This article examines whether and when the common interest privilege attaches to communications among co-proponents of a plan of reorganization under Chapter 11 of the Bankruptcy Code. Co-proponents of reorganization planssuch as an official committee of unsecured creditors (a committee) and financial institution lendersoften would be adversaries if the estate’s causes of action were litigated. But once an agreement is reached to settle such claims in a negotiated plan, the former adversaries share a common interest in having the settlement approved and achieving confirmation. In the large, heavily-litigated Chapter 11 cases that have become increasingly common in recent times, months or even years can pass between the time adversaries agree in principle on a settlement and entry of an order confirming a plan of reorganization that implements the settlement. As that time period has grown, so too has the degree of coordination and communication among formerly-adverse plan co-proponents, and there is a need for clarity about whether those interactions are fair game for discovery.
Recent decisions in the bankruptcy proceedings of LyondellBasell Industries1 (Lyondell) and Tribune Company2 (Tribune)two hotly contested "mega-cases"have addressed this issue with opposite results. In Lyondell, the debtors and parties that had financed Lyondell’s leveraged buyout transaction reached an agreement in principle to settle the estate’s fraudulent transfer claims and other causes of action. The committee, which was not a party to the agreement, initially challenged the settlement and sought discovery concerning communications among the debtors and settling parties. Judge Robert E. Gerber of the U.S. Bankruptcy Court for the Southern District of New York held that the debtors and the settling parties remained "adverse" to one another unless and until the court approved the settlement, and that any communications among them were not privileged.3
