Trustee's Waiver of Attorney-Client Privilege

Trustee's Waiver of Attorney-Client Privilege

In the decision rendered August 29, there was affirmed the capacity of the bankruptcy trustee to waive the attorney-client privilege of the corporate debtor. United States v. Sanders, Case No. 5:19-CR-00068-JMH, 2019 WL 4125631 (E.D. Ky Aug. 29, 2019).

Trailblazers, Inc. was wholly owned by Sanders. It filed for Chapter 11 bankruptcy in August, 2013. There were subsequently found to be “multiple counts of fraudulent concealment of monetary transfers in contemplation of bankruptcy”, whereupon a Trustee, James Lyon, was appointed. The Chapter 11 was subsequently converted to a Chapter 7.

Lyon, on behalf of Trailblazers, then waived the attorney-client privilege as to Trailblazers. This decision arose out of an effort to confirm that waiver was effective for both pre-and post-petition communication between Trailblazers and its attorneys. Sanders argued that the trustee could not waive the attorney-client privilege as to communications that predated the trustee’s appointment. Relying upon Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343, 348-49 (1986), it was held that Lyons’s waiver was effective for pre-appointment communications. The court wrote that:

[O]nce a trustee is appointed to be the fiduciary of the corporation, the power to waive the attorney-client privilege as to its former communications cannot be ceded back to previous management.