Estate of Jackson v. Gen. Elec. Capital Corp. (In re Fundamental Long Term Care, Inc.)

• Decision Date: 01 January 2014
• Docket Number: Adv. No. 8:13–ap–00893–MGW (consolidated),Case No. 8:11–bk–22258–MGW
• Citation: 515 B.R. 857
• Parties: In re: Fundamental Long Term Care, Inc., Debtor. Estate of Juanita Jackson, et al., Plaintiffs, v. General Electric Capital Corporation, et al., Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Florida

515 B.R. 857

In re: Fundamental Long Term Care, Inc., Debtor.Estate of Juanita Jackson, et al., Plaintiffs,

v.General Electric Capital Corporation, et al., Defendants.

Case No. 8:11–bk–22258–MGW

Adv. No. 8:13–ap–00893–MGW (consolidated)

United States Bankruptcy Court,

Tampa Division.

Tampa Division

Signed 09/20/2014

Steven M. Berman, Esq., Seth P. Traub, Esq., Shumaker, Loop & Kendrick, LLP, Counsel for the Chapter 7 Trustee.

Isaac R. Ruiz–Carus, Esq., Wilkes & McHugh PA, Counsel for the Estates of Juanita Jackson, Elvira Nunziata, Joseph Webb, Opal Lee Sasser, Arlene Townsend, and Francina Spivery–Jones.

Patricia A. Redmond, Esq., Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., Counsel for Receiver.

Gregory M. McCoskey, Esq., Akerman Senterfitt, Counsel for Fundamental Administrative Services, LLC and THI of Baltimore, Inc.

Matthew E. Nirider, Esq., Kirkland & Ellis LLP, Jeffrey W. Warren, Esq., Bush Ross, P.A., Counsel for GTCR Associates, VI; GTCR Fund VI, LP; GTCR Golder Rauner, LLC; GTCR Partners VI, LP; GTCR VI Executive Fund, LP; Edgar D. Jannotta, Jr.; THI Holdings, LLC.

Chapter 7

ORDER AND MEMORANDUM OPINION ON USE OF CONFIDENTIAL EXHIBITS AT TRIAL

Michael G. Williamson, United States Bankruptcy Judge

The Chapter 7 Trustee obtained documents relating to the defense of the Debtor's subsidiary, Trans Health Management, Inc. (“THMI”), in certain negligence actions under the co-client exception to the attorney-client privilege during discovery in this proceeding. Now the Trustee wants to use some of those co-client documents as exhibits at trial. The Receiver for THMI's former corporate parent, Trans Healthcare, Inc. (“THI”), which is not a party to this proceeding, objects. So too does Fundamental Administrative Services, LLC (“FAS”). THI and FAS, who are the other co-clients, say the Trustee does not have the right to unilaterally waive the attorney-client privilege. The Court must decide whether the co-client documents can be used at trial and, if so, under what conditions.

The Court concludes the documents can be used at trial because one co-client may not invoke the attorney-client privilege against the other co-client in subsequent adverse litigation between the parties. Although THI is technically not a party to this proceeding, FAS is, and FAS is the THI Receiver's agent and is the real party in interest with respect to the co-client exception. And there is no reason to exclude any of the parties from the courtroom when the co-client documents are introduced during trial because most of the documents are not privileged or protected work product in the first place, and to the extent they are, the privilege can be waived or the privileged material can be redacted.

Background

Starting in 2004, a series of negligence or wrongful death cases were filed against THI and THMI in state court by six probate estates (the “Probate Estates”) that are creditors in this bankruptcy case. For reasons that are still not entirely clear, THI retained lawyers to defend THMI in that litigation. At times, THI has contended it did so under an indemnification agreement. Other times, it contended it did so under a course of dealing. Whatever the reason, THI and THMI were represented by the same lawyers in the negligence actions.¹

Not long after this bankruptcy case was filed, the Trustee (who the Court previously ruled had the right to control THMI) ² requested copies of the litigation files for the negligence cases from the firms that defended THMI. There is no need to recount the whole history of that discovery dispute here. Suffice it to say, THI's state-court receiver, at least some of the law firms that defended THMI, and in-house counsel at FAS all objected to production based on the attorney-client privilege and work-product doctrine. This Court ruled that the Trustee was entitled to litigation files under the co-client exception to the attorney-client privilege,³ and eventually, the Trustee received them.

Naturally, she proposes to use some of the documents she received at the trial in this proceeding. The deadline for exchanging exhibits lists was August 29, 2014. As the Court understands it, the Trustee served two exhibit lists by that date. One exhibit list identified all of the non-confidential documents the Trustee intended on using at trial. The other exhibit list identified just the confidential documents. Objections to proposed exhibits were due September 12, 2014, and under the parties' agreed pre-trial order, any exhibits that were not objected to would be admitted at the outset of the September 22, 2014 trial.

From the Court's review of the record, it does not appear that any of the parties objected to the Trustee's confidential trial exhibits. Of course, none of the Defendants other than FAS had copies of any of the documents identified on the confidential exhibit list. So they could not have raised foundation, hearsay, and other similar objections.⁴ But FAS had at least some (if not all) of the documents, and the Trustee's confidential exhibit list identified the proposed exhibits by Bates-label number. Yet, FAS did not object to any of the confidential documents by the September 12 deadline. So the Trustee asked the Court to consider the confidential or privileged nature of the exhibits on her confidential exhibit list and permit her to use those documents at trial.⁵

The reason for the Trustee's motion really has to do with this Court's previous co-client ruling.⁶ In that ruling, the Court prohibited the Trustee from disclosing the litigation files she received under the co-client exception to any third party who would destroy the privilege.⁷ The Court's principal concern was one raised by the THI Receiver, FAS, and others: namely, not allowing the Trustee to turn the litigation files over to the Probate Estates—her co-Plaintiffs in this proceeding but opposing party in the negligence cases. By previously prohibiting the Trustee from disclosing the litigation files without Court approval, the Court prevented the Probate Estates from gaining access to the defense strategy to the negligence cases they filed—some of which are still pending—as the THI Receiver, FAS, and others feared would happen once the Trustee had access to the files.⁸

Both FAS and the THI Receiver now object to the Trustee's use of any co-client documents at trial. Their objections can be summed up in two points: First, the fact that the Trustee obtained documents under the co-client exception during discovery does not mean she can use them at trial. Second, assuming co-client documents can be used at trial, they can only be used where both co-clients are adverse parties in subsequent litigation and the subject of the subsequent litigation is the same as the subject of the joint representation. The objections are without merit.

Conclusions of Law⁹

FAS's failure to timely object to the co-client documents constitutes a waiver of its objections

As a threshold matter, the Court concludes that FAS waived any objection to the use of the co-client documents. The Trustee timely disclosed her intent to use the co-client documents by identifying them on her witness list. FAS was required to object to the use of those exhibits at trial by September 12, 2014. For some reason, it failed to do so. FAS says that its failure to object does not constitute a waiver because the Trustee, in FAS's view, only listed the documents “aspirationally.” Of course, all exhibit lists are aspirational in the sense that the party serving the exhibit list desires to use the proposed exhibits at trial. In fact, it is the “aspirational” nature of the list—i.e., that the Trustee wants to use the proposed exhibits—that required FAS to object. Because FAS offers no legitimate reason for not objecting to the proposed exhibits, any objections by FAS are waived. Nevertheless, the Court must address the co-client issue on the merits because it has been raised by the THI Receiver.

The Trustee can use the co-client documents at trial

The Court is not convinced there is—as the THI Receiver and FAS initially suggested—a blanket prohibition against the Trustee using the co-client documents at trial (regardless of whether both co-clients are parties). At the conclusion of the September 17, 2014 hearing on this issue, the Court invited FAS and the THI Receiver (and anyone else objecting to co-client documents) to brief whether co-client documents can be used at all at trial or only where the co-clients are adverse parties. Both the THI Receiver and FAS filed memoranda.¹⁰ In its memorandum, FAS misstates the issue the Court requested briefing on and then concedes it was unable to locate any authority on point.¹¹ The THI Receiver seems to concede the first point (i.e., co-client documents cannot be used at trial at all) and relies on commentary to the Restatement (Third) of the Law Governing Lawyers in support of the second point (i.e., co-client documents can only be used during subsequent adverse litigation between the co-clients).¹²

In particular, the THI Receiver relies on comments (d) and (e).¹³ Those two comments stand for the following propositions: (i) one co-client does not have authority to waive the attorney-client privilege with respect to another co-client's communications to the common lawyer; and (ii) one co-client may not invoke the attorney-client privilege in a subsequent proceeding in which the former co-clients are adverse. Neither of the comments to the Restatement supports the THI Receiver's argument that the Trustee should be precluded from using the co-client documents here.

As an initial matter, it is not clear the statement in comment (d) that one co-client can use co-client communications against the other in subsequent adverse litigation between them means that is the only circumstance in which co-client communications may be used. Perhaps there are other circumstances where it would be permitted. And neither party cites any...