In re Circle K Corp.

• Court: U.S. Bankruptcy Court — Southern District of New York
• Writing for the Court: STUART M. BERNSTEIN
• Citation: In re Circle K Corp., 199 B.R. 92 (Bankr. S.D.N.Y. 1996)
• Decision Date: 07 August 1996
• Docket Number: S.D.N.Y. Misc. No. 95-437.,Bankruptcy No. 90-5052-PHX-GBN to 90-5075-PHX-GBN.,Arizona Adversary No. 93-1123.
• Parties: In re The CIRCLE K CORP., et al., Debtors. S.N. PHELPS & COMPANY, Commonwealth Oil Refining Company, Inc. and Realmark Holdings, Inc., Plaintiffs, v. The CIRCLE K CORPORATION and its affiliated companies, and CK Acquisition Corp., Defendants.

199 B.R. 92 (1996)

In re The CIRCLE K CORP., et al., Debtors S.N. PHELPS & COMPANY, Commonwealth Oil Refining Company, Inc. and Realmark Holdings, Inc., Plaintiffs, v. The CIRCLE K CORPORATION and its affiliated companies, and CK Acquisition Corp., Defendants.

Bankruptcy No. 90-5052-PHX-GBN to 90-5075-PHX-GBN. Arizona Adversary No. 93-1123. S.D.N.Y. Misc. No. 95-437.

United States Bankruptcy Court, S.D. New York.

August 7, 1996.

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Thomas P. Puccio, New York City, Winthrop, Stimson, Putnam & Roberts (Richard L. Epling, Frederick A. Brodie, Robert E. Bailey, of counsel), New York City, Co-Counsel to Plaintiff.

Gibson, Dunn & Crutcher (Mitchell A. Karlan, Meredith C. Braxton, Leslie E. Moore, of counsel), New York City, for Defendants.

Anderson, Kill, Olick & Oshinsky, P.C. (Martin F. Brecker, Gabriella Jordan, of counsel), New York City, Subpoenaed Person, Pro Se.

Andrews & Kurth, L.L.P. (James D. Higgason, Jr., of counsel), New York City, Subpoenaed Person, Pro Se.

Harvey Greenfield, New York City, for Intervenor Jerry Krim.

MEMORANDUM DECISION REGARDING WORK PRODUCT PRIVILEGE

STUART M. BERNSTEIN, Bankruptcy Judge.

Three former debenture holders of the Circle K Corporation ("Circle K") commenced this adversary proceeding in the United States Bankruptcy Court for the District of Arizona. The defendants are the reorganized debtors ("New Circle K") and CK Acquisitions Corporation ("CK"), the entity that purchased all of New Circle K's newly issued stock under the plan. The plaintiffs seek legal and equitable relief in connection with their claim that the defendants fraudulently procured Circle K's confirmation.

The defendants seek to compel the disclosure of three documents prepared by nonparty Anderson, Kill, Olick, & Oshinsky, P.C. ("AKOO") in the course of its representation of the Official Committee of Debenture Holders in the Circle K bankruptcy. AKOO opposes the disclosure, invoking the work product doctrine. After considering the parties' arguments and examining the three documents, I conclude that the latter contain opinion work product which need not be disclosed. Accordingly, the defendants' motion to compel disclosure is denied. I further conclude that sanctions are not warranted.

FACTS

The facts underlying this dispute are set out in an unreported decision setting forth my conclusion, inter alia, that AKOO did not waive the work product privilege by failing to provide a privilege log when it initially interposed its objection to the document request. S.N. Phelps & Co. v. Circle K Corp. (In re Circle K Corp.), S.D.N.Y. Misc. No. 95-437 (Bankr.S.D.N.Y. May 30, 1996) ("Slip op."). I repeat only those facts necessary to provide a context for this decision.

Circle K and its affiliates filed their chapter 11 cases in the United States Bankruptcy Court for the District of Arizona on May 15, 1990. During the case, an official committee (the "Committee") was appointed to represent the debenture holders, a constituency that included the plaintiffs as well as the intervenor, Jerry Krim. The Committee retained AKOO as its counsel, and Martin Brecker, a member of AKOO, was in charge of the matter.

New Circle K confirmed its plan on June 16, 1993. Under the plan, New Circle K sold all of its newly issued stock to CK for $399.5 million.¹ S.N. Phelps & Co. v. Circle K Corp. (In re Circle K Corp.), 171 B.R. 666, 667 (Bankr.D.Ariz.1994) ("Circle K I"). The plan did not provide for any distribution to Circle K's debenture holders, and the Committee vigorously opposed it. Among other things, the Committee believed that Circle K's management had undervalued the debtor's assets, which, if properly valued, would have been sufficient to pay a dividend to the debenture holders.

Following the Committee's unsuccessful direct challenge to the confirmation order, the plaintiffs commenced this adversary proceeding in the Arizona bankruptcy court to revoke the confirmation order under 11 U.S.C. § 1144. They charged that the defendants had fraudulently procured the confirmation order, primarily by concealing the right of Circle K's management to purchase equity in New Circle K, and by undervaluing the debtor in the confirmation process. Circle K I, 171 B.R. at 667-68. In other words, management "low balled" the price and sold out the debenture holders because they were to receive an undisclosed benefit from the buyer. Chief Judge Nielsen dismissed the complaint as moot, ruling that the plan had advanced to the point that he could not fashion effective relief even if the plaintiffs prevailed. Id. at 670.

The plaintiffs then filed an amended complaint which relied upon the same allegations, but sought damages and equitable relief instead of revocation. The defendants again moved to dismiss the complaint, or in the alternative, for summary judgment. Chief Judge Nielsen denied the motion, holding that although the plaintiffs could not revoke the confirmation, they could seek damages on account of the alleged fraud. S.N. Phelps & Co. v. Circle K Corp. (In re Circle K Corp.), 181 B.R. 457, 465 (Bankr. D.Ariz.1995) ("Circle K II"). To overcome the res judicata effect of the confirmation order, the plaintiffs would have to demonstrate at trial that they did not discover the fraud prior to confirmation, id. at 462, and could not have discovered it through the exercise of due diligence. See id. at 463.

In due course, the defendants issued a subpoena duces tecum to AKOO, by Martin Brecker, on June 30, 1995. AKOO immediately objected. The defendants then moved to compel compliance with the subpoena in this Court, and after some legal skirmishing among the parties, narrowed their request to documents concerning management incentives, such as bonuses, success fees or equity participations, under the debtor's plan. AKOO eventually produced a privilege log identifying four documents it maintained were attorney work product, but thereafter withdrew the claim as to one of them, leaving only three. AKOO also supplemented the privilege log with the Affidavit of Martin Brecker, sworn to June 6, 1996 ("Brecker Aff.".)

Two depositions that took place during this adversary proceeding bear directly on the work product issue. In March, 1994, the parties deposed Martin Brecker. At his deposition ("Brecker Dep."), Brecker said, among other things, that he wanted to discover the identity of Investcorp's investors, including whether they were part of Circle K's management, because it might help the Committee in its litigation. (Id. at 17.) He also testified that he was interested in learning if the investors included members of management because he believed that the purchase price was inadequate and he was looking for reasons why the company was willing to accept such a low price. (Id. at 18.) Finally, he stated that he was concerned because the bondholders were getting nothing under the plan, and he was looking for reasons why management was willing to sell the business for such a low price. (Id.) The defendants point to this testimony as a waiver of the work product privilege concerning management incentives and their connection to the allegedly inadequate sale price.

The defendants also deposed Jerry Krim. Krim is a former debenture holder who has intervened in this adversary proceeding, and is seeking to represent a class of debenture holders. At his March 1996 deposition ("Krim Dep."), Krim testified about certain conversations he had with AKOO attorneys during the Circle K proceedings and prior to the confirmation of the debtor's plan. He stated that he did not retain a personal attorney to represent him in connection with the bankruptcy case (Id. at 38.) To keep abreast, he spoke to Committee counsel, but does not remember the name of the attorneys. (Id. at 42.) He called several times, and was referred to a woman attorney, but he does not remember her name. (Id. at 43.) He asked her to keep him apprised of the details of the case. (Id. at 44.)

At one point, the AKOO attorney told Krim "that they had an expert that evaluated the value of the — franchise, and it was much higher than the Court was placing on it." (Id.) She also told him that in her opinion, the auction was not a true auction (id. at 45), and discouraged others from bidding. (Id. at 47.) She and Krim never discussed Circle K's management's attitude toward the auction, the bidders or the bondholders. (Id. at 45-46.) The defendants point to the original conversations, and to Krim's testimony about those conversations, as additional grounds to find a waiver.

DISCUSSION

A. Introduction

The work-product rule is a qualified privilege codified in Rule 26(b)(3) of the Federal Rules of Civil Procedure.²Upjohn Co. v. United States, 449 U.S. 383, 398, 101 S.Ct. 677, 687, 66 L.Ed.2d 584 (1981); Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 471 (S.D.N.Y.1993). First recognized by the Supreme Court in the landmark decision of Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947), the doctrine "shelters the mental processes of the attorney, providing a privileged area within which he can prepare his client's case." United States v. Nobles, 422 U.S. 225, 238, 95 S.Ct. 2160, 2170, 45 L.Ed.2d 141 (1975). The immunity applies both to the tangible work product and deposition testimony concerning the substance of that work product. Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. at 471.

The work product doctrine represents a balance struck between the right to know and the lawyer's ability to prepare his case:

Inherent in recognition of a privilege for attorney work product is a judgment that society\'s interest in ferreting out the truth through litigation will not best be served by exposing a party\'s case to impeachment by documents reflecting the opinions or preliminary evaluations of its counsel, even if the party\'s position in court is inconsistent with counsel\'s private thoughts.

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