June 5, 2017

“The court is loath to invade the attorney-client privilege except upon the most persuasive prima facie presentation, as the Trustee has made in support of his Motion”

A recent decision in the Western District of Michigan Bankruptcy Court, allows for a Trustee to subpoena a debtor’s Attorney for correspondence that the non-moving party argues is protected by attorney-client privilege.  In the matter of In re Rosich, Adversary Case Number 15-80203, the Court came to this careful determination by citing the crime-fraud exception and using a two-part test to show why attorney-client privilege does not apply in this case.  Within this decision, the Court did not simply open the flood gates; instead they applied an important distinction between pre/post wrongdoing to limit the scope of the subpoena. 

 

In 2011, an attorney assisted his clients, husband and wife, by advising and drafting a Deed to transfer a Michigan property from a revocable inter vivos trust to themselves as tenants by the entireties.  On August 14, 2013, the attorney filed the wife, individually, in a Chapter 7 Bankruptcy proceeding.  The Trustee then filed a timely adversarial proceeding against the couple to avoid the property as a fraudulent conveyance. The attorney and the Defendants objected to the Trustee’s Motion for an Order to have the attorney testify and produce documentation and an Order Ruling that attorney-client privilege does not apply. 

In the analysis, the Court accepts the Trustee’s use of local authority with the case Estate of Page v. Slagh, Slip Op. No 1:06-CV-245, 2007 WL 1385957 (W.D. Mich. May 8, 2007), which states:

“The attorney client privilege does not cover communication made in furtherance of a crime or fraud.  There is a two part test that the moving party must meet to invoke the crime fraud exception and obtain access to otherwise privileged attorney-client communications.”

The two parts are as follows:

        1.     The moving party must show, prima facie, that a sufficiently serious crime or fraud occurred.             

        2.     The moving party must establish a relationship between the communication and the prima facie violation.

The Judge found that the Trustee met the first requirement largely through the Defendants’ own admissions within their Answer and discovery responses.  Further, the Judge states that the Trustee “easily surmounts the second hurdle” by the simple fact that the attorney himself drafted the deed, obviously through some-sort of communication with his clients.

Though both prongs of the two part test were met, the Judge set important limitations on his decision to allow the invasion of attorney-client privilege.  The Court looked to the Supreme Court’s explanation of the theory of limiting the privilege for attorney-client communications used in furtherance of a crime or fraud:

“The attorney-client privilege must necessarily protect the confidences of wrongdoers, but the reasons for the protection— the centrality of open client and attorney communication to the proper functioning of our adversary system of justice— ‘ceases to operate at a certain point, namely, where the desired advice refers not to prior wrongdoing, but to future wrongdoing.”

As the Deed was signed on May 26, 2011, the Judge resolved that any communication occurring after this day would be in reference to a “prior wrongdoing” thus the Trustee was not entitled to invade the attorney-client privilege.  The Trustee is entitled to disrupt privilege for testimony about, and document production of, communication occurring before May 26, 2011—as this communication would be in reference to “future wrongdoing”.  The Judge also limited the scope for relevancy to the Defendants’ motives for transferring the Michigan property out of the Trust.

If you would like to learn more about this or other bankruptcy related questions, please visit at www.kalawgr.com, or call us at 616-364-2100. We look forward to hearing from you.

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