Trust is a directed trust, and, in light of the nature of the Trust, Wilmington Trust's powers and responsibilities under the trust agreement. Wilmington Trust recognized as much when it indicated both in its opposition to the first motion to compel and in its July 23rd letter that it was waiving privilege as to all the Powers and Responsibilities Documents.
These inconsistent positions, and the shifting sands of Wilmington Trust's argument over the course of the present motion, reveal, if nothing else, an understandable desire on the part of Wilmington Trust to achieve that which any number of overused proverbs instruct we cannot do: "have our cake and eat it too," "have the best of both worlds," or "have it both ways." Wilmington Trust's position contravenes Delaware precedent defining the scope of the waiver by the subject matter of the advice placed at issue, and to limit the waiver in the manner Wilmington Trust suggests would unfairly limit or eliminate the Beneficiaries' ability to assess the reliability of the advice and the factual information on which it was based.
Much of Wilmington Trust's argument that the subject matter of its advice of counsel defense is limited to the particular actions or decisions challenged in the complaint is predicated on a number of decisions that have been issued in patent infringement cases and, even more so, on portions of an attorney-client privilege treatise that discuss privilege in patent cases. Although patent infringement cases offer some helpful analysis in determining the scope of an advice of counsel waiver, Wilmington Trust's overreliance on those cases is misplaced for three reasons: (1) the cases do not uniformly — or even overwhelmingly — stand for the proposition Wilmington Trust asserts; (2) unique aspects of substantive patent law distinguish some of the finer points of those cases from the case at hand; and (3) the facts of this case distinguish it from the authorities on which Wilmington Trust relies.
First, Wilmington Trust contends that cases addressing the scope of an advice of counsel waiver in the area of patent infringement recognize that an advice of counsel waiver extends only to the information base of the legal advice from which the reliance allegedly arose.
In making this argument regarding the "go-ahead" decision in patent law, which Wilmington Trust analogizes to its decision to follow particular investment directions received from Jeff Mennen, Wilmington Trust relies on a treatise explaining attorney-client privilege, but only on that portion of the treatise that specifically addresses patent law. Even that section of the treatise, however, does not stand for the broad proposition that Wilmington Trust advances. As the treatise's author explains,
The decisional law in patent infringement cases also does not always agree with the sections of the treatise on which Wilmington Trust relies.
Second, even if the decisional law in patent infringement cases fully supported Wilmington Trust's position, it is not clear that some of the specific rulings in those cases necessarily translate to non-patent cases. Application of attorney-client privilege in patent cases depends on substantive aspects of patent law.
This is not to say that patent cases discussing attorney-client privilege are not persuasive authority to consider in non-patent cases. It simply means that particular aspects of the Federal Circuit's application of the advice of counsel defense depend on the substantive law underlying willful infringement, and where that substantive law is not present in other cases, a court conceivably could reach a different conclusion regarding the scope of the waiver resulting from an advice of counsel defense.
Finally, even if patent cases were entirely analogous to cases arising under other areas of the law, factual distinctions in this case require a different result. This is not a case in which a defendant received advice of counsel, relied on that advice, then was sued and hired separate counsel to advise it in the lawsuit. Here, Wilmington Trust administered the Trust for a number of years relying (it contends) on advice of its in-house counsel. After Wave2Wave declared bankruptcy, the Wilmington Trust employees administering the trust sought advice both from their in-house counsel and from attorneys at Morris, Nichols, Arsht & Tunnell LLP ("Morris Nichols"). After the Wave2Wave bankruptcy, Wilmington Trust continued to serve as the corporate trustee administering the trust, and although some of the advice Wilmington Trust received from both its in-house counsel and Morris Nichols appears to be in the nature of evaluating Wilmington Trust's potential liability, much of the advice it received related to decisions regarding the continued administration of the trust.
Accordingly, Wilmington Trust's attempt to paint all counsel as "trial counsel" after the Wave2Wave bankruptcy rings hollow. A review of the Privilege Log reveals the broad brush Wilmington Trust wielded when it made its privilege determinations. Although Wilmington Trust attempts to paint every communication with counsel after the Wave2Wave bankruptcy as one intended to "position itself" in litigation, the subject matter of many of the communications primarily relate to the administration of the trust. Although, as I explain below, Wilmington Trust is entitled to redact those portions of the documents that directly address either litigation strategy or counsel's evaluation of Wilmington Trust's defenses and potential exposure in litigation, the remainder of those documents reflect advice Wilmington Trust received regarding its powers and duties, and fall within the scope of the waiver that Wilmington Trust described in its representations to this Court and the Beneficiaries.
That conclusion, and the reason that the scope of the waiver extends beyond the last "go ahead" decision that Wilmington Trust contends it made regarding the specific claims in the complaint, finds support in several cases outside the context of patent law. For example, in Wal-Mart Stores Inc. v. AIG Life Insurance Co., the plaintiff faced a statute of limitations defense, and indicated that it "elected to produce attorney-client documents relating to [the corporate owned life insurance policies at issue in the case]." The plaintiff sought, however, to limit the waiver to communications three or more years before the lawsuit was filed because documents created less than three years before filing would not bear of the statute of limitations issue.
In Glenmede Trust Co. v. Thompson, the Third Circuit also rejected a plaintiff's effort to narrowly define the scope of the subject matter involved in its advice of counsel waiver, concluding that the waiver applied to all communications regarding the transaction at issue in the litigation, regardless of the time the communication was made or its purpose.
For similar reasons, Wilmington Trust's communications with counsel after the Wave2Wave bankruptcy may be essential to allow the Beneficiaries to respond to the advice of counsel defense. Under the terms of the trust agreement, a trustee may only rely on advice of counsel if it does so "in good faith" and "in accordance with the opinion of such counsel." Although the parties dispute whether "good faith" in this context refers to subjective good faith or objective good faith, they contend — and I agree — that I need not decide that issue at this juncture. Whether the test is subjective or objective, Wilmington Trust's communications with counsel, which may include, among other things, its historical summaries of the advice that was given and the action that was taken, its analysis of whether the advice was consistent with the terms of the trust agreement, and its communications regarding whether it should continue to act consistent with the earlier advice, will allow the Beneficiaries to evaluate and respond to the defense and in fairness must be produced.
Wilmington Trust next argues that, even if I do not adopt its position that post Wave2Wave communications fall outside the subject matter of the waiver, I should find that Wilmington Trust has not waived the privilege for attorney-client communications (1) made after the Wave2Wave bankruptcy, and (2) concerning Wilmington Trust's assessment of its potential liability, if any. Wilmington Trust suggests that this result is mandated under principles of "fairness," and the purpose of the attorney-client privilege in protecting full and forthright communications between clients and their counsel.
In many respects, and in light of the way Wilmington Trust has framed the documents on its Privilege Log, this argument seems to be a repurposed version of Wilmington Trust's first argument, intended to achieve largely the same result. As discussed above, nearly all the communications on the Privilege Log purport to have been made for the purpose of evaluating Wilmington Trust's potential liability or for developing litigation strategy. This careful framing aside, it appears — based on the subject matter of the documents described in the Privilege Log and the identities of the persons participating in the communications, that many of the documents that Wilmington Trust contends were litigation driven or for litigation purposes were, in fact, used for purposes of Wilmington Trust's continued administration of the Trust. Even those documents that genuinely were created to evaluate Wilmington Trust's potential liability or its strategy in diffusing possible claims appear to contain extensive discussion of Wilmington Trust's powers and duties. The fact that those documents were created under the specter of possible litigation does not change the analysis, at least where, as here, Wilmington Trust continued to evaluate its power and duties under the Trust Agreement to continue to administer the trust.
In its exceptions to the draft report, Wilmington Trust introduced for the first time an argument that some of the post-bankruptcy communications contained advice that had "also been given to Wilmington Trust's corporate parent, M&T Bank, as a joint client with Wilmington Trust," and that those communications were protected under a "joint client" privilege that had not been waived, because Wilmington Trust could not unilaterally waive privilege as to communications sent to joint clients.
None of the facts introduced to date in any briefing on the various motions to compel support a conclusion that M&T was a joint client of either Morris Nichols or Wilmington Trust's in-house attorneys regarding the Trust or the Beneficiaries' claims. Aside from the bare factual assertions contained in Wilmington Trust's opening brief in support of its exceptions, which are unsupported by affidavits or other evidence, all of Wilmington Trust's previous representations and statements, including sworn affidavits, indicate that Wilmington Trust alone retained Morris Nichols to provide advice to Wilmington Trust. In affidavits submitted to the Court in connection with the Beneficiaries' first motion to compel, Wilmington Trust's Vice President and Senior Counsel attested to the fact that "Wilmington Trust retained [Morris Nichols] to work with us in assessing Wilmington Trust's options and alternatives for positioning itself in the event of claims by the beneficiaries against it,"
Wilmington Trust's Privilege Log reveals that it is claiming a "co-client" privilege for nearly every document contained on the log, even when no M&T employee participated in the communication. On those communications where M&T does appear, the most logical conclusion to be drawn from the information on the log — and the conclusion supported by earlier affidavits submitted by Wilmington Trust — is that M&T was acting as one would expect a parent company to act: obtaining information so that it could understand the potential liability its subsidiary faced, and providing, where appropriate, its own counsel to participate in the subsidiary's communications with the subsidiary's attorney.
There is, however, some merit to a portion of Wilmington Trust's argument that the scope of its waiver does not extend as far as the Beneficiaries contend. Although I have concluded that the scope of the waiver includes all the Powers and Responsibilities Documents, I do not believe that it includes those portions of documents in which counsel directly provides advice evaluating Wilmington Trust's potential liability or its litigation strategy. I previously held that Wilmington Trust's advice-of-counsel waiver did not extend to attorney work product, unless the Beneficiaries can establish a substantial need for the materials and can show that they cannot obtain substantially equivalent material by other means.
In its opening brief, Wilmington Trust contended that I should postpone ruling on the scope of Wilmington Trust's at-issue waiver until the Beneficiaries have challenged the assertion of privilege as to specific documents on the Privilege Log, and the challenged documents have been reviewed in camera. Wilmington Trust seems to largely abandon that argument in its reply brief, but I will address it for the sake of completeness. In a nutshell, although that would be one method for resolving the scope of the waiver, it is not the only method, nor does it promise to be the most efficient method given the advanced state of the parties' briefing on this topic, the expedited nature of the litigation, and the length of time Wilmington Trust took to produce a privilege log that contained, in the end, only 49 entries.
Finally, I note that the Beneficiaries' brief in opposition to Wilmington Trust's exceptions appears to introduce two arguments or requests for relief that were not (1) addressed in the draft report or (2) the subject of any of the motions or "requests for clarification" that form the basis of the draft report. It is not clear to me why these arguments appear for the first time in a brief in opposition to exceptions to a draft report, but, whatever the reason, the arguments fall well outside the scope of the issues presently before me.
The first such argument urges me to order Wilmington Trust to produce certain documents on the Privilege Log, even if I determine that those documents are not encompassed within the scope of the "at issue waiver."
I reach a similar conclusion regarding the Beneficiaries' argument that Wilmington Trust's conduct in discovery and its shifting positions regarding the scope of its waiver operate as an independent basis for finding that Wilmington Trust has waived attorney-client privilege. First, this argument also does not address Wilmington Trust's exceptions to the draft report, and therefore is not technically before me. Second, even if the argument properly were presented, the two cases relied on by the Beneficiaries do not support the expansive position they ask me to adopt; Klig v. Deloitte LLP
For the foregoing reasons, I recommend that the Court find that Wilmington Trust has waived attorney-client privilege for all the Powers and Responsibilities Documents created before the Beneficiary Action was filed, except those portions of the documents in which counsel directly evaluates Wilmington Trust's potential liability or its litigation strategy. This is my final report in this matter and exceptions may be taken in accordance with Court of Chancery Rule 144.