Residential Capital, LLC

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
RESIDENTIAL CAPITAL, LLC, et al,
Debtors.
FOR PUBLICATION
Chapter 11
Case No. 12-12020 (MG)
MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN
PART THE UNSECURED CREDITORS COMMITTEE’S PRECLUSION MOTION
A P P E A R A N C E S:
KRAMER LEVIN NAFTALIS & FRANKEL LLP
Counsel for the Official Committee of Unsecured Creditors
1177 Avenue of the Americas
New York, New York 10036
By: 	Kenneth H. Eckstein, Esq.
Philip S. Kaufman, Esq.
Adina C. Levine, Esq.
Arielle Warshall Katz, Esq.
MORRISON & FOERSTER LLP
Counsel for the Debtors and Debtors in Possession
1290 Avenue of the Americas
New York, New York 10104
By: 	Gary S. Lee, Esq.
Anthony Princi, Esq.
Darryl P. Rains, Esq.
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MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the Motion of the Official Committee of Unsecured Creditors
to Preclude the Debtors from Offering Any Evidence of their Reliance on Counsel for Advice
Concerning the Evaluation, Negotiation or Approval of the RMBS Settlement (the “Motion,”
ECF Doc. # 2906). MBIA Insurance Corporation, Wilmington Trust, and FGIC have filed
joinders to the Motion (ECF Doc. ## 2931, 2983, and 2932, respectively). The Debtors oppose
the Motion (“Response,” ECF Doc. # 2984) and their opposition is supported by the declaration
of LaShann M. DeArcy, an attorney at Morrison & Foerster (ECF Doc. # 2982). The Unsecured
Creditors Committee (the “Committee”) filed their reply on February 25, 2013 (“Reply,” ECF
Doc. # 3025). The Court heard argument on the Motion on April 11, 2013.
For the reasons explained below, the Court grants in part and denies in part the
Committee’s Motion.
I. 	BACKGROUND
Discovery relating to the RMBS Trust Settlement Motion (the “9019 Motion”) began last
August and has continued at a swift pace thereafter. Under the applicable Case Management and
Scheduling Order, the deadlines for completing all fact and expert discovery were November 16,
2012 and December 14, 2012, respectively. (ECF Doc. # 1926.) After completing document
production, the Debtors provided the Committee with privilege logs reflecting at least 2,200
documents withheld on the basis of attorney-client privilege. According to the Committee, the
documents withheld by Debtors encompassed a range of categories involving communications
with counsel. Mot. ¶ 6.
Throughout the discovery period, the Committee has consistently pressed for the
production of all documents bearing on the evaluation, negotiation, and approval of the RMBS
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Trust Settlement, including any documents communicating legal advice, analysis of claims, or
analysis of potential liabilities to the Debtors’ Board of Directors (“ResCap Board”) or its
individual members. With few exceptions, the Debtors’ counsel asserted attorney-client
privilege to all document production requests and deposition testimony concerning advice of
counsel. The Committee argues that the Debtors should be precluded at trial from offering any
evidence of reliance on advice of counsel—affirmatively or defensively—in seeking approval of
the RMBS Trust Settlement.
The Committee’s counsel argues that the Debtors’ counsel affirmatively represented to
them and the Court that the Debtors would not offer evidence of the advice of counsel. On
November 4, 2012, the Debtors filed a letter with the Court (“November 4th Letter,” ECF Doc. #
2052). The parties now dispute whether the November 4th Letter served as a promise from the
Debtors not to raise the argument that they relied on the advice of counsel in approving the
RMBS Trust Settlement. The Committee claims that it dropped its attack on the Debtors’
privilege assertions because the Debtors’ November 4th Letter “explicitly disclaim[ed]” the
reliance-on-counsel argument. The Debtors argue that the letter did no such thing, and that, in
fact, the Debtors never intended to drop the argument. Indeed, the parties entered into a Limited
Waiver (defined below) on November 5, 2012 in which the Debtors agreed to produce a narrow
range of previously-withheld documents concerning the approval of the RMBS Trust Settlement.
The Debtors argue that the main purpose of entering into the Limited Waiver was to preserve the
Debtors’ ability to argue that they relied on counsel in approving the settlement. Nonetheless,
the Committee’s interpretation of the substance of the November 4th Letter, and not the Limited
Waiver, led the Committee to stop its challenge of the documents withheld by the Debtors.
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According to the Committee, the “mere handful” of documents produced pursuant to the
Limited Waiver includes a two-page presentation distributed to the ResCap Board on May 9,
2012, minutes before the Board approved the settlement. The Debtors did not produce the
balance of the withheld documents, which included presentations made to the ResCap Board
concerning representation and warranty (“R&W”) claims in general or communications between
individual ResCap Board members and counsel with respect to the RMBS Trust Settlement
itself.
The Committee also asserts that, on the basis of privilege, it was denied opportunities to
inquire into the substance of attorney-client communications during the depositions of the
Debtors’ witnesses. At a hearing on September 19, 2012, the Debtors strongly objected to
depositions of their outside counsel who were participants in the negotiations, representing to the
Court that their internal business people, including their in-house counsel, had been
“substantially involved” in the negotiation of the RMBS Trust Settlement. As a result, the Court
did not permit the depositions of outside counsel in connection with the negotiations of the
settlement; the parties were free to and did depose other participants in the negotiations
(including in-house counsel). With respect to the issue of the Debtors’ assertion of attorney-
client privilege, the Court told the Debtors’ counsel during the September 19, 2012 hearing that
“You’re going to have a real problem if you’re going to assert privilege with respect to
communications from counsel that form any part of the basis for directors approving the
settlement.” Sept. 19, 2012 Hr’g Tr. at 28 (ECF Doc. # 1616).
During the deposition of Thomas Marano, the Chairman and Chief Executive Officer of
Residential Capital, LLC, Debtors’ counsel consistently invoked the attorney-client privilege,
instructing the witness not to answer numerous questions about legal advice he received
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regarding the negotiation and drafting of the RMBS Trust Settlement. Mot. Ex. E. Despite
Marano’s testimony that he “relied” on the advice of counsel in approving the settlement (Mot.
Ex. E at 188-89), Marano was repeatedly instructed not to reveal the substance of any of his
communications with counsel concerning the RMBS Trust Settlement, including specifically:
 	His understanding of the legal defenses available to defeat the R&W claims
encompassed by the settlement;
 	His communications with counsel concerning ResCap’s potential liability for the
R&W claims;
 	His knowledge concerning the extent to which the Plan Support Agreements were
integral to the RMBS Settlement;
 	The legal advice given to the ResCap Board concerning the Debtors’ potential
claims against Ally Financial, Inc. (“AFI”); and
 	His communications with counsel concerning his experience as ResCap’s CEO
with transactions between ResCap and AFI during the period leading up to the
RMBS Trust Settlement.
Mot. ¶ 9.
Despite producing a “mere handful” of documents pursuant to the Limited Waiver, and
repeatedly instructing witnesses not to answer on the basis of attorney-client privilege during
depositions, the Debtors’ February 1, 2013 reply briefs to the RMBS Trust Settlement objections
(“RMBS Reply Briefs,” ECF Doc. ## 2803 and 2804) contain numerous statements that the
Debtors relied on the advice of counsel in approving the RMBS Trust Settlement. Among the
examples:
 	“[W]hen it came to the critical negotiations, the Debtors relied exclusively on Ms.
Hamzehpour and their outside counsel at Morrison & Foerster” (ECF Doc. # 2803 at 29)
(emphasis added);
 	“[The ResCap directors] cannot be found to have acted without due care if they relied, in
good faith, on the recommendations and advice of the board’s advisors” (ECF Doc. #
2804 at 9) (emphasis added);
 	“The directors were entitled to rely on these experts’ advice and counsel” (ECF Doc. #
2804 at 6-7) (emphasis added).
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A. The Debtors’ Response to the Committee’s Preclusion Motion
The Debtors make two arguments in response to the Committee’s Motion. First, the
Debtors claim that they never “explicitly disclaim[ed]” their intention to offer evidence that the
ResCap directors relied upon the advice of counsel in deciding to approve the RMBS Trust
Settlement. Second, regardless whether the Debtors had represented that they would not argue
that they relied on counsel, all the evidence that the Debtors intend to offer at trial is either not
privileged or allowable because of the Limited Waiver agreed to by the parties.
As to the first argument, the Debtors contend that since September 2012, the Debtors
have made clear that they intend to offer reliance on counsel evidence, and that the November 4 th
Letter was misconstrued by the Committee and did not in fact state that the Debtors “explicitly
disclaim[ed]” any intention to offer reliance on counsel evidence. Rather, on November 5, 2012,
the Court approved a stipulated order waiving the Debtors’ attorney-client privilege on a limited
basis (the “Limited Waiver”). The Limited Waiver allowed production of otherwise privileged
documents concerning the following topics:
 	Legal advice, presentations of counsel, and communications at the May 9, 2012
meeting of the Board of Directors of ResCap in connection with its approval of the
RMBS Trust Settlement and Plan Support Agreements;
 	Estimates of damages exposures and presentation materials prepared by Jeff
Cancelliere and/or FTI Consulting in April 2012 for use by counsel in negotiating the
RMBS Trust Settlement, the contents of which were summarized by counsel in oral
communications and presentations to members of the ResCap Board of Directors; and
 	Legal advice and communications of counsel to the ResCap Board of Directors in
connection with amendments to the RMBS Trust Settlement.
Limited Waiver ¶ 1(a)-(c).1
1 	The Limited Waiver also contains a provision that states: “This Order shall be without prejudice to the
rights of the Committee of Unsecured Creditors to contest the Debtors’ and/or AFI’s assertion of the attorney-client
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As to the second argument, the Debtors identify five categories of evidence they believe
the Committee wishes to preclude, and argue that either (1) none of these examples are subject to
the attorney-client privilege or (2) the evidence was in fact produced in conjunction with the
Limited Waiver so the Debtors could use it to show that they relied on counsel. The five
categories are as follows:
 	(1) Critical Negotiations Conducted by the Debtors’ Attorneys. The Debtors argue
that they only intend to introduce the identities of the Debtors’ lead negotiators – their
attorneys.
 	(2) Ms. Hamzehpour’s Personal Knowledge Regarding Settlement Negotiations. The
Debtors assert that they will not introduce evidence regarding privileged
communications between Gary Lee of Morrison & Foerster and Tammy
Hamzehpour, in-house counsel at ResCap. However, as Hamzehpour was a direct
participant in many of the key negotiations with Kathy Patrick of the Steering
Committee Group, the Debtors do plan to elicit her testimony about those
negotiations.
 	(3) Legal Advice Provided to Directors at the May 9 Board Meeting. The Debtors
intend to introduce evidence showing that the directors relied on the advice and
counsel of their lawyers and other professionals in connection with approval of the
RMBS Trust Settlement. However, they argue that the only evidence they intend to
offer is limited to that evidence produced pursuant to the Limited Waiver.
 	(4) The Directors’ Experience with R&W Liability. The Debtors claim that they will
introduce evidence showing the Directors’ general experience with R&W liability
claims through publicly-available, non-privileged documents and information.
 	(5) The Expert Testimony of Jeffrey Lipps. The Debtors plan to offer the expert
testimony of Lipps, one of the Debtors’ outside counsel in R&W litigation,
concerning the litigation risks and potential benefits of further litigation to show that
the proposed settlement strikes the proper balance of risk and reward, but the Debtors
do not intend to offer witnesses to testify to the understanding of RMBS claims they
supposedly obtained from Lipps.
privilege, the work product doctrine, and/or the common interest doctrine concerning the documents produced by
the Debtors and/or AFI in this action, including the documents produced pursuant to this Order.” Limited Waiver ¶
4.
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II. 	DISCUSSION
It has long been settled in this Circuit that “the attorney-client privilege cannot at once be
used as a shield and a sword.” U.S. v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991); see also In
re Grand Jury Proceedings, 219 F.3d 175, 182 (2d Cir. 2000); In re Kidder Peabody Sec. Litig.,
168 F.R.D. 459, 468 (S.D.N.Y. 1996). The rationale for this rule is simple: “A [party] may not
use the privilege to prejudice his opponent’s case or to disclose some selected communications
for self-serving purposes.” Trouble v. The Wet Seal, Inc., 179 F. Supp. 2d 291, 304 (S.D.N.Y.
2001) (precluding advice of counsel defense because defendant waived defense “by objecting,
based on the attorney-client privilege, to [plaintiff’s] discovery requests” and precluding party
from referring to advice of counsel—even in response to argument of bad faith—where party
previously stated in court filings that it had no intention of using advice of counsel) (emphasis
added). Therefore, “[a] party ‘who intends to rely at trial’ on the advice of counsel ‘must make a
full disclosure during discovery; failure to do so constitutes a waiver’ of the advice-of-counsel
defense.” Arista Records LLC v. Lime Group LLC, No. 06 Civ. 5936 (KMW), 2011 WL
1642434, at *2 (S.D.N.Y. Apr. 20, 2011) (citation omitted).
Courts have repeatedly held that, where a party “blocked his adversary from conducting
discovery on [his communications with counsel], he will not now be heard to advance reliance
on counsel.” E.G.L. Gem Lab Ltd. v. Gem Quality Inst., Inc., 90 F. Supp. 2d 277, 296 n.133
(S.D.N.Y. 2000), aff’d, 4 F. App’x 81 (2d Cir. 2001); see also McLean v. Garage Mgmt. Corp.,
No. 10 Civ. 3950 (DLC), 2012 WL 1358739, at *7 (S.D.N.Y. Apr. 19, 2012) (precluding party
from offering defense based on good faith reliance on the advice of counsel after previous
invocation of attorney-client privilege); Arista Records, 2011 WL 1642434, at *2 (precluding
defendants from offering evidence or argument at trial regarding their purported belief in the
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lawfulness of their conduct where defendants had blocked inquiry on the basis of privilege).2
Indeed, where a party “invoke[s] attorney-client privilege throughout discovery, [this]
automatically ‘constitutes a waiver of the advice-of-counsel defense.’” Cary Oil Co., Inc. v. MG
Refining & Mktg., Inc., 257 F. Supp. 2d 751, 761 (S.D.N.Y. 2003) (citation omitted) (emphasis
added). A court should “exclude any testimony or evidentiary presentations by the Defendants at
trial if that same testimony or evidence was withheld from Plaintiffs during discovery based on
attorney-client privilege.” Id.
In Chesapeake Corp. v. Shore, 771 A.2d 293, 301 (Del. Ch. 2000), defendants had
invoked the attorney-client privilege to block from discovery much of the professional advice
they had received in taking action as directors of a corporation’s board. The defendants later
“attempted to use some of this concealed advice as a sword,” arguing that the board had
considered several items that the opposing party had been prevented from discovering. Id. The
court condemned that tactic as “inequitable” and refused to consider any evidence of the advice
given to the board. The court cites to a hearing transcript where Vice Chancellor Jacobs stated:
One would think that a board having [a burden of showing the
reasonableness of their process and also of the result that they
reached] would want to expose their deliberative process to full
view, but they are not legally required to do so. The defendants
are the masters of the evidence they will present in their defense,
2 	The Debtors attempt to distinguish the cases that the Committee relies on by arguing that in those cases, the
defendant invoked a “good faith” defense based on the defendant’s asserted belief in the lawfulness of his or her
conduct—in other words, the defendant’s state of mind was directly at issue in those cases (and is not here). For
example, in Arista Records, the defendants attempted to assert, at the damages phase of a copyright infringement
case, their good faith belief in the lawfulness of their conduct despite having asserted the privilege for
communications with counsel. 2011 WL 1642434, at *2. Similarly, in E.G.L. Gem Lab Ltd., the defendant asserted
at trial a good faith defense to willful trademark infringement based on advice of counsel despite having asserted the
privilege with regard to such advice. 90 F. Supp. 2d at 296 n.133. In Vicinanzo v. Brunschwig & Fils, Inc., 739 F.
Supp. 891 (S.D.N.Y. 1990), the defendant insurance company asserted advice of counsel in defense of a bad faith
claim in an ERISA lawsuit without offering any opinion of counsel. Rather than for the purpose of showing good
faith, the Debtors argue that here, the ResCap Board members are entitled to put forth “reliance on counsel”
evidence as rebuttal evidence to the “due care” challenge asserted by the Committee. This argument is addressed in
further detail below.
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but they must accept the consequences of their tactical choice.
Here the defendants’ tactical decision to bar on privilege grounds
discovery into what the board was advised was their fiduciary duty
and into the content of the board’s deliberations will in turn
preclude them from proving those deliberations at trial to defend
their position that their decision was reasonable and made with due
care.
Id. at n.8 (quoting Mentor Graphics Corp. v. Quickturn Design Sys., Inc., Civ. A. No.
16584, H’rg. Tr. at 505 (Del. Ch. Oct. 23, 1998) (Jacobs, V.C.)).
The Court need not resolve the question whether the Debtors had or had not “explicitly
disclaim[ed]” using reliance on advice of counsel. Whatever the answer may be, the record quite
clearly reflects that the Debtors are attempting to cherry-pick the specific advice of counsel
evidence they have disclosed and intend to introduce if permitted to do so during the trial.
Debtors’ counsel engaged in selective disclosure of legal advice by providing a Limited Waiver
to the legal advice given to the ResCap Board at the May 9, 2012 board meeting, while
continuing to assert attorney-client privilege to bar discovery of documents or deposition
testimony on the same subject matter.
This is not an issue arising from a few documents listed in a privilege log, or a few
questions to deposition witnesses. The Court finds, as a fact, that Debtors’ counsel purposely
and consistently adopted the strategy of selective (and extremely limited) disclosure. The law
does not permit such cherry-picking of reliance on counsel evidence. The consequences of
failing to make full disclosure of the advice that was given is that the Debtors are now precluded
from offering any evidence of the legal advice provided to the Debtors’ officers and directors
that was considered in connection with the decision to enter into the RMBS Trust Settlement.
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A. Waiver of Attorney-Client Privilege When “Reliance on Counsel” is Used as
Rebuttal for “Due Care” Challenge
In making a business decision, the directors of a corporation are presumed to act on an
informed basis, in good faith, and with the honest belief that the action taken is in the best
interest of the company. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984). “[T]o invoke the
rule’s protection, directors have a duty to inform themselves, prior to making a business
decision, of all material information reasonably available to them.” Id.
Accordingly, any attack on a Board’s decision to approve a settlement will likely focus
on the process by which the directors’ decisions were made. See, e.g., In re Walt Disney Co.
Deriv. Litig., 907 A.2d 693, 749 (Del. Ch. 2005) (concluding that due care inquiry does not
permit review of the substance, or merits, of the challenged decision), aff’d, 906 A.2d 27 (Del.
2006); Official Comm. of Unsecured Creditors v. Bay Harbour Master Ltd. (In re BH S&B
Holdings LLC), 420 B.R. 112, 146-47 (Bankr. S.D.N.Y. 2009), aff’d, 807 F. Supp. 2d 199
(S.D.N.Y. 2011). A director facing such a “process” challenge may rebut it by offering evidence
that he or she sought the advice of counsel. Under Delaware law, directors are protected when
they rely “in good faith upon information presented to them from various sources, including ‘any
other persons as to matters the member reasonably believes are within such person’s professional
or expert competence and who has been selected with reasonable care by and on behalf of the
corporation.’” Brehm v. Eisner (In re Walt Disney Co. Deriv. Litig.), 906 A.2d 27, 60 (Del.
2006) (quoting 8 Del. C. § 141(e)); see also Cinerama, Inc. v. Technicolor, 663 A.2d 1134, 1142
(Del. Ch. 1994) (stating that board’s “reasonable reliance upon expert counsel” is a “pertinent
factor in evaluating whether” the board “met a standard of fairness in their dealings with respect
to corporate powers”), aff’d, 663 A.2d 1156 (Del. 1995); Berman v. Le Beau Inter-America, Inc.,
62 B.R. 262, 268 (S.D.N.Y. 1986) (stating that directors had a “right . . . to rely upon the
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financial statements of the accountants and . . . the reports of their highly qualified attorneys”).
Courts have allowed directors to rebut due care challenges by showing their processes
included consultations with counsel. See, e.g., Minn. Invco of RSA No. 7, Inc. v. Midwest
Wireless Holdings LLC, 903 A.2d 786, 797-98 (Del. Ch. 2006) (finding no waiver of attorney-
client privilege; “evidence at trial shows that each [director] approved the amendment, upon the
advice of counsel and Bear Stearns . . . the court concludes that the board members were fully
informed and acted in the best interest of the company”); In re Cheyenne Software, Inc.
Shareholders Litig., Civ. A. No. 14941, 1996 Del. Ch. LEXIS 142, at *8-9 (Del. Ch. Nov. 7,
1996) (finding no waiver of attorney-client privilege; board of directors “retained two investment
banks and legal counsel for advice”); Citron v. DuPont de Nemours & Co., 584 A.2d 490, 510-
512 (Del. Ch. 1990) (rejecting due care challenge without waiver of attorney-client privilege
where directors were “counseled by [legal and financial advisors]”).
However, a party who argues that it made a business decision because of its reliance on
counsel, regardless of whether it is asserted as a “defense” to a “due care” challenge, still waives
its attorney-client privilege by placing its reliance on counsel directly at issue. See Aristocrat
Leisure Ltd. v. Deutsche Bank Trust Co. Ams., No. 04 Civ. 10014, 2009 U.S. Dist. LEXIS 89183,
at *45 (S.D.N.Y. Sept. 28, 2009). See also Chesapeake Corp., 771 A.2d at 301 n.8; In re
Subpoena Issued to Dennis Friedman, Esq., 286 B.R. 505, 509 n.4 (Bankr. S.D.N.Y. 2002)
(stating that directors who proposed to use advice of counsel to substantiate their due care
“created the situation where their attorney’s advice is both relevant and possibly crucial to the
plaintiff’s preparation of its case”); Newmarkets Partners, LLC v. Sal. Oppenheim Jr., 258
F.R.D. 95, 108 (S.D.N.Y. 2009) (concluding that privilege deemed waived and communications
with counsel required to be disclosed to support “due care” defense based on advice of counsel).
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Aristocrat Leisure is particularly analogous to this case. Aristocrat Leisure involved a
dispute between bondholders and an issuer, where the sole issue at trial was whether certain
bondholders unreasonably failed to mitigate their consequential damages after the issuer’s
breach. 2009 U.S. Dist. LEXIS 89183, at *7. The issuer brought a motion in limine asking the
court to prevent bondholders from introducing evidence suggesting that they received,
considered, and/or relied on the advice of counsel in connection with their decisions vis-à-vis the
bonds they held; in addition, should the court allow this evidence, the issuer asked the court to
find that such testimony waived the attorney-client and work product privileges and would allow
the issuer to re-open discovery regarding the substance of counsel’s advice. Id. at *14. The
bondholders, on the other hand, drew a distinction between the argument that they sought legal
advice as one aspect of an overall course of reasonable conduct, and the argument that they acted
reasonably because they relied on the advice rendered by legal counsel. Id. at *39. According to
the bondholders, the first argument does not waive the privilege; the second does. Id.
The court noted that the bondholders represented they would not argue that they relied on
counsel’s advice in opposing the issuer’s claim that their actions were unreasonable; rather, they
wanted to show the jury that counsel was consulted on the subject matter underlying this
litigation. Id. at *45-46. The court found that, “[b]ecause the Bondholders are not claiming to
have relied on an opinion of counsel, the actual content of the advice provided to the
Bondholders is irrelevant.” Id.
Nonetheless, the court cautioned the bondholders “not to sidestep this ruling by imparting
to the jury the actual content of the legal advice provided by counsel, or by arguing that an
individual Bondholder’s actions were reasonable because they relied on an opinion of counsel.
Arguments such as these indeed would put the subject matter of the communication with counsel
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at issue and would result in a waiver of the privilege. Until such a misstep occurs, the Court
declines to find that the privilege has been waived.” Id. at *48-49.
The Debtors are walking a fine line between arguing that they sought and received the
advice of counsel when negotiating and evaluating (and ultimately approving) the RMBS Trust
Settlement, and that they relied on the advice of counsel in approving the RMBS Trust
Settlement. For example, the Debtors claim they only want to introduce the fact that the critical
negotiations were handled by the Debtors’ attorneys, without delving into the substance of those
negotiations (to the extent they were undertaken by the Debtors’ attorneys). See Response at 11.
Yet, the Debtors’ RMBS Reply Briefs are replete with statements such as “[t]he directors were
entitled to rely on these [legal and financial] experts’ advice and counsel” and “ResCap LLC’s
directors . . . relied on advice and presentation materials from their advisors that were fair,
accurate, and adequate to the task.” (ECF Doc. # 2804 at 3, 6-7.)
The attorney-client privilege is not waived if the Debtors argued that they sought the
advice of counsel, among other actions, in an effort to reasonably educate themselves as to the
merits of the settlement. However, after having asserted the attorney-client privilege throughout
discovery, the Debtors cannot now introduce the substance of whatever advice it sought and
received in order to demonstrate that it exercised proper business judgment in approving the
RMBS Trust Settlement, even for the purpose of rebutting a “due care” challenge. Aristocrat
Leisure, 2009 U.S. Dist. LEXIS 89183, at *48-49.
B. 	Other Evidence the Committee Appears to Assert Should be Precluded
It is unclear to the Court whether the Committee’s preclusion motion also seeks to
exclude other evidence, including the identities of the Debtors’ attorneys who conducted the
critical negotiations. The negotiations between the Debtors and the Steering Committee Group
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and the Talcott Franklin Group are not protected by attorney-client privilege, so the identity of
the negotiators is not precluded. Factual reports regarding the negotiations (who said what to
whom during the negotiations) also would not be protected by attorney-client privilege, and may
be the subject of testimony during trial. At the request of the Debtors and the settlement
counterparties, depositions of outside counsel who conducted the negotiations were not
permitted. But other percipient witnesses to the negotiations were deposed. All parties agree
that no privilege applies, so testimony about the negotiations by the other percipient witnesses
will be permitted. Legal advice to the Board members or ResCap officers concerning the
negotiations would be protected by attorney-client privilege, and because of the Debtors’
attempted selective disclosure of privileged information, evidence of any legal advice given by
the negotiators during the negotiations is also precluded.
It was also unclear whether the Committee sought to preclude evidence of the personal
experience of ResCap’s Board members with an understanding of R&W liability. While such
evidence may not be used as a back door to introduce legal advice given by ResCap’s attorneys,
such evidence cannot be excluded in limine, although it remains subject to objections during trial
and possible voir dire, if necessary.
Finally, the Committee also appears to object to Jeffrey Lipps’ proposed expert testimony
as to the strengths and weaknesses of the R&W Claims. There may be other issues with Lipps’
proposed testimony, but it is not excludable based on the rulings discussed above concerning
legal advice given to the Board, unless of course Lipps attempts to testify to any legal advice he
himself gave to the Debtors’ officers or Board members. All other objections to the Lipps
testimony are preserved for further motions in limine or during trial.
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During oral argument on April 11, 2012, Debtors’ counsel made an offer of proof with
respect to evidence Debtors expect to offer in evidence at trial. Except to the extent that such
evidence is precluded by the rulings reflected in this opinion, all other evidentiary objections are
reserved for decision on motions in limine or during trial.
III. 	CONCLUSION
For the reasons explained above, the Court GRANTS IN PART and DENIES IN PART
the Committee’s Motion.
IT IS SO ORDERED.
Dated: April 12, 2013
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
12-12020-mg Doc 3434 Filed 04/12/13 Entered 04/12/13 16:07:50 Main Document
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