The U.S. Bankruptcy Code gives debtors access to powerful rights and remedies that are not available under non-bankruptcy law. As a balance to these extraordinary 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 files bankruptcy 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 during 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 Weintraub, the debtor was a discount commodity brokerage house registered with the Commodity Futures Trading Commission (CFTC). Before the filing of the bankruptcy petition, the debtor was under investigation by the CFTC. Shortly after the debtor filed a petition under Chapter 7 of the Bankruptcy Code, the CFTC subpoenaed the debtor’s former counsel seeking testimony regarding various matters, 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 former 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
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