PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 30th Floor New York, New York 10022
December 18, 2024
MEMORANDUM
TO: Carlos Espinoza, Lead Associate; Linda Osei, Responsible Partner
FROM: Hannah Brinkley, Working Associate
RE: Privilege Analysis — August 22, 2023 Memorandum from Philip Aaronson to Derek Whitmore (the "Aaronson Memorandum")
MATTER: Belmont Ridge Bank NA — Defense Against Borrower Counterclaims; Calderwood & Harkness Matter No. 1022-00005
CASE: Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel, Index No. 654871/2024, New York Supreme Court, New York County, Commercial Division, before Hon. Althea Marchetti
CONFIDENTIALITY LEGEND: This memorandum is protected attorney work product prepared in anticipation of litigation and constitutes privileged and confidential attorney-client communication. It reflects the mental impressions, conclusions, opinions, and legal theories of counsel. This memorandum is not to be disclosed outside the engagement team without the prior approval of Linda Osei.
I. Executive Summary
The purpose of this memorandum is to analyze whether the memorandum dated August 22, 2023, authored by Philip Aaronson (Executive Vice President and Chief Credit Officer, Belmont Ridge Bank NA ("BRB")) and addressed to Derek Whitmore (Senior Vice President, Head of Special Assets Group, BRB), with a copy to Margaret Linden (Senior Vice President and General Counsel, BRB) (the "Aaronson Memorandum"), is protected from discovery by the attorney-client privilege, the common-interest doctrine, or the work-product doctrine, or whether it constitutes a non-privileged business document subject to production in the above-captioned action.
This analysis is prompted by the fact that opposing counsel — Kestrel Voss & Huang LLP, led by partner Theodore ("Ted") Huang and senior associate Natasha Orlov — has specifically demanded production of the Aaronson Memorandum in their First Set of Document Requests, which comprises eighty-seven (87) requests served on BRB on November 1, 2024. It is virtually certain that Kestrel Voss & Huang will aggressively challenge any privilege assertion over this document. Ted Huang is well known in the Commercial Division for pressing privilege challenges, and the document is central to Triton Harbor's theory of the case.
The Aaronson Memorandum is of critical significance to Triton Harbor Industries, LLC's ("Triton Harbor") fraudulent inducement counterclaims. If produced, it will be used to demonstrate that BRB had already made an internal decision to exit the Triton Harbor lending relationship before the forbearance negotiations even commenced. Triton Harbor's counterclaims rest on the allegation that Derek Whitmore made oral representations at a September 12, 2023 meeting — approximately three weeks after the Aaronson Memorandum was issued — that BRB was "committed to the long-term relationship" with Triton Harbor and would "seriously consider" extending a new $6.5 million revolving credit facility upon Triton Harbor's successful completion of forbearance milestones. The Aaronson Memorandum's directive to "pursue a structured exit from the Triton Harbor relationship within 120 days" and its statement that "further extensions of credit are not contemplated under any workout scenario" directly contradict those alleged representations.
Bottom-Line Recommendation: BRB should assert attorney-client privilege over the Aaronson Memorandum on its initial privilege log, which is due on January 15, 2025. However, the privilege claim faces significant risk under New York's primary purpose test, and we should simultaneously prepare for the likelihood that Kestrel Voss & Huang will move to compel production and that Justice Marchetti may order in camera review. Critically, BRB should also develop a defensive litigation strategy that does not depend on the Aaronson Memorandum remaining privileged. This memorandum sets forth the analysis underlying that recommendation, identifies the factual investigation required to strengthen the privilege position, and outlines the defensive litigation strategy.
II. Description of the Aaronson Memorandum
A. Formal Attributes
The Aaronson Memorandum bears the following formal characteristics:
• Date: August 22, 2023.
• Author: Philip Aaronson, Executive Vice President and Chief Credit Officer, Belmont Ridge Bank NA. Aaronson is the most senior credit officer at BRB and has ultimate authority over credit disposition decisions for the bank's loan portfolio.
• Primary Recipient: Derek Whitmore, Senior Vice President and Head of Special Assets Group, Belmont Ridge Bank NA. Whitmore leads the SAG, which is the division responsible for managing troubled and substandard credits, including workout negotiations, forbearance agreements, and, where appropriate, acceleration and enforcement.
• Copied Recipient: Margaret Linden, Senior Vice President and General Counsel, Belmont Ridge Bank NA. Linden heads BRB's legal department and is the bank's chief in-house legal officer.
• Subject Line: "Triton Harbor — Recommended Disposition Strategy."
• Form: Internal memorandum on BRB corporate letterhead. The memorandum was not sent to any external party, including Triton Harbor, its principals (Marcus J. Kappel and Elaine D. Kappel), or any outside counsel.
The memorandum was located during the initial document collection phase of this litigation and is currently within the review universe of approximately 34,000 documents being processed for production through our Relativity workspace.
B. Substantive Content
Based on our review of the document, the Aaronson Memorandum contains the following key substantive content:
First, Aaronson directed the Special Assets Group to "pursue a structured exit from the Triton Harbor relationship within 120 days." This is a direct, unambiguous credit directive from BRB's Chief Credit Officer to the division head responsible for managing the account.
Second, Aaronson stated that "further extensions of credit are not contemplated under any workout scenario." This language forecloses, at least as of August 22, 2023, any new credit facilities for Triton Harbor — directly at odds with the alleged oral representations that Whitmore would later make regarding consideration of a new $6.5 million revolving facility.
Third, the memorandum appears to set forth BRB's internal credit disposition strategy following the March 8, 2023 downgrade of the Triton Harbor credits from "Pass" to "Substandard" (Risk Rating 7) on BRB's internal credit risk scale and the resulting transfer of the Triton Harbor account from the Relationship Management Group to the Special Assets Group. The memorandum thus fits within the ordinary course of BRB's credit management process — when a credit is downgraded and transferred to SAG, the Chief Credit Officer issues disposition guidance to the SAG team.
Fourth, and critically for the privilege analysis, the contextual timing of the memorandum is significant. The Aaronson Memorandum pre-dates the forbearance negotiations by approximately five weeks. The Forbearance and Modification Agreement (the "Forbearance Agreement") between BRB and Triton Harbor was not executed until October 6, 2023. The first in-person meeting between the BRB team (Whitmore and Joanna Reeves, Vice President, SAG) and the Kappels at BRB's offices at 1200 Avenue of the Americas, 38th Floor, New York, New York 10036, occurred on September 12, 2023 — twenty-one days after the Aaronson Memorandum.
Fifth, the memorandum is potentially devastating to BRB's defense against Triton Harbor's counterclaims. The fraudulent inducement counterclaims filed on October 18, 2024, allege that Whitmore made specific oral representations at the September 12, 2023 meeting that BRB was "committed to the long-term relationship" with Triton Harbor and would "seriously consider" a new $6.5 million revolving credit facility upon successful completion of the forbearance milestones. The Aaronson Memorandum's directive to exit the relationship within 120 days and its statement that no further credit extensions were contemplated under any workout scenario are in direct tension with those alleged representations. Triton Harbor will use this document to argue that BRB's officers were simultaneously telling the borrower one thing while internally planning the opposite.
C. Surrounding Communications
Several surrounding communications are relevant to understanding the significance of the Aaronson Memorandum:
First, on September 18, 2023, Joanna Reeves (Vice President, SAG) sent Marcus Kappel an email in which she stated that BRB was "optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship." This email, sent approximately four weeks after the Aaronson Memorandum directed a structured exit, is not privileged and will be produced to Triton Harbor. It is precisely the type of external-facing communication that Triton Harbor will juxtapose against the Aaronson Memorandum's internal directive.
Second, on September 29, 2023, Reeves forwarded to Whitmore an internal draft term sheet for a potential new $6.5 million revolving credit facility for Triton Harbor, marked "for discussion purposes only — not approved." This draft term sheet, also not privileged, is further evidence that BRB personnel were at least exploring the possibility of extending new credit to Triton Harbor — again seemingly inconsistent with Aaronson's August 22, 2023 directive. However, the fact that the draft term sheet was marked "not approved" and was circulated internally (not to Triton Harbor) provides some nuance.
These communications post-date the Aaronson Memorandum and are not subject to any privilege claim. They are part of the broader document production universe currently under review. The Aaronson Memorandum's content gains its particular significance precisely because of the contrast with these later external and internal communications. Without the Aaronson Memorandum, Triton Harbor can point to the Reeves email and the draft term sheet to argue that BRB was contemplating further credit; with the Aaronson Memorandum, Triton Harbor can go further and argue that BRB's most senior credit officer had already foreclosed that possibility, making any subsequent representations knowingly false.
III. Applicable Legal Standards
A. Attorney-Client Privilege Under New York Law
Under New York law, the attorney-client privilege protects from disclosure confidential communications between an attorney and a client made for the purpose of obtaining or providing legal advice. The privilege is codified at CPLR § 4503(a), which provides, in relevant part, that "an attorney or his or her employee, or any person who obtains without the knowledge of the client evidence of a confidential communication made between the attorney or his or her employee and the client in the course of professional employment, shall not disclose, or be allowed to disclose such communication."
The privilege belongs to the client — here, BRB — and can only be waived by the client or its authorized representative. See Spectrum Sys. Int'l Corp. v. Granite Harbor Securities, 78 N.Y.2d 371, 377 (1991). The party asserting the privilege bears the burden of establishing each element: (i) a communication (ii) between an attorney and a client (iii) made in confidence (iv) for the purpose of obtaining or rendering legal advice. Id.; see also People v. Mitchell, 58 N.Y.2d 368, 373 (1983).
In the corporate context, the privilege covers communications between corporate employees and in-house counsel when the dominant purpose of the communication is to obtain or render legal advice. New York follows the "control group" test as modified by the functional analysis set forth in Rossi v. Kestrel Insurance & Westvale Assurance of Greater New York, 73 N.Y.2d 588 (1989), under which the privilege extends to communications by corporate employees who are authorized to speak on behalf of the corporation to its attorneys. Courts have consistently held that in-house counsel are "attorneys" for purposes of CPLR § 4503(a), but the dual role of in-house counsel — who frequently participate in business decisions alongside their legal advisory function — creates particular challenges in applying the privilege. See Stenovich v. Crane & Ames LLP, 195 Misc.2d 99, 106 (Sup. Ct. N.Y. Cnty. 2003).
Critically, the privilege does not protect communications that merely happen to include or be copied to an attorney if the dominant purpose of the communication is business, not legal. See Spectrum Sys., 78 N.Y.2d at 378 ("The critical inquiry is whether, viewing the lawyer's communication in its full content and context, it was made in order to render legal advice or services to the client."). This distinction between legal advice and business advice is the fulcrum upon which the Aaronson Memorandum analysis turns.
B. The "Primary Purpose" Test
New York courts apply the "primary purpose" test — sometimes termed the "dominant purpose" test — to determine whether a communication involving in-house counsel is privileged or merely a business communication that happened to include a lawyer. This test recognizes the practical reality that in-house counsel are often deeply embedded in business operations and frequently receive communications that are primarily business in nature, even if they have some tangential legal dimension.
The key inquiry is whether the primary purpose of the communication was to seek or provide legal advice, or whether its primary purpose was to communicate a business decision, strategy, or directive. See Rossi, 73 N.Y.2d at 593-94; Spectrum Sys., 78 N.Y.2d at 378-79. If a communication serves both business and legal purposes — a so-called "dual-purpose" or "mixed-purpose" communication — the court must determine which purpose predominated. See In re Grand Jury Subpoena Dated January 4, 1984, 750 F.2d 223, 225 (2d Cir. 1984) (applying federal common law, which New York courts frequently cite in this context).
Applied to the present facts, the question is whether the primary purpose of the Aaronson Memorandum was to seek or provide legal advice, or whether its primary purpose was to communicate a business/credit decision from the Chief Credit Officer to the Head of SAG regarding the bank's intended disposition of the Triton Harbor credits. If the memorandum is primarily a business directive — directing SAG to pursue a structured exit and foreclosing further credit extensions — the mere fact that General Counsel was copied does not convert it into a privileged communication.
Courts applying the primary purpose test in the corporate context have consistently emphasized the importance of looking at the totality of the circumstances, including: (i) the identity and roles of the author and recipients; (ii) the subject matter and content of the communication; (iii) whether legal advice was expressly sought or rendered; (iv) the form and context of the communication; and (v) the corporate practice with respect to similar communications. See, e.g., Larkspur Bancorp v. Nirala Int'l, Inc., 2007 WL 4462037, at 3 (Sup. Ct. N.Y. Cnty. Dec. 11, 2007); see also Stenovich*, 195 Misc.2d at 107-08.
Courts routinely distinguish between communications to counsel seeking legal guidance and communications among business personnel that include counsel as an informational copy or courtesy recipient. See Allied Irish Banks, P.L.C. v. Adriatic Savings Bank, 240 F.R.D. 96, 105 (S.D.N.Y. 2007) (applying New York privilege law and noting that "[t]he fact that a copy of a document is sent to in-house counsel does not, standing alone, render the document privileged"). This distinction is central to the analysis of the Aaronson Memorandum.
In Stenovich, the court examined internal memoranda circulated among business personnel at a law firm (functioning as a business entity) and held that documents prepared primarily for business purposes were not privileged merely because attorneys were among the participants. 195 Misc.2d at 108. Similarly, in ABN AMRO, the court reviewed internal bank communications regarding loan transactions and declined to extend the privilege where the communications were primarily concerned with business decisions and did not reflect the rendering of legal advice. 2007 WL 4462037, at *4.
C. The "CC to Counsel" Problem
The specific scenario presented by the Aaronson Memorandum — where in-house counsel is copied (but is not the primary addressee) on an otherwise business communication — has generated a substantial body of case law in New York and the federal courts sitting in New York.
The weight of authority holds that a carbon copy to in-house counsel, standing alone, is insufficient to cloak a business document with the attorney-client privilege. See Allied Irish Banks, 240 F.R.D. at 105; see also In re Grand Jury Subpoenas Dated March 24, 2003, 265 F. Supp. 2d 321, 330 (S.D.N.Y. 2003) (noting that "the privilege protects communications, not documents" and that copying a lawyer on a business document does not transform the document into a privileged communication); Koumoulis v. Indep. Fin. Grp., 29 Misc.3d 1217(A), at *5 (Sup. Ct. N.Y. Cnty. 2010) (holding that documents copied to in-house counsel were not privileged where the primary purpose was to communicate business information).
However, the case law also recognizes that the privilege may attach to a communication copied to in-house counsel if there is evidence that the copy was made specifically to solicit legal advice in connection with the subject matter. Several circumstances may support such a finding:
(a) Responsive legal advice. If in-house counsel responded to the communication with legal analysis, guidance, or advice, this tends to support the conclusion that the original communication was made for the purpose of obtaining that advice. See Spectrum Sys., 78 N.Y.2d at 379 (examining the context and sequence of communications).
(b) Prior request for legal review. If there was a prior request from counsel to be included in such communications for the purpose of legal review — for example, a standing directive from the General Counsel's office that all disposition strategy memoranda be routed through Legal for review of legal and regulatory risks — this supports a finding that the CC served a legal purpose.
(c) Express request for legal input. If the memorandum itself requests legal input, poses legal questions, or expressly asks for counsel's assessment of legal risks, this weighs in favor of privilege.
(d) Legal content embedded in the communication. If the communication itself contains or reflects legal analysis — for example, discussion of regulatory compliance issues, litigation risk assessments, or the legal sufficiency of contractual provisions — this may support a privilege claim even if the communication is addressed to a business officer, provided the legal purpose predominates.
The critical question for our analysis is which of these circumstances, if any, exist with respect to the Aaronson Memorandum. As discussed in Section V below, we must investigate whether Margaret Linden responded to the memorandum with legal advice, whether Aaronson requested legal input in the memorandum or in a separate communication, and whether BRB has a standing directive or practice requiring Legal's involvement in SAG disposition strategy decisions.
D. Work-Product Doctrine
Separately from the attorney-client privilege, the work-product doctrine, codified in New York at CPLR § 3101(c) and (d), protects materials prepared in anticipation of litigation. CPLR § 3101(c) provides an absolute privilege for attorney work product — the attorney's mental impressions, conclusions, opinions, and legal theories. CPLR § 3101(d)(2) provides a qualified privilege for trial preparation materials prepared in anticipation of litigation, which may be overcome upon a showing of substantial need and inability to obtain the substantial equivalent without undue hardship.
The threshold question under the work-product doctrine is whether, as of August 22, 2023, BRB could reasonably have anticipated litigation with Triton Harbor. The "anticipation of litigation" standard requires that litigation be reasonably anticipated or foreseeable at the time the material was prepared; a vague or speculative possibility of future litigation is insufficient. See Bombard v. Amica Mut. Ins. Co., 11 A.D.3d 647, 648 (2d Dep't 2004); Spectrum Sys., 78 N.Y.2d at 382.
As of August 22, 2023:
• Triton Harbor had not yet defaulted on the Forbearance Agreement, which did not yet exist (it would not be executed until October 6, 2023).
• BRB had not yet accelerated the Triton Harbor loan obligations.
• BRB's complaint in this action was not filed until August 12, 2024 — nearly a full year after the Aaronson Memorandum.
• Triton Harbor's counterclaims were not filed until October 18, 2024 — more than fourteen months later.
• No litigation counsel had been retained as of that date. Blakemore & Stern LLP, which served as BRB's original counsel and filed the complaint on August 12, 2024, was not engaged until a later date that has not yet been established. Calderwood & Harkness LLP was substituted as counsel on November 4, 2024.
However, the Aaronson Memorandum's subject — a "recommended disposition strategy" involving a "structured exit" from the Triton Harbor relationship — could be argued to reflect BRB's anticipation that terminating the lending relationship would provoke a contentious response, including potential litigation. Banks with troubled credits, particularly credits involving personal guaranties from principals (here, the Kappels), frequently encounter contested foreclosure actions, deficiency claims disputes, and borrower counterclaims in the workout and exit process. Aaronson, as an experienced Chief Credit Officer, would arguably have been aware of this litigation risk when recommending the disposition strategy.
Nevertheless, the work-product argument is weaker than the attorney-client privilege argument for several reasons:
(i) The memorandum appears on its face to be a business strategy document, not a litigation preparation document. Its subject line refers to "Recommended Disposition Strategy," not litigation strategy or legal risk analysis.
(ii) The timeline suggests that litigation was, at best, speculative and not reasonably anticipated as of August 2023. The Forbearance Agreement had not yet been negotiated, let alone breached. Triton Harbor had not yet defaulted on any obligation. The sequence of events that would give rise to litigation — execution of the Forbearance Agreement, Triton Harbor's failure to meet the financial covenants, acceleration, and litigation — was still many months in the future.
(iii) No litigation counsel (Blakemore & Stern LLP or any other firm) had yet been retained as of the date of the memorandum, which undermines the argument that materials were being prepared in anticipation of litigation.
For these reasons, while the work-product doctrine should be asserted as an alternative basis on the privilege log, it should not be relied upon as the primary ground for withholding the Aaronson Memorandum. The attorney-client privilege argument, though itself subject to meaningful risk, is the stronger of the two claims.
E. Bank Examination Privilege
A brief analysis of the bank examination privilege is warranted, though it is likely inapplicable. The bank examination privilege is a federal common law privilege protecting confidential communications between banks and their regulators (including the Office of the Comptroller of the Currency ("OCC"), the Federal Reserve, and the FDIC) and supervisory materials prepared in connection with the examination process. See In re Subpoena Served Upon the Comptroller of the Currency, 967 F.2d 630, 634 (D.C. Cir. 1992); In re Bank of New York Mellon Corp. Forex Transactions Litig., 2013 WL 3280236 (S.D.N.Y. June 28, 2013).
The Aaronson Memorandum does not appear on its face to be a communication to or from the OCC or any bank examiner. It is an internal memorandum from one BRB officer to another. However, if the memorandum was prepared in connection with or in anticipation of an OCC examination or supervisory inquiry regarding the Triton Harbor credits — for example, if the OCC had raised concerns about BRB's handling of the Triton Harbor relationship during a safety-and-soundness examination, or if BRB was preparing for an upcoming examination and the memorandum reflected the disposition strategy that would be communicated to the examiners — an argument could potentially be made.
This is speculative at present and would require further factual investigation with BRB's in-house team, including inquiry into (a) whether the OCC or any federal or state banking regulator had communicated with BRB regarding the Triton Harbor credits as of August 2023, and (b) whether the memorandum was prepared in connection with any regulatory examination or supervisory process. Unless the factual investigation reveals a nexus to the regulatory examination process, we should not rely on the bank examination privilege.
Additionally, the bank examination privilege is a creature of federal common law and its applicability in a New York state court action is uncertain. While some New York state courts have recognized the privilege, others have declined to apply it outside the federal regulatory context. See, e.g., In re Depositions of Francis & Beebe, 53 Misc.3d 1216(A) (Sup. Ct. N.Y. Cnty. 2016). Given these uncertainties, the bank examination privilege should be viewed as a tertiary argument at best.
IV. Analysis of the Aaronson Memorandum
A. Arguments Supporting Privilege
The following arguments support the assertion of attorney-client privilege over the Aaronson Memorandum:
1. The CC to General Counsel Reflects a Legal Purpose. Margaret Linden, SVP and General Counsel of BRB, was copied on the memorandum. If BRB can demonstrate that Linden was copied specifically to obtain her legal review and advice regarding the legal risks and regulatory implications of the recommended disposition strategy, the communication may be privileged. The assertion would be that Aaronson was not merely keeping Linden "in the loop" as a member of senior management, but was affirmatively seeking her legal assessment of the proposed course of action — including the enforceability of the existing credit documents, the legal sufficiency of any acceleration or enforcement procedures, the regulatory implications of exiting the relationship (including potential fair lending or UDAP concerns), and the litigation exposure that might result from the recommended strategy. If this characterization is supported by the factual record, the CC to Linden was functionally equivalent to transmitting the memorandum to outside counsel for review, and the communication falls within the scope of the privilege.
2. The Content May Intertwine Legal and Business Considerations. If the Aaronson Memorandum discusses potential legal risks of acceleration, regulatory implications (such as OCC compliance requirements, loan-loss reserve classification by BRB's outside auditors at Tavrenis & Hatch CPAs LLP, or the Interagency Policy Statement on Prudent Commercial Real Estate Loan Workouts), or litigation exposure from the disposition strategy, these aspects are legal in character and may support a privilege claim. Even if the memorandum also contains business directives, the intertwining of legal and business analysis — if present — could support the argument that the communication was made for a legal purpose and that the business content is inseparable from the legal analysis. We need to examine the full text of the memorandum with this framework in mind to determine whether any such intertwining exists.
3. BRB's Corporate Practice of Routing Disposition Decisions Through Legal. If BRB has a documented policy or practice of routing all significant credit disposition strategies through the General Counsel's office for legal review before implementation, this bolsters the argument that the CC to Linden was for legal purposes, not merely informational. Many banks maintain such policies, particularly for substandard or classified credits managed by special assets or workout groups, where the legal risks of enforcement actions, forbearance agreements, and exit strategies are heightened. If BRB's Credit Policy Manual, SAG Operating Procedures, or similar governance documents require or contemplate General Counsel review of disposition strategy memoranda, this would be significant evidence that the CC to Linden served a legal function.
4. Subsequent Legal Consultation. If Margaret Linden responded to the Aaronson Memorandum with legal advice — for example, regarding the legal sufficiency of the acceleration provisions in the Triton Harbor credit documents, the enforceability of the proposed forbearance terms, litigation exposure arising from the Kappel personal guaranties, or the regulatory implications of the recommended exit — the communication thread may be privileged as part of an integrated legal consultation. Under New York law, when a client communicates information to an attorney for the purpose of obtaining legal advice, and the attorney responds with legal advice, both the initial communication and the responsive advice are privileged as part of a single attorney-client consultation. See Priest v. Hennessy, 51 N.Y.2d 62, 69 (1980). If Linden's response reflects legal analysis, this would retroactively support the characterization of the original memorandum as having been communicated for a legal purpose.
B. Arguments Against Privilege (Anticipated Opposition Position)
Kestrel Voss & Huang will advance the following arguments against the privilege claim, and we must be prepared to respond to each:
1. The Primary Purpose Is a Business/Credit Decision. The strongest argument against privilege is that the Aaronson Memorandum is, on its face, a business document. The author — Philip Aaronson, Chief Credit Officer — is a business-side officer whose role is to make credit decisions, not to provide or seek legal advice. The primary recipient — Derek Whitmore, Head of SAG — is likewise a business-side officer responsible for executing credit disposition strategies. The subject line — "Triton Harbor — Recommended Disposition Strategy" — Signals a credit management decision, not a legal consultation. The substantive directives — to "pursue a structured exit from the Triton Harbor relationship within 120 days" and that "further extensions of credit are not contemplated under any workout scenario" — are credit/business directives of the type that a Chief Credit Officer issues as part of the ordinary course of bank lending operations. Nothing about the core substance of the memorandum is inherently legal in nature.
2. The CC to Counsel Is Insufficient. Kestrel Voss & Huang will argue, consistent with the weight of authority discussed in Section III.C above, that the CC to Linden was merely informational — a courtesy copy to keep the General Counsel in the loop on a significant credit decision affecting one of the bank's troubled accounts — and does not transform the document into a privileged communication. Ted Huang will likely cite Allied Irish Banks, Koumoulis, and similar authorities for the proposition that a CC to in-house counsel is not a talisman that converts a business document into a privileged one. Huang will also likely note that Linden is copied as one of several senior officers, and that her inclusion is consistent with her role as a member of senior management, not solely her role as an attorney.
3. No Legal Advice Was Requested or Rendered in the Document Itself. If the memorandum on its face does not request legal advice, pose legal questions, or contain legal analysis, the privilege claim is significantly weakened. Huang will argue that the document must be evaluated on its own terms, and that the absence of any express request for legal guidance or any legal content demonstrates that the communication was made for business purposes, with the CC to counsel serving an administrative or governance function rather than a legal one.
4. The Document Is a "Mixed-Purpose" or "Dual-Purpose" Communication. Even if some legal aspects are present — for example, a passing reference to regulatory compliance or litigation risk — Triton Harbor will argue that the dominant purpose was business, and that under New York's primary purpose test, the document is not privileged. Under this framework, the mere presence of incidental or secondary legal content does not override the predominantly business character of the communication. Huang will urge Justice Marchetti to look at the "gravamen" or "thrust" of the memorandum, which is a credit disposition directive, not a legal analysis or request for legal advice.
5. Crime-Fraud Exception. Although this is a more aggressive argument, and one that is unlikely to succeed on the current record, Triton Harbor could theoretically argue that the crime-fraud exception to the attorney-client privilege applies. The exception provides that the privilege does not protect communications made in furtherance of a crime or fraud. See In re Grand Jury Proceedings, 219 F.3d 175, 182 (2d Cir. 2000); Clark v. United States, 289 U.S. 1, 15 (1933). If Triton Harbor's fraudulent inducement theory is credited — that is, if BRB directed its officers to make affirmative misrepresentations to the Kappels about BRB's willingness to extend new credit while simultaneously implementing Aaronson's directive to exit the relationship — Triton Harbor could argue that the Aaronson Memorandum was a communication in furtherance of a scheme to induce the Kappels to enter the Forbearance Agreement under false pretenses.
This argument faces significant obstacles. The crime-fraud exception requires a prima facie showing that the communication was made in furtherance of a crime or fraud, which is a higher bar than merely alleging fraud in the counterclaims. See In re Richard Roe, Inc., 68 N.Y.2d 502, 507 (1986). Moreover, the factual predicate is thin: the Aaronson Memorandum pre-dates the alleged misrepresentations by several weeks, and there is no evidence (yet) that Aaronson directed Whitmore to make false statements. Nevertheless, we should anticipate this argument and be prepared to respond, particularly if Triton Harbor develops additional evidence during discovery that connects the Aaronson Memorandum to the alleged oral representations.
C. Assessment of Likely Outcome
On balance, the privilege claim over the Aaronson Memorandum faces significant headwinds. The memorandum appears on its face to be a business-strategy directive from one senior business officer to another, with in-house counsel copied in what may be an informational capacity. The document's subject line, content, authorship, and recipient all point toward a business purpose. Under a strict application of the primary purpose test, these characteristics weigh heavily against privilege.
The strongest argument for privilege depends on facts we must still develop through the investigation outlined in Section V below. Specifically, the privilege claim is materially strengthened if we can establish: (a) that Linden was copied for the specific purpose of obtaining legal advice regarding the disposition strategy; (b) that Linden responded to the memorandum with legal analysis or advice; (c) that BRB has a documented policy or practice requiring General Counsel review of SAG disposition strategy memoranda; and (d) that the memorandum itself contains legal analysis or requests for legal input that are not apparent from the summary description we have reviewed to date.
If the court applies the primary purpose test strictly — as Justice Marchetti is likely to do, given her reputation for rigorous analysis of privilege claims in the Commercial Division — there is a moderate-to-high risk that the court will find the document is not privileged and will order production. I would assess the probability of an adverse ruling on a motion to compel at approximately 55-65%, depending on the facts developed during our investigation.
Even if the court finds that some content within the memorandum is privileged — for example, if the memorandum contains an identifiable legal analysis section alongside the business directive — it may order production of the non-privileged portions (i.e., the business directives regarding the structured exit) while permitting redaction of any legal analysis. Partial redaction, while preserving some protection, would still expose the most damaging substantive content: the directive to exit and the foreclosure of further credit extensions.
V. Factual Investigation Required
In order to make a final determination regarding the viability of the privilege claim and to prepare for the anticipated motion to compel, the following factual investigation must be completed on an expedited basis, ideally before January 10, 2025 (five days before the privilege log deadline):
1. Interview Margaret Linden, SVP and General Counsel, BRB. This interview is the single most important investigative step. The following questions must be addressed:
(a) Why was Linden copied on the Aaronson Memorandum? Was the CC made for the specific purpose of seeking her legal review and advice, or was it made as an informational courtesy to keep senior management, including the General Counsel, apprised of significant credit decisions?
(b) Did Linden respond to the Aaronson Memorandum? If so, in what form (email, memorandum, telephone call, meeting)? What was the substance of her response? Did she provide legal advice, regulatory guidance, or a legal risk assessment in connection with the recommended disposition strategy?
(c) Did Linden communicate with Aaronson or Whitmore, either before or after August 22, 2023, regarding the legal, regulatory, or litigation implications of the Triton Harbor disposition strategy?
(d) Does BRB have a formal policy, procedure, or practice requiring General Counsel review of credit disposition strategy memoranda issued by the Chief Credit Officer, particularly for substandard or classified credits or credits managed by the Special Assets Group? If so, where is this policy documented (e.g., BRB Credit Policy Manual, SAG Operating Procedures, General Counsel's Office Policies)?
2. Interview Philip Aaronson, EVP and Chief Credit Officer, BRB. Aaronson should be interviewed to determine:
(a) Whether he intended to seek legal advice by copying Linden on the memorandum, or whether the CC was made for informational or governance purposes.
(b) Whether the memorandum was discussed with Linden before or after its issuance — for example, whether Aaronson consulted with Linden about the legal risks of the recommended exit strategy before issuing the directive, or whether Linden provided feedback after receiving the memorandum.
(c) Whether the memorandum reflects or incorporates any legal advice previously received from Linden or from outside counsel regarding the Triton Harbor credits.
(d) What BRB's customary practice is regarding the issuance of disposition strategy memoranda — specifically, whether General Counsel is routinely copied on such memoranda and, if so, for what purpose.
3. Review the Full Communication Thread. We must review the complete email chain or communication thread surrounding the Aaronson Memorandum, including any responsive or advisory communications from Linden. If Linden sent a responding email, memorandum, or other written communication providing legal analysis, this communication is itself privileged and its existence supports the privilege claim over the underlying Aaronson Memorandum. The document review team should be directed to search specifically for communications between Linden and Aaronson or Whitmore referencing the Triton Harbor disposition strategy during the period from August 15, 2023 through September 30, 2023.
4. Review BRB's Internal Policies and Procedures. We should request and review BRB's Credit Policy Manual, SAG Operating Procedures, and any General Counsel's Office policies or directives regarding the role of in-house counsel in credit disposition decisions. Any provision requiring or contemplating legal review of disposition strategies for classified or substandard credits would materially strengthen the privilege claim. Similarly, any board resolutions or committee minutes (e.g., from BRB's Credit Committee or Loan Review Committee) reflecting a practice of General Counsel involvement in disposition decisions would be helpful.
5. Determine Engagement History with Outside Counsel. We must determine whether BRB had engaged or consulted with Blakemore & Stern LLP or any other outside counsel regarding the Triton Harbor relationship as of August 22, 2023. As noted above, Blakemore & Stern served as BRB's original litigation counsel and filed the complaint on August 12, 2024, but it is unclear when the firm was first consulted. If BRB had already engaged outside litigation counsel regarding Triton Harbor as of August 2023, this would significantly strengthen the work-product argument (and would also support the attorney-client privilege claim by establishing that legal advice was being sought in connection with the Triton Harbor relationship). Conversely, if no outside counsel had been consulted, this weakens the work-product argument and suggests that the Aaronson Memorandum was a business planning document, not a litigation preparation document.
Assignment of Investigative Tasks: I recommend that Carlos Espinoza coordinate the Linden and Aaronson interviews, with Hannah Brinkley (myself) conducting the document review in Relativity and the policy/procedures review. The interviews should be scheduled for the week of January 6, 2025, to ensure we have sufficient time to evaluate the results before the January 15, 2025 privilege log deadline.
VI. Privilege Log Entry
The Aaronson Memorandum should be listed on BRB's initial privilege log, which is due for service on Kestrel Voss & Huang on January 15, 2025 pursuant to the Preliminary Conference Order dated November 14, 2024 (Justice Marchetti). The following entry is recommended:
Drafting Notes Regarding the Privilege Log Description: The description should be crafted carefully to assert the legal purpose of the communication without revealing the substance of the advice, the directive, or the content of the memorandum. Several specific drafting considerations apply:
(a) The description should affirmatively characterize the communication as having been "prepared for and communicated to counsel for the purpose of obtaining legal advice." This language frames the CC to Linden as purposeful, not incidental.
(b) The description should reference "legal, regulatory, and litigation risks" to indicate the legal dimension of the communication. This language is broad enough to encompass multiple potential legal aspects without disclosing any specific content.
(c) The description should avoid language that inadvertently concedes the business nature of the document. Specifically, it should not describe the memorandum as a "credit disposition recommendation," a "credit directive," or a "business strategy memorandum." Such language would undercut the privilege assertion by suggesting the primary purpose was business.
(d) Both attorney-client privilege and work product should be asserted as bases, even though the work-product argument is weaker, to preserve both grounds for any subsequent motion practice.
VII. Risk of Motion to Compel and In Camera Review
A. Anticipated Motion Practice
Kestrel Voss & Huang will almost certainly challenge the privilege designation of the Aaronson Memorandum and move to compel its production. There is no realistic scenario in which opposing counsel fails to pursue this document. The memorandum is central to Triton Harbor's fraudulent inducement theory — it is the document Triton Harbor needs to establish that BRB had already internally decided to exit the relationship while allegedly representing to the Kappels that BRB was committed to the long-term relationship and would consider extending new credit. For Triton Harbor, this is the "smoking gun."
We should expect that Ted Huang will file a letter motion or order to show cause to compel production within thirty to forty-five days after receiving the privilege log. Based on the discovery schedule, this motion would likely be filed in late February or early March 2025. Huang will argue:
(i) The Aaronson Memorandum is a business communication, not a legal consultation. It was authored by the Chief Credit Officer and addressed to the Head of SAG — both business officers — and its subject matter is a credit disposition strategy, not legal advice.
(ii) The CC to General Counsel is a transparent and impermissible attempt to shield a damaging business document behind the attorney-client privilege. Allowing such a tactic would effectively permit banks and other corporations to cloak any sensitive business decision in privilege by the simple expedient of copying in-house counsel.
(iii) The primary purpose test compels production because the dominant purpose of the communication was to direct a credit management action, not to seek or render legal advice.
(iv) BRB's privilege log description — characterizing the memorandum as having been "communicated to counsel for the purpose of obtaining legal advice" — is a post-hoc rationalization that is belied by the document's face, its authorship, its recipient, and its subject matter.
The motion will likely be accompanied by a request for in camera review by Justice Marchetti, which is the standard mechanism for resolving privilege disputes in the Commercial Division.
B. In Camera Review
If Justice Marchetti orders in camera inspection — which she is likely to do, as it is the accepted procedure under Commercial Division practice for resolving contested privilege claims — the content of the Aaronson Memorandum will be examined on its face to determine whether the primary purpose was legal or business.
In camera review presents both risks and opportunities. The risk is clear: if the memorandum is purely a credit directive with no legal analysis, legal questions, or legal advice, the privilege claim will almost certainly fail upon in camera review. Justice Marchetti will see the document for what it is, and no amount of advocacy will overcome the document's face.
However, in camera review also presents an opportunity: if the memorandum contains legal analysis, references to legal risks, requests for legal input, or other content reflecting a legal purpose that is not apparent from the summary description, the court may sustain the privilege claim in whole or in part.
The outcome of in camera review is therefore difficult to predict without knowing the complete text of the memorandum. While we have reviewed the document and identified the key directives described in Section II.B above, we must examine the complete document with fresh eyes, specifically looking for any legal content, legal risk analysis, or requests for legal guidance that may be present. This review should be completed as part of the factual investigation described in Section V above.
C. Consequences of Adverse Ruling
If the court orders production of the Aaronson Memorandum, the consequences are significant but not insurmountable.
Immediate discovery Impact. The document will be available to Triton Harbor for use at depositions — particularly the deposition of Derek Whitmore (currently scheduled for February 18, 2025) and the deposition of Philip Aaronson (currently scheduled for March 4, 2025). It will also be available for use at depositions of other BRB witnesses, including Joanna Reeves and Margaret Linden. If the motion to compel is resolved before the Whitmore deposition, Huang will confront Whitmore with the Aaronson Memorandum and attempt to elicit testimony that he was directed to exit the Triton Harbor relationship while simultaneously representing to the Kappels that BRB was committed to the relationship.
Trial Impact. The document will be a centerpiece exhibit in Triton Harbor's counterclaim case at trial, assuming the case proceeds that far. Triton Harbor will argue that the memorandum demonstrates BRB's pre-formed intent to exit the relationship, making any subsequent representations to the contrary knowingly false and fraudulent.
Mitigation. However, production of the Aaronson Memorandum does not necessarily doom BRB's defense against the fraudulent inducement counterclaims. Several powerful defensive arguments remain available:
(i) Section 9(c) Disclaimer. The Forbearance Agreement contains an express disclaimer at Section 9(c), which provides: "Nothing herein shall constitute or be deemed to constitute a commitment, agreement, or obligation on the part of Lender to extend additional credit, modify existing facilities, or renew any credit facility." This language, which the Kappels signed and acknowledged, directly negates the claim that BRB committed to extending new credit. The disclaimer supersedes any contrary implication from internal documents, including the Aaronson Memorandum.
(ii) Section 12(a) Integration Clause. The Forbearance Agreement contains an integration clause at Section 12(a) providing that the written agreement constitutes the entire agreement of the parties and supersedes all prior or contemporaneous oral or written representations. Under New York law, an integration clause bars parol evidence of prior or contemporaneous oral representations that contradict the terms of the written agreement. See Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002).
(iii) Sophisticated Borrower Doctrine. Marcus Kappel, as the principal and guarantor of Triton Harbor, is a sophisticated commercial borrower represented by counsel (Kestrel Voss & Huang or prior counsel) throughout the forbearance negotiations. The sophisticated-borrower doctrine provides that a sophisticated party cannot claim justifiable reliance on oral representations that contradict the terms of a written agreement. See Centro Empresarial Cempresa S.A. v. Stonefield Group, 17 N.Y.3d 269, 278 (2011).
(iv) Internal Strategy vs. External Representations. A lender's internal credit disposition strategy is not, in and of itself, a representation to the borrower. A bank may internally plan for various contingencies, including exit, while negotiating in good faith with the borrower. The Aaronson Memorandum reflects BRB's internal credit assessment and does not, by its existence, establish that any BRB officer made a false external representation. BRB has no duty to disclose its internal credit strategies to a borrower in an arm's-length commercial transaction.
(v) Consistency with Forbearance Structure. The Aaronson Memorandum directed a "structured exit within 120 days." The Forbearance Agreement provided for a 180-day forbearance period with specific milestones. BRB could characterize the forbearance itself as the mechanism for the structured exit — giving Triton Harbor an opportunity to cure its defaults within a defined period, with exit being the consequence of failure to cure. This framing is consistent with BRB's position that the forbearance was a good-faith workout attempt, not a fraudulent scheme.
(vi) Triton Harbor's Own Default. Even accepting the Aaronson Memorandum at face value, Triton Harbor failed to meet the Fixed Charge Coverage Ratio covenant cure target, achieving only 0.94x against a minimum requirement of 1.20x as of March 31, 2024. BRB's acceleration was a contractual right triggered by Triton Harbor's own failure to perform, not the product of a pre-determined plan.
VIII. Recommendations
Based on the foregoing analysis, we recommend the following course of action:
A. Assert Privilege on the January 15, 2025 Privilege Log
BRB should include the Aaronson Memorandum on its initial privilege log with the carefully drafted description set forth in Section VI above, asserting both attorney-client privilege and work product as bases for withholding the document. BRB should not voluntarily produce the document. There is no strategic advantage to preemptive disclosure, and asserting privilege preserves BRB's ability to argue the issue, maintains the document's confidentiality pending judicial resolution, and protects any appellate rights.
Even if our assessment of the privilege claim's viability is only moderately optimistic, the assertion of a colorable privilege claim is appropriate and ethically permissible. The claim is not frivolous — there is a good-faith basis for arguing that the CC to General Counsel served a legal purpose — and the question ultimately depends on factual circumstances that the opposing party does not have the information to conclusively disprove.
B. Conduct Immediate Factual Investigation
Before the privilege log deadline of January 15, 2025, we must complete the interviews and document review outlined in Section V above. The strength of our privilege position depends heavily on the factual foundation we develop. In particular:
• The Linden interview is the highest priority. If Linden confirms that she was copied for the purpose of providing legal review and that she responded with legal advice, our privilege position is materially strengthened.
• If the investigation reveals that Linden was copied for informational purposes only, did not provide legal advice in response, and that BRB has no documented practice of routing disposition decisions through Legal for legal review, we should reassess the privilege position internally. However, even in that scenario, we should still assert the privilege claim on the initial log unless further facts render the position untenable. Even a colorable claim buys time, preserves appellate rights, and forces the opposing party to bear the burden of moving to compel.
• The results of the investigation should be documented in a supplemental memorandum to Linda Osei for her review and approval before the privilege log is finalized.
C. Prepare for In Camera Review
We should begin preparing a privilege brief — either a letter motion or a short memorandum of law — in opposition to the anticipated motion to compel. This brief should emphasize any facts developed during the investigation that support the legal-purpose characterization of the Aaronson Memorandum, including:
• Testimony or declarations from Linden and/or Aaronson regarding the purpose of the CC to counsel.
• Any responsive legal advice from Linden.
• Any BRB policies or procedures requiring General Counsel review of disposition strategies.
• Any evidence that BRB had consulted with outside counsel regarding the Triton Harbor relationship as of August 2023.
If the facts developed during the investigation do not support a strong privilege position, we should engage in a candid internal assessment of whether BRB is better served by producing the document on its own terms — with appropriate context and explanation, perhaps in connection with an affirmative disclosure strategy — rather than having the document emerge through a contested motion to compel. A contested motion that BRB loses could create an adverse inference, highlight the document's significance for Justice Marchetti, and give Triton Harbor a litigation "win" that generates momentum. Production on BRB's own terms, by contrast, allows BRB to control the narrative, contextualize the document, and diminish its impact. This is a strategic judgment that should be made in consultation with Linda Osei and BRB's in-house team.
D. Develop Litigation Strategy That Does Not Depend on Non-Production
Regardless of the outcome of the privilege dispute, we must prepare a litigation strategy that accounts for the content of the Aaronson Memorandum being in Triton Harbor's hands. We cannot afford to build a defense that collapses if the document is produced. The key elements of this defensive strategy are as follows:
(i) Internal strategy is not external representation. The memorandum reflects BRB's internal credit strategy. A lender's internal disposition plans are not communicated to the borrower and do not give rise to a duty of disclosure in an arm's-length commercial transaction between sophisticated parties. New York law does not impose on lenders a duty to disclose their internal credit assessments or exit strategies to borrowers.
(ii) The Forbearance Agreement's Section 9(c) disclaimer supersedes any contrary implication. The express disclaimer of any commitment to extend further credit is a contractual defense that BRB can assert irrespective of what its internal documents say. The Kappels, represented by counsel, signed the Forbearance Agreement with this disclaimer.
(iii) Good-faith workout, not fraud. BRB's willingness to enter the Forbearance Agreement at all — with a 180-day forbearance period and structured milestones giving Triton Harbor the opportunity to cure — is consistent with a good-faith workout process, not a fraudulent scheme. The forbearance gave Triton Harbor a meaningful opportunity to rehabilitate the credit relationship by meeting specified financial and operational milestones.
(iv) Triton Harbor's own failure to perform. Even assuming the Aaronson Memorandum's directive remained BRB's intent, Triton Harbor independently failed to meet the Fixed Charge Coverage Ratio covenant cure target, achieving only 0.94x against a 1.20x minimum requirement as of the March 31, 2024 measurement date. This failure triggered BRB's contractual right to accelerate under Section 7(a)(iii) of the Forbearance Agreement. The acceleration was a consequence of Triton Harbor's own default, not of a pre-determined plan.
(v) Consistency of exit directive with forbearance structure. The Aaronson Memorandum's directive to pursue a "structured exit within 120 days" is arguably consistent with — not contradictory to — the 180-day forbearance. BRB can characterize the forbearance as the mechanism for the structured exit: a time-limited period during which Triton Harbor could cure its defaults and potentially preserve the relationship, with exit as the consequence of failure.
We should coordinate deposition preparation for Derek Whitmore (scheduled for February 18, 2025) and Philip Aaronson (scheduled for March 4, 2025) to ensure both witnesses are prepared to address the Aaronson Memorandum directly and consistently. Their testimony should be aligned with the defensive framing outlined above. In particular, Whitmore must be prepared to explain any oral statements he made at the September 12, 2023 meeting and to address the apparent inconsistency between those statements and the Aaronson Memorandum, whether or not the document has been produced at the time of his deposition.
E. Coordinate with In-House Counsel
We should schedule a meeting with Margaret Linden and Thomas Hargreaves (Vice President, Associate General Counsel) at BRB to discuss this analysis, obtain their input on the factual questions identified in Section V, and ensure that BRB's in-house legal team supports the privilege assertion and fully understands the risk profile. This meeting should occur before the end of December 2024, to allow sufficient time for the factual investigation and for any adjustments to strategy that may be warranted based on their input.
In particular, we should discuss with Linden and Hargreaves: (a) Linden's recollection of why she was copied and whether she responded; (b) BRB's institutional practices regarding General Counsel involvement in SAG disposition strategies; (c) w