TheCorporateCounsel.net

A recent Bryan Cave blog says that 20 years after its collapse, WorldCom still has plenty of lessons to offer internal and outside counsel, and one of those lessons relates to the application of the attorney-client privilege. The blog draws from reports issued by former US Attorney General Richard Thornburgh, who served as the bankruptcy court examiner overseeing the case. This excerpt notes how the examiner was able to access virtually all documents that he sought, even those that were privileged:

As a threshold matter, it’s worth noting that virtually all documents sought by the Examiner had to be produced for review, including detailed notes taken by internal counsel and other privileged communications. With the consent of the Company (under the supervision of the bankruptcy trustee), the Examiner obtained a court order providing that the delivery of such documents and other information, including emails, would not constitute a waiver of the attorney-client or other privilege. As a result, all communications with or notes recorded by counsel became available for review by the Examiner.

Counsel should remain mindful that ultimately, the attorney-client privilege belongs to the client and may be waived by the client. A company may consent to production of privileged communications, even without a non-waiver order as was entered in WorldCom. When a company files for bankruptcy, management of the company may shift from its prior executives to a bankruptcy trustee, who may view the waiver issue differently than prior management. In such situations, privileged communications may end up being produced to the government or private plaintiffs.

In other words, the attorney-client privilege belongs to the corporate client, and there may be an entirely new cast of decisionmakers when it comes to decisions about that privilege once a company enters bankruptcy.

The blog also addresses some of the factors identified in the examiner’s reports as leading to the governance breakdown at WorldCom. These include the fragmented reporting lines in the company’s law department and the failure to provide the board with appropriate advice concerning its fiduciary duties for material transactions.

– John Jenkins