Degirolamo v. Daily & Haskins et al

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

/S/ RUSS KENDIG

Russ. Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO

EASTERN DIVISION
IN RE: ) CHAPTER 7
)
LAWRENCE WITTMER, SR. and ) CASE NO. 08-61618
NIOMA WITTMER, et al., )
) JOINTLY ADMINISTERED
Debtors. )
) ADV. NO. 11-6007
ANTHONY J. DEGIROLAMO, )
) JUDGE RUSS KENDIG
Plaintiff, )
)
Vv. )
)
DAILY & HASKINS, et al., ) MEMORANDUM OF OPINION
) (NOT INTENDED FOR
Defendants. ) PUBLICATION)

Now before the court is Defendants’ motion for determination of whether the Trustee
can waive the attorney-client privilege of individual debtors.

The court has jurisdiction of this proceeding pursuant to 28 U.S.C. § 1334 and the
general order of reference entered in this district on July 16, 1984. Venue in this district and
division is proper pursuant to 28 U.S.C. § 1409. This is a core proceeding under 28 U.S.C.
§ 157(b)(2)(A) and (O). See, e.g., Meyer v. Young Conaway Stargatt & Taylor LLP, No.
1:CV 10-540-BLW, 2011 U.S. Dist. LEXIS 35947, at 4-6 (idaho Mar. 31, 2011) (28 U.S.C.
§ 157(b)(2)(A)); In re SPI Communications, 112 B.R. 507, 510-11 (Bankr. N.D.N.Y. 1990)
(28 U.S.C. § 157(b)(2)(A) and (O)); accord Baker v. Simpson, 613 F.3d 346, 350 (2d Cir.
2010) (discussing that a malpractice action is a core bankruptcy proceeding if the controversy
revolves around the bankruptcy and is not merely related to bankruptcy).

This opinion is not intended for publication or citation. The availability of this
opinion, in electronic or printed form, is not the result of a direct submission by the court.

"Pomoorn Doc 36 FILED 11/30/11 ENTERED 11/30/11 15:07:53 Page1of5

FACTS

On October 17, 2011, Defendants filed a motion for determination of whether the
Trustee can waive the attorney-client privilege of individual debtors. The Trustee filed a
memorandum in opposition to the motion and a request for determination that the Trustee
may waive the debtors’ attorney-client privilege or, alternatively, that privilege has already
been waived by debtors on October 31, 2011. Defendants then filed, on November 7, 2011,

a reply in support of their motion.

By way of background, the Trustee filed this adversary proceeding alleging legal
malpractice against the Defendants on the basis that the Defendants’ legal services and
advice to the debtors fell below the applicable standard of care. In order to proceed with the
adversary proceeding, the Trustee seeks to discover information from the Defendants which
the Defendants assert is subject to attorney-client privilege. As a means to obtain this
information, the Trustee asserts that he holds the rights to the debtors’ attorney-client

privilege and waives such privilege.

Defendants assert that the Trustee’s waiver of the debtors’ attorney-client privilege
is not proper because the debtors have not waived the privilege themselves. Further,
Defendants argue that while bankruptcy trustees may be able to waive the privilege, whether
trustees have the power to do so must be determined on a case-by-case basis.

Defendants set forth several reasons against granting the Trustee the power to waive
the privilege in this instance. First, Defendants point out that the debtors currently have an
on-going relationship with the Defendants. Allowing the Trustee to waive the attorney-client
privilege would render the Defendants “unable to freely communicate” with the debtors and
“fulfill their duties to zealously represent their clients.” Second, Defendants argue that
allowing the Trustee to waive the privilege would grant the Trustee access to pre- and post-
petition communications between the debtors and Defendants, which runs contra to the
Bankruptcy Code that grants the Trustee only those rights necessary to fulfill his duties. In
essence, Defendants argue that granting the Trustee the power to waive the debtors’ attorney-
client privilege may result in the unnecessary disclosure of privileged information.

The Trustee agrees with the Defendants that courts determine whether a trustee can
waive the attorney-client privilege on a case-by-case basis. The Trustee’s argument diverges
from the Defendants’ argument because he argues that, under the appropriate analysis, he
should have the power to waive the privilege in the instant matter. First, the Trustee notes
that he is not seeking to use the alleged privileged information against the debtors, but rather
to benefit the debtors. Second, the Trustee argues that much of the alleged privileged
information sought relates to the debtors’ schedules and statement of financial affairs, which

is not confidential nor privileged information.

Alternatively, the Trustee argues that the debtors already waived the attorney-client
privilege by way of the court’s determination, by way of an order dated February 19, 2010,
that the debtors’ inaction and non-responsiveness constitutes an effective waiver ofattorney-
client privilege. Finally, the Trustee asserts that the Defendants’ concerns regarding future
communications with the debtors and potential exposure to civil and disciplinary proceedings

are irrelevant.

LAW AND ANALYSIS

The issue arising in this matter is whether the Trustee can waive the debtors’

2

11-06007-rk Doc36 FILED 11/30/11 ENTERED 11/30/11 15:07:53 Page 2of5

attorney-client privilege with the Defendants. Outside of bankruptcy, it is well-settled that
only the client holds the attorney-client privilege. Moore v. Eason (In re Bazemore), 216
B.R. 1020, 1023 (Bankr. S.D. Ga. 1998). Once a debtor files a bankruptcy petition, “the
relationship between an attorney and his client changes as the Bankruptcy Code provides for
the appointment of a Trustee who succeeds to many of the interests of the debtor.” In re
Miller, 247 B.R. 704, 708 (Bankr. N.D. Ohio 2000) (citing Gresk v. Brown (In re Brown),
227 B.R. 875, 879 (Bankr. S.D. Ind. 1998)).

In the case of corporate debtors, the Supreme Court held that a bankruptcy trustee
holds the power to waive the corporation’s attorney-client privilege over the objection of the

debtor. Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 356 (1985). The

Supreme Court intentionally did not extend its holding in Weintraub to individual debtors.
471 US. at 356-57.

Fifteen years after Weintraub, a court in the Northern District of Ohio examined the
three approaches to a trustee’s power to waive the attorney-client privilege of an individual
debtor. Miller, 247 B.R. at 709. The three approaches to the trustee’s power to waive the
attorney-client privilege of an individual debtor are as follows: 1) the bankruptcy trustee as
a matter of law succeeds to the attorney-client privilege; 2) the attorney-client privilege
cannot be waived at all by the trustee on behalf of the debtor; and 3) the particular
circumstances of the case must be examined to determine the extent of the trustee’s power

to waive the attorney-client privilege. Id.

Miller adopted the third approach, a case-by-case analysis, which examines the
particular circumstances of the case to determine if the trustee has the power to waive the
attorney-client privilege. Id. The case-by-case approach “balanc[es] the interests of a full
and frank discussion in the attorney-client relationship and the harm to the debtor upon a
disclosure with the trustee’s duty to maximize the value of the debtor’s estate and represent
the interests of the estate.” Id. at 710 (quoting Bazemore, 216 B.R. at 1023-24). This
approach blends the argument that a trustee cannot waive the attorney-client privilege
because of the potential for personal harm to the debtor and impediment of the attorney-
client communication with the argument that a trustee can waive the attorney-client privilege
if there is no adverse effect on the debtor. Miller, 247 B.R. at 710.

The court analogizes the approaches to three bowls of porridge. The first two
approaches are at unyielding extremes, while the third balances rights based upon a particular
inspection of the applicable facts. Accordingly, this court follows Miller and adopts the case-
by-case approach to determine if a bankruptcy trustee may waive the individual debtor’s
attorney-client privilege and the specific extent to which it may be waived.

Defendants argue that when applying the Miller balancing approach, the Trustee
should not have the power to waive the attorney-client privilege on behalf of the debtors. In
support of this argument, Defendants cite their ongoing attorney-client relationship with the
debtors and assert that they will be “unable to freely communicate” with the debtors or
“fulfill their duties to zealously represent their clients as required by the Ohio Rules of
Professional Conduct.” Further, Defendants argue that granting the Trustee unlimited power
to waive the privilege may result in the unnecessary disclosure of privileged information.

In arguing that the Miller balancing approach supports allowing him to waive the
attorney-client privilege, the Trustee asserts that he does not seek to waive the privilege to
harm the debtors. Rather, the debtors may benefit from the disclosure of the alleged
privileged information. The Trustee argues that since the debtors lost their discharge, any

3

11-06007-rk Doc 36 FILED 11/30/11 ENTERED 11/30/11 15:07:53 Page 3of5

recovery that he obtains would help pay the debtors’ nondischargeable debts. Further, much
of the information sought relates to information included in the debtors’ schedules and
statement of financial affairs, which the Trustee asserts is neither confidential nor privileged
pursuant to In re French, 162 B.R. 541, 547-48 (Bankr. D.S.D. 1994).

In rebuttal of the Trustee’s arguments, Defendants assert that the Trustee “seeks to
establish that the [debtors] fraudulently diverted and concealed assets from their bankruptcy
estates” and that the Trustee’s interests are not aligned with the debtors’ interests. Further,
Defendants argue that the Trustee cannot definitively argue that his action will not harm the

debtors or prejudice their rights.

Applying the case-by-case approach to facts of the instant case, the court finds that
the Trustee may waive the attorney-client privilege of the debtors as to the Defendants. The
attorney-client relationship is one to be protected, but not at all costs. The Trustee’s
Complaint alleges a legal malpractice claim on behalf of the debtors’ estate against the
Defendants. The Defendants’ argument would carry much more weight if the Trustee and
the debtors were adversaries. See Miller, 247 B.R. at 710 (denying the trustee the power to
waive the attorney-client privilege because the trustee and debtors are in an adversarial
relationship). Here, the Trustee and debtors are not in an adversarial relationship. Further,
the Trustee does not seek to use the information obtained directly against the debtors. In fact,
if successful, the Trustee could recover monies on behalf of the estate that may benefit the
debtors. See Bazemore, 216 B.R. at 1024 (allowing the trustee to waive attorney-client
privilege on behalf of debtors when the trustee’s aim is to augment the estate).

Further, while the Defendants’ argument in support of the attorney-client privilege
is an admirable position, the court recognizes that it is the Defendants that may gain from the
Trustee being denied the power to waive the attorney-client privilege and, therefore, be
unable to discover the information. It is not reasonable to deny the Trustee the ability to
receive information from the Defendants that may benefit the debtors in the long run given
the absence of factors against allowing the Trustee to waive the attorney-client privilege.
Moreover, the specifics of transactions and the role of Defendants therein is central to the
Trustee’s case and his overriding duty to act on behalf of the estate.

For the foregoing reasons, the policies against allowing a trustee to waive attorney-
client privilege do not exist in this matter and the court finds that the Trustee may waive the

attorney-client privilege as to the Defendants.

Based on the foregoing, the court does not need to address whether the court’s order
dated February 19, 2010, finding that the debtors waived the attorney-client privilege as to
the debtors’ former law firm, also finds that the debtors waived the attorney-client privilege

as to the Defendants in this proceeding.

CONCLUSION

Accordingly, the court will enter an order contemporaneously with this memorandum
of opinion granting the Trustee’s motion to waive the attorney-client privilege and denying
the Defendant’s motion to determine that the Trustee cannot waive the attorney-client

privilege.

11-06007-rk Doc 36 FILED 11/30/11 ENTERED 11/30/11 15:07:53 Page 4of5

Service List:

Mark A. Weintraub
3900 Key Center

127 Public Square
Cleveland, OH 44114

Anthony J. Degirolamo
Courtyard Centre, Suite 307
116 Cleveland Ave., N.W.
Canton, OH 44702

Audrey Bentz

Janik LLP

9200 S. Hills Boulevard
Suite 300

Cleveland, OH 44147

11-06007-rk Doc 36 FILED 11/30/11 ENTERED 11/30/11 15:07:53 Page5of5