Anderson v. Cordell (In re Infinity Business Group, Inc.)

Citations: 530 B.R. 316; 2015 Bankr. LEXIS 1560Docket: Bankruptcy Case No. 10-06335-jw; Adv. Proc. No. 12-80208-jw

Court: United States Bankruptcy Court, D. South Carolina; April 3, 2015; Us Bankruptcy; United States Bankruptcy Court

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The Court denied the Motion to Compel filed by Morgan Keegan Company, Inc. and Keith E. Meyers (MK Defendants) against Robert F. Anderson, the Chapter 7 Trustee for Infinity Business Group, Inc. The MK Defendants sought to compel the Trustee to disclose documents withheld under attorney-client privilege. The Trustee opposed the Motion, leading to a hearing. 

Key findings include:

1. **Procedural Background**: The Trustee initiated an adversary proceeding against the MK Defendants on August 31, 2012, alleging multiple causes of action, including fraud and breach of fiduciary duty. The Complaint claims that management at Infinity Business Group misrepresented the company's financial health to mislead investors, with the MK Defendants allegedly aware of these inaccuracies.

2. **Motion to Dismiss**: The MK Defendants filed a Motion to Dismiss on October 18, 2012, which was partially granted after hearings and orders issued in 2013. 

3. **Discovery Process**: Extensive discovery has been ongoing for over eighteen months since the dismissal orders. The MK Defendants submitted a First Request for Production of Documents on March 21, 2014, leading to rolling document production by the Trustee beginning June 11, 2014.

4. **Withheld Documents**: The Trustee has withheld several documents based on attorney-client and work product privilege and has provided two privilege logs. The MK Defendants argue that the privilege was waived due to a June 16, 2011 email from the Trustee’s former counsel and are demanding the withheld documents.

The Court's decision reflects the ongoing complexities of the case and the contested nature of the privileges claimed by the Trustee.

On December 22, 2010, Morgan Keegan Company, Inc. received a subpoena from the South Carolina Office of the Attorney General (SCAG) concerning its involvement with the Debtor and other defendants. In preparing a response, Morgan Keegan's counsel identified documents, including communications with the Debtor’s legal counsel, that might be protected by attorney-client privilege. Counsel reached out to the Trustee’s attorney, Stephanie Weissenstein, to confirm whether the Trustee intended to assert this privilege.

During a bankruptcy hearing on May 11, 2011, the Trustee indicated delays in filing a complaint due to coordination with multiple Attorneys General, including SCAG. Subsequently, on May 26, 2011, SCAG initiated an administrative proceeding regarding securities activities involving the Debtor and others. On June 2, 2011, Morgan Keegan’s counsel communicated with Weissenstein about producing documents related to the subpoena. Following a telephone conference on June 3, 2011, Weissenstein sent an email on June 16, 2011, stating that the Trustee waived any privilege, allowing Morgan Keegan to produce the requested documents.

On December 11, 2014, the Trustee and SCAG’s counsel executed a Common Interest Memorandum, recognizing their mutual agreement to preserve attorney-client and work product privileges regarding shared information. The MK Defendants are now seeking to compel the Trustee to disclose documents they believe were improperly withheld due to attorney-client privilege, arguing that the June 16, 2011 email constituted a blanket waiver of privilege. They also assert that any privilege was waived due to the Trustee's inadequate privilege logs, as required by federal rules.

The federal common law regarding attorney-client privilege is applicable in this adversary proceeding involving both federal and state law claims. The Trustee, as the party claiming the privilege, must demonstrate its applicability to the withheld documents. The Fourth Circuit outlines a four-part test for attorney-client privilege, requiring that: (1) the holder sought to become a client; (2) the communication was made to a qualified attorney; (3) the communication was confidential and aimed at securing legal advice; and (4) the privilege has been claimed and not waived. For work-product privilege, the documents must be shown to have been created in anticipation of litigation.

A trustee in bankruptcy can assert and waive attorney-client privilege. Currently, there is no dispute regarding the potential applicability of the attorney-client or work product privilege to the Trustee's withheld documents; the focus is on whether any privilege has been waived. The MK Defendants contend that an email from the Trustee’s counsel on June 16, 2011, constituted an unequivocal waiver of privilege, which they argue extends to all related communications. Waivers can be explicit or implied, with voluntary disclosure to a third party waiving privilege not only for the disclosed communication but also for all related communications. Both explicit and implied waivers must be clear and distinct.

The June 16, 2011 email indicates a waiver of privilege, allowing for the production of requested documents. Conversely, the Trustee claims that a subsequent email on July 16, 2011, was a limited position concerning document production related to a subpoena and did not result in a waiver, citing a common interest agreement with the South Carolina Attorney General’s Office (SCAG).

The common interest doctrine serves as an exception to the rule that sharing privileged communications with a third party waives the privilege. It protects the transmission of privileged information between parties with a shared legal interest, enabling them to collaboratively pursue or defend claims without losing the confidentiality of their communications. This doctrine requires that all parties involved consent to any waiver of privilege, though a formal written agreement is not necessary; a mutual understanding suffices. The court assumes the documents in question are otherwise privileged when assessing the application of this doctrine. In this case, the Trustee submitted a Common Interest Memorandum, executed with Tracy Meyers of SCAG, which confirms their agreement to maintain the confidentiality of shared documents related to investigations of the Debtor. Additionally, an affidavit from Meyers emphasized the shared interests and cooperation between SCAG and the Trustee in their investigations, reiterating the confidentiality of all exchanged information and the mutual understanding that neither could unilaterally waive any privilege or protection.

Meyers' affidavit indicates that the Trustee and SCAG established a cooperative relationship prior to October 2010, formalized in a Common Interest Memorandum. This aligns with the Trustee's statements from a May 11, 2011 hearing, where he noted delays in filing a Complaint due to coordination efforts with various state Attorneys General, including SCAG, regarding investigations into the Debtor. The MK Defendants contend that the Common Interest Memorandum was an attempt to retroactively fix a waiver, but legal precedent holds that a common interest agreement does not need to be written to be valid. Meyers' credible affidavit confirms that an agreement existed between the Trustee and SCAG before any alleged waiver, facilitating their joint investigative efforts, which included the SCAG Administrative Proceeding and the Complaint. The Trustee's actions align with his statutory duties under 11 U.S.C. 704 and 18 U.S.C. 3057. The MK Defendants claim the Common Interest Memorandum does not reference a June 16, 2011 waiver by the Trustee’s counsel; however, even if the email were broadly interpreted, the common interest doctrine prevents the waiver of privileges without SCAG’s consent, which is not evidenced. The Court concludes that the Trustee has demonstrated a prior agreement with SCAG to pursue a joint legal strategy, thus the common interest doctrine protects against the waiver of attorney-client and work product privileges arising from the June 16, 2011 email and subsequent disclosures.

The MK Defendants contend that the Trustee cannot claim selective or qualified waiver regarding documents produced under attorney-client privilege, as such waivers are not recognized in South Carolina or the Fourth Circuit. They argue that the Trustee's approval of document production to the South Carolina Attorney General (SCAG) does not constitute a waiver, asserting that the common interest doctrine applies to protect the privilege. The Court agrees, noting that the common interest doctrine prevents any waiver and rendering discussions on selective or qualified waiver unnecessary.

Regarding the crime-fraud exception to attorney-client privilege, the MK Defendants argue that the claims in the Complaint, which allege a scheme to loot the Debtor's assets with their assistance, are inconsistent with the privilege. However, the Trustee denies accusing the Debtor's pre-petition counsel of participating in any fraud and asserts that the MK Defendants have not met their burden of proving the crime-fraud exception applies. The Court emphasizes that the burden lies with the party invoking the exception to establish a prima facie case. The MK Defendants have only provided general references to the Complaint without substantive evidence to support their claims, leading the Court to deny the Motion to Compel on this basis.

The MK Defendants contend that the Trustee's assertion of attorney-client privilege contradicts the allegations in the Complaint, which claim that the MK Defendants and other defendants, including John Blevins, were involved in a scheme to loot the Debtor for their benefit rather than the Debtor's. They argue that while courts recognize privilege for communications between corporate counsel and employees concerning corporate duties, the actions alleged do not fall within those duties, and thus the privilege should not apply. The MK Defendants misinterpret relevant case law; in *In re Worldwide Wholesale Lumber, Inc.*, the court held post-petition communications privileged if they pertained to the former corporate duties of a debtor's president, while in *Duplan Corp. v. Peering Milliken, Inc.*, the court focused on the "control group" test for privilege applicability, without assessing the scope of corporate duties. Consequently, the MK Defendants' motion to compel based on this argument is denied.

Additionally, the MK Defendants assert that the Trustee waived the attorney-client and work product privileges by inadequately describing documents in the privilege logs. They claim the Trustee failed to provide essential details such as authors, recipients, and descriptions necessary to evaluate the validity of the privilege. The Trustee agreed to amend the logs and address any deficiencies at the hearing. According to Fed. R. Civ. P. 26(b)(5)(A), applicable to adversary proceedings under Fed. R. Bankr. P. 7026, a party withholding discoverable information on privilege grounds must clearly state the claim and describe the nature of withheld documents without revealing privileged information, allowing other parties to assess the claim.

The Trustee is required to create a privilege log that details each withheld document, including information about the privilege claimed, the communicators' identities, the date and location of the communication, and the general subject matter of the documents. Failure to produce a timely or adequate privilege log may result in the forfeiture of privilege claims. Given the extensive document review required by the MK Defendants' request, the absence of evidence indicating bad faith or undue delay by the Trustee, and the Trustee's commitment to provide revised logs, the Court will not find a waiver of attorney-client privilege at this point. Consequently, the MK Defendants' Motion to Compel is denied, and both parties' requests for fees and costs related to the motion are also denied. The Trustee must submit revised privilege logs by April 30, 2015, unless already provided. Additionally, the MK Defendants have not identified any privileged documents disclosed to the SCAG, and the Trustee has not found any privileged communications in the documents identified by the MK Defendants as produced to SCAG.