Docstoc

Confidentiality and Ethics The Attorney Client Privilege in

Document Sample
Confidentiality and Ethics The Attorney Client Privilege in Powered By Docstoc
					                         American Bankruptcy Institute




                  CONFIDENTIALITY AND ETHICS

                           THE ATTORNEY-CLIENT
                           PRIVILEGE IN PRACTICE




Dillon E. Jackson
Attorney
FOSTER PEPPER PLLC
1111 Third Avenue, Suite 3400
Seattle, WA 98101-3299
Phone: 206-447-8962
Fax: 206-749-1959
jackd@foster.com




THE ATTORNEY-CLIENT PRIVILEGE
AND WORK PRODUCT RULE IN PRACTICE   -1                   1235
51055335.1
       28th Annual Spring Meeting




1236
                          American Bankruptcy Institute




                    I. ATTORNEY-CLIENT PRIVILEGE
            1.1 Ethics.

        To begin the exploration of the attorney client privilege “under attack” the sources of the

privilege must understood. The foundation of the attorney-client privilege rests upon the

common law. Case law on the issue will typically turn on interpretation of state law. State

courts, in turn, will look to the ethics rules of the particular state. Federal Courts look to the

federal common law on the assertion of evidentiary privileges. Foster v. Hill, 188 F.3d 1259,

1264 (10th Cir 1999).

        The ABA Model Rules of Professional Conduct states:
                Client-Lawyer Relationship

        Rule 1.6 Confidentiality Of Information
                 (a) A lawyer shall not reveal information relating to the representation of a
client unless the client gives informed consent, the disclosure is impliedly authorized in
order to carry out the representation or the disclosure is permitted by paragraph (b).
                 (b) A lawyer may reveal information relating to the representation of a
client to the extent the lawyer reasonably believes necessary:
                         (1) to prevent reasonably certain death or substantial bodily harm;
                         (2) to prevent the client from committing a crime or fraud that is
         reasonably certain to result in substantial injury to the financial interests or
         property of another and in furtherance of which the client has used or is using the
         lawyer's services;
                         (3) to prevent, mitigate or rectify substantial injury to the financial
         interests or property of another that is reasonably certain to result or has resulted
         from the client's commission of a crime or fraud in furtherance of which the client
         has used the lawyer's services;
                         (4) to secure legal advice about the lawyer's compliance with these
         Rules;
                         (5) to establish a claim or defense on behalf of the lawyer in a
         controversy between the lawyer and the client, to establish a defense to a criminal
         charge or civil claim against the lawyer based upon conduct in which the client
         was involved, or to respond to allegations in any proceeding concerning the
         lawyer's representation of the client; or
                         (6) to comply with other law or a court order.


        Section (a) is simple and in setting forth the basics generally comports with our

understanding, and perhaps more importantly, the clients’ understanding of the privilege.


THE ATTORNEY-CLIENT PRIVILEGE
AND WORK PRODUCT RULE IN PRACTICE    -2                                                               1237
51055335.1
                                         28th Annual Spring Meeting




       Specifically that a lawyer will maintain in confidence all information gained in the professional

       relationship with a client, including information which the client has requested to be held

       inviolate or the disclosure of which would be embarrassing or would likely be detrimental to the

       client, unless the client consents after consultation.

               Yet this very simple concept that the client holds a right to require that his counsel to

       preserve confidences is followed by paragraph after paragraph of countervailing rules, comments

       and discussion. These vary from state to state but are typically extensive. These extensive

       comments and discussion typically involve conflicts and exceptions to the general rule. This

       should be an alert that the attorney client privilege is not as simple or as unassailable as clients or

       even lawyers might imagine.
                   1.2 The Attorney-Client Privilege Belongs to the Client.

               It is important to note that the privilege is controlled by the client, not to the attorney.

       Thus, even if the attorney is embarrassed or exposed to disciplinary action or criminal

       prosecution, by a the disclosure, the disclosure will be made over the attorney’s objection, if the

       client orders it. This is not the attorney’s privilege.
                   1.3 Federal Rules of Evidence.

               Disputes over the attorney-client privilege typically arise in litigation or in contemplation

       of litigation or criminal proceedings. In federal courts, the federal rules of evidence, at least to

       date, provide little guidance.
               Rule 501. General Rule.

               Except as otherwise required by the Constitution of the United States or provided
               by Act of Congress or in rules prescribed by the Supreme Court pursuant to
               statutory authority, the privilege of a witness, person, government, State, or
               political subdivision thereof shall be governed by the principles of the common
               law as they may be interpreted by the courts of the United States in the light of
               reason and experience. However, in civil actions and proceedings, with respect to
               an element of a claim or defense as to which State law supplies the rule of
               decision, the privilege of a witness, person, government, State, or political
               subdivision thereof shall be determined in accordance with State law.




1238   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE
       51055335.1
                                            -3
                         American Bankruptcy Institute




       The attorney-client privilege is not a constitutional right. Clutchette v. Rushen, 770 F.2d

1469, 1471 (9th Cir. 1985), cert, denied, 475 U.S. 1088, 106 S. Ct. 1474, 89 L. Ed2d 729 (1986).

The treatment of the privilege in criminal cases will be a bit more strict because the implications

for self incrimination. Still, the foundation for the privilege is common law and not the

Constitution.
            1.4 Inroads to the Privilege.

                   A. COURT ORDER.

       To some extent the matters that act to reduce the scope of the attorney-client privilege

create exceptions that may of may not exist within the ethics rules. When ordered to disclose

otherwise privileged communications by a Court, the attorney may then disclose the information.
                “(b) A lawyer may reveal information relating to the representation of a
                client to the extent the lawyer reasonably believes necessary: . . . (6) to
                comply with other law or a court order. ABA Model Rule.

            1.5 Conditions to assertion of the privilege?

       The evidentiary considerations for assertion of the privilege indicate conditions and

limitations that are not obvious in the broad scope of the ethics rules—even considering all the

surplus commentary.

       Treatise writers indicate that specified conditions should exist before the privilege is

recognized. Of course, the communication must be between the client and the attorney, but in

addition:
        a) The communication must originate in the expectation that it will not be disclosed.
        b) The element of confidentiality must be essential to the satisfactory maintenance of the
relationship between the parties.
        c) The relationship must be one that in the opinion of the community ought to be
carefully fostered.
        d) The injury that would inure to the relationship by the disclosure of the communications
must be greater than the benefit that would be gained by the corrected disposal of the litigation
by virtue of the disclosure. 8 J. Wigmore, Evidence § 2285 at 527( McNaughton rev. 1961).




THE ATTORNEY-CLIENT PRIVILEGE                                                                         1239
AND WORK PRODUCT RULE IN PRACTICE   -4
51055335.1
                                       28th Annual Spring Meeting




              Litigation over each of these elements would be a field-day for aggressive litigators.

       Thankfully, while some of the principals are reflected in the cases, assertion of these factors is

       not generally accepted as the client’s burden prior to allowing assertion of the privilege.

                         A. YOUR “CLIENT.”

              When does the relationship which calls into play the attorney-client privilege arise? As a

       general proposition, the Wigmore directive concerning “expectation” is a better one then asking

       whether a file was opened or the client paid or was billed for services. In this aspect the attorney

       better serves his interests and that of the client to refrain form sensitive communications until the

       conflict check and the employment issues have been resolved.
                   1.6 Negotiated (Compelled?) Waivers.

              In government investigations such as those conducted the SEC, the government may

       press for waiver of the attorney-client privilege. Under the “Thompson Memorandum”

       government attorneys may seek a waiver as an indication a corporation’s “cooperation.”

       Memorandum from the Debtor Attorney General of the United States, Principals of Federal

       Prosecution of Business Organizations (Jan. 20, 2003). Cooperating corporations under

       investigation gain preferential treatment. Potential charges may be of a lesser severity or even

       dropped. Criminal penalties may be reduced. The pressure for waiver is intense under these

       circumstances. Where control of the corporations rests with a board that is confident that waiver

       will not reveal their individual wrongdoing, and the interests of the corporation are best served

       by cooperation, the waiver is certainly likely. While the waiver sought may be limited to the

       communications surrounding the events being investigated and any internal investigations by the

       corporation after the fact, one consideration is whether the limited waiver that might be

       negotiated by corporate counsel will be accepted. Some courts may not honor limited waivers—

       particularly in the Work-Product area. See, In re Qwest Communications International, Inc. 450

       F.3d 1179 (10th Cir. 2006) and, Robert G. Morvillo and Robert J. Anello, Waiver Issues in

       Corporate Investigations, N.Y.L.J., June 3, 2003 at 3.




1240   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE
       51055335.1
                                           -5
                         American Bankruptcy Institute




             1.7 Chapter 7 Trustee--Weintraub.

        In the bankruptcy context, consideration of the attorney-client privilege should certainly

start with review of Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343, 105 S.

Ct 1986, 85 L. Ed. 2d 372 (1985). In that case the Supreme Court held that a chapter 7 trustee

had the right to waive the attorney client privilege of the debtor corporation.

        The Court first observed that a corporation does have an attorney-client privilege citing,

Upjohn Co. v United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed 2d 584 (1981). While

Weintraub and cases following discuss the trustee’s need for information in the pursuit of
bankruptcy policy, the fundamental basis for the decision was that the trustee was seen as the

successor to the prior holder of the privilege. Unlike individuals, the Court observed, a

corporation acts through agents ( i.e. individuals, usually mammals). This prompts the search for

the individual empowered to act on behalf of the corporation. A corporate chapter 7 trustee is

such an “agent.” The Court also considered the reasonable expectations of corporate

management. Successor management would control the corporate privilege and it would be able

to obtain access to privileged information resultant during the tenure of prior management or to

waive any privilege on the information on behave of the corporation. The same would hold true

for the trustee.

                   A. SOLVENT VS. INSOLVENT.

        The Court in Weintraub appeared to distinguish the situation in which the corporation is

solvent, “The parties in this case agree that, for solvent corporations, the power to waive the

corporate attorney client privilege rests with the corporations management and is normally

exercised by its officers and directors.” Weintraub, at 348. Insolvency is not a prerequisite to a

bankruptcy filing, nor is solvency determinative in the appointment of a trustee, or even the

conversion of a case from chapter 11 to chapter 7. In some cases, solvency is disputed and a

highly complex factual issue. For this reason, it is not prudent to rely on some sort solvency

exception to the principal that a bankruptcy trustee can waive the privilege. Consideration of



THE ATTORNEY-CLIENT PRIVILEGE                                                                        1241
AND WORK PRODUCT RULE IN PRACTICE   -6
51055335.1
                                         28th Annual Spring Meeting




       solvency is not even dicta in Weintraub since it is in the decision as a result of a stipulation of the

       parties, rather than any reasoning by the Court.

               One should also consider whether there could be a fiduciary duty consideration in the

       trustee’s ability to obtain privileged information in light of the Weintraub Court’s comment:

       “The managers, of course, must exercise the privilege in a manner consistent with their fiduciary

       duty to act in the best interests of the corporation an not of themselves as individuals.” citing

       Dodge v. Ford Motor Co., 204 Mich. 459, 507, 170 N.W. 668, 684 (1919)., Weintraub at 348-

       349. The Fiduciary Duty Exception is addressed in the discussion of the G-I Holding case,

       below. The added fiduciary duties of the debtor in possession in chapter 11 are an additional

       consideration. The successful assertion of the privilege relating to consultations while debtor-in-

       possession against the one-two punch of Weintraub and the fiduciary exception would be

       difficult indeed.

               [N.B. Accountants Beware] In an interesting aside, one notable holding in Hunt was

       the court’s observation that there was no accountant-client privilege.
                        For nearly twenty years federal courts have followed the rule that "no
                       confidential accountant-client privilege exists under federal law, and no
                       state-created privilege has been recognized in federal cases." Couch v.
                       United States, 409 U.S. 322, 335, 93 S.Ct. 611, 619, 34 L.Ed.2d 548
                       (1973). This Court will likewise refuse to recognize any "accountant-client
                       privilege" asserted by the Hunts or any other party. One can speculate or

       review the docket to see if the discovery of accounting documents and the other circumstantial

       evidence gave the prudent person a reasonable basis to suspect that fraudulent transfers occurred.

       The lesson of the case and cases on this line, is that absent a very clear state law privilege there is

       no accountant-client privilege.

                           B. FRAUD EXCEPTION.

               The Weintraub Court further rejected arguments that it need not open up release of the

       privilege to the trustee because the fraud exception to the privilege rule was sufficient to protect

       the interests of the estate.


1242   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE    -7
       51055335.1
                           American Bankruptcy Institute



            1.8 Chapter 11 Trustee.

        Since Weintraub (a chapter 7 case) is founded on the successor agent role of the trustee, it

would follow that a chapter 11 trustee would also be able to waive the attorney-client privilege.

A chapter 11 trustee for a corporation obtains control over the waiver not only for the pre-

petition communications, but also for the communications with the debtor in possession with

counsel. In re Hechinger Investment Co of Delaware, 285 B.R. 601 (D. Del. 2002). This is the

natural outgrowth of the Weintraub analysis. However, there may be some fine distinctions

raised in certain situations—for instance where the corporation is solvent and the trustee and the

board and officers somehow co-exist. However, 11 U.S.C. 1101(1) is clear that there is either a

debtor-in-possession or a trustee—Not both. Any board that would continue to exist after the

appointment of a trustee would operate in a miasma of rights, duties and liabilities. Confusion

could occur under the terms of a Plan of Reorganization with provisions for a “plan trustee.” In

such a case the drafters of the Plan would be prudent to specifically address the issue of control

of the privilege.
            1.9 Examiners.

        In In re Boileau, 736 F.2d 503 (9th Cir 1984), the 9th Circuit awarded the ability to waive
the privilege to a court appointed examiner, However, this case was fact specific. The court

found that the examiner appointed by a compromise was given all the powers of a trustee in

everything but name. The case does not stand for the proposition that every examiner has the

power to waive the privilege.
                        As a rule, an examiner's duties are more restricted than those of a
                trustee. In re American Bulk Transp. Co., 8 B.R. 337, 340 (D.Kan.1980).
                In the case at bar, however, an examiner with expanded powers was
                appointed by stipulation of the parties, to avoid designation of a trustee.
                Not only is the examiner in question directed to perform the customary
                duties imposed by 11 U.S.C. § 1106(a)(3) (investigation) and (4) (filing
                and transmittal of investigative report), but he is also empowered to
                perform a myriad of functions normally carried out by a trustee. See Order
                Appointing Examiner (filed Sep. 2, 1982); 11 U.S.C. §§ 704; 1106(a)(1).
                We therefore reject debtor's contention that the examiner lacked the
                authority to waive the attorney-client privilege. At 506.




THE ATTORNEY-CLIENT PRIVILEGE
AND WORK PRODUCT RULE IN PRACTICE   -8                                                                 1243
51055335.1
                                          28th Annual Spring Meeting



                     1.10 Other Liquidators.

                 Several cases have held that the parallel between a bankruptcy trustee and other

       liquidating officers is sufficient to defeat the privilege. An example is the case of Maleski v.

       Corporate Life Insurance Company, 163 Cmwlth. 36, 641 A.2d 1 (1994). In that case the court

       held that a liquidator under Pennsylvania insurance law could waive the privilege. However,

       waiver rights are fact-specific and certain liquidating agents do not have the breadth of powers of

       a bankruptcy trustee or insurance liquidator. The analysis should begin with examination of

       whether the liquidator is a “successor agent.” In liquidations and receiverships where

       management or the board continue in existence, loss of the privilege to the receiver would be less

       likely.
                     1.11 Fraud “Exception” to the Attorney-Client Privilege.

                            A. REVIEW YOUR ETHICS RULES.

                 Often the state ethics rules are not crystal clear in giving direction in the situation in

       which counsel’s communications with the client may have been in furtherance of a fraud. ABA

       Model Rules:

                 “(b) A lawyer may reveal information relating to the representation of a client to
                 the extent the lawyer reasonably believes necessary: . . . (3) to prevent, mitigate or
                 rectify substantial injury to the financial interests or property of another that is
                 reasonably certain to result or has resulted from the client's commission of a crime
                 or fraud in furtherance of which the client has used the lawyer's services;

                 Applicable ethics rules on the fraud exception to the privilege vary from state to state and

       require very careful review of the language of the rule. Since the penalties for improper

       disclosure of confidences can include substantial financial liability or disbarment, retaining

       separate ethics counsel in such situations is a prudent move.

                            B. COURT ORDER.

                 Application of the fraud exception may prompt application by the party seeking the

       disclosure for a court order. And, if counsel is thus directed to reveal the privileged information

       by a court, counsel may do so. In a sense, the submission of the issue to a court for



1244   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE
       51055335.1
                                              -9
                         American Bankruptcy Institute




determination provides a comfort level for the attorney holding the confidential information.

Cold Comfort? The possibility of disbarment for improper revelation of confidences is dodged,

but the investigation on civil liability, disciplinary action, or criminal indictment and the lawyers

role as aider and abettor may be underway.

                   C. DISCUSSION OF THE FRAUD EXCEPTION.

        First, place the issue in time-context. If the fraud or crime is past, and the damage is

done, then discussions with the client relating to the past behavior remain privileged IN SOME

STATES. Counsel must take great care in this process because the natural reaction is for the
innocent lawyer is to reveal the information not only to prevent or repair the harm created, but to

protect the lawyer’s reputation. A consistent theme in the ethics rules of every state is that the

lawyer cannot sacrifice his client’s interests in his or her own self interest.

        What is clear is that the opposition cannot reach privileged information merely on the

basis of allegations of fraud. See, Clark v. United States, 289 U.S. 1, 15, 53 S. Ct. 465, 77 L.Ed.

993 (1933) [“It is obvious that it would be absurd to say that the privilege could be got rid of

merely by making a charge of fraud.”]. There must be a showing of “probable cause” United

States v. Jacobs, 117 F.3rd 82, 87 (2nd Cir. 1997). Mere allegations or suspicion insufficient,

United States v. Chen, 99 F.3d 1495, 1503 (9th Cir. 1996); In re Grand Jury Investigation, 842

F.2d 1223,1226 (11th Cir. 1987). See also, In re Grand Jury Subpoena Duces Tecum, 731 F.2d

1032, 1039 (2nd Cir. 1984). [“There is little difference here between the two tests [probable case

or prima facie case]. Both require that a prudent person have a reasonable basis to suspect the

perpetration or attempted perpetration of a crime or fraud, and that the communications were in

furtherance thereof.”]

        In fraudulent transfer cases initial investigation and circumstantial evidence may well

establish a foundation that “reasonable basis to suspect fraud” exists in documentation and non-

privileged testimony and documents. Thus, the likelihood that a sufficient basis for waiver of the

privilege based upon the fraud exception is increased in the §548 context. In that context, there


THE ATTORNEY-CLIENT PRIVILEGE                                                                           1245
AND WORK PRODUCT RULE IN PRACTICE    -10
51055335.1
                                         28th Annual Spring Meeting




       is a distinction between the client having knowledge of fraud and participation in the fraud. See,

       Boston Trading Group, Inc., v. Burnazos, 835 F.2d 1504,1512 (1st Cir. 1987). While knowledge

       of the fraud may be a strong negative to the transferee on issue of the defense good faith, it is

       hard to see a justification for a loss of the privilege.
                    1.12 “Dual Representation.”

                          A. OFFICER PROTECTION.

               In the corporate counsel context, it is not uncommon for the individual directors and

       officers to seek guidance on their behavior and personal liability during corporate crises. The

       Maleski decision addressed this issue to some extent. Since the corporate privilege can be

       waived by the trustee or liquidator: How then to establish the officer/director individual

       privilege? Where there were individual communications with board members concerning their

       personal situations by corporate counsel, The burden of proof for establishing the privilege rests

       with the individuals. 1) They must establish that the communications were clearly sought on

       their individual behalf; 2) That the communications made by counsel were made with this mutual

       understanding; 3) The communications were intended to be confidential and 4) The

       communications did not include corporate issues or advice.

               Corporate counsel often act in the dual roles of advising the corporation on corporate

       matters, and the management on their individual director and officer’s duties. The situation can

       get dicey when the actions of one or more officers or directors is the focus of the proceedings.

       One can assume that courts will be reluctant to shield critical information in an investigation by a

       trustee or liquidator absent a strong showing by the individuals.

               Competent corporate counsel can help establish the foundation for this privilege by

       carefully separating his or her counseling sessions. For example, a Q & A session on

       director/officer liability and responsibilities in the middle of a corporate board meeting might be

       convenient but will be damaging to confidentiality. The better practice would be to hold sessions

       on board and officer advice separately and perhaps separately with each individual. With more



1246   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE
       51055335.1
                                             -11
                         American Bankruptcy Institute




sensitive the facts and circumstances and with serious allegations, greater care is required. If

circumstances warrant the board and officers should employ separate counsel.

                  B. OFFICER WAIVER.

       An officer of a corporation can create a limited waiver of the corporation’s privilege even

over the strenuous invocation of the privilege by the company. This issue was addressed in In re

Grand Jury Proceedings, 219 F.3d 175, 179 (2nd Cir. 2000).
               This appeal raises significant questions of first impression in this court
               regarding application of the attorney-client and work-product privileges in
               the corporate context. The questions are (1) whether a corporate officer
               can impliedly waive the corporation's attorney-client and work-product
               privileges in his grand jury testimony, even though the corporation has
               explicitly refused such a waiver; and if the answer is yes, (2) what factors
               a district court should consider in deciding whether a waiver has occurred.
               We hold there can be such a waiver, and discuss below the relevant
               criteria in deciding its scope.
       This case requires careful reading for it does not trigger waiver of the corporate privilege

by an officer’s use of the advice of counsel defense. Rather, the inquiry in the case was whether

the officer was attempting to exculpate the corporation as well, thus raising the issue of implied

waiver. Thus, while it is true that a corporate officer can waive the corporate privilege, the

application of the rule under the limited holding in this case is severely restricted.
            1.13 Individual Debtors.

                  A. HUNT.

       As alluded to in Weintraub, and individual bankruptcy contains considerations distinct

from the corporate case. In preserving the privilege, the court in In re Hunt, 153 B.R. 445

(1992), reviewed these issues. This case reflects the successor rationale in Weintraub. Since

our flesh and blood debtor continues to exist, the application of the successor agent premise is

not apt.

        “If control over that privilege belongs to the trustee, it must do so under some theory

different from the one we embrace in this case. Weintraub, 471 U.S. at 356-7).



THE ATTORNEY-CLIENT PRIVILEGE                                                                         1247
AND WORK PRODUCT RULE IN PRACTICE    -12
51055335.1
                                        28th Annual Spring Meeting




               However, this has not ended the effort and counsel for individual debtors cannot rest

       easy. As a judicially created (or at least, interpreted) doctrine the privilege is subject to attack.

       Evidentiary exclusions interfere with the Court’s truth seeking function and should be narrowly

       construed. In re Williams, 15 B.R. 123, 127 (Bankr. N.D. Tex. 1992). The commentators are

       active in asserting theories of “waiver by filing” and “balancing tests.” Case exist stating that the

       privilege passed to the trustee, e.g. In re Smith, 24 B.R. 3,5, (1982).

               In addition, the number of successful penetrations of the privilege on other or addition

       grounds is a concern

                          B. DEBTOR-IN-POSSESSION LIMITATION?

               In In re Bame, 251 B.R. 367 (Bankr. D. Minn. 200) the court found that a trustee

       succeeding an individual chapter 11 debtor-in-possession could obtain limited privileged

       information on all matters “related to the administration of the case.” While this might seem a

       limited intrusion on the privilege, note that the court required the debtor to demonstrate that any

       excluded testimony or documents related solely to his individual representation, thus the phrase
       “related the administration of the case” is extremely broad at least as interpreted by this court.

       When one considers the fiduciary duty exception and the general bankruptcy policies in play at

       this point in a chapter 11 case, the pressure on the privilege is intense.

                          C. “MY LAWYER MADE ME DO IT.”

               Individuals that justify their bad acts on the basis of legal advice waive the privilege as to

       those communications. In re Snell, 232 B.R. 684 (S.D. Ohio, 1999). This also applies with

       regard to the same excuse is used to explain alleged inaccuracies in the bankruptcy schedules. In

       re French, 162 B.R. 541 (Bankr. D. S.D. 1994). Because a number of issues in bankruptcy cases

       turn on the issue of bad faith or lack of good faith, the potential for the defendant to allege that

       he relied on legal advice can occur more frequently in bankruptcy matters than in criminal or

       civil matters where the boundaries of acceptable behavior are more commonly understood. For

       example, defining the line between appropriate pre bankruptcy planning and fraudulent transfer


1248   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE
       51055335.1
                                            -13
                           American Bankruptcy Institute




is not for the layperson. Determining whether a prepetition transfer was just a “really good deal”

or one in which the transferor is a co conspirator in a fraudulent transfer and thus cannot proof

good faith can also be a nuance that requires legal analysis that the transferor will rely on.
            1.14 Creditors Committees.

       The committee in Official Committee of Asbestos Claimants of G-I Holding, Inc., 342

B.R. 416 (2006), alleged that power to waive the privilege past to “the estate” and then made the

quantum leap that the creditors committee had the power to waive the privilege. The Court

denied that theory and held that the creditors committees were not vested with such a right (no

trustee had been appointed). Incorporating reasoning consistent with the successor agent

rationale the court held that since the control of the corporation remained with the board and

officers, control of the privilege remained with them.
            1.15 Fiduciary Duty Exception.

       In Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), the court held that the
privilege could be suspended under several factors which can be compiled into four

considerations: 1) The discovering parties stake in the fiduciary relationship; 2) the apparent

merit of the claim; 3) the need of the discovering party for the information; and 4) the nature of

the communication itself. These factors do not provide for an easy determination.. Each of these

factors must be proven in order to obtain access to the documents or communications. An

example of the difficulty is contained in an unreported decision In re Pfizer Inc. Securities

Litigation. 1993 WL 561125 (S.D.N.Y. 1993).

               However, turning to the third category, we do not believe that plaintiffs
               have established sufficient need for the information contained in the
               otherwise privileged documents to warrant their discovery. Although the
               documents are specified and plaintiffs do not intend a fishing expedition,
               we do not accept that plaintiffs will have a serious need for the
               information in light of our reclassification of many formerly withheld
               documents into the category of non-privileged aggregate information.
               Finally, with respect to the fourth category, the revelation of documents
               containing individual reserve figures could unduly prejudice Pfizer in the
               underlying products liability cases. At page 13.


THE ATTORNEY-CLIENT PRIVILEGE
AND WORK PRODUCT RULE IN PRACTICE   -14                                                              1249
51055335.1
                                         28th Annual Spring Meeting




                 These communications may be sought in the early stages of discovery. While this may

       cause great angst on the other side, it may be a strategic error. The discovering parties my not

       have yet amassed the body of information necessary to make their case under the Garner factors.

       This appears to be the situation in Pfizer, though whether the case could have been better made at

       a later date is not known.
                     1.16 Inadvertent Waiver.

                 In the application of common sense context, the issue of whether communications were

       revealed due to inadvertence or were intentional seems odd, since if the waiver were intentional

       then there would be no dispute. Yet there is considerable litigation over the issue. The reason

       for this is that even if unintended, a disclosure will not be protected as “inadvertent” if the person

       holding the information is careless or inconsistent in protecting the privilege. The standard is an

       objective one, rather than the mere statement of the holder of the privilege. Thus what might

       seem be a simple issue, has become a fertile ground for litigation and second-guessing. The

       lesson of the cases is that if you intend to protect privileged communications, you must be

       prepared to show consistent diligence in such protection. Examples include:

                           A. FAILURE TO TIMELY OBJECT TO TESTIMONY.

                 United States v. Gurtner, 474 F.2d 297 (9th Cir. 1973); Rosenfeld v. Ungar, 25 F.R.D.

       340 (S.D. Iowa 1960). Whether in discovery or in trial, counsel must be diligent in objecting to

       inquiries and responses relating to privileged information. If not, the privilege will be deemed

       waiver.

                 An interesting spin on this principal occurred in Rico v. Mitsubishi Motors Corp., 42 Cal

       4th 807, 171P.3d 1092 (Cal. 2007). In that case one of the defenses to the improper use of

       privileged information by opposing counsel, was that of waiver. At the time of a deposition, the

       defense firm was not aware that the document in question had been obtained by the opposition.

       When deposition questioning focused on the privileged subject, defense counsel made inquiry on

       the source of the information, but did not specifically object on the basis of privilege, the court



1250   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE
       51055335.1
                                            -15
                         American Bankruptcy Institute




quite fairly stated that there could be no requirement to make a clear objection when the

possession of privileged information was not known to counsel. One must take care with this

holding since the facts indicate some obfuscation by plaintiff’s counsel on the source of his

rather surgical line of questioning guided by the improper receipt and use of work product.

       Objection alone may not be sufficient. At least as to some privileged information and

work product, once the other side obtains the information the damage is done. Protection of

privilege and work product is not merely a question of excluding evidence, but keeping certain

information from the opposition. Common sense then, would dictate that the witness be

instructed to decline to answer until a court has ruled.

       However concept that this bell cannot be unrung has the opposite implications in extreme

circumstances. Improper receipt of or use of clearly protected information can result in

disqualification of counsel. This occurred in the Rico case.

                  B. COMMUNICATION IN THE PRESENCE OF OTHERS.

       The keystone to the attorney client privilege is not only the legal protections, but the

parties intent for confidentiality. Obviously the presence of a person who has no basis to resist

disclosure demonstrates either carelessness sufficient to impose waiver or an intent that at least at

the time the discussions were not considered privileged. This may be a difficult issue for

creditors committees that many times will have ad hoc attendance by non members. It is tough

enough to control the committee itself which is bound by certain fiduciary responsibilities. The

ability to control a non members revelation or use of otherwise privileged information is virtually

impossible.

                  C. PARTIAL OR LIMITED WAIVER.

       Attempts to specify partial or limited waivers are fraught with peril. Parties have

attempted to limit the release of information to a particular government agency, or to release

information on a particular topic, but not as to all discussions with counsel. See, In re



THE ATTORNEY-CLIENT PRIVILEGE
AND WORK PRODUCT RULE IN PRACTICE   -16                                                                 1251
51055335.1
                                        28th Annual Spring Meeting




       Communications Internat’l Inc., 450 F.3d 1179 (10th Cir. 2006). The line of cases either

       upholding or denying a limitation on waiver to the specific opponent, subject matter, or

       proceeding is complex and Circuit specific, that the best advice is “Stop!” Before attempting

       some sort of limited disclosure, fully update the law in your district and make disclosure only on

       the full understanding of its consequences. Included in your consideration (if it passes) will be

       Proposed FRE 502.
                   1.17 Federal Rule of Evidence 502.

              Rule 502 a simple proposition: That of protection of clients (and lawyers) from

       inadvertent waiver of the attorney client privilege or work product protections—a no-brainer.

       FRE 502 is a federal law imposing very specific privilege regulations upon litigation. Of

       necessity, the rule must also apply to state courts because the protection is useless if the litigant

       can simply commence a state court action and then obtain the information. In the age of

       voluminous emails and broad electronic discovery, Rule 502 could not have come too soon. But

       counsel should be aware that the Rule provides no relief for inattentive or sloppy conduct.
              Rule 502. Attorney-Client Privilege and Work Product; Limitations on
              Waiver

              The following provisions apply, in the circumstances set out, to disclosure of a
              communication

              or information covered by the attorney-client privilege or work-product
              protection.

              (a) Disclosure Made in a Federal Proceeding or to a Federal Office or
              Agency; Scope of a Waiver

              When the disclosure is made in a Federal proceeding or to a Federal office or
              agency and waives the attorney-client privilege or work-product protection,
              the waiver extends to an undisclosed communication or information in a
              Federal or State proceeding only if:

          1. the waiver is intentional;

          2. the disclosed and undisclosed communications or information concern the
             same subject matter; and

          3. they ought in fairness to be considered together.

              (b) Inadvertent disclosure.




1252   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE
       51055335.1
                                            -17
                          American Bankruptcy Institute




        When made in a Federal proceeding or to a Federal office or agency, the
        disclosure does not operate as a waiver in a Federal or State proceeding if:

   1. the disclosure is inadvertent;

   2. the holder of the privilege or protection took reasonable steps to prevent
      disclosure; and

   3. the holder promptly took reasonable steps to rectify the error, including (if
      applicable) following Federal Rule of Civil Procedure 26(b)(5)(B).

        ( c ) Disclosure Made in a State Proceeding

        When the disclosure is made in a State proceeding and is not the subject of a
        State-court order concerning waiver, the disclosure does not operate as a
        waiver in a Federal proceeding if the disclosure:

   1. would not be a waiver under this rule if it had been made in a Federal
      proceeding; or

   2. is not a waiver under the law of the State where the disclosure occurred.

        (d) Controlling effect of court orders.

        A Federal court may order that the privilege or protection is not waived by
        disclosure connected with the litigation pending before the court--in which
        event the disclosure is also not a waiver in any other Federal or State
        proceeding.

        (e) Controlling Effect of a Party Agreement

        An agreement on the effect of disclosure in a Federal proceeding is binding
        only on the parties to the agreement, unless it is incorporated into a court
        order.

        (f) Controlling Effect of This Rule

        Notwithstanding Rules 101 and 1101, this rule applies to State proceedings
        and to Federal court-annexed and Federal court-mandated arbitration
        proceedings, in the circumstances set out in the rule. And notwithstanding
        Rule 501, this rule applies even if State law provides the rule of decision.

        (g) Definitions

        In this rule:

   1. "attorney-client privilege" means the protection that applicable law provides
      for confidential attorney-client communications; and

   2.   "work-product protection" means the protection that applicable law provides for
        tangible material (or its intangible equivalent) prepared in anticipation of
        litigation or for trial."




THE ATTORNEY-CLIENT PRIVILEGE                                                             1253
AND WORK PRODUCT RULE IN PRACTICE   -18
51055335.1
                                        28th Annual Spring Meeting



                             II. RECEIPT OF PRIVILEGED INFORMATION.

              It is a mistake to conclude that if you are in receipt of privileged information from the

       other side, you are free to act with such information as you see the best interest of your client.

       To the contrary, Civil Rule 26, as amended, places responsibilities on receiving counsel.
                      “After being notified, a party must promptly return, sequester, or destroy
                      the specified information and any copies it has; must not use or disclose
                      the information until the claim is resolved; must take reasonable steps to
                      retrieve the information if the party disclosed it before being notified; and
                      may promptly present the information to the court under seal for a
                      determination of the claim.”
                      F.R.C.P. 26(a)(5)(B).
              This subsection assumes that the producing party “notifies” the recipient. If the other

       counsel is not aware of the breach of security, what are the duties of receiving counsel? This

       was rather stringently addressed in Rico v. Mitsubishi Motors Corporation, supra. In this

       situation the plaintiff’s attorney obtained work product—the defense attorney’s notes on his

       expert’s report. How the attorney obtained these notes was not adjudicated. There was a period

       of time when the plaintiff’s attorney was left alone in a deposition room with the defense

       counsel’s briefcase containing the notes. Plaintiff’s counsel denied looking into the brief case.

       Rather than dispute this, the court addressed the attorneys duties assuming no fault to either

       counsel relating to possession of the sensitive document. Then the court proceeded to skin

       plaintiff’s counsel alive for his misconduct in using obvious work product. The court ruled that

       once the attorney realizes that the evidence is privileged or work product, the attorney’s

       examination of the document must cease and he must contact opposing counsel. They must then

       move forward to agree on an appropriate solution and involve the court if they are unable to

       agree. If the attorney fails to so act and uses the material he can and in the Mitsubishi case was,

       disqualified from representing his party in the suit.

              Arguments that the zealous advocate rule compels counsel to use the material to the

       client’s best advantage will not prevail. The lessons of the rules and cases are consistent. If you

       want to use such information, make the fight in the open so you can use the material. Do not




1254   THE ATTORNEY-CLIENT PRIVILEGE
       AND WORK PRODUCT RULE IN PRACTICE
       51055335.1
                                           -19
                         American Bankruptcy Institute




simply proceed to use the material and gamble that either no one will know, or that the Courts

will be lenient.

                                          III. CONCLUSION

        Attorney client privilege is a complex minefield with many risks and penalties for those

who assume that the subject is simple and fail to adequately protect and inform their clients or

who act carelessly in their guarding of confidential material or unprofessionally in the

acquisition or use of the material. But against that complexity will be a certain consistency—

namely that the Courts will continue to demand high standard of professional competence and

ethical behavior. The adopted amendments to Rule 26 and the FRE 502 reflect a desire to reduce

the unfair surprises in the application of the protections and sanctions in this area. But the

protections remain under attack under a wide variety of rationales. Counselor Be Wary.




THE ATTORNEY-CLIENT PRIVILEGE                                                                      1255
AND WORK PRODUCT RULE IN PRACTICE   -20
51055335.1

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:37
posted:2/10/2011
language:English
pages:21