Legal Document

471 U.S. 343 105 S.Ct. 1986 85 L.Ed.2d 372 COMMODITY FUTURES TRADING COMMISSION, Petitionerv.Gary WEINTRAUB et al. No. 84-261. Argued March 19, 1985. Decided April 29, Syllabus Petitioner filed a complaint in Federal District Court alleging violations of the Commodity Exchange Act by Chicago Discount Brokers (CDCB), and respondent Frank McGhee, acting as sole director officer CDCB, entered into consent decree that resulted appointment receiver who was ultimately appointed trustee bankruptcy after he voluntary petition on behalf CDCB. Respondent Weintraub, CDCB's former counsel, appeared for deposition pursuant to subpoena duces tecum served petitioner part its investigation but refused answer certain questions, asserting attorney-client privilege. then obtained waiver privilege from any communications occurring or before date his initial receiver. The upheld Magistrate's order directing Weintraub testify, Appeals reversed, holding does not have power waive corporate debtor's with respect occurred filing petition. Held: corporation has corporation's prebankruptcy communications. Pp. 348-358. (a) attaches corporations well individuals, regard solvent rests management is normally exercised officers directors. When control passes new management, authority assert also passes, managers may made 348-349. (b) Bankruptcy Code explicitly address question whether or, respondents assert, remains Respondents' contention issue controlled § 542(e) Code—which provides "[s]ubject applicable privilege," court an attorney holds recorded information relating property financial affairs disclose such trustee—is supported statutory language legislative history. Instead, history makes clear Congress intended courts deal questions. 349-351. (c) gives wide-ranging over debtor, whereas powers directors are severely limited. Thus plays role most closely analogous should exercise traditional function controlling unless contrary arrangement would be inconsistent policies laws. 352-353. (d) No federal interests impaired trustee's On other hand, vesting frustrate Code's goal empowering uncover insider fraud recover misappropriated assets. 353-354. (e) There no merit respondents' obtain because, unlike corporation, primary loyalty goes shareholders creditors. appointed, must accordance fiduciary duty all interested parties. Even though some cases will benefit only creditors, result keeping hierarchy created 354-356. (f) Nor there arguments respondents, including contentions giving undesirable chilling effect discriminate against insolvent corporations. greater here than case and, definition, treated differently 356-358. 722 F.2d 338 (CA7 1984), reversed. Bruce N. Kuhlik, Washington, D.C., petitioner, pro hac vice, special leave Court. David A. Epstein, Chicago, Ill., respondents. Justice MARSHALL delivered opinion 1 debtor took place bankruptcy. 2 * arises out formal Futures Trading Commission determine persons associated firm, violated Act, 7 U.S.C. seq. CDCB discount commodity brokerage house registered Commission, 6d(1), futures commission merchant. October 27, 1980, United States Northern Illinois Act. That same day, which provided file liquidation under Chapter Reform 1978 (Bankruptcy Code). John K. Notz, Jr., 3 Notz He sought relief Subchapter IV Code, bankrupt brokers. 11 §§ 761-766. interim later, permanent trustee. 4 As upon Gary Weintraub. Weintraub's testimony about various matters, suspected misappropriation customer funds employees, fraudulent activities. responded numerous inquiries 23 moved compel answers those It argued assertion inappropriate because could used "thwart legitimate access administrative investigation." App. 44. 5 motion matters testify were protected privilege, it asked In letter maintained officers, directors, employees longer had According vested then-interim Id., at 47-48. response Commission's request, waived "any interest I attorney/client possessed arising 1980"—the Notz' 49. 6 26, 1982, Magistrate ordered testify. found added, however, "successor assets, rights privileges herein," therefore valid. Pet. Cert. 19a-20a. June 9. 18a. Thereafter, McGhee brother, Andrew intervened validly their objection. Record, Doc. 49, p. 7.1 rejected this argument July requiring without 17a.2 McGhees appealed Court's 27 Seventh Circuit (1984). held recognized two Circuits addressed come opposite conclusion. See re O.P.M. Leasing Services, Inc., 670 383 (CA2 1982); Citibank, N.A. v. Andros, 666 1192 (CA8 1981).3 We granted certiorari resolve conflict. 469 929, 321, 83 259 now reverse Appeals. II 8 established, undisputed parties case, individuals. Upjohn Co. States, 449 383, 101 677, 66 584 (1981). Both serves promoting full frank between attorneys clients. thereby encourages observance law aids administration justice. See, e.g., supra, 389, S.Ct., 682; Trammel 445 40, 51, 100 906, 912, 63 186 (1980); Fisher 425 391, 403, 96 1569, 1577, 48 39 (1976). 9 corporations, presents problems. inanimate entity, act through agents. A cannot speak directly lawyers. Similarly, when disclosure best interest. Each these actions necessarily undertaken individuals empowered corporation. Co., we considered covers counsel top decided that, circumstances, lower-level covered. Here, face related actors 10 agree directors.4 managers, course, manner consistent themselves Dodge Ford Motor 204 Mich. 459, 507, 170 N.W. 668, 684 (1919). well. New installed takeover, merger, loss confidence shareholders, simply normal succession, Displaced wishes current even statements might concerning within scope duties. Brief 11; Tr. Oral Arg. 26. generally 386; Citibank 1195; Grand Jury Investigation, 599 1224, 1236 (CA3 1979); Diversified Industries, Inc. Meredith, 572 596, 611, n. 1978) (en banc).5 12 dispute centers Government maintains contrast, maintain III 13 expected given conflict among Courts Appeals, us. Respondents dispositive, find reliance provision misplaced. Section states: 14 "Subject notice hearing, attorney, accountant, person information, books, documents, records, papers, affairs, trustee." (emphasis added). 15 "subject privilege" means compelled turn materials addition, they claim, superfluous if 16 support contentions. First, statute says nothing To extent power, poses bar ability Indeed, been properly "applicable" purposes 542(e). 17 Moreover, rejecting reading render nullity, still For example, statute, invoke personal individual manager. 18 did intend give right Members regarding "specifically deny attempt create assertable B.R. 54, 70 (Bkrtcy. SDNY 1981) (Weinfeld, J.), aff'd, see Collier ¶ 542.06 (15th ed. 1985). Rather, problem: 19 "The client valid unclear left determined basis." 124 Cong.Rec. 32400 (1978) (remarks Rep. Edwards); id., 33999 Sen. DeConcini). 20 thus merely invitation judicial determination 21 establishes restrict, expand, accountants withhold House Senate Report state "is deprives leverage ha[d], . State lien provisions, receive payment ahead creditors hold necessary estate." S.Rep. 95-989, 84 (1978); H.R.Rep. 95-595, pp. 369-370 (1977), U.S.Code Cong. & Admin.News, 1978, 5787, 5870, 6325-6326. limit information. 22 light lack direct guidance consider roles played Butner 440 48, 55, 99 914, 918, 59 136 (1979). Because controlled, outside bankruptcy, actor whose duties resemble interferes underlying extensive. Upon commencement estate represented 323, 541. "accountable received," 704(2), 1106(a)(1), maximize value estate, 704(1); Washington Group, 476 F.Supp. 246, 250 (MDNC 1979), aff'd sub nom. Johnston Gilbert, 636 1213 (CA4 1980), cert. denied, 452 940, 3084, 69 954 directed investigate 704(4), 1106(a)(3), sue insiders recover, preferential transfers property, 547(b)(4)(B), 548. Subject approval, use, sell, lease estate. 363(b). 24 reorganization, "operate business" orders otherwise. 1108. liquidation, "may authorize operate limited period time. 721. course operating business, enter transactions, sale estate" approval. 363(c)(1). 25 brief incomplete list indicate, debtor. 323.01 Their provide 521, 343. contemplated assumes "completely ousted." 220-221 (1977).6 26 allocation responsibilities, management. Given retain virtually powers, 348, B rule suggested respondents—that power—would important seeking conduct prior causes action 547, often extremely difficult inquiry allowed legal files. wrongfully diverted appropriated use shield efforts identify uncovering substantially defeated one effectively thwart own conduct. Browy, 527 799, 802 1976) (per curiam). 28 contend can adequately They point planning ongoing fraud, crimes, ordinary torts, see, Clark 289 1, 15, 53 465, 469, 77 L.Ed. 993 (1933); Garner Wolfinbarger, 430 1093, 1102-1103 (CA5 1970), 401 974, 91 1191, 323 (1971). 11. problem, making threshold showing defeat U.S., 469. Without able discover hidden assets looting schemes, make showing. 29 summary, conclude comports way obstructing careful design Code. V 30 do seriously contest exercises functions all. Neither facilitate recovery 31 argue, elect him beneficiaries efforts. 702 (creditors trustee), 726(a) (shareholders last bankruptcy). Thus, contend, practical matter trustees represent 22. 32 unpersuaded argument. runs F.Supp., 250; Ducker, 134 F. 43, 47 (CA6 1905).7 Second, explain why, remain elected shareholders. Perhaps importantly, position ignores fact fundamental changes nature relationships. One painful facts become subordinated large enough cover shareholder claims, anomalous result; rather, 726(a). 33 ignore possession—that is, appointed—the bear essentially obligation possession. Wolf Weinstein, 633, 649-652, 969, 979-981, (1963). willingness debtors possession premised assurance managing depended carry responsibilities 651, 980. Surely, then, debtor-in-possession consistently treat parties, fairly. By token, 34 accept lead outcomes: (1) both (2) possession, appointed. laws suggest, much less compel, either implausible results. VI 35 similarly unpersuasive. reach today apply "unpalatable." 27. But our bearing problem reason case. stated, 348. solvent, agent controls Under today, more An individual, himself; "management" individual's If trustee, theory different embrace 36 argue wary speaking freely subsequently disclosed due 37-42; F.2d, where always run risk successor management's counsel. 37 discriminates prevent amounts "economic discrimination" representatives 42; 342-343. misses "Insolvency material fact, latter mere existence change radically materially obligations." McDonald Williams, 174 397, 404, 743, 745, 43 1022 (1899). why particularly concerned differential treatment context. 38 Finally, upholding waivers disincentive protections incentive involuntary "[i]njection considerations skew application Congress." 43. creates incentives, petitions. incentives congressional intent, believe does. VII foregoing reasons, capacity judgment accordingly 40 so ordered. 41 POWELL consideration decision resigned 21, 1980. 338, 339 1984). remained director. 5, infra. barred invoking distinguished Leasing, opposed voting stockholder, ground board during tenure instead, trusteeship. 341. acknowledged, square Andros. After Appeals' Ninth examiner objections debtor-in-possession. Boileau, 736 503 (CA9 conflicts vest Del.Code Ann. Tit. 8, 141 (1983); N.Y.Bus.Corp.Law 701 (McKinney Supp.1983-1984); Model Bus.Corp.Act derives legally Eisenberg, Legal Models Management Structure Modern Corporation: Officers, Directors, Accountants, Calif.L.Rev. 375 (1975). distinctions relevant follows neither nor director, retains remainder focuses power. While reference suggests enjoy liquidation. propriety particular can, challenged violates Respondents, challenge grounds; asserted never

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