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Beware: Not All Communications Between Court-Appointed Bankruptcy Professionals Are Privileged

By Norman N. Kinel and Terence D. Watson

It is virtually a given in all but the smallest Chapter 11 bankruptcies that financial advisers and/or investment bankers will be retained to assist in the representation of the debtor or any official committee. Bankruptcy attorneys rely on the expertise and assistance of these other professionals in addressing virtually every issue that arises in a case, including debtor-in-possession financing, assumption and rejection of executory contracts and leases, formulation and confirmation of a plan of reorganization or liquidation, and selling some or substantially all of the debtor's assets under section 363 of the Bankruptcy Code. Indeed, bankruptcy attorneys will provide legal advice to their clients based, at least in part, on the information and opinions obtained from other court-appointed non-attorney professionals. Consequently, a successful Chapter 11 representation requires a close working relationship between the client's attorneys and non-attorney professionals, and the latter are generally kept fully abreast of the attorney's strategies on behalf of their common client.

Many bankruptcy attorneys assume that otherwise privileged communications that are shared with non-attorney professionals are privileged, or that the disclosure of such privileged information in the presence of non-attorney professionals will not result in the waiver of any applicable privilege. However, where a communication otherwise protected by the attorney-client privilege is disclosed to, or made in the presence of a third party, the communication may no longer be, or deemed never to have been considered privileged. See, e.g., Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1424 (3d Cir. 1991) (“voluntary disclosure to a third party of purportedly privileged communications has long been considered inconsistent with an assertion of the privilege.”). This raises significant issues in the bankruptcy context, where bankruptcy attorneys regularly exchange information with other court-appointed professionals who are not their clients or employees of their law firms.

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