Financial Guaranty Insurance Company v. The Putnam Advisory Company, LLC

Background

Trial was scheduled to begin by videoconference on July 6, 2020. Before trial, the parties exchanged witness declarations that would serve as direct testimony. Putnam submitted a declaration from Carl Bell, who had been a senior portfolio manager and team leader for the collateralized debt obligation team during the Pyxis transaction.

FGIC alleged that it was defrauded into investing in Pyxis ABS CDO 2006-1 based on a spreadsheet listing mortgage-backed securities that Putnam intended to buy for the transaction. FGIC claimed that the spreadsheet’s information came from Putnam through Calyon Corporate and Investment Bank, or that Putnam was sufficiently involved with the spreadsheet that it had a duty to correct material errors. Putnam denied authoring or seeing the spreadsheet and denied sending the information to Calyon for transmission to FGIC.

Bell’s declaration stated that, based on his career experience and advice from several general counsels, including at Putnam, an asset manager should be cautious about giving deal-specific information directly to potential participants in a securities offering. He stated that Putnam did not directly distribute target securities or similar information to deal participants during the marketing process for Pyxis or other collateralized debt obligations it managed.

FGIC’s privilege argument

FGIC argued that Bell’s reference to advice from general counsels waived attorney-client privilege—the protection for confidential communications between a lawyer and client made for legal advice—over all communications between Bell and Putnam’s lawyers about whether Putnam could disclose deal-specific information. FGIC also argued that it had previously requested responsive documents and sought a deposition of Bell or Putnam’s general counsel.

Putnam argued that Bell’s statement did not waive privilege. It nevertheless offered to waive privilege for the subject matter of the advice Bell referenced. Putnam reviewed 1,434 privileged documents involving Bell as author or recipient and identified three documents that might be responsive in a broad sense. Putnam offered those documents for the court’s private review and stated that it would not object to producing them if production did not create a broader waiver. Putnam also offered to allow FGIC to cross-examine Bell about the basis for his statement.

Court’s analysis

The court first concluded that the statement did not create an “at-issue” waiver. That type of implied waiver generally applies when a party relies on privileged legal advice to support a claim or defense. The court found that Putnam was not asserting an advice-of-counsel defense and was not placing its attorney-client relationship directly at issue.

The court then concluded that the statement probably created a limited waiver under Federal Rule of Evidence 502(a). Bell had stated in a prepared declaration that his understanding about disclosure practices was advised by general counsels. The court treated that statement as an intentional disclosure of communications with counsel. For fairness, FGIC was entitled to communications with general counsel or other legal counsel concerning the advice underlying Bell’s understanding, whether or not those communications would otherwise be privileged, provided they were in Bell’s or Putnam’s possession.

The court said Putnam’s proposed production fully resolved the issue if the documents were provided. The court also noted that the legal source of Bell’s understanding was only marginally relevant to the central dispute: whether Putnam transmitted the information to Calyon intending that it reach FGIC. FGIC could cross-examine Bell about the statement at trial.

Rulings

The court declined to order depositions of Bell or Putnam’s general counsel at that time. It characterized the request as a fishing expedition because Bell reportedly did not recall specific conversations with Putnam’s general counsel, had only a general recollection of advice over many years, and had already testified generally about the practice and advice concerning disclosure. FGIC could renew its request for a deposition of Putnam’s general counsel if Bell’s trial testimony supplied a basis for doing so.

The court also rejected FGIC’s complaint that Putnam’s privilege log violated Federal Rule of Civil Procedure 34. The court found that challenge too late because the parties had exchanged the discovery about five years earlier and trial was nearly a week away.