The "two hats" doctrine evolved in the context of assessing parent responsibility for environmental liability attaching to a subsidiary's ownership or operation of a polluting facility in the seminal case United States v. Bestfoods, 524 U.S. 51 (1998). The doctrine has generally been viewed as permitting shared officer and director positions without risk of parental liability for subsidiary actions, absent evidence sufficient to support piercing the corporate veil or direct parent action, because courts generally presume that the directors are wearing their "subsidiary hats" and not their "parent hats" when acting for the subsidiary. In contrast, recent rulings from the Bankruptcy Court for the District of Delaware highlight the risk of relying on the "two hats" doctrine to protect attorney-client privilege covering communications involving shared personnel. In In re Maxus Energy Corporation, 617 B.R. 806 (Bankr. D. Del. 2020) and a subsequent letter opinion, Case No. 18-50489 (Bankr. D. Del. March 8, 2020) [Docket No. 359], the court ruled that parent companies waived the privilege. The decision turned on the failure of the party claiming privilege, the parent in this case, to establish that the shared personnel, whether officer, employee or director, received the communication when acting for the parent and not the subsidiary.

The Shared Employees

In 2016, Maxus Energy Corporation and certain of its affiliates filed Chapter 11 petitions in response to environmental liability related to a property formerly held by the company. As part of its confirmed plan of reorganization, the Maxus Liquidating Trust was formed to pursue claims belonging to Maxus. The trust commenced an adversary proceeding, asserting various fraudulent conveyance and alter-ego/veil piercing claims against Maxus's former corporate parent, YPF, pointing out that prior to Maxus' bankruptcy filing, a number of employees of YPF held senior management positions or directorships in Maxus. Discovery revealed that these "shared" personnel received confidential communications from YPF's attorneys, which YPF withheld claiming privilege. Asserting that these communications were potentially relevant to the disputes between the liquidating trust, as the Maxus representative, and YPF, the trust moved to compel production of these documents, asking the court to reject the YPF claim of privilege on the grounds, among others, that privilege was waived due to the receipt of such communications by shared personnel.