Part of a trustee’s responsibility under an indenture is to communicate information to the noteholders. Trustees regularly send notices to holders and may even schedule calls with ad hoc groups of holders. When a default occurs, a trustee is obligated to inform the noteholders.

Are these communications between the trustee and the holders privileged communications in the event of litigation? Recent case law is clear that communications between the indenture trustee and noteholders alone are not privileged and their disclosure can be compelled in litigation. Indenture trustees need to know the issues surrounding privilege and their use of counsel in order to preserve the confi dential nature of their communications with noteholders.


In Finisar Corp. v. U.S. Bank Trust N.A., the U.S. District Court for the Northern District of California determined that communications between U.S. Bank as indenture trustee and its noteholders were not protected by either the common-interest privilege or the attorney-client privilege. In the ruling, the court also ordered U.S. Bank to produce documents it previously withheld and to produce U.S. Bank employees for additional deposition questioning.

U.S. Bank acts as indenture trustee for three series of notes Finisar issued. As is typical in most indentures, Finisar was required to provide U.S. Bank with copies of its reports to the Securities and Exchange Commission (SEC) within 15 days of their fi ling. In December 2006, Finisar informed both the SEC and U.S. Bank that it would be late fi ling its annual and quarterly reports because of an internal investigation of certain stock option grants. Although Finisar was at all times current on its payment obligations, U.S. Bank issued a notice of default to Finisar for failing to timely fi le the SEC reports. In response, Finisar fi led a declaratory judgment action seeking a declaration that it was not in default under the indentures.

Finisar began conducting discovery in furtherance of its lawsuit against U.S. Bank, issuing document requests and taking the deposition of U.S. Bank’s corporate trust representative. In the course of discovery, U.S. Bank refused to turn over certain documents relating to communications between U.S. Bank, its counsel and the noteholders, and also refused to allow its corporate designee to answer certain questions relating to conversations between the three. U.S. Bank argued that these documents and conversations were privileged communications under the attorney-client privilege, jointdefense privilege and/or common-interest privilege.


Courts interpret privilege assertions very narrowly, as they view them as obstacles to the investigation of the truth. The party asserting the privilege has the burden of proving that it exists and disclosing information to a third party generally waives the privilege. Indenture trustees must evaluate their communications carefully to determine whether or not they would be considered privileged and what steps need to be taken to protect privileged communications, especially since noteholders are arguably third parties to whom the disclosure of information may act as a waiver of the indenture trustee’s right to assert a privilege.

U.S. Bank asserted two types of privilege in this case: attorney- client privilege and common-interest privilege.

A party asserting attorney-client privilege must prove the following elements:

  • legal advice is sought;
  • from an attorney acting in his legal capacity;
  • the communication relates to legal advice being sought;
  • the communication is made in confi dence;
  • the communication is made by the client or the attorney.

Common-interest privilege is an exception to the general rule that disseminating information to a third party destroys the privilege, allowing multiple parties who share a common interest to share confi dential information. Many courts have construed common-interest privilege to only apply to communications between separate parties’ lawyers in furtherance of a common interest. Some courts have even held that the fact that one party asserting common-interest privilege is not represented by counsel vitiates any claim to privilege.


In the Finisar case, the district court determined that U.S. Bank’s written and oral communications with its bondholders were not protected by either attorney-client or commoninterest privilege, and must be turned over to Finisar pursuant to its discovery requests. The district court focused on the fact that the indenture trustee and the bondholders “merely assumed” that their communications would remain confi dential and privileged, and there was never a written or oral agreement memorializing the understanding of confi dentiality, common interest or joint defense. The district court also stated that the mere fact that the holders were benefi ciaries of the indenture, and U.S. Bank and the holders shared a special relationship, was not suffi cient to fi nd a privilege existed between the two. Finally, the district court noted that U.S. Bank had not shown that noteholders sought legal advice from U.S. Bank’s counsel and, in fact, some of the communication U.S. Bank was seeking to protect did not involve communications with any attorney, but were only between the indenture trustee and the noteholders.


This case highlights the need for indenture trustees to consider the effect of their communications with noteholders. When a default is threatened or occurs, trustees must be careful to preserve privilege by refraining from communicating sensitive information to bondholders in a manner that destroys confi dentiality and privilege. In the event there is an ad hoc committee of bondholders, the committee, along with its counsel, should enter into a common-interest privilege agreement with the indenture trustee and its counsel. Communications that are sent to bondholders that are meant to be confi dential should be labeled as such. Most importantly, this case sends a clear message that communications between indenture trustee and bondholders, without their respective counsel, are not privileged.