In re Colocotronis Tanker Securities Litigation

• Decision Date: 27 March 1978
• Docket Number: MDL No. 264 (CHT) and USDC MDL No. M-21-19.
• Citation: 449 F. Supp. 828
• Parties: In re COLOCOTRONIS TANKER SECURITIES LITIGATION.
• Court: U.S. District Court — Southern District of New York

449 F. Supp. 828

In re COLOCOTRONIS TANKER SECURITIES LITIGATION.

MDL No. 264 (CHT) and USDC MDL No. M-21-19.

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

March 27, 1978.

Pollack & Kaminsky, New York City by Daniel A. Pollack, Martin I. Kaminsky, Neil D. Thompson, New York City, for plaintiff American National Bank & Trust of New Jersey.

Lord, Day & Lord, New York City by Eugene F. Bannigan, Peter J. McKenna, New York City, for plaintiff United Virginia Bank.

Pepper, Hamilton & Scheetz, Philadelphia, Pa. by Barbara W. Mather, Alexander Kerr, Kenneth I. Levin, Philadelphia, Pa., for plaintiff The Fidelity Bank.

Saul, Ewing, Remick & Saul, Philadelphia, Pa. by Norman R. Bradley, Thomas J. Elliott, Philadelphia, Pa., for plaintiffFirst Pennsylvania Bank N. A.

Baker & Botts, Houston, Tex. by Alvin M. Owsley, Jr., Joseph Cialone, Houston, Tex., for plaintiff Texas Commerce Bank.

Gardere, Porter & DeHay, Dallas, Tex. by James A. Donohoe, Dallas, Tex., for plaintiff Republic National Bank of Dallas.

Sullivan & Cromwell, New York City by Philip L. Graham, Jr., Lista M. Cannon, New York City, for defendantEuropean-American Banking Corp.

MEMORANDUM

TENNEY, District Judge.

Pursuant to the direction of the Judicial Panel on Multi-District Litigation, In re Colocotronis Tanker Securities Litigation, Jud.Pan.Mult.Lit., 420 F.Supp. 998(1976), this Court has been supervising pretrial proceedings in the six actions which make up this proceeding.During the concluding phase of document discovery, the primary defendant, European-American Banking Corporation("EABC"), responded to certain of the plaintiffs' document requests by refusing to produce some 1,846 pages of documents, asserting the protection of the attorney-client privilege.The plaintiffs thereafter moved to compel production of these documents, arguing that the attorney-client privilege did not apply as against them and that certain documents were not within the protection of the privilege.For the reasons stated below, the Court concludes that EABC may assert the attorney-client privilege as against these plaintiffs.Decision is reserved, however, on the applicability of the privilege to certain documents, pending discussions between the parties and further briefing, if necessary, of the issues raised in the plaintiffs' reply papers.

At the center of this litigation is a series of transactions in which EABC entered into loans with the Colocotronis group of shipping companies and then established agreements whereby the various plaintiff banks took "participations" in these loans.The loans began in 1972; by late-1975 it became apparent that the financial condition of the Colocotronis group was deteriorating.Thus, in December 1975 there began the "workout," an attempt, which continues to this day, to salvage as much as possible from the loans.The workout was discussed in a series of meetings which began on December 16, 1975 and were attended by the participant banks.By May 1976 several of the banks had concluded that they had grounds for legal action against EABC; the first action was filed on May 7, 1976, and six more ultimately followed, one of which has been settled.

For the most part, the documents at issue on this motion either represent actual communications or reflect the substance of communications between officers of EABC and attorneys in three law firms: the British firm of Coward Chance and the American firms of Shearman & Sterling and Haight, Gardner, Poor & Havens ("Haight, Gardner").¹It would appear from the affidavits submitted to the Court that these firms performed the following functions.(1) In 1972, Coward Chance was retained by EABC to review and advise EABC on "various loan and associated documents" and to make "arrangements for completion and execution of these documents."In the period 1972-75 the firm acted as counsel"to EABC on an ongoing basis in connection with the administration" of the Colocotronis loans.Coward Chance has also been involved in the workout.Affidavit of Keith Clark, sworn to March 2, 1978, ¶¶ 3-5.(2) Shearman & Sterling was retained in 1972"to review certain Colocotronis loan agreements and in particular to advise EABC with regard to the applicability of New York law to the contemplated loans and to draft a basic participation agreement between EABC and participants in such loans."These services were rendered from 1972-75.Thereafter, Shearman & Sterling was also involved in the workout.Affidavit of Edward Hallam Tuck, sworn to March 3, 1978, ¶¶ 3-5("Tuck Affidavit").(3) Haight, Gardner's involvement appears to have been oriented solely toward advising EABC during the workout; the firm was retained on December 10, 1975"as special admiralty counsel by EABC to review EABC's loan agreements with certain ship-owning companies in the Colocotronis Group and in particular to advise EABC with regard to the possibility of foreclosing mortgages and taking other action to enforce EABC's rights in security which EABC held as collateral for the loans."Affidavit of Richard B. Barnett, sworn to March 3, 1978, ¶ 3("Barnett Affidavit").

Attorney-Client Privilege

The plaintiffs base their challenge to EABC's assertion of the attorney-client privilege on two alternatively phrased theories.First, they argue that the participant banks must be regarded as actual "clients" of the three law firms and point to certain facts which allegedly give them this status.Second, they contend that even if they are not to be regarded as clients-in-fact, the structure of the loan participations and the relationship of the banks to EABC bring the participant banks within a special category of parties against whom it is improper to assert the attorney-client privilege.In this regard, they look particularly to those cases which have held that a corporation or corporate fiduciaries cannot assert the privilege against the shareholders or debenture holders of the corporation.The Court concludes that neither of these contentions will succeed under the facts of this case.

Joint-Client Theory

The plaintiffs argue, quite properly, that if any attorney represents two parties with respect to a single matter, then communications with respect to that matter are not privileged from disclosure in a subsequent dispute between the two clients.The cases which rely on this rule depend, however, on a finding that the attorney in question actually did represent both clients simultaneously.For example, in Simpson v. Motorists Mutual Insurance Company,494 F.2d 850, 855(7th Cir.), cert. denied,419 U.S. 901, 95 S.Ct. 184, 42 L.Ed.2d 147(1974), the plaintiff was the assignee of all rights under an insurance policy.In a prior action involving the policy, the assignor had been represented by the insurance company's attorney, which was now representing the defendant insurance company in the action by the assignee.There was no dispute that the attorney had actually represented the insured in the earlier trial, and the court held that the insurance company could not assert the privilege in the subsequent action.Id. at 855.

In the instant case, however, there is considerable reason to question whether the three firms ever "represented"the plaintiff banks.In contending that such representation existed, the plaintiffs point to several facts.First, they argue that certain attorneys from the firms attended the workout meetings commencing in December 1975 and continuing into the Spring of 1976; they point out that the attorneys were introduced at the first meeting as "our attorneys."Affidavit of Paul Poullard, sworn to March 1, 1978, at 3("Poullard Affidavit").Second, they call attention to the fact that letters seeking reimbursement for the legal services rendered by the firms were sent by EABC to the participant banks and that these letters stated:

The current situation with the Colocotronis Group has necessitated the use of special legal counsel, consultants and the employment of Peat, Marwick, Mitchell & Co.This was of the utmost importance to provide the Banks with legal advice and financial information to assist in the appraisal of the viability of the loans.

Letter of Rudolf P. Guenzel, Senior Vice President, EABC, to United Virginia Bank, dated April 12, 1976, appended as Exhibit B to Affidavit of W. Dennis West, sworn to February 28, 1978.Apparently only two of the six banks have reimbursed EABC for these expenses, however.Affidavit of Michael Rassmann, sworn to March 2, 1978, ¶ 6("Rassmann Affidavit").

The relevance of these alleged indicia of attorney-client relationship is limited in the first instance by the fact that they date solely from the workout period.No comparable facts from the period preceding December 16, 1975, have been cited to the Court, leading to the inescapable conclusion that before that time the firms in question represented EABC solely and exclusively.It is evident that EABC sought out the firms, engaged in continuous communication with them and paid them.The firms in turn advised EABC on the loans, which were solely between EABC and the Colocotronis group, and drafted the participating agreements with a view to embodying sufficient protection for the interests of EABC.Thus, no claim can be made that these firms were actually representing the participant banks in the pre-workout period, in which approximately five-sixths of the disputed documents were generated.

Similarly, an examination of the full context of the workout period leads this Court to conclude that no actual attorney-client relationship existed between the firms and the plaintiff banks in that period.Wigmore's classic definition of the attorney-client privilege has been accepted in this circuit.See, e. g., United States v. Kovel,296 F.2d 918, 921(2d Cir.1961):

(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made

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