U.S. District Court Judge Katherine Polk Failla denied Plaintiff-Investors’ attempts in Blackrock Allocation Target Shares et al. v. Wells Fargo et al., No. 1:14-cv-09371 (S.D.N.Y.) to overturn two magistrate judge decisions preventing them from accessing Wells Fargo’s privileged communications and ordering them to identify with greater specificity when Wells Fargo allegedly became aware of problems in a series of residential mortgage-backed securities trusts. 

Plaintiffs accused Wells Fargo of failing to take proper action as trustee once Wells Fargo allegedly became aware of purported breaches of representations and warranties in the trusts, among other problems.  Plaintiffs attempted to argue that Wells Fargo could not withhold from production documents that could reveal whether or to what degree it had information about the alleged problems in the trust.  Judge Failla disagreed, holding that “Plaintiffs must prove not only the existence of R&W breaches for each loan within each trust at issue, but also that Wells Fargo, at least, ‘should have been aware’ of such breach,” concluding that their burden therefore depended “on the underlying loan documents and data related to those documents, not on any legal opinion that Wells Fargo may or may not have received in relation to those documents.”

Judge Failla also held that Plaintiffs must state with specificity when Wells Fargo allegedly discovered each of the claimed breaches, ordering them to provide such information in response to a challenged interrogatory.  Plaintiffs had claimed that Wells Fargo discovered the alleged breaches “by January 2009 and thereafter.”  Judge Failla noted that while Plaintiffs are not required to “provide the exact hour and minute” of alleged discovery, “to prove that Wells Fargo ‘almost … actually knew’ of an R&W breach or … acquired ‘information that would lead a reasonable person to inquire further,’ Plaintiffs must bring forth facts showing that Wells Fargo acquired data at least suggesting that a given R&W breach had occurred. Such facts will inherently involve timing, as Plaintiffs will be unable to satisfy this burden without showing the relevant information came to Wells Fargo’s attention at some point.”