Most bankruptcy lawyers abhor discovery disputes, both because they consume valuable time and because of the fear of offending the court. As a result, it is easy to get rusty on some of the finer points of privilege and work product law. An interesting opinion from Judge Leif Clark provides a good primer on how those concepts apply in bankruptcy court. Osherow v. Vann, Adv. No. 08-5006 (Bankr. W.D.Tex. 4/10/09).
This was a case where debtors filed chapter 11 and employed forensic accountants to investigate preference and transfer claims. Additionally, Creditors' Committee counsel prepared a report for the benefit of the Committee. The Plan created a Litigation Trust, which was deemed to be the successor in interest of both the Debtor and the Creditors' Committee. The Liquidating Trust was required to hire both Debtor's counsel and the Committee counsel on its behalf.
The Litigation Trustee received two reports: a report prepared by the Debtor's forensic accountants (the A & M Report) and a report prepared by Committee counsel (the H & B Report). The A & M Report had been shared among the Debtor, the Committee and the Lenders, while the H & B Report had only been disclosed to members of the committee prior to appointment of the Litigation Trustee.
When the Litigation Trustee sued some former insiders, they decided that it would be advantageous to see the two reports. The Litigation Trustee opposed disclosure, arguing that the reports were subject to attorney-client and work product privilege. The Preference Defendants claimed that the Trustee could not assert attorney-client privilege as to the H & B Report because it was prepared for the Committee, not the Trustee and because it had not been kept confidential. They also argued that it was not work product because it was not prepared in anticipation of litigation. As to the A & M Report, they contended that a report prepared by accountants was not subject to privilege and that the A & M Report was not kept confidential. They also argued that they would suffer an undue hardship if they did not have access to the reports.
Thus, the issues teed up were:
1. Can attorney-client privilege transfer from a DIP and a Commitee to a Litigation Trustee?
2. How confidential do you have to keep a document to avoid waiving privilege?
3. Can a report prepared by the Debtor's accountants fall under the attorney-client privilege?
4. Are reports prepared prior to plan confirmation and prior to litigation prepared in anticipation of litigation?
5. Can the defendant claim undue hardship if they have to re-create the analysis contained in the rerports?
The 41 page opinion contains a very thorough discussion that I will not repeat in depth here. Suffice it to say that:
1. The privilege does follow the cause of action. Thus, a chapter 11 plan can assign not only the transfer claims, but the attorney-client privilege protecting those claims as well.
2. A Creditor's Committee can have a privilege with regard to claims which it was not specifically authorized to pursue.
3. While disclosure to third parties normally waive the privilege, this does not apply to disclosures to accountants or other professionals hired to assist the attorney. This applies even if the professional is employed by the client (that is, the debtor)rather than by the attorney. ". . . disclosure to firms, such as A & M, when they are acting as 'interpreters' between client and lawyer do not result in a waiver of the attorney client privilege."
4. The common interest doctrine allowed the Debtor and the Committee to share privileged information without waiver of the privilege.
5. Work product must be prepared in anticipation of litigation and may be disclosed if a party shows that it has a substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means.
6. "Opinion work product, which is the mental impressions, conclusions, opinions, or legal theories of lawyers or other representative of the party that is in litigation, has 'almost absolute protection.'"
7. The reports were prepared in anticipation of litigation, even though the DIP and the Committee no longer existed, since the Litigation Trustee was their successor in interest.
8. The fact that the defendants would have to dig through 300 boxes of documents did not constitute a compelling need to see the reports. "That is a dog that won't hunt. The fact that the defendants would prefer to work off the opponents' work product hardly makes the case for 'undue hardship.' It is not a hardship that the defendants have to do their own work."
Thus, the reports were protected by both attorney-client privilege and the work product privilege. Judge Clark's opinion makes a good resource for researching these issues and unlike attorney work product, this is a case where you may work off Judge Clark's work product.