Bankruptcy can considerably complicate the evaluation of legal privilege, due to the presence of shifting corporate control, parties with rapidly changing stakes, and fiduciary duties owed to multiple entities with differing interests. Though common law legal privilege and other comparable doctrines generally apply to disputes that arise in bankruptcy (see Federal Rule of Bankruptcy Procedure 9017 (providing that the Federal Rules of Evidence apply in cases brought under the Bankruptcy Code); see also Federal Rule of Evidence 501), unsuspecting counsel and clients may encounter disagreeable discovery surprises if they are not attentive to who is represented by counsel, who is privy to communications with counsel, and when interests between parties begin to diverge. This article will endeavor to briefly highlight common legal privilege perils that might arise in the bankruptcy context through examining (1) pre-filing issues relating to the assertion of privilege against corporate family members or former officers and directors, and (2) issues pertaining to the debtor’s privilege post-filing.
Pre-Filing Privilege Issues
Counsel should consider that pre-filing corporate family interactions may affect the assertion of privilege post-filing. Prior to a bankruptcy, related entities will often use the same counsel due to aligned interests and overlapping officers and directors. Once bankruptcy becomes likely, however, the continued sharing of counsel and communications can frustrate claims of privilege.
