In re Carter

• Decision Date: 09 July 1986
• Docket Number: Adv. No. SA 85-0368 RP.,Bankruptcy No. SA 83-05401 RP
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California
• Parties: In re Thomas D. CARTER and Diana M. Carter, dba the Carter Company, Debtor. Curtis B. DANNING and James J. Joseph, Co-Trustees of Thomas D. Carter and Diana M. Carter, dba the Carter Company, Plaintiffs, v. James M. DONOVAN, an Individual dba Law Offices of James M. Donovan, John C. Saginaw, an Individual, dba Law Offices of John C. Saginaw, fdba Law Offices of Donovan & Saginaw, Defendants.

62 B.R. 1007 (1986)

In re Thomas D. CARTER and Diana M. Carter, dba the Carter Company, Debtor.

Curtis B. DANNING and James J. Joseph, Co-Trustees of Thomas D. Carter and Diana M. Carter, dba the Carter Company, Plaintiffs, v. James M. DONOVAN, an Individual dba Law Offices of James M. Donovan, John C. Saginaw, an Individual, dba Law Offices of John C. Saginaw, fdba Law Offices of Donovan & Saginaw, Defendants.

Bankruptcy No. SA 83-05401 RP, Adv. No. SA 85-0368 RP.

United States Bankruptcy Court, C.D. California.

July 9, 1986.

Michael Goldstein of Stutman, Treister & Glatt, Los Angeles, Cal., for co-trustees.

Alan G. Tippie of Sulmeyer, Kupetz, Baumann & Rothman, Los Angeles, Cal., for respondents.

RALPH G. PAGTER, Bankruptcy Judge.

The Co-trustees' motion to compel production of documents and answers to deposition questions came on regularly for hearing on April 21, 1986. Michael Goldstein appeared on behalf of movants. Alan Tippie appeared on behalf of respondents. At the conclusion of the hearing, the court held that the real party in interest, Thomas D. Carter ("Carter"), was entitled to respond to the motion, and that the Co-trustees were entitled to reply to Carter's response. Subsequent to receipt of Carter's response and the Co-trustees' reply, the matter was taken under submission on May 29, 1986. For the reasons stated below, Co-trustees' motion is DENIED.

FACTS

The Carter Company, Tom Carter Enterprises, Inc., Huck's Holiday, Inc., and Tom Carter Enterprises, Las Vegas, Inc. filed their respective voluntary Chapter 11 petitions on December 8, 1983. Thomas and Diana Carter filed their joint voluntary Chapter 11 petition on December 9, 1983. Subsequent to consent by all debtors, the court appointed the Co-trustees on December 14, 1983.

Shortly after filings, all of the debtors requested and received thirty-day extensions to file schedules and statements of affairs. However, none of the debtors met the deadline. This ultimately resulted in a motion for sanctions, in each case, for failure to do so. On May 24, 1984 this court ordered the debtors to file schedules and statements of affairs, specifying that debtors were allowed to assert the Fifth Amendment regarding matters believed to be incriminating. On June 6, 1984, each debtor filed a statement asserting the Fifth Amendment as to all information required in the schedules and statement of affairs.

Due to the on-going criminal investigation of Carter, he filed a motion to dismiss all of the pending cases. The motions to dismiss were denied pursuant to an order entered January 28, 1985. In the interim period, schedules and statements of affairs were filed in the Tom Carter Enterprises, Tom Carter Enterprises-Las Vegas and Huck's Holiday cases. However, it appears that no schedules or statements of affairs have been filed in the Thomas and Diana Carter and Carter Company cases.

On May 1, 1984, respondents Donovan and Saginaw filed a statement, in each case, pursuant to Bankruptcy Rule 2016(b) indicating that they had received $50,000 from the debtor as a retainer and that the source of the funds was a loan to Carter. The statements further indicate that respondents received the retainer for representation of all of the related debtors.

Also on May 1, 1984, Mark Wray, Esq. of Helsing & Rockwell filed a Bankruptcy Rule 2016(b) statement indicating that he received a retainer of $10,000 for representation of the related debtors and that the source of the funds was a loan to Carter. Wray was authorized to be employed as counsel for the related debtors pursuant to orders entered October 9, 1984. Neither Donovan nor Saginaw has been authorized by this court to be employed as counsel for any of the related debtors.

The Statement of Affairs filed in Tom Carter Enterprises, Inc. indicates that debtor paid Donovan & Saginaw $37,584.85 and Harris & Donovan $58,614.05 respectively within one year of the filing. The Statement of Affairs filed in Tom Carter-Las Vegas indicates that debtor consulted Donovan & Saginaw, but paid no money to them within one year of the filing. The statement filed in Huck's Holiday indicates consultation only with Helsing & Rockwell, and no payments to or consultation with Donovan & Saginaw. Each of the statements was signed by Thomas D. Carter, in the appropriate representative capacity.

All of the cases were consolidated for purposes of administration pursuant to an order entered March 14, 1985. The Tom and Diana Carter and Carter Company cases were consolidated for all purposes on the same date.

On May 15, 1985, Co-trustees filed a turnover action against respondents James M. Donovan ("Donovan") and John C. Saginaw ("Saginaw") seeking to recover $50,000 paid to them prior to commencement of the above cases, as a retainer for legal services. Co-trustees allege that said sum is property of the estate and that respondents have not been employed as debtors' bankruptcy counsel. Respondents answered the complaint by admitting receipt of the $50,000, but denying all other material allegations of the complaint.

During the course of discovery, movants have sought production of all documents relating to the source of the funds and the nature of the services rendered to debtors. Co-trustees have also deposed respondent Donovan.

Defendants produced copies of their Case Service Records, time sheets, that purport to specify the dates that services were rendered and the amount of attorney time. These records also include a description of the services rendered. However, the copies produced were redacted so that such descriptions were blacked-out.

When Co-trustees deposed Donovan, he refused to answer any questions about the source of the funds or the nature of the services rendered and asserted the attorney-client privilege.

Carter has been charged with a total of seventy-four counts of grand theft and securities violations. His preliminary hearing recently commenced in state court, and is expected to last four to seven weeks. Carter in his response to the instant motion, raised the Fifth Amendment privilege against self-incrimination.

DISCUSSION OF LAW

Respondents and Carter assert that the Fifth Amendment privilege against self-incrimination and the attorney-client privilege prevent disclosure of the requested information. Although the Fifth Amendment appears to be inapplicable, the attorney-client privilege will, if properly established, provide requisite protection.

A. The Fifth Amendment

Amendment V to the United States Constitution provides: "No person . . . shall be compelled in any criminal case to be a witness against himself. . . ."

Respondents indicate that they served as counsel to Carter, both before and after filing of the bankruptcy petitions, and held a number of confidential discussions with Carter pertaining to his financial dealings. Carter indicates that he intends to raise his Fifth Amendment privilege in the state court proceedings and asserts the privilege herein regarding said discussions.

Carter and respondents, on behalf of Carter, assert that requiring answers to the deposition questions and production of unexpurgated time sheets may result in disclosure of information helpful to the state prosecutor and a waiver of his Fifth Amendment rights regarding certain financial matters likely to be at-issue in state court.

Co-trustees respond that disclosure of the requested information, at least in context sought, does not violate the Fifth Amendment in that Carter, himself, is not being compelled to affirm the truth of any information disclosed. In other words, the discovery sought is not testimonial and therefore not covered by the privilege against self-incrimination.

The United States Supreme Court in Fisher v. United States, 425 U.S. 391, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976) held that production of tax records by an attorney will not violate his client's Fifth Amendment rights because the turnover of the records does not constitute compelled testimony by the clients.

The taxpayer\'s privilege under the Fifth amendment is not violated . . . because enforcement against a taxpayer\'s lawyer would not `compel\' the taxpayer to do anything—and certainly would not compel him to be a `witness\' against himself.

The taxpayers\' Fifth Amendment privilege is therefore not violated by enforcement of the summonses directed toward their attorneys. This is true whether or not the Amendment would have barred a subpoena directing the taxpayer to produce the documents while they were in his hands.

. . . . .

The Amendment protects a person from being compelled to be a witness against himself. Here the taxpayers retained any privilege they ever had not to be compelled to testify against themselves and not to be compelled to produce private papers in their possession. This personal privilege was in no way decreased by the transfer. It is simply that by reason of the transfer of the documents to the attorneys, those papers may be subpoenaed without compulsion on the taxpayer. The protection of the Fifth Amendment is therefore unavailable.

Id. 425 U.S. at 397-99, 96 S.Ct. at 1574-75 (emphasis in original). The court recently reaffirmed this holding in Securities and Exchange Commission v. Jerry T. O'Brien, Inc., 467 U.S. 735, 741-44, 104 S.Ct. 2720, 2725-26, 81 L.Ed.2d 615, 621-22 (1984). The Fisher decision appears to be directly on-point concerning Carter's Fifth Amendment rights herein. Therefore, the court concludes that the Fifth Amendment does not bar the requested discovery.

B. The Attorney Client Privilege

The Court in Fisher, supra, held that the Fifth Amendment was inapplicable, but indicated that information in the hands of third parties might be protected by other sources, including the attorney-client privilege. Fisher, supra, 425 U.S. at 400, 96 S.Ct. at 1575-76. Although the Court in Fisher held that the attorney-client privilege did not apply, the nature of the information sought herein makes the...