In re Group, Case No. 14-00380

• Decision Date: 14 September 2016
• Docket Number: Case No. 14-00380
• Parties: In re BELTWAY LAW GROUP, LLP, a/k/a American Law Partners, Debtor.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

In re BELTWAY LAW GROUP, LLP, a/k/a American Law Partners, Debtor.

Case No. 14-00380

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA

September 14, 2016

(Chapter 7)

Not for publication in West's Bankruptcy Reporter.

MEMORANDUM DECISION AND ORDER RE MOTION TO COMPEL

This addresses the Motion to Compel Discovery (Dkt. No. 88) filed by Marc Chafetz and the debtor against Susan Ray. The Motion seeks in part to compel the production of documents that were withheld by Ms. Ray under the assertion of the attorney-client privilege.¹ At an October 15, 2015 hearing, and as memorialized in an order of that same date (Dkt. No. 96), the court set a deadline for Ms. Ray to supplement her objection to the Motion by filing any additional documents from the arbitration record that she contends show that there was not awaiver of the attorney-client privilege.² Ms. Ray has supplemented her opposition in accordance with the court's order, and has likewise submitted the six disputed documents under seal for in camera review.

The issues pertinent to whether the court should compel the production of any of the six documents submitted to the court for in camera review are: (1) whether the documents would, absent waiver, be protected by the attorney-client privilege; (2) whether Ms. Ray waived the attorney-client privilege in the arbitration proceeding by repeatedly invoking a reliance on advice of counsel defense, and if so, the scope of that waiver; (3) whether Mr. Ray waived the privilege by virtue of disclosures made to the arbitrator, and if so, the scope of that waiver; and (4) whether the waiver of the privilege (if such a waiver is found) applies to any of the documents.

For reasons explained in more detail below, I find that the six documents are covered by the attorney-client privilege, and although Ms. Ray has disclosed two confidential attorney communications, the resulting waiver of privilege is narrow anddoes not apply to the subject matter of the six documents withheld by Ms. Ray on the basis of privilege. In other words, I find that Mr. Ray has not waived the privilege as to these six documents. Accordingly, I will deny the part of the Motion that seeks to compel the production of the documents.

I

The Motion contends that Ms. Ray has waived the attorney-client privilege by virtue of her repeated reliance on an advice of counsel defense in the arbitration proceeding. The Motion contends that such waiver extends to communications between her and her attorneys regarding this bankruptcy case. Specifically, the Motion (at 5-6) contends:

In the related Arbitration, Mr. Chafetz argued, inter alia, that "the Rays' two bankruptcy petitions [were] part of a pattern of delay." Ex. 8, 13-14 (capitalization altered). In response to that motion, Mrs. Ray invoked the "advice of counsel" defense no fewer than eight times, with regard to literally all of the factual allegations alleged in this matter. Ex. 9, 41 (regarding "escrow" of Beltway funds and payments to herself and her attorneys); id. at 45 ("Mrs. Ray retained Counsel and ultimately, upon the advice of counsel, initiated the Arbitration"); id. at 69-70, 106, 119, 125-27, 166-68 (denying she fraudulently converted Beltway funds by claiming a right to "reimbursement" and "compensation" because "[a]t all times, Mrs. Ray was acting upon the advice of counsel"); id. at 136-42 (defending her "intent" with regard to a claim for punitive damages in general because "[a]t all times. [sic] Mrs. Ray was acting upon the advice of counsel"). If a communication is relevant to these proceedings, then Mrs. Ray has waived any attorney-client privilege that might [have] otherwise existed over it.

The Motion's Exhibit 9, to which the Motion points in support ofthe claim of waiver, is Ms. Ray's opposition to a Motion for Partial Summary Judgment, filed in the arbitration proceeding.

A.

The D.C. Circuit applies the following test to determine if the attorney-client privilege attaches to a communication:

The [attorney-client] privilege applies only if (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 of 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 strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client."

In re Sealed Case, 737 F.2d 94, 98-99 (D.C. Cir. 1984) (quoting United States v. United Shoe Machinery Corp., 89 F. Supp. 357, 358-50 (D. Mass. 1959); Zelaya v. UNICCO Serv. Co., 682 F. Supp.2d 28, 38 (D.D.C. 2010) (specifying that In re Sealed Case provides the controlling test for determining if the privilege attaches). Having reviewed all of the documents submitted to me for in camera review, I conclude that they all easily satisfy this test, subject to the question of whether the privilege has been waived.

It is well-established that a litigant can waive the attorney-client privilege if she raises advice of counsel as a defense to liability. The waiver, itself, however, is triggerednot by the assertion of the defense, but rather by the disclosure of an otherwise privileged communication in support of the asserted defense. See Abbott Laboratories v. Baxter Travenol Laboratories, Inc., 676 F. Supp. 831 (N.D. Ill. 1987) (defendant's production of three written opinions in support of an advice of counsel defense is what effectuated a waiver); JJK Mineral Co., LLC v. Swiger, 292 F.R.D. 323, 332 (N.D.W. Va. 2013) (an opponent's failure to raise attorney-client privilege as a defense to a request for production of protected documents, which request was motivated by the opponent's assertion of a reliance on advice of counsel defense, and the opponent's production of some protected documents, constituted waiver); Fuji Photo Film Co. v. Benun (In re Benun), 339 B.R. 115, 132 (Bankr. D.N.J. 2006) (attorney's advice is placed at issue when litigant seeks to limit liability by describing the attorney's advice, but such advice is not placed at issue if litigant specifically waives advice of counsel allegations alluded to in earlier discovery or motion practice). Stated another way, in order to have waived the privilege, Ms. Ray must have disclosed the content of a communication such that it would be unfair to foreclose an inquiry into the substance of all other communications relating to the same subject matter, lest Ms. Ray be permitted selectively to disclose only those communications that work in her favor. See JJK Mineral Co., LLC v. Swiger, 292 F.R.D. 323, 332 (N.D.W.Va. 2013) ("The underlying principle supporting waiver when a party relies upon the advice of counsel defense is fairness. A party should not be allowed to rely on self-serving documents in its defense while withholding potentially damaging information under the guise of the attorney-client privilege.").

If, during the course of the arbitration, Ms. Ray disclosed the content of any confidential communications between her and her attorneys, either defensively or to establish a claim against her adversary in the arbitration, she has waived the attorney-client privilege as to all other communications on that same subject. United States v. Plache, 913 F.2d 1375, 1380 (9th Cir. 1990), quoted in United States v. Brugnara, 2015 WL 1907513, at *6 (N.D. Cal. Apr. 23, 2015). Once such a waiver is made, "the privilege is generally lost for all purposes and in all forums." Genentech, Inc. v. U.S. Int'l Trade Comm'n, 122 F.3d 1409, 1416 (Fed. Cir. 1997), quoted in Potomac Elec. Power Co. v. United States, 107 Fed. Cl. 725, 727 (Fed. Cl. 2012); Navajo Nation v. Peabody Holding Co., 255 F.R.D. 37 (D.D.C. 2009) (the D.C. Circuit "applies a 'strict' rule pertaining to issue-injection waiver . . . . [and] once a party voluntarily waives privilege that privilege is relinquished for all purposes and in all circumstances thereafter. . . .") (internal quotations omitted).

It is thus necessary to evaluate each instance Ms. Rayallegedly relied upon advice of counsel in defense of her position in the arbitration, and consider whether, in asserting that defense, she disclosed the content of a privileged communication. If I find that she did disclose a confidential communication, I must then determine the subject matter to which it relates and whether the documents listed on Ms. Ray's privilege log and submitted to this court for in camera review fall within the scope of that waiver.

B.

The Motion points to eight instances in which Ms. Ray invoked an advice of counsel defense in her response to a motion for summary judgment filed in the arbitration. Beltway contends that this gave rise to a sweeping waiver as to all otherwise privileged communications relevant to the remaining dispute in this bankruptcy case. I will consider each portion of the record cited to by Beltway and Chafetz separately, and the extent towhich a waiver, if any, resulted.³

1.First Reference to Reliance on Advice of Counsel

Ms. Ray's first reference to reliance on the advice of counsel, as identified by the Motion, is found on pages 40-41 of Ms. Ray's response to the summary judgment motion filed in the arbitration, in which she states:

225. Mrs. Ray was advised by counsel that it is necessary and proper for any fees resulting from client fees should be deposited into a separate account. Because receipt of funds from client fees was imminent, Mrs. Ray, through Counsel opened the requisite accounts and disbursed funds in accordance with permissions already in place.

226. Mrs. Ray's permission to disburse funds had not been withdrawn by Mr. Chafetz nor had any change in the accepted operating procedures

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