Page 6 - Litigation

S6 | MONDAY, NOVEMBER 14, 2016 | Litigation
| NYLJ.COM
In Bankruptcy, Attorney-Client Privilege Is Not Absolute
BY ERIC SNYDER AND ELOY PERAL
T he U.S. Bankruptcy Code gives debtors access to powerful rights and remedies that are not available under non-bank-
ruptcy law. As a balance to these extraor- dinary powers however, a debtor may lose some or all control over its own affairs under certain circumstances. One of the rights that the debtor “puts into play” when it les bank- ruptcy is the attorney-client privilege (the Privilege). This article addresses two ways in which a debtor can lose the right to assert
the Privilege, and similarly how creditors, trustees, and interested parties can succeed in obtaining privileged communications dur- ing the bankruptcy proceeding.
Trustees’ Control
Of Attorney-Client Privilege
In Commodity Futures Trading Comm’n v. Weintraub1 the U.S. Supreme Court held that the “trustee of a corporation in bankruptcy has the power to waive the corporation’s attorney-client privilege with respect to pre-bankruptcy communications.”2 In Wein-
traub, the debtor was a discount commodity brokerage house registered with the Com- modity Futures Trading Commission (CFTC). Before the ling of the bankruptcy petition, the debtor was under investigation by the CFTC. Shortly after the debtor led a petition under Chapter 7 of the Bankruptcy Code, the CFTC subpoenaed the debtor’s former coun- sel seeking testimony regarding various mat- ters, including suspected fraudulent activities. The former counsel refused to answer certain questions, asserting the debtor’s attorney- client privilege. At the request of the CFTC, the Chapter 7 trustee waived the attorney- client privilege on behalf of the debtor. The
CFTC then succeeded in compelling the for- mer attorney to comply with the subpoena. In support of its holding, the Supreme Court concluded that “vesting in the trustee control of the corporation’s attorney client-privilege most closely comports with the allocation of the waiver power to management outside of bankruptcy without in any way obstructing the careful design of the Bankruptcy Code.”3
The Supreme Court in Weintraub was clear
ERIC SNYDER is a partner and chairman of Wilk Aus- lander’s bankruptcy department. ELOY PERAL is an associate at the rm.
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