Court: Court of Appeals for the Ninth Circuit; November 3, 1992; Federal Appellate Court
An appeal was made regarding a district court's contempt ruling against a law firm and its record custodian for not producing documents as ordered. The appellants, attorneys for a creditors' committee in a bankruptcy case involving Michael E. Parker, who is now a criminal defendant, contested the lack of attorney-client privilege for communications between the committee and its attorneys. The court found that such a privilege exists, particularly because the requesting party, Parker, is engaged in adversarial litigation and lacks a fiduciary relationship with the committee.
The case arose from criminal charges against Parker related to his management of Parker North American Corporation (PNA), which filed for bankruptcy in 1989. The creditors' committee, appointed under 11 U.S.C. § 1102, is authorized to prosecute civil actions on behalf of the bankruptcy estate. Parker's subpoenas sought documents from the committee's attorneys, Frandzel, Share, which were initially quashed by the firm. However, the district court ruled that no attorney-client privilege applied to the communications, citing precedent from *In re Christian Life Center*. This decision was countered by another bankruptcy court ruling in *In re Baldwin-United Corp.*, which recognized the privilege.
After the district court's contempt ruling, which included sanctions against the attorneys for non-compliance, the appeal was filed. The critical issue is the existence of attorney-client privilege in the context of communications between the creditors' committee and its counsel, with the court ultimately siding with the existence of such privilege under the circumstances presented.
Counsel for the creditors’ committee in Baldwin-United sought to remove two non-voting members to protect the attorney-client privilege. The non-voting members argued that such privilege does not exist in bankruptcy cases, but the court disagreed, affirming that the privilege is vital for the committee to communicate freely with its attorneys, particularly when facing adversarial outsiders. The court emphasized that a creditors’ committee's primary role is to advise creditors on their rights during bankruptcy, necessitating effective legal representation and confidentiality. The court noted a heightened need for privilege in this case due to ongoing adversarial litigation against the committee. The appellee challenged the existence of privilege, citing potential exceptions like crime or fraud, and argued that specific documents were not privileged. However, the district court did not evaluate these exceptions or the confidentiality of the communications since it ruled against the privilege claim. Additionally, the appellants' challenge to the subpoenas was waived by their compliance in producing most requested documents. They also contended that the district court erred in denying the Committee’s intervention rights, asserting that the Committee’s interests could be jeopardized by the case's outcome, as the privilege belongs to the Committee itself, not just its attorneys.
The Committee has not demonstrated that its attorneys are failing to protect confidential attorney-client communications, and its interests are sufficiently safeguarded. Consequently, the district court's denial of the Committee's motion to intervene is affirmed. The October 2, 1992 judgment of civil contempt against Graham and Frandzel, Share is vacated. On remand, the district court is instructed to enforce an order requiring the preparation of an index for documents where privilege is claimed and to conduct an in camera inspection of these documents to assess which may need to be produced. The contempt orders against Graham and Frandzel, Share are stayed pending appeal, and Graham's motion for bail during the appeal is granted. According to the Bankruptcy Code, a committee is expected to hire attorneys, who must not represent any other entity with adverse interests.
