In re Fundamental Long Term Care, Inc.
In re Fundamental Long Term Care, Inc.
Opinion of the Court
MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISQUALIFY SHUMAKER, LOOP & KENDRICK LLP AS TRUSTEE’S COUNSEL
While this bankruptcy case was pending, the state court receiver for Trans Health Care, Inc. uploaded 86 boxes of documents to an on-line database hosted by the law firm of Proskauer Rose.
Florida courts employ a two-part test in determining whether to disqualify counsel based on alleged access to privileged information. First, did counsel actually obtain access to privileged or confidential information? Second, did counsel gain an unfair informational or tactical advantage as a result of obtaining access to confidential or privileged information? Because the Receiver and others failed to demonstrate that the Trustee’s counsel actually gained access to privileged information and'obtained an unfair tactical or informational advantage as a result, the motion to disqualify Trustee’s counsel will be denied.
Background
This is the third motion to disqualify Shumaker, Loop & Kendrick (“SLK”)— counsel to the chapter 7 Trustee and the Debtor’s wholly owned subsidiary, Trans Health Management, Inc. (“THMI”) — in one capacity or another.
As background, the Trustee previously subpoenaed documents (including litigation files) from various law firms that THMI’s former parent, Trans Health, Inc, (“THI”), retained to represent THI and THMI in six negligence cases the Probate Estates filed in state court.
Wisler Pearlstine, one of the law firms that had defended THMI in the state court negligence cases, produced its litigation files to the Trustee.
The Relativity database contained 86 boxes of documents belonging to THI. THI apparently was storing 2,000 boxes of documents at a storage facility in Maryland.
Between October 2013 and April 2014, SLK used the password from Ruark’s email to access the Relativity database.
The THI Receiver, along with Fundamental Long Term Care Holdings (“FLTCH”), moved to disqualify SLK as Trustee’s counsel in this case based on its review of the Relativity database.
Conclusions of Law
The THI Receiver and FLTCH correctly state the test for whether SLK should be disqualified as Trustee’s counsel. The THI Receiver and FLTCH bear the burden of proving that the Trustee’s counsel actually obtained an informational or tactical advantage as a result of gaining access — whether surreptitiously or not — to privileged information.
The argument advanced by the THI Receiver and FLTCH with respect to the first prong can be summed up this way: SLK actually gained access to privileged documents because the firm viewed documents that the THI Receiver coded as “privileged.” That argument, of course, begs the question. Documents are not privileged simply because the THI Receiver says they are any more than they are not privileged because the Trustee says they are not. The parties seeking to disqualify SLK bear a heavy burden of showing that the documents SLK viewed are actually privileged.
The only record evidence offered by the THI Receiver or FLTCH to show that SLK accessed privileged information
But it is clear from the face of the spreadsheet that whoever coded the documents is using “privileged” to mean something other than attorney-client privilege or work product, such as “confidential.” For starters, while 37 boxes of documents are coded “privileged,” only 4 included the code “A/C” or “AWP” — presumably reflecting attorney-client privilege or attorney work product. And all but 1 of the 33 boxes of documents that are coded “privileged” but not designated “A/C” or “AWP” are plainly not privileged in the true sense of the word. So it appears that only four boxes of documents contain documents that are arguably privileged.
And naturally, not every document in the four boxes is privileged. In fact, the descriptions make clear that at least some documents in two of the boxes are not privileged. For instance, one box apparently contains litigation pleadings. Another -box apparently contains documents from the “discovery phase” of other litigation. Pleadings, of course, are not privileged. The same is true of discovery. At worst, the Trustee had access to four boxes, some of which contained some privileged information.
But the fact that the Trustee had access to four boxes that may contain privileged information, in this unique case, does not satisfy the first prong. That is because this Court previously ruled the Trustee is entitled to all of THMI’s litigation files under the co-client exception to the general rule that disclosure of communications to a third party waives attorney-client privilege.
FLTCH and the THI Receiver have completely failed to make that showing here. But it does appear to the Court, from its own independent review of the spreadsheet, that there is one box (not one of the four marked attorney-client/work product but another one simply designated privileged) that might contain documents the Trustee should not have had aecéss to. According to the spreadsheet, one box contains memoranda prepared by Kirkland & Ellis about a potential bankruptcy filing by THI. In a separate memorandum opinion, this Court ruled that certain bankruptcy contingency planning memoranda were privileged and not discoverable by the Trustee under the co-client exception.
Even if the Kirkland & Ellis memoranda are privileged, FLTCH and the THI Re
It is also significant that the only documents that are arguably privileged- — i.e., the Kirkland & Ellis memoranda — really are relevant only to claims against the GTCR Group (which was THI’s primary shareholder). Having reviewed the Kirkland & Ellis memoranda, it is apparent to the Court that the Trustee and Probate Estates intended to use them to prove up their breach of fiduciary duty claim against the GTCR Group. Like the THI Receiver and Kirkland & Ellis, the GTCR Group, to its credit, never asked that the Trustee’s • counsel be disqualified.
Putting aside the fact -that none of the truly affected parties asked for disqualification, the Court was confident that access to Kirkland & Ellis documents would not give the Trustee an informational or tactical advantage. Those documents would not be particularly relevant or useful in proving up claims against FLTCH. Plus, this Court, having actually tried the main adversary proceeding, has had the benefit of actually seeing the Trustee’s case, and it is apparent to the Court now that its confidence that the Trustee would not gain an information or tactical advantage was justified.
The Trustee did not prevail on any of the claims that the Kirkland & Ellis mem-oranda were relevant to. In fact, this Court tentatively ruled in favor of the Trustee (and Probate Estates) on only one claim for successor liability. And having presided over numerous discovery disputes, reviewed thousands of pages of documents in camera, and presided over 100 hours of trial testimony, the Court can unequivocally state the Kirkland & Ellis documents did not influence its ruling on the successor liability claim or lead to documents that would have.
Conclusion
The decision to disqualify counsel is left to this Court’s sound discretion. The Court is sensitive to protecting the integri
ORDERED that the Motion to Disqualify the Trustee’s counsel (Doc. No. 1428) is DENIED.
.THI is the former corporate parent of the Debtor’s wholly owned subsidiary, Trans Health Management, Inc. ("THMI”). The Debtor acquired THMI from THI in March 2006.
. Doc. Nos. 243, 568 & 1428.
. Doc. No. 243 at ¶¶ 25-30.
. Doc. No. 290 at ¶¶ 5-12. The Court ultimately entered an order requiring Berman to destroy the e-mail at issue. But Zack withdrew her request that Berman and his firm be disqualified. Doc. No. 358.
. Doc. No. 568 at ¶¶ 1-4.
. Doc. No. 608.
. Doc. No. 1428 at ¶¶ 16-22.
. Doc. No. 451.
. Doc. Nos. 444. 467. 472. 575. 595 & 631.
. In re Fundamental Long Term Care, Inc., 489 B.R. 451, 463-70 (Bankr.M.D.Fla. 2013).
. Doc. No. 1428 at ¶ 3; Adv. Doc. No. 324 at ¶.
. Id. at ¶¶ 3-4.
. Doc. No. 1428 at ¶¶ 1-2; Adv. Doc. No. 324 at ¶ 5.
. Doc. No. 1428 at ¶¶ 1-2; Adv. Doc. No. 324 at ¶ 5.
. Doc. No. 1428 at ¶¶ 1-2; Adv. Doc. No. 324 at ¶ 7.
. Doc. No. 1428 at ¶¶ 1-2; Adv. Doc. No. 324 at ¶ 6.
. Doc. No. 1428 at ¶ 6; Adv. Doc. No. 324 at ¶ 10, 13.
. Doc. No. 1428 at ¶ 6; Adv. Doc. No. 324 at ¶ 18.
. Doc. No. 1428.
. Doc. No. 1428 at ¶¶ 16-22.
. Atlas Air, Inc. v. Greenberg Traurig, P.A., 997 So.2d 1117, 1118 (Fla. 3d DCA 2008); General Acc. Ins. Co. v. Borg-Warner Acceptance Corp., 483 So.2d 505, 506 (Fla. 4th DCA 1986).
. In re Jet 1 Center, Inc., 310 B.R. 649, 654 (Bankr.M.D.Fla. 2004).
. In re Fundamental Long Term Care, Inc., 489 B.R. 451, 463-70 (Bankr.M.D.Fla. 2013).
. In re Fundamental Long Term Care, Inc., 515 B.R. 874, 878-79 (Bankr.M.D.Fla. 2014).
. Doc. No. 1479 at 38 (stating that "today the Receiver leaves in the Court’s discretion what remedy to impose” and that it was “the Receiver’s privilege [that] was breached, but the Receiver believes that the Court can fashion an appropriate remedy, and just is here to answer any questions that [the Court] might have”).
. Id. at 40. Kirkland & Ellis reasonably requested that remedies include, at a minimum, a determination that inadvertent disclosure of the documents or use of them by the Trustee did not constitute the waiver of any privilege.
.The Court recognizes that the motion to disqualify, in some sense, is directed at SLK in its capacity as counsel to the Trustee in the main adversary proceeding in this case and that neither the THI Receiver nor Kirkland & Ellis are parties to that proceeding. But one of Kirkland & Ellis' clients is. And in any event, the motion is directed at SLK as counsel for the Trustee in the main case and all adversary proceedings, one of which was filed against the THI Receiver.
Reference
- Full Case Name
- IN RE: FUNDAMENTAL LONG TERM CARE, INC., Debtor
- Status
- Published