Opinion
Case No. 03-67235.
November 30, 2006
This matter concerns a discovery dispute over documents related to the payment of fees and expenses to Debtor's special counsel. Both the Debtor and the Debtor's special counsel seek to prevent the disclosure of certain documents to the Debtor's largest creditor, which has questioned whether the Debtor and special counsel have complied with the order appointing special counsel and providing for its payment of fees and expenses. The Debtor resists the disclosure of such documents and relies upon attorney-client privilege and the work product doctrine. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
I. Background on the employment of special counsel
The Debtor in this case has been involved in extensive litigation with National Railroad Passenger Corp. ("Amtrak") in the District Court for the District of Columbia since before the Debtor filed its Chapter 11 petition for relief on October 3, 2003. The Court issued an opinion on January 20, 2004 in this case, which details some of the history of the litigation between the Debtor and Amtrak. The result of that opinion was a modification of the automatic stay for the limited purpose of permitting the parties to continue the litigation in the District Court for the District of Columbia. That litigation has not yet reached a conclusion.
On October 28, 2003, the Debtor filed an application to approve the employment of Foley Lardner, LLP ("Foley Lardner") as special counsel under § 327(e) of the Bankruptcy Code. That section provides that a debtor "may employ, for a specified special purpose, other than to represent the [debtor-in-possession] in conducting the case, an attorney that has represented the debtor. . . ." 11 U.S.C. § 327(e). The Debtor sought approval of the employment of Foley Lardner under § 327(e) "for the special purpose of continuing its representation of the Debtor" in the District of Columbia case. (Application ¶ 9 (Docket No. 71).) The Debtor stated in the application that Foley Lardner "will not represent the Debtor in conducting this Chapter 11 case," and that the services to be provided will "require no specialized bankruptcy expertise." (Id. at ¶¶ 9, 10.) The application also explained that Foley Lardner intended "to apply to the Court for allowance of compensation and reimbursement of expenses in accordance with applicable provisions of the Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and local rules and orders of this Court." (Id. ¶ 13.) However, because of the nature and complexity of the Amtrak litigation, the Debtor anticipated that "requiring Foley Lardner to wait an extended period for payment of its fees and costs could well place an undue hardship on Foley Lardner." (Id. ¶ 14.) After highlighting the fact that Foley Lardner "is in a position to repay any fees and costs that may be reconsidered," the Debtor's application proposed the following:
The Debtor, subject to the provisions of the Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and local rules and orders of the Court, proposes to pay Foley Lardner their standard hourly rates in effect from time to time, and submits that such rates are reasonable. The Debtor requests that it be allowed to pay compensation in the amount of 80% of the full amount billed and reimburse expenses to Foley Lardner in the amount of 100% of the full amount incurred by Foley Lardner upon receipt of reasonably detailed invoices . . ., provided, unless the Debtor and the U.S. Trustee shall stipulate to its continuation, the aforesaid payment of monthly fees and costs shall terminate at the end of 120 days after the entry of this Order, and provided further, Foley Lardner will hold the funds in its trust account and will be allowed to apply the funds pursuant to an approved fee application filed in accordance with Bankruptcy Code §§ 330 and 331, and any and all other orders of the Court and Fee Guidelines promulgated by the United States Trustee.
(Id. ¶ 14.)
The Debtor attached an affidavit of Robert P. vom Eigen, a member of the Foley Lardner firm, to the application. The affidavit elaborated on the qualifications of Foley Lardner, its disinterestedness, and the anticipated procedure for compensation. As part of the declaration of disinterestedness, the affidavit disclosed the pre-petition arrangements for compensating Foley Lardner. A pre-petition agreement gave Foley Lardner "a security interest in any settlement or judgment obtained from Amtrak. . . ." (Id., Ex. A at ¶ 10.) A second pre-petition agreement provided that, should the Debtor fail to pay any Foley Lardner invoice within 30 days, Anthony Soave would arrange for payment to Foley Lardner pursuant to a guaranty letter signed by Mr. Soave. (Id.) Copies of the pre-petition agreements were attached to the application. There is nothing, in either the affidavit or the application, that either directly or indirectly requested the Court to approve the continuation of these pre-petition agreements post-petition. In describing the procedure going forward for payment of post-petition professional fees and expenses, the vom Eigen affidavit reiterated that,
Mr. Soave is "the owner of Soave Rail, one of the members of . . . the Debtor." (Supplement to Debtor's Monthly Statements at 1 (Docket No. 410).)
[s]ubject to Court approval in accordance with Section 330(a) of the Bankruptcy Code, Foley Lardner will seek compensation for all future work on behalf of the Debtor according to its standard hourly rates, plus reimbursement for reasonable and necessary expenses, pursuant to the any [sic] administrative order entered by this Court.
(Id., Ex. A at ¶ 11.)
The Court entered an order approving the application on November 4, 2003 ("Retention Order"), which provided
that the Application is granted and the Debtor is authorized to employ Foley Lardner as its special counsel pursuant to the terms of the Application.
. . .
IT IS FURTHER ORDERED that the Debtor is authorized to pay Foley Lardner 80% of the full amount billed and reimburse expenses to Foley Lardner in the amount of 100% of the full amount incurred by Foley Lardner upon receipt of reasonably detailed monthly invoices indicating the nature of the services rendered and calculated in accordance with Foley Lardner's standard billing practices, provided that, unless the Debtor and the U.S. Trustee shall stipulate to its continuation, the aforesaid payment of monthly fees and costs shall terminate at the end of 120 days after the entry of this Order and provided further, Foley Lardner will hold the funds in its trust account and will be allowed to apply the funds pursuant to an approved fee application filed in accordance with Bankruptcy Code §§ 330 and 331.
(Retention Order at 1 (Docket No. 88).)
The Retention Order did not provide for or even mention the post-petition continuation or approval of any of the pre-petition agreements that existed among Foley Lardner, the Debtor and Mr. Soave. Further, the Retention Order did not indicate in any way that Mr. Soave might advance payments to Foley Lardner for post-petition services and then seek reimbursement for such payments from the Debtor. The Retention Order did not authorize the Debtor to pay Mr. Soave or anyone else other than Foley Lardner. Although the Retention Order authorized the Debtor to make monthly payments to Foley Lardner of 80% of fees and 100% of expenses upon receipt of detailed monthly invoices, the Retention Order specifically provided that Foley Lardner was required to "hold the funds in its trust account" pending approval of a properly filed fee application. Further, authority for the Debtor to make these monthly payments was expressly limited to 120 days "unless the Debtor and the U.S. Trustee shall stipulate to its continuation. The Debtor and the U.S. Trustee subsequently filed a stipulation on January 20, 2004 agreeing to extend a similar interim monthly payment arrangement until April 21, 2004, for Jaffe, Raitt, Heuer and Weiss ("Jaffe Raitt"), its bankruptcy counsel, (Docket No. 151), but that stipulation did not mention Foley Lardner. There is no stipulation in the Court file extending this interim monthly payment arrangement past April 21, 2004 for either the Debtor's bankruptcy counsel or Foley Lardner. Curiously, however, on March 9, 2006, the Debtor and the U.S. Trustee filed another stipulation wherein the Debtor agreed to cease the interim monthly payment arrangement as of November 30, 2005. (Docket No. 409.) The March 9, 2006 stipulation contains two errors. First, it characterizes the January 20, 2004 stipulation as providing for an "indefinite extension" of the interim payments, when in fact the extension was only through April 21, 2004. Second, the March 9, 2006 stipulation mistakenly states that the January 20, 2004 stipulation included both the Debtor's bankruptcy counsel and Foley Lardner, when it covered only the former. In any event, as of the hearing on this matter, two facts are clear: (i) the interim monthly payment arrangement for Foley Lardner under the Retention Order had not been extended past April 21, 2004 by any writing filed with the Court; and (ii) Foley Lardner had yet to file any fee application with the Court.
While the Chapter 11 case has been pending in this Court, the litigation between Amtrak and the Debtor has continued in the District of Columbia District Court. At a Chapter 11 status conference conducted by this Court on February 28, 2006, Amtrak first raised a concern over the Debtor's financial reports and an allegation regarding the possible payment of Foley Lardner's legal fees by third parties rather than by the Debtor pursuant to the Retention Order. The Court encouraged the parties to cooperate in exchanging information regarding this issue.
On March 9, 2006, the Debtor filed a supplement (Docket No. 410) to Debtor's monthly statements, apparently to address the concerns raised by Amtrak at the recent Chapter 11 status conference. The supplement begins by stating that the Retention Order "authorizes the Debtor . . . to pay 80% of the fees and 100% of the costs invoiced by Foley [ Lardner] on a monthly basis pending the filing of an application for compensation. . . ." (Supplement at 1 (Docket No. 410).) The supplement then discloses that the Debtor did not have sufficient cash flow to pay Foley Lardner and that, instead, Mr. Soave was actually paying Foley Lardner's invoices and receiving partial reimbursement from the Debtor:
Because the Debtor's cash flow has not been sufficient to pay the Foley [ Lardner] invoices in full, the guarantor [Mr. Soave] has effectuated payments for those invoices. As the Debtor's cash flow has permitted, the Debtor has reimbursed the guarantor for those payments, with the Debtor's payments at all times remaining far below the authorized 80% of fees and 100% of costs.
The Debtor has remitted the amount of $2,605,261.18 as of November 30, 2005, by this process in payment of Foley [ Lardner]'s invoices pursuant to the Retention Order.
(Id. at 1-2.) The supplement further discloses that Mr. Soave had paid Foley Lardner post-petition fees and expenses in the amount $4,284,850, for which the Debtor has not reimbursed Mr. Soave. (Id.) Finally, the supplement discloses that the Debtor has "mistakenly" made some other payments with respect to Foley Lardner:
The Debtor's authorization under the Retention Order to continue to fund the Foley invoices expired on November 30, 2005. The Debtor mistakenly remitted additional reimbursement payments of $475,000 in December, 2005, January and February, 2006. These payments have been returned to the Debtor, and amendments to the December, January and February monthly statements will be filed so reflecting. (Id.)
Not surprisingly, this supplement led to further inquiries from Amtrak to the Debtor and, ultimately, a dispute over the information to be provided with respect to these inquiries. On April 11, 2006, the Debtor filed a motion for a protective order (Docket No. 414). The following day, Amtrak filed a motion for Rule 2004 examination and to compel the Debtor to produce documents regarding the payments made by Mr. Soave to Foley Lardner and the reimbursement of payments made by the Debtor to Mr. Soave (Docket No. 415). The Court heard both motions on May 10, 2006. At the conclusion of the hearing, the Court denied the Debtor's motion and granted Amtrak's motion. After hearing the parties' arguments over the form of the order, the Court entered an order on July 12, 2006 (Docket No. 479). The Debtor was ordered to "produce to Amtrak all non-privileged documents" contained in a list attached to the order. Generally, the documents to be produced relate to post-petition payments made by the Debtor and Mr. Soave to Foley Lardner, the Debtor's reimbursement of Mr. Soave for Mr. Soave's post-petition payments to Foley Lardner, whether Foley Lardner held any post-petition payments in its trust account as required by the Retention Order, and any unpaid post-petition fees and expenses. The July 12, 2006 order also directed the Debtor to provide a privilege log for any documents withheld from production based on attorney-client privilege, work product doctrine, or other claim of privilege.
Amtrak has now filed a motion to compel production of the documents pursuant to the July 12, 2006 order. The Debtor opposes the motion based on its assertion that any documents not produced are either covered by the attorney-client privilege or by the work product doctrine. After a hearing on July 31, 2006, the Court took the matter under advisement and requested that the Debtor and Foley Lardner deliver revised and supplemental privilege logs because the existing record contained multiple versions of the privilege logs previously produced by the Debtor. On August 2, 2006, the Debtor and Amtrak jointly delivered to the Court a letter that enclosed "Attachments 1 through 6" that consist of the "originally provided" privilege logs. On the same day, the Debtor also delivered to the Court a separate letter, with a copy to Amtrak, that enclosed "Attachments 1 through 5" that purport to revise the six separate privilege logs that accompanied the joint letter of August 2, 2006. The Court's discussion of specific individuals and documents in this opinion will refer to such individuals and documents as they are identified in the revised privilege logs that comprise "Attachments 1 through 5" that accompanied the second letter of August 2, 2006 that was sent by the Debtor to the Court and copies to Amtrak. The Court has reviewed these revised privilege logs and this matter is now ripe for adjudication.
II. Discussion
In applying the attorney-client privilege and work product doctrine to the documents at issue in this case, the Court must initially consider (1) whether state or federal law controls; (2) rules of construction; (3) burden of proof; and (4) the specific circumstances of this case. First, this dispute concerns compliance with this Court's Retention Order, the provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and the Local Rules of Bankruptcy Procedure. This dispute does not involve an element of a claim or defense to which state law applies. Accordingly, federal law governs the claims of attorney-client privilege. See Fed.R.Evid. 501. Federal law also applies to the work product doctrine. See Fed.R.Civ.P. 26(b)(3), (5) (incorporated by Fed.R.Bankr.P. 7026).
Second, as an exception to the general rule that every witness should testify fully, the attorney-client privilege must be narrowly construed. See Fausek v. White, 965 F.2d 126, 129 (6th Cir. 1992). Further, the work product doctrine is "properly construed more narrowly than attorney-client privilege. . . ." In re Grand Jury Subpoenas 04-124-03 04-124-05, 454 F.3d 511, 520 (6th Cir. 2006).
Third, as the party asserting attorney-client privilege, the Debtor bears the burden of proof. See In re Grand Jury Investigation No. 83-2-35, 723 F.2d 447, 450 (6th Cir. 1983) ("The burden of establishing the existence of the privilege rests with the person asserting it.") (citations omitted). On the other hand, the work product doctrine involves a shifting burden of proof. The party seeking the production of documents must first establish that they are relevant. In this case, there is apparently no dispute that the documents identified in the privilege logs, but withheld by the Debtor, are relevant to the dispute between the parties because the privilege logs have omitted and the Debtor has not produced documents that are outside the scope of Amtrak's discovery request. The burden of proof then shifts to the party resisting production, which must establish that the documents it seeks to protect were prepared in anticipation of litigation. United States v. Roxworthy, 457 F.3d 590, 593 (6th Cir. 2006) (citations omitted). In this case, the party with the initial burden of proof is the Debtor.
Finally, in taking into account the specific circumstances of this case, the Court cannot help but observe that the present dispute is largely one of the Debtor's own making. Only the Debtor is authorized, under the Retention Order, to pay the fees and expenses of Foley Lardner. Further, the Debtor is only authorized under that order to make such payments to Foley Lardner, not to Mr. Soave. The Retention Order simply does not state that a third party may pay Foley Lardner, and the Debtor may then reimburse that third party, all without a fee application, and without Foley Lardner holding the funds in trust. Considering these specific circumstances, and the noted rules of construction and burdens of proof, in a close call between finding a document to be protected or not, the Court is disinclined to tip the scales in favor of the Debtor.
In contrast, early in this case, the Debtor's insurance company demanded the payment of a full twelve months of insurance premiums, instead of monthly payments. The Debtor had budgeted for installment premium payments, and was unable to pay for a year in advance. To solve this problem, the Debtor sought Court approval to have Soave Rail, L.L.C. finance the premium payment (Docket No. 141), and obtained the approval of the U.S. Trustee. An order was entered granting the Debtor's motion (Docket No. 143). It is clear that in that instance the Debtor was aware of the need to obtain Court approval for the transaction and the necessity of full disclosure concerning such financing arrangements, and took the necessary steps in Court to obtain approval, rather than simply having the payments made by Soave Rail, L.L.C. and then later reimbursed by the Debtor, as the Debtor apparently did with respect to Foley Lardner.
A. Attorney-client privilege
The attorney-client privilege permitting a witness to withhold testimony is an exception to the general rule that a court is entitled to every witness's testimony and that witnesses fully disclose information known to them when called to testify. Thus, it should be construed narrowly. . . . This court set forth the essential elements of the attorney-client privilege . . . as follows: (1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived.
Fausek v. White, 965 F.2d 126, 129 (6th Cir. 1992) (internal quotation marks and citations omitted). Communications made by the attorney in conveying legal advice to the client are also covered by the privilege. See Humphreys, Hutcheson Moseley v. Donovan, 755 F.2d 1211, 1219 (6th Cir. 1985) ("The attorney-client privilege only precludes disclosure of communications between attorney and client. . . .") (emphasis omitted) (citing Upjohn Co. v. United States, 449 U.S. 383, 395 (1981)).
The Court will address only those elements of the attorney-client privilege that the parties have placed at issue in this case. The parties focused their arguments on the applicable legal principles generally and, with the exception of a few specific documents identified by Amtrak, did not apply those principles on a document by document basis to the documents identified in the privilege logs. In trying to do so itself, the Court found itself guessing as to the Debtor's basis for claiming attorney-client privilege with respect to certain of the documents and also guessing the basis for Amtrak's objection with respect to certain of the documents. The Court was also stymied by privilege logs that were at best confusing and, at worst, wholly deficient in describing the content of the document and the specific grounds for the assertion of the privilege. Despite the Court's direction at the July 31, 2006 hearing that the Debtor provide a comprehensive privilege log, the Debtor instead again provided multiple versions of the logs. For example, according to the August 2, 2006 letters, "Attachment 5" was both the "Debtor's original Log relating to Foley Lardner documents" and "a cumulative revision of the logs enclosed in Attachment 5 and Attachment 6 with the joint letter which excludes certain documents determined to be non-responsive." One "Attachment 4" was a supplemental log provided by the Debtor that "restates the first two entries on Attachment 1 for documents P00001 through P00037," and a second "Attachment 4" "revise[d] the log in Attachment 4 enclosed with the joint letter." Given this labyrinth of privilege logs, the Court could not determine with certainty which documents were at issue or the proper description of those documents. Accordingly, in this opinion, the Court will rule on the legal issues raised by the parties, but not attempt to apply those principles on a document-by-document basis.
1. Communications made between the "client" and the "professional legal advisor"
In reviewing the Debtor's privilege logs, the first issue that arises is who are the client and the attorney. In this case, the "client" is the Debtor, Expresstrak, L.L.C., a limited liability company. As such, it is more analogous to a corporate client than an individual client. "Admittedly complications in the application of the privilege arise when the client is a corporation, which in theory is an artificial creature of the law, and not an individual; but [the Supreme] Court has assumed that the privilege applies when the client is a corporation."Upjohn Co. v. United States, 449 U.S. 383, 389-90 (1981) (citation omitted).
[T]he privilege applies to communications by any corporate employee regardless of position when the communications concern matters within the scope of the employee's corporate duties and the employee is aware that the information is being furnished to enable the attorney to provide legal advice to the corporation.
In re Perrigo Co., 128 F.3d 430, 437 (6th Cir. 1997) (citingUpjohn, 449 U.S. at 394).
There are two law firms that represent the Debtor in this case. Jaffe Raitt is the Debtor's bankruptcy counsel and Foley Lardner is the Debtor's special counsel.
The Debtor's privilege logs reference more than forty individuals. The Debtor included two "keys" to the identity of most of those individuals in the Debtor's privilege logs. Some of these individuals are identified as employees of the Debtor or employees of either Jaffe Raitt or Foley Lardner. However, there are many other individuals who are not identified as employees of the Debtor or either of those two law firms. The Court is not persuaded that all of these additional individuals are covered by the Debtor's attorney-client privilege. The Court has separated these additional individuals into three categories (i) unidentified individuals; (ii) an attorney who represents a member of the Debtor's board of directors; and (iii) employees and former employees of a related entity.
William W. Whitehurst, Jr. is in the first category. He is not identified in the keys to individuals. The Court has no idea who this person is. However, each entry in the privilege log in which he is listed as the author or recipient, describes the subject matter of the document as "services provided by W.W. Whitehurst Associates, Inc. as Economic Consultants to the Debtor in the Amtrak Litigation." Mr. Whitehurst does not appear to be an employee of the Debtor. Instead, he appears to be an employee of the Debtor's economic consultant. There is no basis in this record for the Court to find that Mr. Whitehurst is either "the client" or the attorney, so his communications are not privileged. For this reason, the documents in which Mr. Whitehurst is listed as the author or recipient are not covered by the attorney-client privilege.
It is unclear why these documents are included in the privilege log as they appear to be beyond the scope of the discovery order.
Likewise, Richard H. Wiersema is not identified in the keys to individuals. The subject matter for the one entry in which he is listed is for "services provided by Mr. Wiersema relating to Amtrak Litigation." As the party asserting the privilege, the Debtor bears the burden of proof. The Debtor has not met that burden in proving that Mr. Wiersema is "the client." Accordingly, any document describing Mr. Wiersema as the author or recipient is not covered by the attorney-client privilege.
The second category consists of one individual. Thomas Fallucca is described in one key as "Attorney with Fallucca O'Shea, represent[ing] Mr. [Yale] Levin as a member of the Debtor's Board and various Soave entities." In the second key, Mr. Fallucca is described as "Counsel for Soave." Mr. Fallucca is not an employee of the Debtor. Therefore, the Court does not find him to be "the client." Looking to the other side of the communication, it is true that Mr. Fallucca is an attorney. However, he is not an attorney with either Jaffe Raitt or Foley Lardner. He does not represent the Debtor. Mr. Fallucca's clients are identified as Mr. Levin and the Soave entities, not the Debtor. The entity asserting the privilege in this case, as "the client," is the Debtor. Any attorney-client privilege that may exist between Mr. Fallucca and Mr. Levin and the Soave entities is irrelevant in this case. Because Mr. Fallucca is not either the client or the Debtor's attorney, the Court finds that the communications to and from Mr. Fallucca are not within the Debtor's attorney-client privilege. As such, there is no basis under the Debtor's attorney-client privilege to exclude from production those documents in which Mr. Fallucca is either the author or recipient.
The third category consists of several individuals identified in the keys as employees or former employees of "Soave Enterprises LLC." Those individuals are identified as follows:
Kip Koszewski The Debtor pays a monthly fee for accounting and financial services ("Controller Services") to Soave Enterprises LLC, which employs Mr. Koszewski, who serves as the Controller for the Debtor. Anna Miller Former employee of Soave Enterprises LLC, assisted Mr. Koszewski. Rick Brockhaus Treasurer, Soave Enterprises, LLC, participates in Controller Services. Melissa Ellis Former employee of Soave Enterprises LLC, assisted in Controller Services. Kristin Kless Employee of Soave Enterprises, LLC, formerly assisted in Controller Services. Linda Clements Employee of Soave Enterprises, LLC, assists in Controller Services. Tim Blackburn MIS Department, Soave Enterprises, LLC, participates in Controller Services. Tim Bley Tax Department, Soave Enterprises, LLC, participates in Controller Services. Marjorie Brown Former employee of Soave Enterprises LLC, assisted in Controller Services.None of these individuals is identified by the Debtor as an employee of the Debtor. Instead, they are all described by the Debtor as being employees or former employees of Soave Enterprises, LLC, a related entity, not the Debtor. The Debtor has not provided the Court with sufficient information to conclude that the Debtor's attorney-client privilege applies with respect to their communications. Accordingly, there is no basis under the Debtor's attorney-client privilege to exclude from production any documents in which these individuals either sent or received the communication.
2. "Communications relating to that purpose"
The scope of the communications between an attorney and client that is covered by the privilege is not unlimited. The purpose of the communication must be related to obtaining or giving legal advice. The approval of the appointment of Foley Lardner as the Debtor's special counsel under § 327(e) limited Foley Lardner to representation of the Debtor in the District of Columbia litigation. The Debtor specifically stated in its application to employ Foley Lardner that Foley Lardner "will not represent the Debtor in conducting this Chapter 11 case." Indeed, because it held a large pre-petition claim against the Debtor, Foley Lardner was not a "disinterested person" under § 101(14) and was therefore not even eligible to be employed by the Debtor "to represent or assist the [Debtor] in carrying out the [Debtor's] duties under this title." 11 U.S.C. § 327(a). For that reason, communications between the Debtor and Foley Lardner as to any matters not pertaining to the District of Columbia litigation with Amtrak could not be related to obtaining or giving legal advice. Therefore, they are not protected. Communications by or with Foley Lardner concerning the administration of the bankruptcy case are expressly beyond the scope of Foley Lardner's authorized representation under § 327(e) and are thus unprotected by the Debtor's attorney-client privilege. Likewise, communications between Foley Lardner and Jaffe Raitt concerning the administration of the bankruptcy estate are not protected by the Debtor's attorney-client privilege. For example, document P00236-P00266 is described as an email message from Foley Lardner to Jaffe Raitt regarding "analysis of draft of bankruptcy pleading on fee issues." Document P00267 is an email message from Foley Lardner to Jaffe Raitt regarding "analysis of response on Soave fee reimbursement." Document P00272 is an email message from Foley Lardner to Jaffe Raitt regarding "analysis of Motion preventing 2004 exam." None of these communications relate to the District of Columbia litigation and instead all appear to relate to the administration of the bankruptcy case. The Court concludes that communications from or to Foley Lardner as to any matters unrelated to the District of Columbia litigation with Amtrak are not related to obtaining or giving legal advice and are therefore not protected by the Debtor's attorney-client privilege.
There is a second limitation on the scope of the attorney-client privilege that also applies in this case. "[T]he fact of legal consultation or employment, clients' identities, attorney's fees, and the scope and nature of employment are not deemed privileged." Humphreys, Hutcheson Moseley v. Donovan, 755 F.2d 1211, 1219 (6th Cir. 1985). "In the absence of special circumstances, the amount of money paid or owed to an attorney by his client is not within the attorney-client privilege." United States v. Haddad, 527 F.2d 537, 538 (6th Cir. 1975) (citations omitted); see also Morganroth Morganroth v. DeLorean, 123 F.3d 374, 383 (6th Cir. 1997) (holding that a client's discussion regarding anticipated attorney fees "was a non-privileged, financial discussion that did not involve the seeking or provision of legal advice"). This limitation would seem to have particular application in the bankruptcy context, where the Bankruptcy Code and Rules impose substantial restrictions on the approval and payment of attorney fees and expenses, and give the Court considerable oversight and discretion in making those determinations. The concern over the impact of administrative claims on the estate and other creditors has been held to support the Court's oversight even with respect to payments made by third parties from non-estate assets. See Henderson v. Kisseberth (In re Kisseberth), 273 F.3d 714, 719 (6th Cir. 2001) ("[A]ny payment made to an attorney for representing a debtor in connection with a bankruptcy proceeding is reviewable by the bankruptcy court notwithstanding the source of payment.") (internal quotation marks and citation omitted).
In this case, many of the descriptions of the documents alleged to be protected relate to the payment of Foley Lardner fees by Mr. Soave and the reimbursement of Mr. Soave by the Debtor for those payments. For example, document P00132-P00137 is described as an email message from Jaffe Raitt to several individuals, with the description "re: Foley fees and Soave payments." Documents P00383-P00389 and P00390 are described as addressing "Foley invoices" and "pre-petition legal fees and treatment." The Court concludes that those documents in which the communication relates to the payment of legal fees are not covered by the Debtor's attorney-client privilege.
3. Communications "made in confidence"
Even as to those communications between the Debtor and Foley Lardner that are within the scope of the privilege, another element to be considered is whether the specific communication was "made in confidence." Fausek v. White, 965 F.2d 126, 129 (6th Cir. 1992). "Generally courts hold that any presence of third parties, who are not agents of the lawyer [or the client] for the purpose of assisting the lawyer in giving legal advice, negates the requirement that confidentiality attend the making of the communication." Edna Selan Epstein, The Attorney-Client Privilege and the Work-Product Doctrine at 129 (3d ed. 1997) (citations omitted).
It is clear that the attorney-client privilege will not shield from disclosure statements made by a client to his or her attorney in the presence of a third party, but there is little authority about which agents of an organizational client are the client for purposes of the attorney-client privilege.
Reed v. Baxter, 134 F.3d 351, 357 (6th Cir. 1998) (citation omitted).
[M]aterial transmitted to accountants may fall under the attorney-client privilege if the accountant is acting as an agent of an attorney for the purpose of assisting with the provision of legal advice. [W]hat is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from the lawyer. If what is sought is not legal advice but only accounting service . . . or if the advice sought is the accountant's rather than the lawyer's, no privilege exists.
In re Grand Jury Proceedings, 220 F.3d 568, 571 (7th Cir. 2000) (internal quotation marks and citations omitted); see also United States v. Evans, 113 F.3d 1457, 1462 (7th Cir. 1997) (addressing the presence of another attorney, and concluding the attorney was present as a friend of the client and not as the client's attorney, and thus not an agent of the client, so the expectation of confidentiality was destroyed); Liggett Group Inc. v. Brown Williamson Tobacco Corp., 116 F.R.D. 205, 209-10 (M.D.N.C. 1986) (finding that the presence of account executive of an independent design corporation destroyed the privilege, even though the corporation was "a closely associated design agency").
Accordingly, any communications made in the presence of individuals who are either not employees or agents of the Debtor or of one of the Debtor's two law firms, Jaffe Raitt and Foley Lardner, are not privileged. William W. Whitehurst, Jr., Richard H. Wiersema, Thomas Fallucca, Kip Koszewski, Anna Miller, Rick Brockhaus, Melissa Ellis, Kristin Kless, Linda Clements, Tim Blackburn, Tim Bley, and Marjorie Brown are not identified as employees of the Debtor or either Jaffe Raitt or Foley Lardner, nor has the Debtor provided sufficient information such that the Court could find that any of these individuals are agents of either the Debtor or those two law firms for the purpose of assisting the lawyer in giving legal advice. Accordingly, the Court concludes that there is no confidentiality with respect to any communications shared with these individuals. Therefore, the Debtor's attorney-client privilege does not apply to those documents that were shared with any of these individuals.
4. "At issue" waiver
Even as to those communications that would otherwise be covered by the Debtor's attorney-client privilege, Amtrak argues that there has been a waiver of the privilege in this case. Amtrak asserts that during the May 10, 2006 hearing on Amtrak's motion for a Rule 2004 examination, counsel for the Debtor made certain statements suggesting that the Debtor may have decided to pay Foley Lardner as it did, with Mr. Soave or his entities making the initial payment and the Debtor reimbursing them, based on the advice of counsel. Having put advice of counsel at issue, Amtrak concludes that the Debtor has thus waived any claim of privilege. Amtrak is correct as to the law generally.
We are told that we cannot have our cake and eat it too. What this means in the privilege context is that a litigant cannot at one and the same time place privileged matters into issue and also assert that those matters nonetheless remain privileged and not subject to full disclosure and exploration. . . .
. . .
A client may not expressly or impliedly rely upon "advice of counsel," either to substantiate a strategic offense or to form the basis of a defense in a proceeding with a third party, without waiving all privileged communications on that issue.
Epstein, The Attorney-Client Privilege and the Work-Product Doctrine at 209, 212 (citations omitted).
However, the Court rejects Amtrak's asserted application of the waiver issue in this case. The May 10, 2006 hearing was not an evidentiary hearing, and the statements were not made by a witness under oath. Instead, the statements were simply argument by counsel. Moreover, the statements made did not interpose an "advice of counsel" defense to any claim against the Debtor. At most, the Debtor's counsel's answers to the Court's questions expressed his view of what the law provides. That is much different than the Debtor defending a claim against it based upon advice of counsel. Under these circumstances, the Court does not find that the Debtor waived its attorney-client privilege.
B. Work product doctrine
In addition to its reliance on the attorney-client privilege, the Debtor resists production of certain documents based on the work product doctrine.
The attorney work product doctrine is distinct from and broader than the attorney-client privilege. An attorney's work product may consist of factual material . . . or may consist of so-called opinion work product, i.e., any material reflecting the attorney's mental impressions, opinions, conclusions, judgments or legal theories. Work product consists of tangible and intangible material which reflects an attorney's efforts at investigating and preparing a case, including one's pattern of investigation, assembling of information, determination of the relevant facts, preparation of legal theories, planning of strategy, and recording of mental impressions.
In re Michigan Boiler Engineering Co., 87 B.R. 465, 468 (Bankr. E.D. Mich. 1988) (internal quotation marks omitted) (citingUnited States v. Nobles, 422, U.S. 225, 238 n. 11 (1975); Hickman v. Taylor, 329 U.S. 495, 511 (1947); Advance Publications, Inc. v. United States (In re Antitrust Grand Jury), 805 F.2d 155, 163 (6th Cir. 1986)) (other citations omitted).
The Sixth Circuit uses a five-step analysis in applying the work product doctrine.
1. The party requesting discovery must first show that, as defined in Rule 26(b)(1), the materials requested are "relevant to the subject matter involved in the pending litigation" and not privileged. . . .
2. If the party requesting discovery meets this burden and the court finds that the claimed material is relevant and not privileged, the burden shifts to the objecting party to show that the material was "prepared in anticipation of litigation or for trial" by or for that party or that party's representative. . . .
3. If the objecting party meets its burden as indicated above and the court finds that the material was prepared in anticipation of litigation or for trial by one of the persons named in the rule, the burden shifts back to the requesting party to show that the requesting party (a) has substantial need of the materials in preparation of the party's case, and (b) that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In doing this, attention is directed at alternative means of acquiring the information that are less intrusive to the lawyer's work and whether or not the information might have been furnished in other ways.
4. After the application of the shifting burdens, even if the court determines that the requesting party has substantial need of the materials in the preparation of its case and that the requesting party is not able, without undue hardship, to obtain the substantial equivalent of the materials by other means, the rule flatly states that the court is not to permit discovery of "mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of the party concerning the litigation." On this issue, the burden of showing that the nature of the materials are mental impressions, conclusions, opinions or legal theories of an attorney or representative, rests on the objecting party. . . .
5. The court may not order discovery of materials if discovery of such materials would violate Rule 26(b)(4) involving trial preparation, i.e., experts.
Toledo Edison Co. v. G.A. Technologies, Inc., 847 F.2d 335, 339-340 (6th Cir. 1988); see also In re Powerhouse Licensing, LLC, 441 F.3d 467, 473 (6th Cir. 2006) ("Once the party requesting discovery establishes relevance, the objecting party has the burden of showing that the material was prepared in anticipation of litigation or for trial. If that burden is not met, the court's inquiry ends and the documents must be produced.") (citation omitted).
In this case, the parties have raised issues regarding the work product doctrine in the context of whether (1) the documents were prepared in anticipation of litigation; (2) Amtrak has a substantial need for the documents and is unable to obtain the equivalent materials without undue hardship; and (3) the documents contain the mental impressions, conclusions, opinions, or legal theories. Accordingly, the Court will focus on steps two, three and four of the Toledo Edison test.
1. "In anticipation of litigation"
In applying the second step, the Sixth Circuit has recently addressed the meaning of "in anticipation of litigation." United States v. Roxworthy, 457 F.3d 590 (6th Cir. 2006). The court adopted the "`because of' test," which "ask[s] whether a document was prepared or obtained because of the prospect of litigation."Id. at 593 (internal quotation marks and citations omitted). TheRoxworthy court distinguished "documents prepared in the ordinary course of business, . . . or for other nonlitigation purposes," concluding that they "are not covered by the work product privilege." Id. at 594 (citations omitted). Further, the court required that a party asserting the protection of the doctrine "must have had a subjective belief that litigation was a real possibility, and that belief must have been objectively reasonable." Id. (internal quotation marks and citations omitted).
The documents at issue in the Amtrak motion were not prepared in anticipation of the District of Columbia litigation between the Debtor and Amtrak. Rather, the relevant "litigation" for purposes of the Amtrak motion consists of possible judicial proceedings regarding the Debtor's and Foley Lardner's compliance with the Retention Order. This litigation is separate and apart from the ongoing litigation between Debtor and Amtrak pending before the District Court for the District of Columbia. The pertinent question then is when did the Debtor first have a subjective belief, that was objectively reasonable, that litigation over the Retention Order was a real possibility.
Amtrak first raised questions over entries for legal expenses in the Debtor's financial reports at the February 28, 2006 Chapter 11 status conference. As noted earlier in this opinion, the Court encouraged the parties at that time to cooperate with each other in exchanging information to address the questions raised by Amtrak without the need for Court intervention. The Debtor's motion for a protective order (Docket No. 414) and Amtrak's motion for a Rule 2004 examination (Docket No. 415) show that the parties did correspond with each other after the February 28, 2006 status conference but were ultimately unsuccessful in addressing Amtrak's questions without judicial intervention. In reviewing those two motions, and the sequence of events recited in them as well as the copies of the letters attached to them, the Court has tried to ascertain whether any evidence exists to show a specific point in time when the Debtor could have first had a subjective belief that was objectively reasonable, that litigation over the Retention Order was a real possibility. The March 17, 2006 letter from Amtrak's counsel to the Debtor's counsel (Ex. 8 to Docket No. 415) is the first letter that requests more than just information and instead expresses Amtrak's view that the Debtor and/or Foley Lardner may not have complied with the Retention Order. The letters between Amtrak's counsel and the Debtor's counsel prior to the March 17, 2006 letter appear only to request information and do not indicate either directly or indirectly the possibility of litigation over the Retention Order. While it is difficult for the Court to tell with specificity the precise moment when the Debtor may have harbored a subjective belief that litigation over the retention order was a real possibility, a review of the limited record before the Court persuades the Court that the earliest time that the Debtor's subjective belief was objectively reasonable, was upon receipt of the March 17, 2006 letter. Accordingly, the Court finds that any documents pre-dating March 17, 2006 were not prepared in anticipation of litigation and are therefore not covered by the work product doctrine. The work product doctrine then is not a basis for the Debtor to refuse to produce any documents created or prepared prior to March 17, 2006.
2. "Substantial need" and "undue hardship"
Having found that the Debtor may only assert the work product doctrine with respect to documents prepared after March 17, 2006 does not end the Court's inquiry regarding the application of the word product doctrine. If Amtrak requests documents prepared in anticipation of litigation after March 17, 2006, it may still obtain them from the Debtor if it can meet the third step of theToledo Edison test. Step three of the Toledo Edison analysis requires that Amtrak establish that it has a substantial need for the requested document, and that it is unable, without undue hardship, to obtain the substantial equivalent of the document by other means. Toledo Edison, 847 F.2d 335, 339-40 (6th Cir. 1988).
The privilege logs identify many documents dated after March 17, 2006 and covered by the work product privilege. Most of them consist of emails among individuals at Jaffe Raitt, Foley Lardner, Soave Enterprises, LLC and have many recipients listed in them. They generally appear to be created and sent in reaction to the Debtor's motion for protective order, Amtrak's motion for Rule 2004 examination, and the flurry of pleadings that the parties each filed after those motions were filed. The Court is not persuaded that Amtrak has met its burden to establish a substantial need to obtain these documents or their substantial equivalent without undue hardship by other means. All of the payments made by the Debtor either to Foley Lardner or to Mr. Soave occurred prior to March 17, 2006 as did all of the payments by Mr. Soave to Foley Lardner. Without parsing through every email among Jaffe Raitt, Foley Lardner, Soave Enterprises and the Debtor sent after March 17, 2006 with descriptions that pertain largely to the Amtrak motion for a Rule 2004 examination and the Debtor's motion for protective order, the Court is not persuaded that Amtrak has met its burden to show a substantial need for any of this information or that the documents contained information that cannot be obtained by other means including the volume of documents produced to date as well as those documents that this opinion concludes are not subject to either the attorney-client privilege or, with respect to documents created prior to March 17, 2006, the work product doctrine. Accordingly, the Court concludes that Amtrak has not met its burden to establish substantial need for any documents asserted to be covered by the work product doctrine after March 17, 2006 under step three of the Toledo Edison test. The Court therefore need not address step four.
III. Conclusion
The Court's task in sorting out those documents that are covered by the assertion of Debtor's attorney-client privilege and those documents covered by application of the work product doctrine was made more difficult by the absence of a single comprehensive privilege log with identification of all the individuals referenced. Be that as it may, the Court has done its best to review the privileged logs received from the parties and apply the elements of the attorney-client privilege and the word product doctrine to the documents identified in the privilege logs. To recap the Court's findings in this opinion, the Court holds:
1. The Debtor's attorney-client privilege does not protect any documents with respect to which any of the following individuals are senders or recipients: William Whitehurst, Jr., Richard H. Wiersema, Thomas Fallucca, Kip Koszewski, Anna Miller, Rick Brockhaus, Melissa Ellis, Kristen Kless, Linda Clements, Tim Blackburn, Tim Bley and Marjorie Brown.
2. The Debtor's attorney-client privilege does not protect any documents consisting of communications between the Debtor and Foley Lardner relating to any matters that do not pertain to the litigation between the Debtor and Amtrak in the District Court for the District Columbia. Specifically, this means that any documents consisting of communications between Foley Lardner and the Debtor concerning the administration of the bankruptcy estate are not protected by the Debtor's attorney-client privilege.
3. The Debtor's attorney-client privilege does not protect any documents consisting of communications between Foley Lardner and Jaffe Raitt concerning the administration of the Debtor's estate.
4. The Debtor's attorney-client privilege does not protect any documents consisting of communications between the Debtor and Jaffe Raitt or between the Debtor and Foley Lardner regarding the payment of legal fees to Foley Lardner or the reimbursement of any third party's payment of legal fees to Foley Lardner.
5. The Debtor's attorney-client privilege does not protect any documents consisting of communications made in the presence of or shared with any of the following individuals: William Whitehurst, Richard Wiersema, Thomas Fallucca, Kip Koszewski, Anna Miller, Rick Brockhaus, Melissa Ellis, Kristen Kless, Linda Clements, Tim Blackburn, Tim Bley and Marjorie Brown.
6. The work product doctrine does not protect any documents dated prior to March 17, 2006.
7. The work product doctrine does protect any documents dated March 17, 2006 or after that were prepared in anticipation of litigation regarding the Retention Order.
The Court directs the parties to apply the holdings in this opinion to the specific documents that the Debtor is presently withholding from production. In the event that the parties are unable to determine how or whether the Court's holdings in this opinion apply to a specific document, either party may request the Court to conduct an in camera inspection of such specific document for the Court to apply the holdings in this opinion. The Debtor's basis for its assertion of privilege must be specific as well as Amtrak's challenge to the assertion of that privilege. The parties are not to use this process to re-argue the substantive rulings of the Court in this opinion. The Court will enter a separate order consistent with this opinion.