493 F.3d 345 (3rd Cir. 2007), 06-2915, In re Teleglobe Communications Corp.

Docket Nº:06-2915.
Citation:493 F.3d 345
Party Name:In re TELEGLOBE COMMUNICATIONS CORPORATION, et al, Debtor Teleglobe Usa Inc.; Optel Communications Inc.; Teleglobe Holdings (U.S.) Corporation; Teleglobe Marine (U.S.) Inc.; Teleglobe Holding Corp.; Teleglobe Telecom Corporation; Teleglobe Investment Corp.; Teleglobe Submarine, Teleglobe Submarine Inc.; Official Committee of Unsecured Creditors of
Case Date:July 17, 2007
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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493 F.3d 345 (3rd Cir. 2007)

In re TELEGLOBE COMMUNICATIONS CORPORATION, et al, Debtor

Teleglobe Usa Inc.; Optel Communications Inc.; Teleglobe Holdings (U.S.) Corporation; Teleglobe Marine (U.S.) Inc.; Teleglobe Holding Corp.; Teleglobe Telecom Corporation; Teleglobe Investment Corp.; Teleglobe Submarine, Teleglobe Submarine Inc.; Official Committee of Unsecured Creditors of Teleglobe Communications Corporation; Teleglobe Communications Corporation; Teleglobe Luxembourg, LLC; Teleglobe Puerto Rico Inc.

v.

BCE Inc.; Michael T. Boychuk; Marc A. Bouchard; Serge Fortin; Terence J. Jarman; Stewart Verge; Jean C. Monty; Richard J. Currie; Thomas Kierans; Stephen P. Skinner; H. Arnold Steinberg, Appellants

Vartec Telecom, Inc., Defendants/Intervenor in District Court.

No. 06-2915.

United States Court of Appeals, Third Circuit

July 17, 2007

Argued January 8, 2007

Appeal from the United States District Court for the District of Delaware D.C. Civil Action No. 04-cv-01266 Chief District Judge: Honorable Sue L. Robinson

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Pauline K. Morgan, Esquire, John T. Dorsey, Esquire, Margaret B. Whiteman, Esquire, Young, Conaway, Stargatt & Taylor, Wilmington, DE, Stuart J. Baskin, Esquire, Jaculin Aaron, Esquire, Shearman & Sterling, New York, NY, Stephen J. Marzen, Esquire (Argued), Shearman & Sterling, Washington, D.C., for Appellants.

Gregory V. Varallo, Esquire, C. Malcom Cochran, IV, Esquire (Argued), Chad M. Shandler, Esquire, Richards, Layton & Finger, Wilmington, DE, Philip A. Lacovara, Esquire, Andrew Tauber, Esquire, Mayer, Brown, Rowe & Maw, Washington, D.C., for Appellees.

Mark I. Levy, Esquire, Kilpatrick Stockton, Washington, D.C., Susan Hackett, Esquire, Senior Vice President and General Counsel Association of Corporate Counsel, Washington, D.C., David C. Frederick, Esquire, Robert A. Klinck, Esquire, Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C., for Amici-Appellants.

Before: McKEE, AMBRO and FISHER, Circuit Judges.

OPINION

AMBRO, Circuit Judge.

TABLE OF CONTENTS

I. Facts and Procedural History ......................................... 353

A. The Parties and Underlying Causes of Action ..................... 353

B. The Privilege Dispute ........................................... 354

II. Jurisdiction ......................................................... 357

III. Choice of Law ........................................................ 358

IV. Summary of the Law ................................................... 359

A. The Attorney" Client Privilege ................................... 359

B. The Disclosure Rule ............................................. 361

C. Privileged Information Sharing .................................. 362

1. The Co" Client (or Joint" Client) Privilege .................. 362

2. The Community" of" Interest (or Common" Interest) Privilege ... 363

D. The Exception for Adverse Litigation ............................ 366

E. When Joint Representation Goes Awry: The Eureka Principle ....... 368

F. Putting It All Together: Parents, Subsidiaries, and the Modern Corporate Counsel's Office ............... 369

1. Intra" group Information Sharing: Parents and Subsidiaries as Joint Clients ................... 369

2. Keeping Control of the Privilege ........................... 372

3 When Conflicts Arise ....................................... 373

V. Issues on Appeal ..................................................... 374

A. Whether the Debtors Are Entitled to Documents Generated in the Course of a BCE/Teleglobe Joint Representation ................ 374

1. Whether BCE's Concession in the Bankruptcy Court Prevents it from Arguing that the Debtors are not Entitled to Disputed Documents ....................................... 374

a. Background ........................................... 374

b. Merits ............................................... 376

i. Issue Waiver .................................. 376

ii. Judicial Admission ............................ 377

iii. Judicial Estoppel ............................. 377

iv. Implied Prospective Waiver of the Privilege ... 378

2. Whether the Community" of" Interest Privilege Entitles the Debtors to the Documents as a Matter of Law .............. 378 3. Whether Teleglobe's Waiver of the Privilege for the Debtors' Benefit in the Canadian Insolvency Proceedings Entitles them to the Documents .................................... 379

4. Conclusion and Remand ...................................... 380

B. The Effect of Funneling Documents Through BCE's In" House Counsel 380

VI. Potential Alternate Sustaining Grounds ............................... 383

A. The Fiduciary Exception to the Attorney" Client Privilege ........ 383

B. Affirming as a Discovery Sanction ............................... 386

VII. Conclusion ........................................................... 386

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This is a twist on a classic corporate divorce story. It begins much as Judge Richard Cudahy's "classic corporate love story": "Company A meets Company B. They are attracted to each other and after a brief courtship, they merge." GSC Partners CDO Fund v. Washington, 368 F.3d 228, 232 (3d Cir. 2004). Sadly, it does not last. Not long after Company A acquires Company B, they start taking risks together, some of which go terribly wrong. After only a year or so, Company B is steeped in debt, and, not surprisingly, Company A begins to "los[e] that lovin' feelin'."1 It leaves Company B, explaining that it simply must do so in order to save itself. Jilted and out of money, Company B promptly turns to that shelter for abandoned corporations, the bankruptcy system.

In bankruptcy, Company B's children (subsidiaries), also in the shelter of bankruptcy, become indignant, and they sue Company A for all manner of ills relating to the break-up. Here, we deal not with the merits of the action, but with a pre-trial dispute over corporate documents. Everyone agrees that the attorney-client privilege protects these documents against third parties. The wrinkle is that they

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were produced by and in communication with attorneys who represented the entire corporate family back when they all got along.

The question, then, is whether Company A may assert the privilege against its former family members. Because we conclude that the District Court's factual findings do not support setting aside the parent company's privilege in this case, we vacate its order compelling production and remand for further proceedings.

I. Facts and Procedural History

A. The Parties and Underlying Causes of Action

This action began with a complaint brought in a Chapter 11 bankruptcy case. The debtors ("Debtors") are the wholly owned United States subsidiaries of a Canadian telecommunications company formerly known as Teleglobe, Inc. ("Teleglobe"). Teleglobe and the Debtors are undergoing reorganization in Ontario in accordance with the Canadian Companies' Creditors Arrangement Act (the "Arrangement Act"), a form of bankruptcy protection similar to Chapter 11. In addition, the Debtors (but not Teleglobe), all but one2 of which are Delaware corporations, are simultaneously undergoing Chapter 11 reorganization in the District of Delaware. Until recently, Teleglobe was a wholly owned subsidiary of Bell Canada Enterprises, Inc. ("BCE"), Canada's largest telecommunications company.3

In 2000, BCE, which had previously owned a 23% minority stake in Teleglobe, purchased all its remaining shares (directly and indirectly through subsidiaries), thus taking control of the company. According to the Debtors, in late 2000 BCE directed Teleglobe to accelerate the development of a fiberoptic network called GlobeSystem. BCE pledged its financial support to the project and caused Teleglobe and its subsidiaries (the Debtors) to borrow some $2.4 billion from banks and bondholders. The bond debt was guaranteed by one of the Debtors. Teleglobe exhausted its funding in 2001, and in November of that year BCE approved an additional $850 million equity infusion for Teleglobe and its subsidiaries. These monies were to be disbursed at the sole discretion of Jean Monty, then Chairman and CEO of BCE as well as Chairman and CEO of Teleglobe. BCE announced its intention to continue funding Teleglobe in December 2001.

About this time BCE began working on what personnel referred to as Project X-a comprehensive reassessment of BCE's plans for Teleglobe. Lurking in the background was BCE's declining confidence in GlobeSystem's ultimate potential.4 In the course of Project X, BCE considered a variety of options, including maintaining its funding in the hope that GlobeSystem

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would be profitable, restructuring Teleglobe in such a way that it could continue as a viable subsidiary, and simply cutting off funding (which would send Teleglobe and its subsidiaries into a liquidating bankruptcy). In early April 2001, BCE publicly announced that it was reassessing its funding of Teleglobe; just a few weeks later, it ceased its funding, effectively abandoning Teleglobe. GlobeSystem was not operational, and so Teleglobe had no means of paying back its multi-billion dollar debt. Consequently, within weeks Teleglobe and the Debtors filed for Arrangement Act relief in Canada, and the Debtors also filed for Chapter 11 relief in Delaware.

For BCE's role in funding and then abandoning the GlobeSystem project, the Debtors sued it in this adversary proceeding.5 They assert several causes of action, including breach of contract, breach of fiduciary duties, estoppel, and misrepresentation (whether fraudulent or negligent). All claims relate to the manner in which BCE ceased funding...

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