Bevill, Bresler & Schulman Asset Management Corp., Matter of

• Decision Date: 13 November 1986
• Docket Number: 85-5851,85-5829 and 85-5850,Nos. 85-5828,s. 85-5828
• Citation: 805 F.2d 120
• Parties: Bankr. L. Rep. P 71,525, 22 Fed. R. Evid. Serv. 52 In the Matter of BEVILL, BRESLER & SCHULMAN ASSET MANAGEMENT CORPORATION, Debtor-in-Possession. Appeal of John D. ROONEY. Appeal of Robert L. BEVILL. In re BEVILL, BRESLER AND SCHULMAN INC., Debtor. Appeal of John D. ROONEY. Appeal of Robert L. BEVILL.
• Court: U.S. Court of Appeals — Third Circuit

Page 120

805 F.2d 120

Bankr. L. Rep. P 71,525, 22 Fed. R. Evid. Serv. 52

In the Matter of BEVILL, BRESLER & SCHULMAN ASSET MANAGEMENT CORPORATION, Debtor-in-Possession Appeal of John D. ROONEY Appeal of Robert L. BEVILL In re BEVILL, BRESLER AND SCHULMAN INC., Debtor Appeal of John D. ROONEY. Appeal of Robert L. BEVILL.

Nos. 85-5828, 85-5851, 85-5829 and 85-5850.

United States Court of Appeals, Third Circuit.

Argued Sept. 16, 1986.

Decided Nov. 13, 1986.

Dominic F. Amorosa (argued), Dominic F. Amorosa, P.A., South Orange, N.J., for appellant, John D. Rooney.

Lawrence V. Senn, Jr., Audrey Strauss (argued), Mudge Rose Guthrie Alexander & Ferdon, New York City, for appellant, Robert L. Bevill.

Jack M. Zackin (argued), Ravin, Greenberg & Zackin, P.A., Roseland, N.J., for appellee, Saul S. Cohen, Trustee of Bevill, Bresler & Schulman Asset Management Corp.

William H. Horton (argued), McCarter & English, Newark, N.J., for appellee, Richard W. Hill, Esq., Trustee under the Securities Investor Protection Act for the Liquidation of Bevill Bressler & Schulman, Inc.

Before SEITZ, SLOVITER, Circuit Judges, and ROSENN, Senior Circuit Judge.

OPINION OF THE COURT

SEITZ, Circuit Judge.

This appeal arises out of two related proceedings currently before the district court: the Chapter 11 reorganization of Bevill, Bresler & Schulman Asset Management Corporation (AMC), 11 U.S.C. Sec. 1101, and the liquidation of Bevill, Bresler & Schulman, Inc. (BBS) under the Security Investor Protection Act (SIPA), 15 U.S.C. Sec. 78aaa. Intervenors John D. Rooney and Robert L. Bevill, two principals of the corporations, appeal the order of the district court directing Gilbert Schulman, president of AMC, and Hellring, Lindeman, Goldstein, Siegal & Greenberg (Hellring, Lindeman), counsel for BBS, to respond to questions posed in depositions by the trustees for AMC and BBS. The order permits the trustees to discover the substance of certain meetings that took place between the law firm and the principals of the corporations before the Chapter 11 petition was filed. Because Rooney and Bevill allege that the district court's order violates their attorney-client privilege, we have jurisdiction under In re Grand Jury Proceedings, 604 F.2d 798 (3d Cir.1979) (FMC Corp.).

I.

We turn first to the facts as narrated by the district court. Gilbert Schulman first became aware that AMC was in financial difficulties on March 19, 1985, when Robert Bevill telephoned him in Greece. After talking again with Bevill on the following day, Schulman flew back to the United States. According to Schulman, he was unable to obtain any information about AMC until he consulted with Hellring, Lindeman on March 25, 1985.

Between March 25, 1985 and April 7, 1985, Schulman met with Hellring, Lindeman almost daily. Other principals of BBS and AMC, including Bevill and Rooney, were present at some of these meetings.

When Schulman first met with Hellring, Lindeman, he explained that he was seeking both personal and corporate legal advice. In his deposition, he testified that with regard to the March 26th meeting:

I stated to Mr. Hellring and Mr. Goldstein that I had arranged for Mr. Bevill to come down and meet them and at that point I had said to them that "Possibly you will represent me, possibly you will represent Mr. Bevill and me, possibly you will represent the firms," but I was definitely seeking personal legal advice at that time.

On March 31, 1985, Hellring, Lindeman was retained to represent BBS. In addition, it continued to consider whether it would represent the principals of BBS. On April 4, 1985, Hellring, Lindeman informed the principals that they should obtain separate counsel.

On April 7, 1985, AMC filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. A trustee was subsequently appointed by the district court. On April 8, the SEC filed a civil complaint in the district court alleging fraud against AMC, BBS, and the principals of the corporations, including appellants. In addition, the SEC began a criminal investigation, and there is currently a grand jury investigation into the affairs of the two corporations. On May 8, the district court placed BBS under a SIPA receivership and the SIPA trustee commenced a liquidation proceeding.

On May 13, 1985, the counsel for the AMC trustee began to depose Schulman. By the consent of the parties, this deposition was conducted as a joint proceeding in the AMC Chapter 11 proceeding, the BBS SIPA liquidation, and the SEC proceeding. The AMC trustee sought to depose Schulman as to the substantive communications between Hellring, Lindeman and the principals, and indicated that the trustee had waived AMC's attorney-client privilege. Schulman's counsel instructed Schulman not to answer the questions. Counsel for the other principals also instructed Schulman not to respond, asserting the existence of a joint defense privilege.

On May 21, 1985, the deposition of Schulman resumed, and the AMC trustee began questioning Schulman about the circumstances surrounding the meetings with counsel, including the dates of the meetings, who was present, and whether the discussions involved personal or corporate matters. Once again, counsel for the other principals objected on the grounds of a joint defense privilege.

The AMC and BBS trustees and the SEC subsequently filed motions with the district court for an order directing the principals and Hellring Lindeman to respond to a series of questions as to the circumstances surrounding the meetings. In opposition to these motions, Rooney filed an unsworn affirmation with the district court stating that he met with counsel for personal advice and with the expectation that the communications would be confidential. He further stated that he would not have met with counsel without the assurance of confidentiality.

After a hearing, the district court ordered Bevill, Rooney, Schulman, Robert Levine, another principal, and Hellring, Lindeman to answer written interrogatories about the scope of counsel's representation. Bevill and Rooney refused to answer the interrogatories on the ground of the fifth amendment. Schulman stated that he attended all meetings except the March 31st meeting for the purpose of securing personal legal advice. Levine concurred in this statement, and also stated that the participants in the meetings were engaged in a joint defense effort. Schulman, however, has asserted in a letter to the BBS trustee from his counsel that he was never part of a joint defense.

Hellring, Lindeman confirmed in their answers to the interrogatories that the principals had sought both personal and corporate legal advice at the meetings that occurred from March 25th through April 4th. In a letter to the BBS trustee, it further explained its understanding of its representation:

Our firm was initially consulted on Monday, March 25, 1985. On that date and during the week of March 25, 1985 we were consulted by officials of Bevill, Bresler & Schulman, Inc. on a confidential and privileged basis for the purpose of personal representation as well as corporate representation of Bevill, Bresler & Schulman, Inc. and other companies.

We were not retained until Sunday, March 31, 1985 on which date we agreed to represent Bevill, Bresler & Schulman, Inc., the broker/dealer and its affiliated broker/dealer companies and to consider further the matter of representation for the individuals and other corporations.

During the next few days we continued to be consulted by officials of Bevill, Bresler & Schulman, Inc. on a confidential and privileged basis for purposes of personal representation and to consider the need therefor.

Within a few days of March 31, 1985 we advised each individual official to retain separate and individual counsel....

The trustees, relying on their waiver of the corporations' attorney-client privileges, moved for an order directing Schulman and Hellring, Lindeman to testify about the substance of the meetings insofar as they related to the affairs of the two corporations and Schulman's activities as a director or officer of the corporations. Bevill and Rooney opposed the motions based on their attorney-client privileges and a joint defense privilege.

After hearing argument from counsel on the trustees' motions, the district court, in an oral opinion, granted the motions in part. Relying on the opinion of In re Grand Jury Investigation, No. 83-30557, 575 F.Supp. 777 (N.D.Ga.1983), the court held that a corporate officer must satisfy the following test to assert a personal claim of attorney-client privilege as to communications with corporate counsel:

First, they must show they approached [counsel] for the purpose of seeking legal advice. Second, they must demonstrate that when they approached [counsel] they made it clear that they were seeking legal advice in their individual rather than in their representative capacities. Third, they must demonstrate that the [counsel] saw fit to communicate with them in their individual capacities, knowing that a possible conflict could arise. Fourth, they must prove that their conversations with [counsel] were confidential. And, fifth, they must show that the substance of their conversations with [counsel] did not concern matters within the company or the general affairs of the company.

575 F.Supp. at 780.

The court rejected Rooney's claim that he consulted with counsel for the sole or primary purpose of securing personal legal advice, finding such a claim unsupported by the evidence. It then turned to the principals' contention that the corporate communications were indistinguishable from those that related to their personal legal problems, and that, therefore, all communications are privileged. The court agreed with Bevill and Rooney insofar as the trustees sought to obtain information about meetings prior to March 31st when Hellring, Lindeman agreed to represent BBS. The court thus held that these...