KATHRYN MENNEN, SARAH MENNEN, ALEXANDRA MENNEN, SHAWN MENNEN, and JOHN MENNEN, Plaintiffs,
WILMINGTON TRUST COMPANY, a Delaware Corporation, GEORGE JEFFREY MENNEN, and OWEN J. ROBERTS, not Individually but solely as the individual Trustee of the TRUST ESTABLISHED BY GEORGE S. MENNEN FOR THE BENEFIT OF GEORGE JEFFREY MENNEN u/a/d 11/25/1970, a Delaware trust. Defendants.
Draft Oral Report: August 9, 2013
Submitted on Exceptions: September 6, 2013
Kevin G. Abrams, J. Peter Shindel, Jr., and Matthew L. Miller of Abrams & Bayliss LLP, Wilmington, Delaware; Attorneys for Plaintiffs.
Thomas W. Briggs, Jr., Jay N. Moffitt, Matthew R. Clark and Brendan W. Sullivan of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware; Attorneys for Defendant Wilmington Trust Company.
Jeffrey S. Cianciulli of Weir & Partners LLP, Wilmington, Delaware; Attorneys for Defendant George Jeffrey Mennen.
Brian J. Ralston and Jessica A. Montellese of Potter Anderson & Corroon LLP, Wilmington, Delaware; Attorneys for Owen J. Roberts.
MASTER'S REPORT (Motion to Compel)
Abigail M. LeGrow Master in Chancery
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 (collectively, the "Beneficiaries"), who are beneficiaries of a trust created in 1970 by George S. Mennen for the benefit of John H. Mennen (the "Trust"). The defendants are Wilmington Trust Company ("Wilmington Trust"), the corporate trustee of the Trust,  and George Jeff Mennen ("Jeff"),  who is the individual trustee. The Complaint seeks damages in excess of $100 million as a result of alleged breaches of the Co-Trustees' fiduciary duties. The Complaint also names as a defendant the individual trustee of a trust established by George S. Mennen for the benefit of Jeff and his issue ("Jeff's Trust"), and alleges one count against the individual trustee of Jeff's Trust.
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; (2) whether communications regarding Wilmington Trust's powers and duties under the Trust Agreement (the "Powers and Responsibilities Documents") were privileged under Riggs; and (3) whether Wilmington Trust's decision to plead an advice of counsel defense as an affirmative defense in its answer to the complaint constituted a waiver of the privilege.
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." During argument, counsel for Wilmington Trust again acknowledged that if it decided to invoke its advice of counsel defense, it would "certainly produce any documents that relate to advice of counsel and powers and duties." On July 25, 2013, I issued a final report recommending that the Court grant in part and deny in part the Beneficiaries' motion to compel. As to Wilmington Trust's privileged documents, I recommended that the Court find that (1) Wilmington Trust was entitled to withhold the Petition Action Documents, but was required to produce a privilege log of the withheld documents; (2) the Powers and Responsibilities Documents that were not related to the Petition Action or the Beneficiary Action were not privileged under Riggs; and (3) Wilmington Trust should determine, if it had not already done so, whether to pursue its advice of counsel defense. None of the parties took exception to that report, and it confirmed by Order dated August 12, 2013.
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." In the same breath, however, Wilmington Trust stated that its withdraw of its privilege claim "[did] not affect Wilmington Trust's assertion of privilege with regard to any advice or documents created in early 2012, following the bankruptcy filing of Wave2Wave Communications, Inc., and thereafter." Wilmington Trust's letter indicated that it would continue to withhold on the basis of privilege documents created after the Wave2Wave bankruptcy filing. Wave2Wave was the Trust's largest investment and, according to Wilmington Trust, its bankruptcy filing in February 2012 caused Wilmington Trust to seek legal advice because it anticipated that the Beneficiaries might make claims against the trustees relating to that investment or the administration of the Trust.
Wilmington Trust's advice of counsel defense is based on Article TENTH of the Trust Agreement, which provides:
The Trustees may consult with legal counsel … concerning any question which may arise with reference to the Trustees' duties or obligations under this Agreement, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Trustees in good faith and in accordance with the opinion of such counsel.
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 ...