In re Hardwood P-G, Inc.

• Decision Date: 10 April 2009
• Docket Number: Adversary No. 08-05006.,Bankruptcy No. 06-50057-LMC.
• Citation: 403 B.R. 445
• Parties: In re HARDWOOD P-G, INC., Custom Forest Products Ltd., and Custom Forest Products Transportation, Inc., Debtors. Randolph N. Osherow, Litigation Trustee, Plaintiff v. Donald R. Vann, Robert Earl Adams, Bill J. Tidwell, Anthony B. Smith, B.J. Tidwell Industries, Inc., Signature Mouldings & Mill Works, Inc., Signature Partners, Ltd., Tidwell/Vann, L.P., Welltid, LLC, and Wellvann, LLC, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Texas

403 B.R. 445

In re HARDWOOD P-G, INC., Custom Forest Products Ltd., and Custom Forest Products Transportation, Inc., Debtors Randolph N. Osherow, Litigation Trustee, Plaintiff v. Donald R. Vann, Robert Earl Adams, Bill J. Tidwell, Anthony B. Smith, B.J. Tidwell Industries, Inc., Signature Mouldings & Mill Works, Inc., Signature Partners, Ltd., Tidwell/Vann, L.P., Welltid, LLC, and Wellvann, LLC, Defendants.

Bankruptcy No. 06-50057-LMC.

Adversary No. 08-05006.

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

April 10, 2009.

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David S. Gragg, Langley & Banack, Inc., San Antonio, TX, William H. Oliver, Pipkin, Oliver & Bradley, LLP, San Antonio, TX, for Debtors.

John R. Lane, Jr., John Lane and Associates, San Antonio, TX, for Defendants.

MEMORANDUM OPINION REGARDING RANDOLPH N. OSHEROW'S MOTION FOR IN CAMERA INSPECTION OF REPORTS AND MOTION FOR PROTECTIVE ORDER WITH RESPECT TO CERTAIN DISCOVERY PROPOUNDED BY SIGNATURE MOULDINGS & MILLWORK, INC., AND SIGNATURE PARTNERS, LTD.

LEIF M. CLARK, Bankruptcy Judge.

Before the court on October 14, 2008 were three motions, two motions (incorporated in a single pleading) by Randolph N. Osherow, the above-captioned litigation trustee, and one by defendant Robert Earl Adams ("Adams"). The court ruled on the record on Adams' motion, and has since entered an order. This opinion addresses the trustee's motions. The following factual background is a matter of record.

The debtors filed voluntary petitions under chapter 11 of the bankruptcy code on or around January 9, 2006, and were jointly administered by an order entered January 20, 2006 [Docket No. 33].¹ The Debtors employed Langley & Banack, Inc. ("L & B") as debtors' counsel [Docket Nos. 35, 56]. On January 24, 2006, the United States Trustee appointed the Official Committee of Unsecured Creditors (the "Committee") pursuant to 11 U.S.C. § 1102. Disclosure Statement, at 20 (hereinafter "Disci. Stmnt") [Docket No. 326]. The Committee retained the law firm of Haynes and Boone, LLP ("H & B") on March 14, 2006 [Docket No. 163]. The debtors employed Alvarez & Marsal, LLC ("A & M") as the debtors' forensic accountants, a retention approved by the court on May 10, 2006 [Docket Nos. 160, 217].

A & M was retained to (among other things) investigate the Debtors' potential causes of action for preferential and fraudulent transfers. Discl. Stmnt., at 17-18. A & M prepared a report (the "A & M Report") for the debtors discussing its specific findings as to the debtors' possible claims. Id. Additionally, H & B prepared a report (the "H & B Report") for the Committee investigating a number of matters—including the debtors' possible preference and fraudulent conveyance causes of action. H & B Report, at 1. The H & B Report was an ongoing venture that was updated as new facts came to light. CITE. (Hughes Decl., at).

At some point prior to the debtors' plan of reorganization being approved, the debtors, Webster Business Credit Corporation as agent bank for itself and Citizens Business Credit (the "Lenders"), and the Committee, agreed that it was appropriate to assert preference and avoidance claims. Discl. Stmnt., at 14. On September 2, 2006, the court approved the retention of H & B and L & B as special counsel to the debtors to represent the debtors on a contingency basis with respect to certain potential preference claims. Discl. Stmnt, at 14. On September 5, 2006, the court entered an order [Docket No. 280] authorizing the Committee, with the consent of the debtors and the Lenders, to bring certain estate claims on behalf of the debtors for the recovery of preferences and fraudulent conveyances.²

Ultimately, the debtors' Plan was confirmed on December 8, 2006 [Docket No. 393]. The Plan was a joint effort by the debtors, the Committee, and the Lenders. Discl. Stmnt., at 16. The Plan provided for the formation of a litigation trust (the "Litigation Trust"),³ over which the litigation trust's trustee (the "Trustee") would preside. Plan, at 15. The Plan states that

[i]n addition to the Litigation Trust being the assignee of the Avoidance Actions and Litigation Claims, the Litigation Trust shall be deemed to be a successor-in-interest to the Committee and shall have standing on behalf of the holders of Class 3 Claims to enforce the rights granted them under this Plan ...

The Litigation Trust will be administered by the Trustee. All major decisions including, but not limited to, the retention of and the fee arrangements with Professionals and the commencement, continuation, settlement, trial or appeal of claims by or against third parties, will be decided by the Trustee and the representative of Webster and the designee of the Committee (or their successors as provided above).

Id. Pursuant to the Plan, the Trustee was to hire both L & B and H & B as special counsel to continue to litigate the various causes of action that had already began but that had been assigned to the Litigation Trust under the Plan. Id. at 16-17. This adversary proceeding is one of the assets that was transferred to the Litigation Trust, although, (as noted above) it was not commenced until the post-confirmation period.

The H & B Report was not shared with any party (aside from the Committee members) until after the Litigation Trust succeeded to the Committee's interests. Hughes Decl., at 3⁴ (saying that while H & B "acted as Committee counsel, the Haynes and Boone Report was not disseminated to anyone other than the members of the Creditors' Committee."). It appears that it was only after the Committee ceased to exist on the effective date of the Plan, and the Litigation Trust succeeded to the Committee's interests, that the Trustee gained possession of the H & B Report. The A & M Report was shared amongst the debtors, the Committee, and the Lenders. Id. (saying that it "was always contemplated that the Alvarez Report would be shared jointly between the debtors, the Committee and the Banks [Webster Business Credit and Citizens Business Credit], which was authorized and contemplated as part of the resolution of issues arising in connection with final approval of ... [the Debtors' DIP financing].") Following final approval of the debtors' DIP financing, but before a Plan had been filed, the Committee, the debtors and the Lenders "had conceptually agreed to promote a joint liquidating plan of reorganization in the case." Id. A & M was retained to provide services so that a joint plan of liquidation—which ultimately became the Plan—could come to fruition. Id.

1. The Trustee's Motion for Protection and for In Camera Inspection of Haynes and Boone Report and Alvarez Report (the "Reports Motion")

On September 30, 2008, the Trustee filed a motion titled "Motion for Protection and for In Camera Inspection of Haynes and Boone Report and Alvarez Report" (the "Reports Motion") [Docket No. 81]. On October 14, 2008, Signature filed a response to the Reports Motion [Docket No. 86] and on October 17, 2008, Adams also filed a response to the Reports Motion [Docket No. 88]. On October 28, 2008, the Trustee filed a reply in support of the Reports Motion [Docket No. 89]; and, finally, on November 3, 2008 and November 7, 2008, both Adams [Docket No. 90] and Signature [Docket No. 91], respectively, filed a sur-reply.

a. The Pleadings

The Plaintiff's Arguments

In the Reports Motion, the Trustee asks the court to enter an order to the effect that the Reports are "confidential, privileged, and not discoverable in this case." Reports Mot., at 2. The Trustee makes two arguments in support: first, that the Reports are protected by the attorney-client privilege either directly or by way of the common interest doctrine; and second, that the Reports constitute attorney work product. Id. The Trustee claims to hold these privileges by virtue of the Plan's terms, which (1) assign all of the Debtors' assets—explicitly including the Debtors' preference and avoidance claims—to the Litigation Trust; and (2) cause the Litigation Trust to be the successor-in-interest to the Committee's preference and avoidance causes of action. Id. at 7-9. The Trustee also notes that to the extent the Reports were shared with his current counsel—MehaffyWeber, P.C.—prior to that firm's official retention, MehaffyWeber had signed a confidentiality agreement. Id. at 8. (Indeed, the Trustee asserts that to the extent the Reports were shared with any other firms that the Trustee was interviewing as potential counsel in this matter, all were subject to a confidentiality agreement. Id.)

The Trustee points out that the H & B Report was prepared by H & B for its client, the Committee; and because under the Plan the Litigation Trust succeeded to all of the interests of the Committee, the Trustee now holds and may assert the Committee's attorney-client privilege. Id. at 9. The A & M Report was prepared for the debtors in order to investigate the estate's potential causes of action against third parties. Id. at 14. When, under the Plan, the debtors' assets vested in the Litigation Trust, the Trustee holds the debtors' attorney-client privilege as to the A & M Report. Alternatively, if he is not a successor-in-interest to the Committee or the debtors, the Trustee claims to still assert the attorney-client privilege as to both Reports because the debtors/Trustee, the Lenders and the Committee "have common legal interests: to pursue and liquidate the estate's legal causes of action in order to realize the value of those assets for the benefit of the creditors." Id. at 11.

The Trustee also argues that the Reports are protected by the work product doctrine. Id. at 12-13, 15-16. More specifically, as to the H&B Report, the Trustee notes that it "attaches only 16 documents out of the thousands of pages of relevant documents. Such a selection shows the mental impressions, strategy and opinions of...