United States District Court, D. Delaware
Honorable Maryellen Noreika United States District Judge
April 4, 2019, the Court held a discovery teleconference,
during which the Responding Non-Parties and McCarter
& English, LLP (“McCarter”) argued that 1601
documents withheld (“the Withheld Documents”)
from intervenors on the basis of attorney-client privilege
belonging to the Trusts and work product immunity should be
protected from discovery. At the conclusion of that
teleconference, and absent objection from the Responding
Non-Parties and McCarter, the Court ordered production of the
Withheld Documents to Owner-Trustee Wilmington Trust
Corporation. The Court also asked for copies of the documents
to be submitted in camera and invited other
intervenors to submit supplemental briefing relating to the
fiduciary exception to the attorney-client privilege and the
work-product doctrine. The Court received submissions from:
the Objecting Noteholders (“Noteholders”); Ambac
Assurance Corporation (“Ambac”); U.S. Bank
National Association (“U.S. Bank”), in its
capacity as Indenture Trustee; and, GSS Data Services, Inc.
(“GSS”). (D.I. 162, 163, 164, & 165). Three
of those submissions did not dispute that the documents are
privileged but each argued that the intervenor submitting the
document is entitled to the documents under the fiduciary
exception. Responding Non-Parties and McCarter
disagree. (D.I. 176, 177). For the reasons discussed below,
the Court finds that certain of the Withheld Documents should
be produced to the Noteholders and Ambac, but should not be
produced to U.S. Bank.
attorney-client privilege is intended to encourage
“full and frank communication between attorneys and
their clients.” Upjohn Co. v. United States,
449 U.S. 383, 389, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). The
privilege, however, is not absolute, and courts have found
that it “is to be strictly confined within the
narrowest possible limits consistent with the logic of its
principle.” United States v. Aramony, 88 F.3d
1369, 1389 (4th Cir. 1996) (internal citations and quotation
marks omitted); United States v. McFadden & Co.
P'ship, No. 88-2285, 1989 WL 47285, at *2 (W.D. Pa.
Jan. 5, 1989) (quoting United States v. (Under
Seal), 748 F.2d 871, 875 (4th Cir. 1984)). One such
limit exists in the context of fiduciary relationships.
“Rooted in the common law of trusts, the fiduciary
exception is based on the rationale that the benefit of any
legal advice obtained by a trustee regarding matters of trust
administration runs to the beneficiaries.” Solis v.
Food Employers Labor Relations Ass'n, 644 F.3d 221,
226 (4th Cir. 2011). Consequently, “trustees . . .
cannot subordinate the fiduciary obligations owed to the
beneficiaries to their own private interests under the guise
of attorney-client privilege.” Id. at 226-27
(quoting Riggs Nat'l Bank of Washington, D.C. v.
Zimmer, 355 A.2d 709, 714 (Del. Ch. 1976)).
questions currently before the Court are (1) whether the
intervenors seeking disclosure are properly
“beneficiaries” of the Defendant Trusts, and, if
so, (2) whether they fall under the fiduciary exception to
Delaware law, “[f]or a party to be deemed a third-party
beneficiary to a contract, (i) the contracting parties must
have been intended that the third party beneficiary benefit
from the contract, (ii) the benefit must have been intended
as a gift or in satisfaction of a preexisting obligation to
that person, and (iii) the intent to benefit the third party
must be a material part of the parties' purpose in
entering the contract.” Arrowood Indem. Co. v.
Hartford Fire Insu. Co., 774 F.Supp.2d 636, 658 (D. Del.
2011). One of the trust agreements submitted to the Court by
Responding Non-Parties states that “[t]he purpose of the
Trust is . . . [t]o acquire a pool of Student Loans, to
execute the Indenture and to issue the Notes.” (D.I.
177, Ex. 1 § 2.03(a)(i)). That agreement, moreover,
states “that for so long as any of the Notes are
outstanding or any amounts are owed to the Indenture Trustee
or the Note Issuer, the Noteholders and the Note Issuer are
third party beneficiaries hereof.” (Id. §
14.04). Additionally, the “Indenture” submitted
by Responding Non-Parties informs that each Trust
“hereby Grants to the Indenture Trustee . . . all the
Issuer's right, title and interest in and to” all
of the Trusts' assets for the benefit of the Noteholders
and Ambac. (D.I. 177, Ex. 2 at 1-2). In light of the language
in the documents governing the trusts and indentures, and the
fact that the notes remain outstanding, the Court finds that
the Responding Non-Parties' argument that the Responding
Non-Parties are the sole beneficiary is unavailing. To the
contrary, the Noteholders and Ambac are third-party
beneficiaries of the Trusts. The Court, however, does not
find that U.S. Bank, as the Indenture Trustee, is a
beneficiary of these Trusts, and U.S. Bank makes no argument
that this is the case.
beneficiaries of the Trusts, the Court finds that the
Noteholders and Ambac are entitled to privileged
communications and work product on behalf of the Trusts under
the fiduciary exception. In Riggs National Bank v.
Zimmer, 355 A.2d 709 (Del. Ch. 1976) - which the United
States Supreme Court has called the “leading American
case on the fiduciary exception, ” see United
States v. Jicarilla Apache Nation, 564 U.S. 162, 171
(2011) - the Delaware Court of Chancery held that
beneficiaries of a trust are entitled to otherwise privileged
materials prepared for representatives of a trust in
connection with matters of trust administration, and for
which the trustees had paid using trust assets. In
determining whether the beneficiaries should have access to
privileged documents, the Court examined who stood as
counsel's “real clients.” Riggs, 355
A.2d at 712-13. The “real client” analysis
requires the Court to determine whether (i) the content of
the advice was for the benefit of the trust, (ii) the advice
was paid for with assets of the trust, and (iii) no
adversarial proceeding against trustees or trust
representatives was pending, requiring their own personal
legal advice. See Wachtel v. Health Net, Inc., 482
F.3d 225, 232 (3d Cir. 2007) (citing Riggs, 355 A.2d
at 711). Here, Responding Non-Parties themselves allege that
the legal advice provided by Chaitman and McCarter was for
the benefit of the Trusts, not the owners themselves. (D.I.
147 at 1-2 (“The Trusts retained Chaitman, and through
Chaitman, McCarter and other law firms.”)). Moreover,
the record shows that the legal advice was paid for by - or
payment has been sought from - the Trusts themselves, not
Responding Non-Parties. (See e.g., D.I. 79 (McCarter
Motion to Withdraw as Counsel) ¶ 2-3 (“Defendants
retained [McCarter] to represent Defendants in connection
with the underlying investigation” and
“Defendants apparently have been unable to pay the
substantial legal fees owed to [McCarter], despite agreement
from Defendants that such legal fees were incurred and are
owed to Counsel.”). Thus, the Court finds that the
“real client” of Chaitman, McCarter, and any
other firms engaged in the negotiation of the Proposed
Consent Judgment, was the Trusts themselves and therefore the
McCarter and the Responding Non-Parties argue that the
Noteholders and Ambac have not met the “good
cause” criteria outlined in a Fifth Circuit case, that
case, unlike the instant one, addressed a
corporation-shareholder situation. See Garner v.
Wolfinbarger, 430 F.3d 1093, 1101-02 (5th Cir. 1970).
Court finds that the Noteholders and Ambac, as third-party
beneficiaries of the Trusts, are entitled to those materials
withheld from production on the basis of privileges belonging
to the Trusts. Because, however, the Court's November 29,
2018 order bifurcated consideration of the Proposed Consent
Judgment (“PCJ”), and limited phase one thereof
to the issues of “[w]hether the law firm of McCarter
& English had the authority to execute the Proposed
Consent Judgment on behalf of the Defendants under the Trust
Related Agreements and applicable law” and
“[w]hether - authority aside - it was improper or (in
violation of the Trust Related Agreements) for McCarter &
English to enter into the [PCJ]” (D.I. 99), the Court
will limit the production of documents to those that preceded
the filing of this action and the PCJ on September 18, 2017.
IT IS HEREBY ORDERED this 17th day of May 2019 that on or
before May 31, 2019, the Responding Non-Parties (as defined
supra, n.1) and McCarter & English, LLP shall
produce all Withheld Documents dated September 18, 2017 and
 The Responding Non-Parties are: VCG
Securities, LLC; VCG Owners Trust, NC Owners LLC, NC Residual
Owners Trust, Pathmark Associates, LLC, and CeCe & Co.
Ltd., LCC. (D.I. 147)
 GSS stated that it “takes no
position at this point on the question of whether the
‘fiduciary exception' applies to the Administrator
with respect to the Withheld Documents, or whether the
Administrator has any other basis to obtain the Withheld
Documents” and thus the Court will accept, at this
time, that the documents may be withheld from GSS. (D.I.
 The Court understands this agreement
to be representative of the other agreements relevant to ...