Estate of Jackson v. General Electric Capital Corp. (In re Fundamental Long Term Care, Inc.)
Estate of Jackson v. General Electric Capital Corp. (In re Fundamental Long Term Care, Inc.)
Opinion of the Court
Chapter 7
MEMORANDUM OPINION ON IN CAMERA EXAMINATION
The Chapter 7 Trustee, one of the Plaintiffs in this adversary proceeding, has deposed Kristi Anderson twice. During those depositions, Fundamental Administrative Services, LLC (“FAS”)— Anderson’s former employer — objected to thirty-five questions on the basis of privilege. At the request of the parties, the Court examined Anderson in camera to determine whether to sustain the thirty-five privilege objections asserted by FAS.
This Court, after examining Anderson in camera and reviewing FAS’s post-examination memorandum of law, concludes that each of the thirty-five objections should be overruled. There is one common theme underlying FAS’s privilege objections: communications, according to FAS, are privileged so long they were made between FAS’s in-house attorneys or conveyed information Anderson learned while serving as in-house counsel for FAS. In actuality, not all communications with or between in-house counsel are protected under the attorney-client privilege or work product doctrine. Only those communications made for the purpose of securing legal advice or made in anticipation of litigation are protected. Here, FAS has failed to demonstrate that any of the communications it objects to disclosing were made for either purpose. Accordingly, the Court will overrule FAS’s privilege objections.
In doing so, the Court will deny FAS’s request to seal its ruling pending any appeal FAS may take to the district court and, instead, will immediately release a transcript of the in camera examination. FAS’s request really amounts to a request for a stay pending appeal. But FAS cannot satisfy the criteria for a stay pending appeal because (i) FAS does not have a substantial likelihood of success on any appeal; (ii) FAS will not be irreparably harmed since, as the United States Supreme Court has previously held, orders compelling alleged privileged information are effectively reviewable on appeal and any potential damage from disclosure can be mitigated by an appropriate protective order; (iii) the Trustee will be substantially burdened because she will effectively be denied discovery in this case and the ability to defend this Court’s ruling on appeal; and (iv) continuing to maintain proceedings by this Court secret does not serve the public interest.
Background
The Debtor in this bankruptcy case is the sole shareholder of Trans Health Management, Inc. (“THMI”). THMI was previously a wholly owned subsidiary of Trans
According to the complaint in this proceeding, THMI’s assets — previously valued at more than $100 million — were fraudulently transferred to Fundamental Long Term Care Holdings (“FLTCH”) and FAS (among others) for less than $10 million in an effort to defraud, hinder, or delay the Probate Estates from collecting on their judgments. The Probate Estates and Trustee also contend that FLTCH and FAS are liable on the judgments they obtained against THMI under a successor liability theory. From the outset, the Trustee has been seeking discovery from FAS and others that would establish the claims ultimately asserted in this proceeding.
As part of those efforts, the Trustee sought the litigation files for THMI’s defense of the state-court claims brought by the Probate Estates. It appears that THI (and later its state-court receiver) retained counsel to defend THMI in the state-court cases. The Trustee believes the litigation files will show that it was ultimately FAS that was orchestrating THMI’s defense. The Trustee believes FAS’s control of THMI’s state-court defenses — if, in fact, that is the case — will support its fraudulent transfer and successor liability claims.
A number of parties — including THI’s state-court receiver, the law firms that defended THMI in state court, Christine Zack (FAS’s current in-house counsel), and Kristi Anderson (FAS’s former in-house counsel) — objected to the production of the litigation files.
In a lengthy memorandum opinion, the Court primarily resolved the privilege issue in favor of the Trustee.
The Trustee has since deposed Kristi Anderson twice in this proceeding. During her deposition, FAS objected to thirty-five questions based on the attorney-client privilege, work product doctrine, or related privileges.
On March 28, 2014, the Court examined Anderson in camera. Before the in camera examination, the Trustee submitted proposed categories — and specific questions — for the Court’s consideration. During the examination, the Court questioned Anderson using, in part, the topics and questions supplied by the Trustee. FAS, who was present for the in camera examination, had the opportunity to — and, in fact, did — cross-examine Anderson, as well as proffer the testimony of its current in-house counsel, Christine Zack.
In its post-examination memorandum, FAS objected to four categories of questions: (i) Christine Zack’s authority to speak on behalf of THMI; (ii) FAS’s production of documents relating to THMI; (iii) termination of services THMI provided to nursing homes; and (iv) the alleged transfer of THMI’s defenses.
Conclusions of Law
FAS’s privilege objections should be overruled
Before addressing FAS’s contention that all communications between or materials generated by in-house counsel are privileged, the Court must first address FAS’s contention that Anderson’s testimony is not credible. The fact of that matter is that Anderson’s credibility is really not an issue before the Court.
First, Anderson’s testimony during the in camera examination was not, as FAS suggests, based on hearsay. One of FAS’s chief complaints is that Anderson’s testimony about Zack’s authority to speak on THMI’s behalf is based on pure hearsay because her knowledge came from what other people told her. Specifically, FAS cites to Anderson’s testimony during the in camera examination where she says “she was told” Zack had authority to speak on THMI’s behalf or that she learned of that supposed authority from an e-mail.
Second, it is not clear to the Court that Anderson’s testimony is, as FAS argues, contradicted by her earlier testimony or testimony by others. In its memorandum, FAS cites testimony by Anderson, the THI Receiver, and the THI Receiver’s counsel that it says contradicts Anderson’s claim that Zack spoke on behalf of THMI.
In any event, FAS’s focus on Anderson’s alleged lack of credibility reveals the critical flaw in its privilege analysis. FAS appears to believe that the Trustee’s claim to communications to and from Anderson rests solely on the following syllogism: the Court ruled that the Trustee gets all communications between FAS (including its in-house lawyers) and THMI; Anderson says that Zack was THMI for all intents and purposes; therefore, the Trustee gets all communications between Anderson (FAS) and Zack (THMI).
This Court previously ruled that the Trustee (standing in the shoes of THMI) was entitled to invoke the co-client exception to obtain any communications between THI, the THI Receiver, and FAS, on the one hand, and the lawyers defending THI and THMI in the state-court lawsuits brought by the Probate Estates, on the other hand.
It appears FAS is relying on that “carve-out” in the Court’s memorandum opinion as the basis for its objection to disclosing communications between Anderson and Zack. According to FAS, any communications between Anderson and Zack — the real focus of FAS’s privilege objection — are solely internal communications between FAS’s in-house lawyers relating to the defense of THMI at the behest of the THI Receiver under an administrative services agreement between FAS and the THI Receiver.
The Court’s previous ruling only addressed the co-client exception
The impetus for the court’s previous memorandum opinion was the Trustee’s claim she was entitled to any litigation flies from lawyers defending THMI in the state-court cases.
That does not mean that the Trustee would not be entitled to those communications for some other reason— such as that they are not privileged in the first place. On that point, the Court observes that, contrary to FAS’s argument, not all internal communications with in-house counsel are privileged. Of course, the Supreme Court, in Upjohn Co. v. United, States, recognized that the attorney-client privilege applies in the corporate context.
FAS, which bears the burden of proving the applicability of the attorney-client privilege,
Having said that, it does not appear from the Court’s own review of Anderson’s testimony that the communications she testified about were made for the purpose of securing legal advice. For instance, Anderson testified that Toni Jean Lisa (FAS’s former general counsel) indicated Zack frequently back-dated documents to correct testimony she had previously given in cases. There is no indication in the record — including during FAS’s cross-examination of Anderson — that this statement was made while Anderson or Lisa was securing legal advice. As far as the record goes, it simply could have been an
FAS cannot overcome the failure to meet its privilege burden by simply claiming that some (or all) of the communications — even if not made for the purpose of securing legal advice — convey the in-house lawyers’ mental impressions. Perhaps they do. And the work product doctrine, while ordinarily protecting materials prepared by or at the direction of a lawyer, has been construed to protect communications.
The testimony FAS objects to does not fall within the “carve-out” in the Court’s previous ruling
In its previous memorandum opinion, the Court “carved out” two types of communications from its ruling: communications between the THI Receiver and FAS; and communications about the control of THMI’s defenses.
The Court will not seal its ruling pending appeal
At the conclusion of the in camera examination, the Court indicated it would take FAS’s privilege objections under advisement and ultimately unseal any portions of the examination transcript the Court concluded were not privileged. Both at the conclusion of the in camera examination and in its memorandum of law, FAS made an unusual request — namely, asking this Court to allow FAS to review the Court’s ruling before the Court unseals the transcript so that FAS can decide whether it wants to appeal the ruling.
So this Court will analyze FAS’s request under the standard for stays pending appeal. A motion for stay pending appeal is an extraordinary remedy and requires a substantial showing by FAS.
FAS does not have a substantial likelihood of success on the merits
To demonstrate it has a substantial likelihood of success on the merits, FAS must show that it has “raised ‘questions going to the merits so serious, substantial, difficult and doubtful as to make them a fair ground for litigation and thus for more deliberate inquiry.’ ”
FAS will not be irreparably harmed if the Court does not stay its ruling
The Court can envision two potential harms that might result if it declines to stay its ruling only to later be overturned on appeal. First, disclosure of privileged information may ultimately undermine the privilege’s goal of encouraging full and frank conversations between the attorney and client.
The Court does not find FAS’s reliance on Savage persuasive for a variety of reasons. Notably, although the Savage court does state that “discovery of certain types of information may reasonably cause material injury of an irreparable nature,” it did not deal with the discovery of privileged information. The examples the Savage court gives in support of that statement was the publication of a libelous statement and the disclosure of information from a police investigation, although the court does go on to point out that it was not dealing with any privileged information in that case. In any event, this Court is persuaded by the United States Supreme Court’s decision from five years ago in Mohawk Industries v. Carpenter.
In Mohawk Industries, the Supreme Court considered whether a pretrial order requiring a party to disclose privileged information qualified for immediate appeal under the collateral order doctrine.
While acknowledging at the outset that the attorney-client privilege serves an important public interest, the Court observed that the critical inquiry was not whether the interest was important, but rather whether deferring review of an order implicating privilege issues would so imperil that interest as to require immediate review.
First, deferring review until final judgment would not meaningfully reduce the incentives for full and frank discussions between a client and its counsel.
Second, collateral review of an order is not the only remedy available to a party facing an adverse privilege ruling.
It is true that, in Mohawk, the Court was concerned with a class of orders — i.e., orders requiring disclosure of potentially privileged information. So the Court was doing a cost-benefit analysis of allowing immediate review of privilege orders as a rule. It was not focused on the specific harms the party in that particular case may have suffered. But the Court’s reasoning in Mohawk applies with equal force here.
For starters, FAS never raised any concern that the Court’s ruling would have a chilling effect on its communications with its counsel.
Entry of a stay will substantially burden other parties
If the Court seals its ruling pending an appeal, the Trustee would be substantially
But perhaps nothing makes the point better than what has transpired in the last month. At a March 26, 2014 hearing, the Court ordered FAS to produce a privilege log and certain non-privileged documents to the Trustee by April 14, 2014.
Apparently it has not. Despite the Court’s admonition, FAS recently filed another motion offering various excuses why it could not completely comply with the Court’s March 26 discovery ruling requiring documents to be produced by April 14.
The Trustee is also burdened in one other — substantial but less obvious — respect: how will the Trustee defend the almost certain appeal of this Court’s ruling? Because the Court is granting the Trustee the relief sought in her motion, she has an obvious interest in the outcome of the appeal. Despite her obvious interest in the appeal, however, the Trustee would have no ability to meaningfully participate in it if she could not see this Court’s ruling or the material that is allegedly privileged. If the Trustee could not see the Court’s ruling, she would not even know what it was (other than some part of it must have been adverse to FAS) or the reasoning behind it.
Even if the Trustee could see the Court’s ruling but not the unredacted transcript, it would still be a one-sided appeal. For instance, without Anderson’s testimony, the Trustee would have no ability to argue to the district court that certain communications made to or by Anderson
Sealing the transcript will not promote the public interest
The attorney-client privilege is unquestionably an important public interest. But, as discussed above, the Supreme Court has already explained that interest can be fully vindicated on appeal. In fact, the Supreme Court, in Mohawk, expressly contemplated that privilege orders as a class are not entitled to immediate review. Given the Supreme Court’s ruling in Mohawk, sealing the Court’s ruling is not necessary to promote the public’s interest in the attorney-client privilege.
Nor is it necessary for the Court to seal its ruling to, as FAS suggests, promote the public’s interest in having the Court serve as a “gatekeeper.”
On the other hand, sealing the ruling would disserve the public’s interest in open proceedings. The United States Supreme Court has long recognized a constitutional right of access to criminal trials.
Here, sealing the Court’s ruling would limit the public’s right to access any appeal to the district court. But it would not be narrowly tailored to serve a compelling interest since the Supreme Court has already recognized that the interest involved (i.e., the attorney-client privilege) can be effectively vindicated on appeal. Worse, sealing the Court’s ruling would undermine the public’s interest in maintaining an adversarial system since any appeal
The Trustee may reexamine Anderson
Now that the Court has ruled on FAS’s privilege objections, the question is where do the parties go from here? At a recent hearing, the Trustee inquired about concluding Anderson’s deposition once the Court ruled on FAS’s privilege objections. FAS strenuously objects to any further examination of Anderson. According to FAS, this Court indicated during the in camera examination that it would release a redacted transcript of the examination based on its privilege ruling and that the release of the transcript would conclude “this portion of’ Anderson’s deposition.
To be sure, FAS will point out that the Court had the opportunity to — and, for the most part, did — ask the questions proposed by the Trustee. But it is important not to overlook the Court’s role in the process. The Court’s role was to ask the minimum number of questions necessary to determine the applicability of the privilege. Its role was not to follow up with Anderson in the same manner the Trustee may have done had the privilege objections not been raised. That would have, in some sense, compromised the role of the Court in this case. Because the Trustee’s ability to ask follow-up questions should not be denied based on privilege objections that were ultimately overruled, the Court concludes that Anderson’s deposition should be re-opened for the limited purpose of allowing the Trustee to conclude the lines of questioning that FAS’s privilege objections prevented the Trustee from pursuing.
The Court, having reviewed the transcripts from Anderson’s prior depositions, would like to make three comments about the conduct of the continued examination. First, the parties should be mindful of the rulings in this opinion, as well as the Court’s prior privilege rulings. Second, any objection based on privilege should be specific. Third, the Trustee should be permitted to — and, in fact, should — ask the necessary foundational questions to allow this Court to rule on any further privilege objections. The parties are cautioned to conduct themselves in a manner that does not require the Court to have to repeatedly conduct in camera examinations of witnesses.
Conclusion
FAS — as the party asserting the attorney-client privilege and work product doctrine — bears the burden of proving all of the essential elements of their applicability. And, as the United States Supreme Court has recognized, the burden to sustain a claim of privilege is heavy because privileges are “not lightly created nor expansively construed, for they are in derogation of the search for truth.”
.The Estate of Juanita Jackson initially obtained a $110 million judgment against THI and THMI on July 22, 2010. The Estate of Elvira Nunziata then obtained a $200 million judgment against THMI on January 11, 2012. One month later, the Estate of Joseph Webb obtained a $900 million judgment against THI and THMI. So a total of $1.2 billion in judgments had been obtained (more or less) by the time the order for relief was entered in this case on January 12, 2012. More recently, the Estate of Arlene Townsend obtained a $1.1 billion judgment against THI. The Court understands that all but the Jackson judgment have been appealed and at least one of them has been overturned.
. See, e.g., Doc. Nos. 14, 23, 34, 105, 244 & 286.
. Doc. Nos. 444, 451, 467, 472, 575, 591 & 631. The privilege issues were thoroughly briefed by the parties. In fact, the Trustee, THI Receiver, law firms, and creditors filed a total of 34 memoranda and cited over 80 cases for the Court's consideration.
. In re Fundamental Long Term Care, Inc., 489 B.R. 451 (Bankr.M.D.Fla. 2013).
. Id. at 469.
. Twenty-six of the objections were based on the attorney-client privilege, two were based on the co-client exception, two were based on the work product doctrine, and five were based on the pending proceeding rule. The Court need not address the pending proceeding objections since this Court has previously ruled that discovery is not barred simply because there is another adversary proceeding pending so long as the discovery sought is relevant to this proceeding.
. Adv. Doc. Nos. 147 & 227.
. Adv. Doc. No. 147 at ¶ 8.
. See Transcript of March 28, 2014 in camera examination (the "Transcript”). The Court will release the Transcript consistent with its ruling in this Memorandum Opinion.
. FAS’s Supplemental Submission Resulting from In Camera Testimony of Kristi Anderson at 5-14 ("Memorandum of Law”). Given that the Memorandum of Law potentially could have included privileged information, the Court directed FAS to submit it directly to chambers without filing it on the docket. Now that the Court has ruled on the privilege issues, the Court will docket the Memorandum of Law.
. Id.
. Id. at 3-10.
. Whether a witness’ credibility is an issue for purposes of determining the applicability of the attorney-client or other privilege depends on the circumstances. One trial court, for instance, determined that a witness' credibility was central in determining whether a communication was intended to be confidential. United States v. Evans, 113 F.3d 1457, 1462 (7th Cir. 1997). In another context, the crime-fraud exception, courts have said they do not assess the credibility of witnesses. Jones v. Tauber & Balser, 503 B.R. 162, 181 (N.D.Ga. 2013). Here, the Court does not believe it is necessary to assess Anderson's credibility in determining the applicability of the privilege.
. In fact, if it was necessary to assess Anderson's credibility, the Court would conclude that Anderson was credible.
. Memorandum of Law at 6.
. Fed.R.Evid. 801(d).
. Memorandum of Law at 6-9.
. Transcript at 107-09.
. Memorandum of Law at 6-9.
. At best or worst (depending on the parties’ perspective), the testimony by Anderson and that offered by FAS in its Memorandum of Law presents the Court with a choice between two or more witnesses that have each told coherent and facially plausible stories that are not contradicted by the extrinsic evidence.
. Memorandum of Law at 5-6.
. Id.
. In re Fundamental Long Term Care, Inc., 489 B.R. 451, 467-69 (Bankr.M.D.Fla. 2013).
. Id. at 469.
. Transcript at 100.
. Fundamental, 489 B.R. at 456-60.
. Id. at 460.
. Id.
. 449 U.S. 383, 394-97, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981).
. Id. at 394, 101 S.Ct. 677; In re Seroquel Prods. Liability Litig., 2008 WL 1995058, at *4 (May 7, 2008) (explaining that "[t]here is general agreement that the protection of the privilege applies only if the primary or predominate purpose of the attorney-client consultation is to seek legal advice or assistance”) (quoting Paul R. Rice, Attorney-Client Privilege in the United States § 7:5).
. Bradfield v. Mid-Continent Cas. Co., - F.Supp.2d -, -, 2014 WL 1622794, at *4 (M.D.Fla. Apr. 21, 2014). Importantly, blanket assertions of privilege will not suffice. In re Grand Jury Subpoena, 831 F.2d 225, 226-27 (11th Cir. 1987).
. Memorandum of Law at 5-15.
. The plain text of Federal Rule of Civil Procedure 26(b)(3) refers to the disclosure of “documents and tangible things that are prepared in anticipation of litigation.” Id. Courts, however, have extended the work product protection to mental impressions even if they have not been memorialized in a document. See, e.g., SEC v. Gupta, 281 F.R.D. 169, 171 (S.D.N.Y. 2012); Banks v. Office of Senate Sergeant-at-Arms, 222 F.R.D. 1, 4 (D.D.C. 2004).
. F.H. Krear & Co. v. 19 Named Trustees, 90 F.R.D. 102, 103-04 (S.D.N.Y. 1981) (recognizing that an investigation is not merely privileged because it was performed by a lawyer and holding that lawyer’s investigation was not privileged because nothing in the record indicated it was performed in anticipation of litigation); In re Fischel, 557 F.2d 209, 212-13 (9th Cir. 1977) (holding that summaries of client’s financial transactions were not protected where summaries were not prepared in anticipation of litigation); In re Penn Cnt. Commercial Paper Litig., 61 F.R.D. 453, 468 (S.D.N.Y. 1973) (recognizing that a document is not protected work product simply because its author was a lawyer and holding that offering circulars were not work product because they were not prepared in anticipation of litigation).
.In re Fundamental Long Term Care, Inc., 489 B.R. 451, 467-69 (Bankr.M.D.Fla. 2013).
. Memorandum of Law at 1-3; Transcript at 110-15.
. Memorandum of Law at 1-3; Transcript at 110-15.
. In re Lickman, 301 B.R. 739, 742-43 (Bankr.M.D.Fla. 2003).
. Id. at 743.
. Id.
. Id.
. Memorandum of Law at 5-15.
. In its memorandum of law, FAS only raises the second potential harm — i.e., "the cat out of the bag” harm.
. 509 So.2d 1097, 1100 (Fla. 1987).
. 558 U.S. 100, 130 S.Ct. 599, 175 L.Ed.2d 458 (2009).
.Id. at 103, 130 S.Ct. 599.
. Id. at 107, 130 S.Ct. 599.
. Id.
. Id. at 108, 130 S.Ct. 599.
. Id. at 108-09, 130 S.Ct. 599.
. Id. at 109, 130 S.Ct. 599.
. Id. at 109-10, 130 S.Ct. 599.
. Id. at 110, 130 S.Ct. 599.
. Id.
. Id.
. Id. at 110-11, 130 S.Ct. 599.
. Id.
. Id.
. Memorandum of Law at 1-3.
. Id.
. Adv. Doc. No. 336 at 4.
. Id. at 3.
. Id.
. Adv. Doc. No. 265 at 24.
. Adv. Doc. No. 302 at 160-62.
. Id.
. Adv. Doc. No. 317. In its motion, FAS says it would require "virtually impossible time and effort to be applied in order to obtain full compliance by April 14, 2014.” Id. at ¶ 2. It is worth noting that FAS suggested the April 14 deadline for production. Adv. Doc. No. 265 at 12.
. Adv. Doc. No. 317 at ¶ 13.
. FAS argues in its memorandum of law that there is no “gatekeeper” function this Court could serve if it released its ruling and transcript before any ruling on appeal. Memorandum of Law at 2.
. Globe Newspaper Co. v. Superior Court for the Cty. of Norfolk, 457 U.S. 596, 604-05, 102 S.Ct. 2613, 73 L.Ed.2d 248 (1982).
. See Newman v. Graddick, 696 F.2d 796, 801 (11th Cir. 1983) (recognizing constitutional right to access to civil trials pertaining to the release or incarceration of prisoners); Wilson v. Am. Motors Corp., 759 F.2d 1568, 1570 (11th Cir. 1985); see also Gilliam v. HBE Corp., 2000 WL 33996253, at *3 (M.D.Fla. Oct. 25, 2000). Other circuits have recognized a constitutional right to access to civil proceedings. Publicker Indus. v. Cohen, 733 F.2d 1059, 1071 (3d Cir. 1984); Brown & Williamson Tobacco Corp. v. FTC, 710 F.2d 1165, 1178-79 (6th Cir. 1983).
.Wilson, 759 F.2d at 1571.
. Memorandum of Law at 2 (citing Transcript at 104).
. United States v. Nixon, 418 U.S. 683, 710, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974); see also United States v. Bryan, 339 U.S. 323, 331, 70 S.Ct. 724, 94 L.Ed. 884 (1950); Campero USA Corp. v. ADS Foodservice, LLC, 916 F.Supp.2d 1284, 1287 (S.D.Fla. 2012) (quoting United States v. Nixon).
Reference
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- IN RE: FUNDAMENTAL LONG TERM CARE, INC., Debtor. Estate of Juanita Jackson v. General Electric Capital Corporation
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- 3 cases
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- Published