e-Pinned and e-Trapped in Technology
by Jack Seward, New York
Technology rules never said it would be like this. Then again, technology seldom works as well as it might in a rules-based environment, and that is certainly true of bankruptcy law. The focus of this article is how the sharing of privileged communications and work-product resulted in waiving the attorney-client privilege that should have existed. The article discusses how the intrusion into an attorney’s electronic information can easily happen; that is a fact of technology, and it will not be changed anytime soon.
Consider the “MEMORANDUM DECISION AND ORDER REGARDING WAIVER OF PRIVILEGES,” reached on March 21, 2005, in the Southern District of New York pertaining to e-mails between insiders and attorneys that were on the debtor’s servers. The case involved Asia Global Crossing Ltd. and Asia Global Crossing Development Co. (collectively “Asia Global” or the “debtor”), pan-Asian telecommunications carriers (Nos. 02 B 15749(SMB), 02 B 15750(SMB)—see 2005 WL 646842).
Asia Global filed a chapter 11 petition on Nov. 17, 2002, and the case was converted to chapter 7 on June 10, 2003. This decision will perhaps have a profound effect on future bankruptcy cases because practically everyone alive today uses e-mail at work for personal reasons, and by definition, that includes insiders.
With the first words of the decision, my heart began to race, as it could not be any more definitive.
E-mails are a widespread method of communication, and employees sometimes use the employer’s e-mail system to communicate with third parties about personal matters. The main question raised by the current motion is whether an employee’s use of the company e-mail system to communicate with his personal attorney destroys the attorney–client, work product or joint defense privileges in the e-mails where the employee and his former employer’s trustee have become adversaries.
Assuming a communication is otherwise privileged, the use of the company’s e-mail system does not, without more, destroy the privilege. Furthermore, except for the Troxell Documents described below, the disputed or incomplete factual record prevents the court from deciding as a matter of law that a waiver of any privileges occurred.
I do not know about you, but I have always found computers, laptops, servers and PDAs of the estate to be, shall we say, e-rich with e-information. The first reading of the decision may give the false sense that the attorney-client privilege has been spared, but that is not exactly how it ended.
Panel trustees indeed now have a friend in the world of technology to assist in the administration of the bankruptcy estate. Because, after losing the easy win of “preference actions” under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA of 2005), they are going to need all the e-help they can get.
In business, people communicate and share information electronically. That is because it costs nothing to send e-mail, and it may be sent repeatedly. Corporate debtors do not send e-mail; employees, directors, officers, insiders, consultants and accountants do. When personal e-mail has been stored on the debtor’s computers, laptops, servers and PDAs, including digital, electronic and optical media, between the insiders and insiders’ attorneys and shared with others, you have a disaster for the insiders and a bonanza awaiting the trustee.
The sharing of e-mails and electronic communications by insiders and others only makes a bad situation worse for the insiders. In business, it has become common practice to use collaboration technologies for electronic communications. Be aware that this form of technology is rapidly overtaking the use of e-mail. It includes instant messaging and streaming video conferencing and perhaps hundreds of reasons insiders, professionals and attorneys that play in this game may lose.
The article “Security and the Legal Profession: A Beginner’s Guide,” by Frank P. Andreano, states “attorneys traditionally do not embrace technological change with vigor. In fact, we generally lag well behind the business community when it comes to new technologies. Attorneys are not always the models of sound business practices. We are often too busy, or simply not inclined to think of our practices as businesses that need to follow certain rules. If one of our clients were injured by a business that followed inadequate security protocols, we would be outraged. If we objectively judged our own security protocols by those same standards, however, many of us would likely find our measures woefully inadequate.”
However, the technology sector has changed considerably over the past five years, and companies are using cutting-edge technologies that would amaze many of us. Please do not be fooled because you and/or your firm are not presently using those technologies.
The trustee in the instant dispute maintained that any privileges were destroyed, and the court assumed that the documents are otherwise privileged, but that this may be disputed in later proceedings. The insiders needed the assistance of a business associate, Troxell, to provide information for their legal representation. However, Troxell worked for Asia Global, and the information the insiders needed was in Asia Global’s books and records. All bankruptcy professionals understand that few debtors have books and records, documents and papers that were not made and stored in digital, electronic or optical media.
Troxell withheld producing 20 pages (Troxell Documents) at the insiders’ request on the grounds that they were covered by the attorney–client and work product privileges at the 2004 exam. The trustee took the position that the insiders waived any privilege in the Troxell Documents because they were sent to Troxell, a third party. The insiders disagreed on that issue because they needed “help in getting information for the provision of legal services.”
The court noted that the “trustee’s motion impliedly assumes that the documents at issue are otherwise privileged.” The e-mail chain contained e-mail sent to the insider’s lawyers regarding “imputed interest” income on certain company loans, and those copies were also sent to the law firm that represented Asia Global in the chapter 11 cases. The e-mail response referred to “imputed interest” information in Asia Global’s schedules. Again, copies were sent to the law firm that represented Asia Global, along with additional e-mail chains about contacting Troxell for a clarification of the information regarding the “imputed interest.”
The decision reached by the court was that the Troxell e-mail was not privileged, or alternatively, any privilege was waived, because they were sent to the law firm that represented Asia Global and Troxell.
The question now facing bankruptcy attorneys is “who” will make the wake-up call to bankruptcy professionals and clients that they always need to communicate through the attorney, so that all parties can preserve this privileged relationship, because exchanging information within this “privileged circle” fosters the free flow of ideas and perhaps limits situations like the Troxell Documents.
Technology provides encryption capabilities, and this is not to say that encryption would stop the trustee from having the digital forensic accounting technologist from “decrypting” any insider e-mails found on the debtor’s computer, laptops, servers and PDAs, including digital, electronic and optical media, as this is done all the time. However, this level of forethought may eliminate the more severe lapses of memory for protecting the privilege, because the existence of attorney-client privilege for electronic communication can no longer be automatically presumed.
In the March 2002 article “Ethics: Revisiting the Question of Attorney/Client Internet E-mail Encryption,” Internet Newsletter© NLP IP Co., attorney Charles Merrill stated that “if the legal profession, an ‘entire calling,’ unduly delays its adoption of new and available devices capable of avoiding—for a trivial cost—the risk posed by the interception of clients’ confidential information, a modern-day Learned Hand might well remind them someday that he who ignores history may be doomed to relive it” (The T.J. Hooper v. Northern Barge Corp., 60 F.2d 737, (2d Cir. 1932) (L. Hand, J.).
Given the relatively trivial costs of encryption technology and the installation thereof, attorneys, accountants, consultants and clients should select appropriate encryption solutions to help protect privileged information. Bankruptcy professionals using such techniques should earn their clients’ admiration for insisting on using the “best practices” to protect privileged and confidential information.