Outside the context of a bankruptcy proceeding, it is undisputed that the attorney-client privilege only belongs to the client. Moore v. Eason (In re Bazemore), 216 B.R. 1020, 1023 (Bankr. S.D. Ga. 1998). Upon the filing of a bankruptcy petition, however, the relationship between an attorney and his client changes as the Bankruptcy Code provides for the appointment of a Chapter 7 Trustee who succeeds to many of the interests of the Debtor. See generally 11 U.S.C. § 541.
In Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343 (1985). the United States Supreme Court held that “the trustee of a corporation in bankruptcy has the power to waive the corporation’s attorney-client privilege . . .” Id. at 358. The Supreme Court noted that, for solvent corporations, the power to waive the privilege rests with the officers and directors of the corporation at issue. Id. at 348. The Supreme Court then reasoned that control of a corporation’s attorney-client privilege in bankruptcy belongs to the party having the most analogous duties to the solvent corporation’s officers and directors. Id. at 351. The Supreme Court concluded that since the duties of a bankruptcy trustee are most similar to the duties of the officers and directors of a solvent corporation, a bankruptcy trustee controls the attorney-client privilege of a bankruptcy corporation. Id. at 353; see also U.S. v. Campbell, 73 F.3d 44, 47 (extending a bankruptcy trustee’s authority to waive the attorney-client privilege to partnerships, reasoning that, like a corporation, a partnership “is an inanimate entity that can act only through its agents.”).
While it is well-established that a bankruptcy trustee has the authority to waive the attorney-client privilege on behalf of a corporate debtor, there is a split of authority as to whether the same remedy applies to individual debtors. The majority of courts that have analyzed the issue, however, have held that a Trustee may not waive the attorney-client privilege for individual debtors.
An individual Chapter 7 debtor, and not the trustee, was the proper party to assert attorney-client privilege for communications between herself and bankruptcy attorney, in a Chapter 7 case that the debtor had reopened for purpose of scheduling a previously undisclosed cause of action as an asset of the estate, where the debtor stood in adversarial posture vis-a-vis the trustee. In re Wilkerson, 393 B.R. 734, 745 (Bankr. D. Colo. 2007); see also In re Tippy Togs of Miami, Inc., 237 B.R. 236, 239 (Bankr. S.D. Fla. 1999) (holding that the attorney-client privilege cannot be waived by a Chapter 7 Trustee on behalf of an individual debtor).
The Bankruptcy Court for the Central District of California in In re Ginzburg, 517 B.R. 175, 180 (Bankr. C.D. Cal. 2014) also held that a bankruptcy trustee could not waive an individual debtor’s attorney-client privilege. Specifically, the court found that a Chapter 7 trustee’s duty to marshal estate assets and need for information in order to carry out that duty did not authorize application of a balancing test in deciding whether debtor could assert, as against trustee, an attorney-client privilege for communications which he had made to his divorce attorney for purposes of securing advice in contemplated divorce case, or whether privilege had passed to trustee for limited purpose of allowing him to waive it and to obtain information needed to administer the estate. The bankruptcy court further noted that application of a balancing test to allow the trustee, if the need was great enough, to obtain access to communications that debtor had admittedly made for purposes of obtaining legal advice would introduce substantial uncertainty into the privilege’s application and was not justified as just another exception to privilege law. Id. at 180.
Courts permitting a waiver of the attorney-client privilege for individual debtors have adopted an alternative approach that requires an examination of the particular circumstances of the case to determine if a bankruptcy trustee has the authority to waive the attorney-client privilege on behalf of an individual debtor. See, e.g., Foster v. Hill (In re Foster), 188 F.3d 1259, 1265-66 (10th Cir. 1999) (holding that a bankruptcy court is required to analyze whether a bankruptcy trustee’s need for privileged information is outweighed by any harm to the debtor and to the interests served by the attorney-client privilege); In re Miller, 247 B.R. 704, 710 (Bankr. N.D. Ohio 2000) (finding that an inquiry as to whether bankruptcy trustee can waive an individual Chapter 7 debtor’s attorney-client privilege requires balancing the interests of a full and frank discussion in the attorney-client relationship and the harm to the debtor upon disclosure with trustee’s duty to maximize the value of debtor’s estate and represent interests of the estate).
Lastly, at least one court has held that upon conversion of a Chapter 11 case to one under Chapter 7, and upon appointment of the Chapter 7 trustee, the attorney-client privilege passed to trustee as regards communications between debtor and his attorneys, during time that debtor served as debtor-in-possession, as to all matters having to do with estate administration; privilege was trustee’s privilege, to waive or assert as he saw fit. In re Bame, 251 B.R. 367, 373-74 (Bankr. D. Minn. 2000).
In conclusion, it is black letter law that a bankruptcy trustee has the authority to waive the attorney-client privilege of a corporate debtor. There is a split of authority as to whether a bankruptcy trustee has the authority to waive the attorney-client privilege of an individual debtor, with the majority of courts answering this question in the negative. The few courts that have allowed a bankruptcy trustee to waive the attorney-client privilege of an individual debtor have only done so after weighing the bankruptcy trustee’s need for the information and the harm to the debtor and attorney-client privilege in general.