Court quashes subpoena against Education Creditor Trust lawyer

The United States Court of Federal Claims ruled in favor of the Education Creditor Trust (ECT) on August 28, 2026, by quashing a subpoena aimed at its attorney, James A. Newton. This decision affects ECT’s ongoing legal battle against the United States over approximately $92 million related to federal student aid. The ruling emphasizes the importance of attorney-client privilege and the need for the government to seek information through other means before targeting opposing counsel.

The case, filed under docket number 24-775, centers around ECT's claims against the U.S. Department of Education (DOE) regarding the misuse of funds from a letter of credit that was supposed to protect student loans. The outcome of this ruling not only impacts ECT but also sets a precedent regarding the limits of depositions of opposing counsel in federal litigation.

Background

Education Creditor Trust is a Delaware trust established in 2020, holding loans that were originally owned by a group of lenders, including Candlewood Investment Group, LP. These loans were issued to the Education Management Corporation (EDMC), which operated several for-profit colleges. Co-plaintiff U.S. Bank Trust Company serves as the agent for the lenders. The defendant in this case is the United States, represented by the DOE.

The dispute arose after EDMC's schools received federal student aid under Title IV. When EDMC failed to demonstrate financial responsibility, it was required to post an irrevocable letter of credit with the DOE. In 2018, after EDMC sold most of its schools, the DOE drew down the full amount of the letter of credit, leading to a series of financial obligations that ultimately involved the lenders reimbursing the issuing bank, BNP Paribas. ECT, as the successor to these lenders, claims that the DOE improperly used approximately $39.6 million of the funds for purposes not allowed by the letter of credit.

The government moved to dismiss ECT's complaint, arguing that no contract existed between them and that ECT lacked the necessary legal standing to pursue the claims. However, the court found ECT's assertions plausible at the pleading stage. The case progressed to discovery, during which the government sought to depose ECT's attorney, James A. Newton, who had been involved in negotiations related to the claims.

The Ruling

The court ruled to quash the subpoena against Mr. Newton, emphasizing the need for the government to exhaust other avenues of discovery before targeting opposing counsel. Judge Eric G. Bruggink stated, "Defendant has not met its burden to show that it has no other means to access the information it seeks, which is sufficient to quash the subpoena of Mr. Newton." The court highlighted that deposing opposing counsel is strongly disfavored and that the burden lies with the party seeking the deposition to justify it.

The court applied the Shelton test, which requires that the party seeking to depose opposing counsel must demonstrate that (1) no other means exist to obtain the information, (2) the information is relevant and non-privileged, and (3) the information is crucial to the preparation of the case. The government failed to show that it had exhausted other discovery methods and that Mr. Newton's testimony was essential to their case.

Impact

This ruling has significant implications for the case and for future litigation involving subpoenas against opposing counsel. By reinforcing the importance of attorney-client privilege and the need for parties to seek information from other sources first, the court's decision sets a precedent that may protect attorneys from being deposed in similar situations. It underscores the principle that legal counsel should not be subjected to depositions unless absolutely necessary and that other witnesses should be pursued first.

The decision also highlights the ongoing complexities involved in disputes over federal student aid and the responsibilities of educational institutions. As ECT continues its legal battle against the DOE, this ruling may influence how both parties approach discovery and the strategies they employ moving forward.

What's Next

The government may still appeal the ruling, but details regarding any potential appeal were not available in the court filing. Additionally, there may be related cases pending that involve similar issues of attorney-client privilege and the scope of discovery in federal litigation.