Maleski by Chronister v. Corporate Life Ins. Co.

• Decision Date: 11 April 1994
• Citation: 641 A.2d 1,163 Pa.Cmwlth. 36
• Parties: Cynthia M. MALESKI, Insurance Commissioner of the Commonwealth of Pennsylvania, By Her Deputy, Ronald E. CHRONISTER, Plaintiff, v. CORPORATE LIFE INSURANCE COMPANY, Defendant.
• Court: Pennsylvania Commonwealth Court

Page 1

641 A.2d 1

163 Pa.Cmwlth. 36

Cynthia M. MALESKI, Insurance Commissioner of the Commonwealth of Pennsylvania, By Her Deputy Ronald E. CHRONISTER, Plaintiff, v. CORPORATE LIFE INSURANCE COMPANY, Defendant.

Commonwealth Court of Pennsylvania.

Argued Feb. 23, 1994.

Decided March 9, 1994.

Publication Ordered April 11, 1994.

Jerome J. Shestack, Zachary L. Grayson and Linda J. Wells, for plaintiff.

Peter J. Tucci, Michael L. Browne, Denise Pallante and Richard A. Sprague, for defendant.

James D. Golkow, Patrick J. O'Connor, Gerianne Hannibal and Douglas B. Lang, for intervenor, Berry & Martin.

PELLEGRINI, Judge.

Frederic S. Richardson, Theodore D. Nering and the law firm of Berry & Martin (collectively, Petitioners), former counsel to Corporate Life Insurance Company (Corporate Life) move for reconsideration of this Court's order of February 18, 1994, directing Berry & Martin to turn over to Wolf, Block, Schorr and Solis-Cohen (Wolf, Block), special counsel to the Insurance Commissioner (Statutory Liquidator), nineteen sealed boxes of documents from files relating to its representation of Corporate Life, claimed to be either privileged or protected as attorney work-product.

On February 18, 1994, following a determination that the corporation was insolvent within the meaning found in the Insurance Department Act (Act), ¹ this Court ordered that Corporate Life, a Pennsylvania stock life insurance company, be dissolved and liquidated. In addition to the Order of Liquidation, this Court also directed that all files pertaining to Corporate Life be turned over to Wolf, Block, acting on behalf of the Statutory Liquidator. After Wolf, Block determined that Berry & Martin had served as legal counsel to Corporate Life, representatives of Wolf, Block demanded that all Berry & Martin files pertaining to the Corporation be turned over. In compliance with this Court's order, Berry & Martin turned over all Corporate Life files in its possession, but sealing nineteen boxes of documents, asserting immunity under the attorney-client privilege on behalf of both Corporate Life and its former directors and officers, as well as the work-product doctrine on its own behalf. Petitioners then filed these motions for reconsideration of the February 18, 1994, order, essentially seeking a protective order regarding the contents of the nineteen sealed boxes.

Petitioners contend that the nineteen sealed boxes contain three types of documents immune from disclosure:

1) Documents in which Corporate Life can claim attorney-client privilege.

2) Documents in which former directors and officers of Corporate Life can claim a privilege separate from that of the corporation.

3) Documents constituting the work-product of Berry & Martin which should not be disclosed because of the proprietary interest the firm holds in them.

The Statutory Liquidator contends that because it now stands as the management of Corporate Life, it may waive any attorney-client privilege which the corporation might hold. It also contends that the former directors and officers of Corporate Life cannot assert the attorney-client privilege with regard to communications made in their role as corporate officers. Finally, it contends that the Pennsylvania law does not recognize the work-product doctrine outside pre-trial discovery or grand jury proceedings.

I.

The initial issue presented is whether the Statutory Liquidator of Corporate Life has the power to waive any attorney-client privilege Corporate Life may have as to pre-liquidation communications. In statute, common law, and the Rules of Professional Conduct governing attorneys, Pennsylvania has recognized that confidential communications from a client to an attorney are immune from disclosure. See, e.g., 42 Pa.C.S. §§ 5916, 5928; Pennsylvania Rules of Professional Conduct Rule 1.6; and Estate of Kofsky, 487 Pa. 473, 409 A.2d 1358 (1979). This privilege attaches to communications made by corporate as well as individual clients. Upjohn v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). A corporation, as an inanimate entity, can only act with respect to the privilege through those authorized to act on its behalf. Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343, 105 S.Ct. 1986, 85 L.Ed.2d 372 (1985). Under the Pennsylvania Corporation Law, the authority to act on behalf of a corporation is vested in the directors and officers. ² This authority passes with the succession of management. Displaced managers may not assert corporate privilege over the wishes of current managers, even as to statements former managers might have made to counsel concerning matters within the scope of their corporate duties. Id. at 349, 105 S.Ct. at 1991. In Weintraub, the United States Supreme Court addressed the issue of whether the bankruptcy trustee held the power to waive a corporation's attorney-client privilege to the same extent as successive management.

Weintraub involved a corporation which had filed a petition for liquidation under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 761-766. The trustee appointed to liquidate the corporation sought to waive the attorney-client privilege with respect to confidential pre-bankruptcy communications. In addressing whether the power to waive the privilege passed to the trustee as it would have to successive management had the corporation remained solvent, the Court examined the role of the trustee in liquidating the corporation. Weintraub, supra [163 Pa.Cmwlth. 41] at 351-352, 105 S.Ct. at 1992. The Court determined that, even though their ultimate goals differed, the powers and duties of the trustee in maximizing the estate of the corporation were analogous to those held by a solvent corporate management, even to the extent of conducting business operation if necessary. Id. at 352, 105 S.Ct. at 1993. In addition, based upon the trustee's duty to seek recovery on behalf of the corporation from former directors and officers, the Court concluded that the power to waive the attorney-client privilege with respect to pre-bankruptcy communications properly rested with the trustee as the management successor to the pre-bankruptcy directors and officers. Id. at 353, 105 S.Ct. at 353.

Petitioners correctly point out that Weintraub was decided on the basis of the powers of a liquidating trustee in bankruptcy, and argue that the dissolution of the corporation here distinguishes that case. Weintraub established a functional test to determine what successors were entitled to waive the privilege; when a successor manages the affairs of a corporation, even if merely winding up its affairs, the right to assert the privilege devolves to the successor. Consistent with that holding, the right to waive the privilege has not been limited to matters arising under the Bankruptcy Code and has even been applied to corporations that have been dissolved by orders of liquidation where there is broad-based power of the liquidator to continue to engage in management-type activity. See, Federal Deposit Insurance Corporation v. Cherry, Bekaert & Holland, 129 F.R.D. 188 (M.D.Fla.1989); Federal Deposit Insurance Corporation v. Berry, Civ. No. 1-85-62 (E.D.Tenn., June 10, 1985) and Federal Deposit Insurance Corporation v. Ellis, Civ. No. CD-84-PT-2560-M (M.D.Ala., Dec. 23, 1985); but see, Federal Deposit Insurance Corporation v. McAtee, 124 F.R.D. 662 (D.Kan.1988) (holding Weintraub rational inapplicable to liquidations because corporation ceases to exist after liquidation order); and Federal Deposit Insurance Corporation v. Amundson, 682 F.Supp. 981 (D.Minn.1988) (holding Weintraub not controlling once a corporation is dissolved). In Cherry, Berry and Ellis, where the FDIC acted in a liquidation role after the dissolution of the corporation, the courts held Weintraub to be controlling based upon the "winding up" function of the liquidator where the affairs of the dissolved entity continued to be managed for liquidation purposes despite the dissolution. Conversely, Amundson and McAtee dealt with situations where the FDIC acted in its corporate capacity, solely as the purchaser of a defunct corporation's assets, in which there was no authority for the FDIC to engage in management type functions. See Texas American Bankshares, Inc. v. Clarke, 954 F.2d 329 (5th Cir.1992) (liquidation involves a continuation of the management of corporate affairs for the purposes of estate maximization while corporate purchasing does not).

Under the Act, the Statutory Liquidator, performs functions similar to the trustee in liquidations under the Bankruptcy Code. In effecting a liquidation, the Statutory Liquidator has the power:

• To collect debts and monies due the insurer and to do such other acts as are necessary or expedient to collect, conserve or protect the assets or property of the insurer.

• To sell the property of the insurer and use the assets of the estate to transfer policy obligations to other insurers.

• To acquire, encumber, lease, improve, sell, or otherwise deal with any property of the insurer and otherwise engage in any transaction in connection with the liquidation.

• To borrow money and enter into contracts on behalf of the insurer, as well as to make bank deposits and invest monies.

• To initiate and defend lawsuits, including instituting suits against former officers and directors of the insurer.

See, 40 P.S. § 221.21. In addition, the Statutory Liquidator has the right to do "such other acts, ... as may be necessary or expedient for the accomplishment of or in aid of the purpose of liquidation." 40 P.S. § 221.23(23).

As was the case with the bankruptcy trustee in Weintraub, and the FDIC in Cherry, Berry and Ellis, the Statutory Liquidator performs a function most analogous to that of the management of a corporation, continuing to wind up the affairs of Corporate Life after the dissolution of its corporate existence. We feel that Weintraub functional analysis is properly...