Document Type
Research Memorandum
Publication Date
2018
Abstract
(Excerpt)
“The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law.” This privilege has been held as sacred and essential to encourage complete and candid communication between attorneys and their clients. In fact, if the attorney’s “professional mission” is to be carried out appropriately to the fullest extent, then the attorney must be able to acquire all the information necessary to represent his client. Therefore, the privilege allows unfettered communication, for the benefit of both parties.
By carving more exceptions to the privilege, as bankruptcy courts, and even the Supreme Court, have in recent years, the purpose of the privilege will be undermined. For example, the trustee in chapter 7 proceedings has been accorded unilateral power to waive both a corporate and an individual debtor’s attorney-client privilege in order to further its duty to make equitable dispositions. The trustee in a bankruptcy proceeding generally has duties to multiple parties in any dispute of the estate. So, in order to dutifully fulfill its fiduciary duties, trustees may need the power to access a debtor’s privileged communication with his attorney to investigate the debtor’s financial affairs and location of assets.
Similarly, committees, as representatives of a debtor’s estate, in chapter 11 proceedings are contesting the right to enjoy the same unilateral power. Because of distinct differences between a chapter 7 trustee and a chapter 11 committee, a committee’s ability to invoke such a power is not universally recognized. To date, cases that have recognized a committee’s right to hold and waive a debtor’s attorney-client privilege have done so where they can prove a debtor is insolvent.
First, this memorandum will discuss the chapter 7 trustee’s rights to attorney-client privilege in bankruptcy. Specifically, this memorandum will compare three separate approaches utilized by bankruptcy courts: (1) allowing a trustee to waive the debtor’s attorney-client privilege; (2) forbidding the trustee to waive the privilege; and (3) utilizing a balancing test in which the courts weigh the potential harm to the debtor against the trustee’s ability to carry out his role and administration of the estate. Second, this memorandum will also discuss a split in decisions concerning the ability of chapter 11 committees to enjoy such unilateral waiving power. The courts that allow committees to waive the privilege place the burden of proof on the committee to demonstrate that the debtor was insolvent at the time of the privileged communication.