In re Foster
| Decision Date | 04 August 1997 |
| Docket Number | Bankruptcy No. 96-20056-SBB. |
| Parties | In re Bryan K. FOSTER, SS # XXX-XX-XXXX, Debtor. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado |
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Mark Redmiles, Merrick, Calvin & Merker, L.L.P., Denver, CO, for Jeffrey Hill, Chapter 7 Trustee.
John C. Smiley, Lindquist, Vennum & Christensen P.L.L.P., Denver, CO, for Bryan K. Foster.
THIS MATTER comes before the Court on the "Trustee's Motion for Turnover or Disclosure of Recorded Information Relating to Debtor's Property or Financial Affairs" filed February 12, 1997, Reinhart, Boerner's Objection thereto filed February 24, 1997, the Debtor's Objection thereto filed February 25, 1997, and the Trustee's Response to the Objections filed April 7, 1997. The Court, having reviewed the file and being advised in the premises, makes the following findings of fact and conclusions of law, and enters the following order.
This is a matter of first impression. The Court is presented with the unique circumstance of an individual debtor, who has been convicted of criminal activity, but who is currently appealing that conviction, and his former (civil and criminal) attorneys' resistance to a Chapter 7 trustee's efforts to obtain certain documents and information regarding civil causes of action belonging to the estate. The Debtor and his attorneys claim (a) attorney-client privilege, (b) work product privilege, and (c) the right to withhold turnover of documents predicated on the Debtor's right against self-incrimination and right to counsel in the Fifth and Sixth Amendments to the Constitution.
For the reasons set forth below, this Court finds that, under the particular facts of this case, neither the attorney-client privilege, the work-product doctrine, nor the constitutional rights asserted by the debtor, bar the production of documents requested by the Trustee from Debtor's counsel.
An involuntary petition for relief pursuant to Chapter 7 of the Bankruptcy Code was filed against the Debtor on August 15, 1996 (the "Petition Date"). The Debtor consented to the entry of an Order for Relief and an Order for Relief was entered on September 18, 1996. The Debtor voluntarily complied with the statutory requirement and filed his statement of financial affairs and schedules on October 11, 1996. 11 U.S.C. § 521.
The Debtor was the subject of a criminal prosecution in the United States District Court for the District of Montana (U.S. v. Foster, Criminal Case No. 96CR17 CLL, the "Criminal Case"). That case resulted in a criminal conviction for wire fraud and on February 13, 1997, the Debtor was sentenced to a term of 41 months imprisonment. The Debtor has filed a Notice of Appeal and has indicated that he intends to request reversal of his conviction and remand to the District Court for a new trial.
Additionally, on the Petition Date, the Debtor was a plaintiff in three separate civil actions. Two cases were pending in the United States District Court for the District of Colorado, Case No. 96-S-1288 (the "Evro Case")1 and Case No. 96-K-1479 (the "Codepa Case").2 A third case was pending in the Cook County, Illinois Circuit Court (the "Interac TV Case").3 The Evro Case and the Codepa Case represent two of the largest potential assets of the Debtors' estate.
Attorneys with the law firm of Reinhart, Boerner, Van Dueren, Norris & Rieselbach, P.C. (the "Reinhart Firm"), 1700 Lincoln Street, Suite 3725, Denver, Colorado, represented the Debtor in both the Criminal Case4 as well as in the Evro and Codepa Cases5 prior to the Petition Date.
The Reinhart Firm also participated in the preparation of a complaint filed pre-petition in the United States District Court for the District of Montana (the "Baldassin Claims") which was dismissed without prejudice prior to the Petition Date due to the fact that certain unspecified statutory prerequisites to the action had not been satisfied.
Attorney Terrance J. McConville ("McConville"), 36 S. Wabash, Suite 1300, Chicago, Illinois, represented the Debtor as local counsel for the Reinhart Firm in the Interac TV Case prior to the Petition Date.
The Trustee initially intended to have the Reinhart Firm employed as special counsel in the within bankruptcy case to assist him in litigating, collecting, and reducing to money the estate property represented by the Evro, Codepa, Interac TV Cases, and the Baldassin Claims. An engagement letter outlining the terms of such employment was prepared and signed by the Trustee and the Reinhart Firm on October 1, 1996.6 Following dissemination of the proposed employment arrangement to the Estate's creditors, but prior to a formal request being filed with the Court, the Reinhart Firm withdrew its consent to the agreement, based on objection expressed thereto by counsel for the petitioning creditors.
By way of the instant Motion, the Trustee has requested that the Reinhart Firm and McConville turnover to the Trustee documents and recorded information in their possession so that the Evro, Codepa, Interac TV Cases, and the Baldassin Claims and the pending litigation can be evaluated, and, if appropriate, pursued by the Trustee and his attorneys independent of the Reinhart Firm.
On January 8, 1997, the Reinhart Firm voluntarily turned over certain documents in its possession.7 Both the Reinhart Firm and McConville refused to turnover other documents, claiming the protection of either the attorney work product privilege or the attorney-client privilege.8 Further, the Reinhart Firm asserts that the disclosure of the withheld documents9 could compromise the Debtor's criminal case in the event that a new trial is ordered as a result of his current appeal. Specifically, the Reinhart Firm maintains that disclosure of these documents "would seriously impinge the Debtor's Fifth Amendment right to remain silent and his Sixth Amendment right to assistance of counsel." (Reinhart Objection, p. 4).
The thirty-six documents being withheld by the Reinhart Firm are identified on a Log to Documents which specifies the type, date, and author of each document, recipients of such document, and the nature of the claimed privilege asserted for each document. The Log and the documents in contention here are not, and do not consist of, any materials in the files maintained by the Reinhart Firm for defense of the Debtor in his criminal case. The documents at issue, now before this Court, are documents from the Reinhart Firm's files pertaining only to the civil actions.10
The Debtor stresses, by way of his Objection, that he has not and does not waive "any of his work product privileges, his attorney-client privileges, or his other rights."
This Court has jurisdiction over the instant matter pursuant to 28 U.S.C. § 157.
In general, because evidentiary privileges operate to exclude relevant evidence and thereby block the judicial fact finding function, they are not favored and, where recognized, must be narrowly construed. In re Williams, 152 B.R. 123, 127 (Bankr. N.D.Tex.1992).
Rule 9017, Fed.R.Bankr.P., provides that the Federal Rules of Evidence apply in cases under the Bankruptcy Code. Federal Rule of Evidence 501 provides that, except as otherwise required, the existence of privileges is governed by federal common law, unless, in a civil action, state law provides the rule of decision. Although determination of property of the estate is dependent upon state law, the ultimate determination is made under federal law. See, In re Carter, 62 B.R. 1007, 1011 (Bankr.C.D.Cal.1986).
The attorney-client privilege asserted by the Debtor and the Reinhart Firm presents the most difficult issue before this Court. Simply stated, the question is: With respect to recovering assets of an estate in the nature of pre-petition litigation, may a bankruptcy trustee require turnover of documents from the debtor's counsel?
This Court concludes that the answer is "yes." The right to assert an attorney-client privilege is acquired by the trustee in bankruptcy in a situation where, as here, the trustee has become entitled to and the estate is owner of assets in the nature of a debtor's pre-petition causes of action against third parties.
Hodges, Grant & Kaufmann v. U.S., 768 F.2d 719, 720-721 (5th Cir.1985) (footnotes omitted).
"To create an attorney-client privilege, the following facts must be established: (1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar or a court, or his subordinate and (b) in connection with this communication is acting as a lawyer, (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of others (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services . . . and not (d) for the purpose of committing a crime or tort; and (4) the privilege has . . . not been waived." In re Grand Jury Subpoenas Dated December 18, 1981 and January 4, 1982, 561 F.Supp. 1247, 1251 (E.D.N.Y.1982) (citing U.S. v. United Shoe Machinery Corp., 89 F.Supp. 357, 358 (D.Mass.1950)).
It is a well-established axiom that the attorney-client privilege belongs to the client, as a general...
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