In re Hunt

• Decision Date: 05 November 1992
• Docket Number: Bankruptcy No. 388-35726-HCA-11,388-35725-HCA-11.
• Citation: 153 BR 445
• Parties: In re Nelson Bunker HUNT and Caroline Lewis Hunt, Debtors. In re William Herbert HUNT and Nancy Jane Broaddus Hunt, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Texas

153 B.R. 445 (1992)

In re Nelson Bunker HUNT and Caroline Lewis Hunt, Debtors.

In re William Herbert HUNT and Nancy Jane Broaddus Hunt, Debtors.

Bankruptcy Nos. 388-35726-HCA-11, 388-35725-HCA-11.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

November 5, 1992.

Jordan Green, Lewis and Roca, Phoenix, AZ, Robert M. Cohan, Cohan, Simpson, Cowlishaw, Aranza & Wulff, L.L.P., Dallas, TX, for R. Carter Pate and Steven S. Turoff as Independent Trustees of the NBH and WHH Liquidating Trusts.

Russell L. Munsch, Munsch Hardt Kopf Harr & Dinan, P.C., Dallas, TX, for Nelson Bunker Hunt and Caroline Lewis Hunt.

Michael P. Gibson, Burleson, Pate & Gibson, L.L.P., Dallas, TX, for William Herbert Hunt and Nancy Jane Broaddus Hunt.

MEMORANDUM OPINION ON INDEPENDENT TRUSTEES' MOTION FOR RESOLUTION OF PRIVILEGE DISPUTE

HAROLD C. ABRAMSON, Bankruptcy Judge.

Came on for hearing on the 9th day of October, 1992, the Motion for Resolution of Privilege Dispute ("Motion") filed by R. Carter Pate and Steven S. Turoff ("Independent Trustees"). Counsel for the Independent Trustees and for the debtors ("Hunts") submitted written briefs, appeared at the hearing, and delivered oral arguments.

The Independent Trustees, who are the liquidating trustees of the Hunts' estates under separate plans of reorganization, have sued several of the Hunts' relatives and other entities to recover preferences and fraudulent transfers in an adversary proceeding styled Pate, et al. v. Houston Bunker Hunt, et al., Adv. No. 391-3331 ("Adversary").¹ Discovery in the Adversary begins November 9, 1992. As part of their discovery effort, the Independent Trustees plan to request documents from, and depose, the Hunts' lawyers and accountants regarding the Hunts' prepetition transactions. The Independent Trustees' Motion, directed toward only the individual Messrs. Hunt and their wives, seeks an order from this Court that (1) declares that the Hunts' attorney-client and accountant-client privileges belong to the Independent Trustees and (2) bars the Hunts from "opposing interviews, document production and depositions of lawyers and accountants based on the privileges." Motion at 3.

The Hunts object to the Independent Trustees' Motion on both procedural and substantive grounds. First, they argue that the Motion should be dismissed because it was not filed as an adversary proceeding under Federal Rule of Bankruptcy Procedure 7001. Second, they argue that the Hunts' privileges do not belong to the Independent Trustees.

This Court has jurisdiction over the subject matter of the Motion under 28 U.S.C. § 1334. The Motion is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), (H), and (O) and 11 U.S.C. § 1142.

After reviewing the parties' pleadings and briefs and hearing oral argument, the Court has concluded that the adversary rules listed in Federal Rule of Bankruptcy Procedure 9014 apply to this Motion and that the present controversy involves no issues of fact and is ripe for decision as a matter of law. The Court has reached the following additional conclusions on the substantive questions of professional communications privileges:

(1) The accountant-client privilege does not exist under common-law evidentiary principles applicable to bankruptcy proceedings under Federal Rule of Evidence 501. Therefore, no such privilege belongs to either the Hunts or the Independent Trustees.

(2) The attorney-client privilege regarding prepetition communications did not pass to the Independent Trustees under the terms of the Hunts\' plans of reorganization; nor do the Independent Trustees have control of such a privilege. The privilege remains with the Hunts and may be waived only by them.

(3) During the course of discovery in the Adversary, the Independent Trustees may respond to specific privilege-based objections on the ground that the crimefraud exception to the privilege may apply. This Court will review those objections and responses, as they arise, according to the standards set forth in United States v. Zolin, 491 U.S. 554, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989), and United States v. Ballard, 779 F.2d 287 (5th Cir.), cert. denied, 475 U.S. 1109, 106 S.Ct. 1518, 89 L.Ed.2d 916 (1986).

FINDINGS AND CONCLUSIONS

I. The Procedural Quagmire: Motion or Adversary Proceeding?

The Independent Trustees admit in their Motion that the issue of whether they own (and can waive) the Hunts' privileges is relevant only to the discovery campaign they have planned for the prosecution of the Adversary. Motion at 2. However, they filed the Motion in the Hunts' main consolidated bankruptcy case, not in the Adversary. Furthermore, as the Hunts correctly point out, the Independent Trustees are seeking a declaratory judgment (that the Hunts' attorney- and accountant-client privileges belong to the Independent Trustees) and an injunction (barring the Hunts from objecting to discovery in the Adversary on the basis of those privileges). The Federal Rules of Bankruptcy Procedure specifically direct that actions seeking such relief are adversary proceedings. FED.R.BANKR.P. 7001(7) and (9).

The Independent Trustees contend that their Motion is a contested matter in which "the Trustees are asking the Court to resolve a dispute between the debtors and the Trustees regarding the power and authority vested in the Trustees by the reorganization plans." Reply in Support of Motion for Resolution of Privilege Dispute 2. In the context of a contested matter, this Court recognizes that it might direct the Independent Trustees to seek their declaratory judgment, construing the terms of the Hunts' plans under 11 U.S.C. § 1142 and seeking the determination of privileges and injunctive relief, within the bounds of Part VII of the Federal Rules of Bankruptcy Procedure. See FED.R.BANKR.P. 9014.²

The Court finds that, by the provisions of Rule 9014, certain adversary rules listed in Rule 9014 apply. Not only the Hunts but all parties to the Adversary³ received ample notice of the Motion. The Motion was served on August 13, 1992, more than two months prior to the hearing; the parties received approximately six weeks' notice of the hearing itself. The Hunts, notwithstanding their procedural objections, fully briefed and argued the merits of the privilege issue. This Court cannot discern any prejudice to the Hunts' due process rights in deciding this Motion, at this point, under the adversary rules. See FED.R.BANKR.P. 1001 ("These rules shall be construed to secure the just, speedy, and inexpensive determination of every case and proceeding."); In re Analytical Systems, Inc., 71 B.R. 408, 412 (Bankr.N.D.Ga.1987) ("The underlying purpose of incorporating Federal Rules of Civil Procedure into contested matters is to provide due process protections to all parties of a dispute").

The clerk of the bankruptcy court shall be directed to redocket the Motion as an adversary complaint styled R. Carter Pate and Steven S. Turoff v. Nelson Bunker Hunt, Caroline Lewis Hunt, William Herbert Hunt, and Nancy Jane Broaddus Hunt. The Independent Trustees will be directed to pay the filing fee applicable to adversary complaints within seven days after entry of the order accompanying this opinion.

Inasmuch as all issues of law have been joined by the Hunts and no issues of fact have been raised in the Motion or the Hunts' replies thereto, the Motion (considered herein as an adversary complaint) is ripe for decision.

II. The Substantive Controversy: Who Controls the Privileges?

A. Factual Background

The material facts relevant to the privilege controversy are undisputed. The Hunts filed petitions under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101-1174, on September 21, 1988. In December 1989, this Court confirmed plans of reorganization in the respective cases of William Herbert Hunt and wife ("Herbert Hunt") and Nelson Bunker Hunt and wife ("Bunker Hunt"). By separate orders of this Court entered in January 1990, Steven S. Turoff and R. Carter Pate were appointed Independent Trustees of the William Herbert Hunt Liquidating Trust and the Nelson Bunker Hunt Liquidating Trust, respectively.

Under the terms of the Herbert Hunt plan of reorganization, the William Herbert Hunt Liquidating Trust received "all real and personal property of the Hunts' estates, pursuant to § 541 of the Bankruptcy Code, other than the Retained Assets. . . ."⁴ The estate retained various choses in action through the Independent Trustee:

All rights and causes of action pursuant to (i) §§ 502, 542, 544, 545, 546, 550, and 553 of the Bankruptcy Code;⁵ (ii) preference claims pursuant to § 547 of the Bankruptcy Code; (iii) fraudulent transfer claims pursuant to § 548 of the Bankruptcy Code; (iv) claims relating to postpetition transactions pursuant to § 549 of the Bankruptcy Code; (v) all claims and causes of action held against third parties as of the Confirmation Date, are hereby preserved for the benefit of the Debtors\' estate, except as otherwise provided in Article V, Section 5.2(f) and Article IV, Section 4.6(a). The Independent Trustee shall have the right to bring such claims or causes of action on behalf of the Debtors\' estate, subject to Bankruptcy Court approval.

Joint Plan of Reorganization of Herbert Hunt § 15.9. The plan of reorganization in Bunker Hunt's case contains similar, though not identical, language. Any net proceeds of the recited causes of action are to be distributed to creditors.⁶

The two Independent Trustees filed the Adversary on June 11, 1991, seeking the recovery of alleged prepetition preferences and fraudulent conveyances from various defendants alleged to be insiders and relatives of the Hunts. As part of discovery, the Independent Trustees plan to depose the Hunts' prepetition accountants and attorneys and request production of any of the Hunts' files in those professionals' possession. Before discovery begins, however,⁷ the Independent Trustees request an order from this Court declaring...