In re Bevill, Bresler & Schulman Asset Management Corp.
805 F. 2d 120 (1986)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A corporate officer may not assert a personal attorney-client privilege to prevent disclosure of communications with corporate counsel about corporate matters after the corporation has waived its privilege. For an officer to establish a personal privilege for such communications, the communication's substance must not concern the officer's corporate duties or the company's general affairs.
Facts:
- In March 1985, Gilbert Schulman, president of Bevill, Bresler & Schulman Asset Management Corporation (AMC), learned the company was in financial trouble.
- Beginning March 25, 1985, Schulman and other corporate principals, including John Rooney and Robert Bevill, held a series of meetings with the law firm Hellring, Lindeman.
- At the outset, Schulman informed Hellring, Lindeman that he and the other principals were seeking both personal and corporate legal advice.
- On March 31, 1985, Hellring, Lindeman was formally retained to represent the corporation, Bevill, Bresler & Schulman, Inc. (BBS), but continued to consider representing the principals individually.
- On April 4, 1985, Hellring, Lindeman advised the individual principals that they should obtain separate, personal counsel.
- On April 7, 1985, AMC filed a petition for bankruptcy under Chapter 11.
Procedural Posture:
- AMC filed for Chapter 11 bankruptcy, and a trustee was appointed. BBS was placed in a SIPA liquidation proceeding under a separate trustee.
- The AMC trustee deposed corporate principal Gilbert Schulman and, after waiving the corporation's attorney-client privilege, questioned him about meetings with corporate counsel, Hellring, Lindeman.
- On advice of counsel, Schulman refused to answer questions about the substance of the meetings, asserting a personal attorney-client privilege and a joint defense privilege on behalf of other principals.
- The trustees for AMC and BBS filed motions in the U.S. District Court to compel Schulman and Hellring, Lindeman to answer the questions.
- The district court granted the trustees' motion in part, ordering testimony regarding communications about corporate affairs that occurred after the law firm was retained by the corporation.
- Corporate principals John Rooney and Robert Bevill, as intervenors, appealed the district court's order to the U.S. Court of Appeals for the Third Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a corporate officer's personal attorney-client privilege protect communications with corporate counsel regarding corporate affairs from disclosure when the corporation's bankruptcy trustee has waived the corporation's privilege?
Opinions:
Majority - Seitz, Circuit Judge.
No, a corporate officer's personal attorney-client privilege does not protect communications with corporate counsel regarding corporate affairs from disclosure once the corporation's privilege has been waived. Any privilege that exists as to a corporate officer's role and functions within a corporation belongs to the corporation, not the officer. Citing Commodity Futures Trading Comm’n. v. Weintraub, the court affirmed that the power to waive a bankrupt corporation's privilege passes to the bankruptcy trustee. Allowing officers to assert a blanket personal privilege over discussions of corporate matters would undermine the trustee's duty to investigate potential insider misconduct and would permit officers to use the privilege as a shield. The court adopted a five-part test, holding that for an officer to claim a personal privilege, the communication must not concern company matters. The court also rejected the claim of a joint defense privilege, finding that appellant Bevill failed to meet his burden of proving that a joint defense agreement actually existed.
Analysis:
This case significantly clarifies the limits of an individual corporate officer's attorney-client privilege when speaking with corporate counsel. By adopting the five-part test, particularly the prong requiring that the communication not concern company affairs, the court establishes a high barrier for officers seeking to shield communications from a bankruptcy trustee. This decision strengthens the power of trustees to investigate pre-bankruptcy misconduct by corporate insiders, reinforcing the principle from Weintraub that the corporation's privilege belongs to the corporation and its current management (or trustee), not to former officers. It serves as a strong precedent limiting the ability of corporate fiduciaries to hide behind a claim of personal privilege for communications that are fundamentally about their corporate roles.
