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concluding that the “attorney-client privilege cannot be applied to a defunct corporation” where the corporation “is bankrupt and has no assets, liabilities, directors, shareholders, or employees”
Summary of this case from Official Comm. of Admin. Claimants v. MoranOpinion
No. 02-2958 B/An.
December 6, 2004
ORDER DENYING MOTION TO QUASH
Before the Court is Baker, Donelson, Bearman, Caldwell, and Berkowitz, P.C.'s ("Baker Donelson") Motion to Quash Defendant's Subpoena for Production of Documents and Notice to Take Deposition filed on August 6, 2004. United States District Judge J. Daniel Breen referred this matter to the Magistrate Judge for determination. For the reasons set forth below, Baker Donelson's Motion is DENIED.
BACKGROUND
This case involves a dispute between Mr. Thomas Lewis ("Lewis") and Mr. Ron Edmonds ("Edmonds"), former officers of VisionAmerica, and the Internal Revenue Service ("IRS") concerning the responsibility for trust fund monies that the United States alleges is owed by Lewis and Edmonds. In this matter the United States served Baker Donelson and attorney Robert Walker ("Walker") with a subpoena for production of documents and a notice of deposition. Baker Donelson objects to both the subpoena and the notice of deposition and argues because they previously represented VisionAmerica, their firm cannot be forced to produce records or submit to depositions.Baker Donelson is a law firm with offices in Tennessee and other states, and while Baker Donelson is not a party to this lawsuit, in March 2000 the firm was engaged by a Special Committee of VisionAmerica's Board of Directors to investigate suspected discrepancies in VisionAmerica's tax payment and check writing procedures. Walker, a shareholder with Baker Donelson, was in charge of the Special Committee's investigation request. Walker states that Baker Donelson was retained "to offer legal advice" to the Board of Directors of VisionAmerica. Subsequent to Baker Donelson's investigation, VisionAmerica filed for Chapter 7 bankruptcy in 2001 in the Western District of Tennessee and was liquidated via a Chapter 7 proceeding in 2002. VisionAmerica has no assets, officers, directors, or shareholders at this time. The Bankruptcy Trustee handling VisionAmerica's bankruptcy estate "has unequivocally refused to provide any guidance in this matter." (Baker Donelson's Mem. in Supp. of Mot. to Quash Subpoena).
ANALYSIS I. Attorney/Client Privilege
Evidence is discoverable when it is "relevant to the claim or defense of any party" or when it "appears reasonably calculated to lead to the discovery of admissible evidence." Fed.R.Civ.P. 26(b)(1); see also Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340 (1978). Privileged information, however, is not discoverable. Fed.R.Civ.P. 26(b)(1). In Tennessee, "a lawyer shall not reveal information relating to the representation of a client unless the client consents after consultation." Tenn. Rules Prof'l Conduct 1.6 (2004). Moreover, an attorney is "ethically obligated to resist disclosing confidential information." Tenn. Sup. Ct. Formal Ethics Op. 81-F-20 (Sept. 3, 1981). Baker Donelson has satisfied this ethical obligation by filing the current Motion to Quash Subpoena.
The attorney-client privilege "is one of the oldest recognized privileges for confidential communications." Swidler Berlin v. United States, 524 U.S. 399, 403 (1998). It "protects the confidentiality of communications between attorney and client made for the purpose of obtaining legal advice." Genentech, Inc. v. United States Intern. Trade Com'n, 122 F.3d 1409, 1415 (Fed. Cir. 1997). "Its purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy depends upon the lawyer being fully informed by the client." Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).
The attorney-client privilege can be asserted on behalf of a corporation. Id. at 394. The ability to assert the privilege, however, must be narrowly construed. In re Grant Jury Proceedings Oct. 12, 1995, 78 F.3d 251, 254 (6th Cir. 1997). Using the definition developed by Dean Wigmore, the attorney-client privilege exists:
(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.United States v. Goldfarb, 328 F.2d 280, 281 (6th Cir. 1964) (quoting 8 Wigmore, Evidence § 2292, at 554 (McNaughton rev. 1961)). When an attorney offers business advice, instead of legal advice, to a client, the privilege does not apply. See, e.g., Teltron Inc. v. Alexander, 132 F.R.D. 394 (E.D. Pa. 1990); McFadden v. Norton Co., 118 F.R.D. 625 (D. Neg. 1988); Georgia-Pacific Corp. v. GAF Roofing Mfg. Corp., No. 93 Civ. 5125, 1996 WL 29392 (S.D.N.Y. Jan. 25, 1996).
In this matter, Walker worked with the Board of Directors at VisionAmerica and assisted in the investigation of certain matters. Walker prepared internal corporate memoranda and correspondence to the IRS, creditors, and banks. (Def.'s Opp'n to Mot. to Quash, at 7). Walker worked to resolve the tax deficiencies with the IRS, negotiated with banks to obtain a line of credit to pay the IRS, acted as the Secretary of the Board of Directors in various corporate meetings, and helped look for a new CFO to replace Edmonds. ( Id. at 7-8). Walker also interviewed employees concerning their involvement with the tax deficiency. ( Id.).
One district court in New York looked at a similar situation in the Georgia-Pacific Corp. v. GAF Roofing Manufacturing Corp. case. GAF Roofing involved a motion to compel in a breach of contract case. The plaintiff asked the court to compel Michael D. Scott to answer certain deposition questions that involved the contract in question. Mr. Scott was both the in-house environmental counsel for defendants and the negotiator of the contract. Mr. Scott reviewed the proposed agreement, but the court held Mr. Scott was acting as a business advisor, not as a lawyer. If the advice is "not primarily of a legal character" and "expressed substantial non-legal concerns" then the advice is business advice and not legal advice. GAF Roofing, 1996 WL 29392, at *4 (quoting Cooper-Rutter Assoc., Inc. v. Anchor Nat. Life Ins. Co., 563 N.Y.S.2d 491 (N.Y.A.D. 1990)).
In this matter, Walker gave advice that was "not primarily of a legal character" and "expressed substantial non-legal concerns." For example, Walker acted as Secretary of the corporation, a duty that is clearly non-legal. Walker also helped the company find a line of credit at a bank, which is also non-legal. While Walker may have helped "investigate" the tax deficiency problem, he did so in a non-legal manner. He interviewed employees and reported to the Board, but he did not offer legal advice, as is required for protection under the attorney-client privilege.
Another district court looked at an analogous situation in Diamond v. City of Mobile, 86 F.R.D. 324 (S.D. Ala. 1978). In Diamond the plaintiffs sued the Mobile, Alabama police department and others connected with the police department alleging defendants required plaintiffs to perform a mock hanging ceremony. Plaintiffs also accused the defendants of hitting, kicking, and verbally abusing them. The Police Department commenced an internal investigation of the matter which included interviewing defendants. The investigation file was then transported to the possession of Fred Collins, Esq., the attorney for the City of Mobile who performed most of the investigation. Ultimately, the court held Mr. Collins was required to turn the file over to the plaintiffs. The court announced: "The purpose of his activities was not to provide legal advice or assistance to the persons questioned, but rather to provide his client the City of Mobile with information relating to the alleged indiscretions within the Mobile Police Department." Diamond, 86 F.R.D. at 328.
Similar to Mr. Collins, Walker's activities centered around providing the Board of Directors with information about the alleged tax deficiency. Walker was not providing some form of legal tax advice to the Board; instead, he was conducting interviews, acting as the Secretary, and researching possible solutions to the company's problems. Walker's actions resembled those of a business advisor and not of a legal counselor; therefore, Walker cannot assert the attorney-client privilege to quash the subpoena.
II. No Privilege Can Apply to a Defunct Corporation
Although the Court has already determined that no attorney-client privilege attaches to the business advice provided by Walker to VisionAmerica, other factors lend support to the Court's decision to deny the motion to quash. For example, even if the Court was to determine Walker provided actual legal advice to VisionAmerica, the attorney-client privilege could not apply because client confidentiality does not extend beyond the "death" of a corporation. After reviewing case law from all federal courts, the Court notes there are only a small number of cases that discuss the applicability of the attorney-client privilege after a corporation is dissolved. In its Motion, Baker Donelson also notes that this issue is one of first impression for the Tennessee Board of Professional Conduct. ( See Baker Donelson's Mem. in Supp. of Mot. to Quash Subpoena).There is no doubt that the attorney-client privilege extends beyond the death of a natural person. Swindler Berlin, 524 U.S. at 405-06. Additionally, a corporation, although not a natural person, is entitled to receive the protections of a "client" for purposes of the attorney-client privilege. Reed v. Baxter, 134 F.3d 351, 356 (6th Cir. 1998). Nevertheless, courts are split over whether a corporation is entitled to protection from the attorney-client privilege after the corporation's "death."
Those few courts which have addressed whether the attorney-client privilege exists after the death of a corporation rely on the United States Supreme Court case of Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343 (1985). In Weintraub the Supreme Court discussed "whether the trustee of a corporation in bankruptcy has the power to waive the debtor corporation's attorney-client privilege with respect to communications that took place before the filing of the petition in bankruptcy." Id. at 345. After weighing the interests of the parties, the Supreme Court concluded the bankruptcy trustee should control whether or not to waive the corporation's attorney-client privilege. Id. at 354. Weintraub does not address whether a defunct corporation should be considered a "client" for purposes of the attorney-client privilege, but courts have relied on its reasoning to conclude, one way or the other, whether a corporation remains a "client" after a bankruptcy estate is closed.
In the District of New Jersey, one district court addressed an analogous situation and decided that a bankrupt corporation was not a party to a lawsuit. See Bagdan v. Beck, 140 F.R.D. 660 (D.N.J. 1991). In Beck the Southeastern Insurance Group, Inc. ("SIG") filed a bankruptcy petition. After filing the petition, SIG's Bankruptcy Trustee, the plaintiff, brought an action against the defendants, former directors of SIG, alleging that the directors had mismanaged the corporation. The directors retained counsel to represent them, and the trustee filed a motion to disqualify the firm on grounds that the firm had previously represented the corporation. The Beck court ultimately held that "SIG is, for all intent and purposes, `dead.' The shell of SIG continues to exists [sic] for the sole purpose of marshalling and distributing assets." Id. at 667. As such, the court ruled SIG was not a party to the lawsuit and conflict of interest rules were not applicable. Id.
Similar to SIG, in this matter VisionAmerica is "dead." The company is bankrupt and has no assets, liabilities, directors, shareholders, or employees. As such, following the Beck court, the Court concludes that VisionAmerica should not be considered an applicable "party" to any such legal matter, and the Court finds that the attorney-client privilege should not apply to any communications made between Walker and VisionAmerica's Board of Directors or employees.
III. Chairman's Willingness to Waive the Privilege
The United States notes in its Memorandum in Opposition to Baker Donelson's Motion that "the Chairman of the Board of Directors of VisionAmerica, Inc. stated that he is willing to waive the attorney-client privilege to allow the disclosure of internal investigation into the corporation's failure to pay its employment tax obligations." (Mem. In Opp. to Baker Donelson's Mot. to Quash, at 6). VisionAmerica is no longer a solvent corporation, and it has been dissolved through a Chapter 7 bankruptcy proceeding. As such, the former Chairman of the Board has no authority to waive the attorney-client privilege.
"[F]ormer officers and directors lack the power ro waive the corporate privilege." Gottlieb v. Wiles, 143 F.R.D. 241, 247 (D. Col. 1992). Instead, the ability to waive the corporation's attorney-client privilege "rests with the corporation's management and is normally exercised by its officers and directors." Weintraub, 471 U.S. at 348. "[W]hen control of a corporation passes to new management, the authority to assert and waive the corporation's attorney-client privilege passes as well." Id. at 349. VisionAmerica is no longer solvent, thus the corporation's Board of Directors is no longer deemed "management" of the corporation. Because the Chairman is not a current manager, he cannot waive the attorney-client privilege. Nevertheless, the Court determines that such a waiver is not needed. As already mentioned, the Court concludes that Walker provided business advice to VisionAmerica, not legal advice, so no attorney-client privilege can be applied. Furthermore, even if the privilege applied, when VisionAmerica was ordered bankrupt, the company became defunct. The attorney-client privilege cannot be applied to a defunct corporation.
CONCLUSION
Because Walker's actions constituted business advice, no attorney-client privilege applied. Furthermore, even if a privilege did apply at one time, the privilege no longer applies because VisionAmerica is a defunct corporation. As such, Baker Donelson's Motion is DENIED. Mr. Walker and Baker Donelson should comply with Defendant's Notice of Deposition and Subpoena for Production of Documents.
Pursuant to the Order of Reference, any objections to this Order shall be made in writing within ten days after service of this Order and shall set forth with particularity those portions of the Order objected to and the reasons for those objections.
IT IS SO ORDERED.