Petitioner filed a complaint in Federal District Court alleging
violations of the Commodity Exchange Act by Chicago Discount
Commodity Brokers (CDCB), and respondent Frank McGhee, acting as
sole director and officer of CDCB, entered into a consent decree
that resulted in the appointment of a receiver who was ultimately
appointed trustee in bankruptcy after he filed a voluntary petition
in bankruptcy on behalf of CDCB. Respondent Weintraub, CDCB's
former counsel, appeared for a deposition pursuant to a subpoena
duces tecum served by petitioner as part of its
investigation of CDCB, but refused to answer certain questions,
asserting CDCB's attorney-client privilege. Petitioner then
obtained a waiver of the privilege from the trustee as to any
communications occurring on or before the date of his initial
appointment as a receiver. The District Court upheld a Magistrate's
order directing Weintraub to testify, but the Court of Appeals
reversed, holding that a bankruptcy trustee does not have the power
to waive a corporate debtor's attorney-client privilege with
respect to communications that occurred before the filing of the
bankruptcy petition.
Held: The trustee of a corporation in bankruptcy has
the power to waive the corporation's attorney-client privilege with
respect to prebankruptcy communications. Pp.
471 U. S.
348-358.
(a) The attorney-client privilege attaches to corporations as
well as to individuals, and with regard to solvent corporations,
the power to waive the privilege rests with the corporation's
management, and is normally exercised by its officers and
directors. When control of the corporation passes to new
management, the authority to assert and waive the privilege also
passes, and the new managers may waive the privilege with respect
to corporate communications made by former officers and directors.
Pp.
471 U. S.
348-349.
(b) The Bankruptcy Code does not explicitly address the question
whether control of the privilege of a corporation in bankruptcy
with respect to prebankruptcy communications passes to the
bankruptcy trustee or, as respondents assert, remains with the
debtor's directors. Respondents' contention that the issue is
controlled by § 542(e) of the Code -- which provides that
"[s]ubject to any applicable privilege," the
Page 471 U. S. 344
court may order an attorney who holds recorded information
relating to the debtor's property or financial affairs to disclose
such information to the trustee -- is not supported by the
statutory language or the legislative history. Instead, the history
makes clear that Congress intended the courts to deal with
privilege questions. Pp.
471 U. S.
349-351.
(c) The Code gives the trustee wide-ranging management authority
over the debtor, whereas the powers of the debtor's directors are
severely limited. Thus, the trustee plays the role most closely
analogous to that of a solvent corporation's management, and the
directors should not exercise the traditional management function
of controlling the corporation's privilege unless a contrary
arrangement would be inconsistent with policies of the bankruptcy
laws. Pp.
471 U. S.
352-353.
(d) No federal interests would be impaired by the trustee's
control of the corporation's attorney-client privilege with respect
to prebankruptcy communications. On the other hand, vesting such
power in the directors would frustrate the Code's goal of
empowering the trustee to uncover insider fraud and recover
misappropriated corporate assets. Pp.
471 U. S.
353-354.
(e) There is no merit to respondents' contention that the
trustee should not obtain control over the privilege because,
unlike the management of a solvent corporation, the trustee's
primary loyalty goes not to shareholders, but to creditors. When a
trustee is appointed, the privilege must be exercised in accordance
with the trustee's fiduciary duty to all interested parties. Even
though, in some cases, the trustee's exercise of the privilege will
benefit only creditors, such a result is in keeping with the
hierarchy of interests created by the bankruptcy laws. Pp.
471 U. S.
354-356.
(f) Nor is there any merit to other arguments of respondents,
including the contentions that giving the trustee control over the
privilege would have an undesirable chilling effect on
attorney-client communications, and would discriminate against
insolvent corporations. The chilling effect is no greater here than
in the case of a solvent corporation, and, by definition,
corporations in bankruptcy are treated differently from solvent
corporations. Pp.
471 U. S.
356-358.
722 F.2d 338, reversed.
MARSHALL, J., delivered the opinion of Court, in which all other
Members joined, except POWELL, J., who took no part in the
consideration or decision of the case.
Page 471 U. S. 345
JUSTICE MARSHALL delivered the opinion of the Court.
The question here is whether the trustee of a corporation in
bankruptcy has the power to waive the debtor corporation's
attorney-client privilege with respect to communications that took
place before the filing of the petition in bankruptcy.
I
The case arises out of a formal investigation by petitioner
Commodity Futures Trading Commission to determine whether Chicago
Discount Commodity Brokers (CDCB), or persons associated with that
firm, violated the Commodity Exchange Act, 7 U.S.C. § 1
et
seq. CDCB was a discount commodity brokerage house registered
with the Commission, pursuant to 7 U.S.C. § 6d(1), as a futures
commission merchant. On October 27, 1980, the Commission filed a
complaint against CDCB in the United States District Court for the
Northern District of Illinois alleging violations of the Act. That
same day, respondent Frank McGhee, acting as sole director and
officer of CDCB, entered into a consent decree with the Commission,
which provided for the appointment of a receiver and for the
receiver to file a petition for liquidation under Chapter 7 of the
Bankruptcy Reform Act of 1978 (Bankruptcy Code). The District Court
appointed John K. Notz, Jr., as receiver.
Notz then filed a voluntary petition in bankruptcy on behalf of
CDCB. He sought relief under Subchapter IV of Chapter 7 of the
Bankruptcy Code, which provides for the
Page 471 U. S. 346
liquidation of bankrupt commodity brokers. 11 U.S.C. §§ 761-766.
The Bankruptcy Court appointed Notz as interim trustee and, later,
as permanent trustee.
As part of its investigation of CDCB, the Commission served a
subpoena
duces tecum upon CDCB's former counsel,
respondent Gary Weintraub. The Commission sought Weintraub's
testimony about various CDCB matters, including suspected
misappropriation of customer funds by CDCB's officers and
employees, and other fraudulent activities. Weintraub appeared for
his deposition and responded to numerous inquiries, but refused to
answer 23 questions, asserting CDCB's attorney-client privilege.
The Commission then moved to compel answers to those questions. It
argued that Weintraub's assertion of the attorney-client privilege
was inappropriate because the privilege could not be used to
"thwart legitimate access to information sought in an
administrative investigation." App. 44.
Even though the Commission argued in its motion that the matters
on which Weintraub refused to testify were not protected by CDCB's
attorney-client privilege, it also asked Notz to waive that
privilege. In a letter to Notz, the Commission maintained that
CDCB's former officers, directors, and employees no longer had the
authority to assert the privilege. According to the Commission,
that power was vested in Notz as the then-interim trustee.
Id. at 47-48. In response to the Commission's request,
Notz waived
"any interest I have in the attorney/client privilege possessed
by that debtor for any communications or information occurring or
arising on or before October 27, 1980"
-- the date of Notz' appointment as receiver.
Id. at
49.
On April 26, 1982, a United States Magistrate ordered Weintraub
to testify. The Magistrate found that Weintraub had the power to
assert CDCB's privilege. He added, however, that Notz was
"successor in interest of all assets, rights and privileges of
CDCB, including the attorney/client privilege at issue herein," and
that Notz' waiver was therefore valid. App. to Pet. for
Cert.19a-20a. The District Court
Page 471 U. S. 347
upheld the Magistrate's order on June 9.
Id. at 18a.
Thereafter, Frank McGhee and his brother, respondent Andrew McGhee,
intervened and argued that Notz could not validly waive the
privilege over their objection. Record, Doc. No. 49, p. 7.
[
Footnote 1] The District Court
rejected this argument and, on July 27, entered a new order
requiring Weintraub to testify without asserting an attorney-client
privilege on behalf of CDCB. App. to Pet. for Cert. 17a. [
Footnote 2]
The McGhees appealed from the District Court's order of July 27
and the Court of Appeals for the Seventh Circuit reversed. 722 F.2d
338 (1984). It held that a bankruptcy trustee does not have the
power to waive a corporate debtor's attorney-client privilege with
respect to communications that occurred before the filing of the
bankruptcy petition. The court recognized that two other Circuits
had addressed the question and had come to the opposite conclusion.
See In re O. P. M. Leasing Services, Inc., 670 F.2d 383
(CA2 1982);
Citibank, N. A. v. Andros, 666 F.2d 1192 (CA8
1981). [
Footnote 3] We granted
certiorari to resolve the conflict. 469 U.S. 929 (1984). We now
reverse the Court of Appeals.
Page 471 U. S. 348
II
It is by now well established, and undisputed by the parties to
this case, that the attorney-client privilege attaches to
corporations as well as to individuals.
Upjohn Co. v. United
States, 449 U. S. 383
(1981). Both for corporations and individuals, the attorney-client
privilege serves the function of promoting full and frank
communications between attorneys and their clients. It thereby
encourages observance of the law and aids in the administration of
justice.
See, e.g., Upjohn Co. v. United States, supra, at
449 U. S. 389;
Trammel v. United States, 445 U. S.
40,
445 U. S. 51
(1980);
Fisher v. United States, 425 U.
S. 391,
425 U. S. 403
(1976).
The administration of the attorney-client privilege in the case
of corporations, however, presents special problems. As an
inanimate entity, a corporation must act through agents. A
corporation cannot speak directly to its lawyers. Similarly, it
cannot directly waive the privilege when disclosure is in its best
interest. Each of these actions must necessarily be undertaken by
individuals empowered to act on behalf of the corporation. In
Upjohn Co., we considered whether the privilege covers
only communications between counsel and top management, and decided
that, under certain circumstances, communications between counsel
and lower-level employees are also covered. Here, we face the
related question of which corporate actors are empowered to waive
the corporation's privilege.
The parties in this case agree that, for solvent corporations,
the power to waive the corporate attorney-client privilege rests
with the corporation's management, and is normally exercised by its
officers and directors. [
Footnote
4] The managers, of
Page 471 U. S. 349
course, must exercise the privilege in a manner consistent with
their fiduciary duty to act in the best interests of the
corporation, and not of themselves as individuals.
See, e.g.,
Dodge v. Ford Motor Co., 204 Mich. 459, 507, 170 N.W. 668, 684
(1919).
The parties also agree that, when control of a corporation
passes to new management, the authority to assert and waive the
corporation's attorney-client privilege passes as well. New
managers installed as a result of a takeover, merger, loss of
confidence by shareholders, or simply normal succession, may waive
the attorney-client privilege with respect to communications made
by former officers and directors. Displaced managers may not assert
the privilege over the wishes of current managers, even as to
statements that the former might have made to counsel concerning
matters within the scope of their corporate duties.
See
Brief for Petitioner 11; Tr. of Oral Arg. 26.
See generally In
re O. P. M. Leasing Services, Inc., supra, at 386;
Citibank v. Andros, supra, at 1195;
In re Grand Jury
Investigation, 599 F.2d 1224, 1236 (CA3 1979);
Diversified
Industries, Inc. v. Meredith, 572 F.2d 596, 611, n. 5 (CA8
1978) (en banc). [
Footnote
5]
The dispute in this case centers on the control of the
attorney-client privilege of a corporation in bankruptcy. The
Government maintains that the power to exercise that privilege with
respect to prebankruptcy communications passes to the bankruptcy
trustee. In contrast, respondents maintain that this power remains
with the debtor's directors.
III
As might be expected, given the conflict among the Courts of
Appeals, the Bankruptcy Code does not explicitly address
Page 471 U. S. 350
the question before us. Respondents assert that 11 U.S.C. §
542(e) is dispositive, but we find reliance on that provision
misplaced. Section 542(e) states:
"
Subject to any applicable privilege, after notice and
a hearing, the court may order an attorney, accountant, or other
person that holds recorded information, including books, documents,
records, and papers, relating to the debtor's property or financial
affairs, to disclose such recorded information to the trustee."
(Emphasis added.) According to respondents, the "subject to any
applicable privilege" language means that the attorney cannot be
compelled to turn over to the trustee materials within the
corporation's attorney-client privilege. In addition, they claim,
this language would be superfluous if the trustee had the power to
waive the corporation's privilege.
The statutory language does not support respondents'
contentions. First, the statute says nothing about a trustee's
authority to waive the corporation's attorney-client privilege. To
the extent that a trustee has that power, the statute poses no bar
on his ability to obtain materials within that privilege. Indeed, a
privilege that has been properly waived is not an "applicable"
privilege for the purposes of § 542(e).
Moreover, rejecting respondents' reading does not render the
statute a nullity, as privileges of parties other than the
corporation would still be "applicable" as against the trustee. For
example, consistent with the statute, an attorney could invoke the
personal attorney-client privilege of an individual manager.
The legislative history also makes clear that Congress did not
intend to give the debtor's directors the right to assert the
corporation's attorney-client privilege against the trustee.
Indeed, statements made by Members of Congress regarding the effect
of § 542(e) "specifically deny any attempt to create an
attorney-client privilege assertable on behalf of the debtor
against the trustee."
In re O. P. M. Leasing
Page 471 U. S.
351
Services, Inc., 13 B.R. 54, 70 (SDNY 1981) (Weinfeld,
J.),
aff'd, 670 F.2d 383 (CA2 1982);
see also 4
Collier on Bankruptcy 542.06 (15th ed.1985). Rather, Congress
intended that the courts deal with this problem:
"The extent to which the attorney client privilege is valid
against the trustee is unclear under current law, and is left to be
determined by the courts on a case-by-case basis."
124 Cong.Rec. 32400 (1978) (remarks of Rep. Edwards);
id. at 33999 (remarks of Sen. DeConcini). The "subject to
any applicable privilege" language is thus merely an invitation for
judicial determination of privilege questions.
In addition, the legislative history establishes that § 542(e)
was intended to restrict, not expand, the ability of accountants
and attorneys to withhold information from the trustee. Both the
House and the Senate Reports state that § 542(e)
"is a new provision that deprives accountants and attorneys of
the leverage that they ha[d], . . . under State law lien
provisions, to receive payment in full ahead of other creditors
when the information they hold is necessary to the administration
of the estate."
S.Rep. No. 95-989, p. 84 (1978); H.R.Rep. No. 95-595, pp.
369-370 (1977). It is therefore clear that § 542(e) was not
intended to limit the trustee's ability to obtain corporate
information.
IV
In light of the lack of direct guidance from the Code, we turn
to consider the roles played by the various actors of a corporation
in bankruptcy to determine which is most analogous to the role
played by the management of a solvent corporation.
See Butner
v. United States, 440 U. S. 48,
440 U. S. 55
(1979). Because the attorney-client privilege is controlled,
outside of bankruptcy, by a corporation's management, the actor
whose duties most closely resemble those of management
Page 471 U. S. 352
should control the privilege in bankruptcy, unless such a result
interferes with policies underlying the bankruptcy laws.
A
The powers and duties of a bankruptcy trustee are extensive.
Upon the commencement of a case in bankruptcy, all corporate
property passes to an estate represented by the trustee. 11 U.S.C.
§§ 323, 541. The trustee is "accountable for all property
received," §§ 704(2), 1106(a)(1), and has the duty to maximize the
value of the estate,
see § 704(1);
In re Washington
Group, Inc., 476 F.
Supp. 246, 250 (MDNC 1979),
aff'd, sub nom. Johnston v.
Gilbert, 636 F.2d 1213 (CA4 1980),
cert. denied, 452
U.S. 940 (1981). He is directed to investigate the debtor's
financial affairs, §§ 704(4), 1106(a)(3), and is empowered to sue
officers, directors, and other insiders to recover, on behalf of
the estate, fraudulent or preferential transfers of the debtor's
property, §§ 547(b)(4)(B), 548. Subject to court approval, he may
use, sell, or lease property of the estate. § 363(b).
Moreover, in reorganization, the trustee has the power to
"operate the debtor's business" unless the court orders otherwise.
§ 1108. Even in liquidation, the court "may authorize the trustee
to operate the business" for a limited period of time. § 721. In
the course of operating the debtor's business, the trustee "may
enter into transactions, including the sale or lease of property of
the estate" without court approval. § 363(c)(1).
As even this brief and incomplete list should indicate, the
Bankruptcy Code gives the trustee wide-ranging management authority
over the debtor.
See 2 Collier on Bankruptcy 11323.01
(15th ed.1985). In contrast, the powers of the debtor's directors
are severely limited. Their role is to turn over the corporation's
property to the trustee and to provide certain information to the
trustee and to the creditors. §§ 521, 343. Congress contemplated
that, when a trustee is appointed, he assumes control of the
business, and
Page 471 U. S. 353
the debtor's directors are "completely ousted."
See
H.R.Rep. No. 95-595, pp. 220-221 (1977). [
Footnote 6]
In light of the Code's allocation of responsibilities, it is
clear that the trustee plays the role most closely analogous to
that of a solvent corporation's management. Given that the debtor's
directors retain virtually no management powers, they should not
exercise the traditional management function of controlling the
corporation's attorney-client privilege,
see supra at
471 U. S. 348,
unless a contrary arrangement would be inconsistent with policies
of the bankruptcy laws.
B
We find no federal interests that would be impaired by the
trustee's control of the corporation's attorney-client privilege
with respect to prebankruptcy communications. On the other hand,
the rule suggested by respondents -- that the debtor's directors
have this power -- would frustrate an important goal of the
bankruptcy laws. In seeking to maximize the value of the estate,
the trustee must investigate the conduct of prior management to
uncover and assert causes of action against the debtor's officers
and directors.
See generally 11 U.S.C. §§ 704(4), 547,
548. It would often be extremely difficult to conduct this inquiry
if the former management were allowed to control the corporation's
attorney-client privilege, and therefore to control access to the
corporation's legal files. To the extent that management had
wrongfully diverted or appropriated corporate assets, it could use
the privilege as a shield against the trustee's efforts to identify
those assets. The Code's goal of uncovering insider fraud would be
substantially defeated if the debtor's directors were to retain the
one management power that might effectively thwart an investigation
into their own
Page 471 U. S. 354
conduct.
See generally In re Browy, 527 F.2d 799, 802
(CA7 1976) (per curiam).
Respondents contend that the trustee can adequately investigate
fraud without controlling the corporation's attorney-client
privilege. They point out that the privilege does not shield the
disclosure of communications relating to the planning or commission
of ongoing fraud, crimes, and ordinary torts,
see, e.g., Clark
v. United States, 289 U. S. 1,
289 U. S. 15
(1933);
Garner v. Wolfinbarger, 430 F.2d 1093, 1102-1103
(CA5 1970),
cert. denied, 401 U.S. 974 (1971). Brief for
Respondents 11. The problem, however, is making the threshold
showing of fraud necessary to defeat the privilege.
See Clark
v. United States, supra, at
289 U. S. 15.
Without control over the privilege, the trustee might not be able
to discover hidden assets or looting schemes, and therefore might
not be able to make the necessary showing.
In summary, we conclude that vesting in the trustee control of
the corporation's attorney-client privilege most closely comports
with the allocation of the waiver power to management outside of
bankruptcy without in any way obstructing the careful design of the
Bankruptcy Code.
V
Respondents do not seriously contest that the bankruptcy trustee
exercises functions analogous to those exercised by management
outside of bankruptcy, whereas the debtor's directors exercise
virtually no management functions at all. Neither do respondents
seriously dispute that vesting control over the attorney-client
privilege in the trustee will facilitate the recovery of
misappropriated corporate assets.
Respondents argue, however, that the trustee should not obtain
control over the privilege because, unlike the management of a
solvent corporation, the trustee's primary loyalty goes not to
shareholders, but to creditors, who elect him and who often will be
the only beneficiaries of his efforts.
See 11 U.S.C. §§
702 (creditors elect trustee), 726(a) (shareholders
Page 471 U. S. 355
are last to recover in bankruptcy). Thus, they contend, as a
practical matter, bankruptcy trustees represent only the creditors.
Brief for Respondents 22.
We are unpersuaded by this argument. First, the fiduciary duty
of the trustee runs to shareholders as well as to creditors.
See, e.g., In re Washington Group, Inc., 476 F. Supp. at
250;
In re Ducker, 134 F. 43, 47 (CA6 1905). [
Footnote 7] Second, respondents do not
explain why, out of all management powers, control over the
attorney-client privilege should remain with those elected by the
corporation's shareholders. Perhaps most importantly, respondents'
position ignores the fact that bankruptcy causes fundamental
changes in the nature of corporate relationships. One of the
painful facts of bankruptcy is that the interests of shareholders
become subordinated to the interests of creditors. In cases in
which it is clear that the estate is not large enough to cover any
shareholder claims, the trustee's exercise of the corporation's
attorney-client privilege will benefit only creditors, but there is
nothing anomalous in this result; rather, it is in keeping with the
hierarchy of interests created by the bankruptcy laws.
See
generally 11 U.S.C. § 726(a).
Respondents also ignore that, if a debtor remains in possession
-- that is, if a trustee is not appointed -- the debtor's directors
bear essentially the same fiduciary obligation to creditors and
shareholders as would the trustee for a debtor out of possession.
Wolf v. Weinstein, 372 U. S. 633,
372 U. S.
649-652 (1963). Indeed, the willingness of courts to
leave debtors in possession
"is premised upon an assurance that the officers and managing
employees can be depended upon to carry out the fiduciary
responsibilities of a trustee."
Id. at
372 U. S. 651.
Surely, then, the management of a debtor-in-possession
Page 471 U. S. 356
would have to exercise control of the corporation's
attorney-client privilege consistently with this obligation to
treat all parties, not merely the shareholders, fairly. By the same
token, when a trustee is appointed, the privilege must be exercised
in accordance with the trustee's fiduciary duty to all interested
parties.
To accept respondents' position would lead to one of two
outcomes: (1) a rule under which the management of a
debtor-in-possession exercises control of the attorney-client
privilege for the benefit only of shareholders but exercises all of
its other functions for the benefit of both shareholders and
creditors, or (2) a rule under which the attorney-client privilege
is exercised for the benefit of both creditors and shareholders
when the debtor remains in possession, but is exercised for the
benefit only of shareholders when a trustee is appointed. We find
nothing in the bankruptcy laws that would suggest, much less
compel, either of these implausible results.
VI
Respondents' other arguments are similarly unpersuasive. First,
respondents maintain that the result we reach today would also
apply to individuals in bankruptcy, a result that respondents find
"unpalatable." Brief for Respondents 27. But our holding today has
no bearing on the problem of individual bankruptcy, which we have
no reason to address in this case. As we have stated, a
corporation, as an inanimate entity, must act through agents.
See supra at
471 U. S. 348.
When the corporation is solvent, the agent that controls the
corporate attorney-client privilege is the corporation's
management. Under our holding today, this power passes to the
trustee because the trustee's functions are more closely analogous
to those of management outside of bankruptcy than are the functions
of the debtor's directors. An individual, in contrast, can act for
himself; there is no "management" that controls a solvent
individual's attorney-client privilege. If control over that
privilege passes to a trustee, it must be
Page 471 U. S. 357
under some theory different from the one that we embrace in this
case.
Second, respondents argue that giving the trustee control over
the attorney-client privilege will have an undesirable chilling
effect on attorney-client communications. According to respondents,
corporate managers will be wary of speaking freely with corporate
counsel if their communications might subsequently be disclosed due
to bankruptcy.
See Brief for Respondents 37-42;
see
also 722 F.2d at 343. But the chilling effect is no greater
here than in the case of a solvent corporation, where individual
officers and directors always run the risk that successor
management might waive the corporation's attorney-client privilege
with respect to prior management's communications with counsel.
See supra at
471 U. S.
348-349.
Respondents also maintain that the result we reach discriminates
against insolvent corporations. According to respondents, to
prevent the debtor's directors from controlling the privilege
amounts to "economic discrimination" given that directors, as
representatives of the shareholders, control the privilege for
solvent corporations. Brief for Respondents 42;
see also
722 F.2d at 342-343. Respondents' argument misses the point that,
by definition, corporations in bankruptcy are treated differently
from solvent corporations.
"Insolvency is a most important and material fact, not only with
individuals but with corporations, and with the latter, as with the
former, the mere fact of its existence may change radically and
materially its rights and obligations."
McDonald v. Williams, 174 U. S. 397,
174 U. S. 404
(1899). Respondents do not explain why we should be particularly
concerned about differential treatment in this context.
Finally, respondents maintain that upholding trustee waivers
would create a disincentive for debtors to invoke the protections
of bankruptcy, and provide an incentive for creditors to file for
involuntary bankruptcy. According to respondents, "[i]njection of
such considerations into bankruptcy
Page 471 U. S. 358
would skew the application of the bankruptcy laws in a manner
not contemplated by Congress." Brief for Respondents 43. The law
creates numerous incentives, both for and against the filing of
bankruptcy petitions. Respondents do not explain why our holding
creates incentives that are inconsistent with congressional intent,
and we do not believe that it does.
VII
For the foregoing reasons, we hold that the trustee of a
corporation in bankruptcy has the power to waive the corporation's
attorney-client privilege with respect to prebankruptcy
communications. We therefore conclude that Notz, in his capacity as
trustee, properly waived CDCB's privilege in this case. The
judgment of the Court of Appeals for the Seventh Circuit is
accordingly reversed.
It is so ordered.
JUSTICE POWELL took no part in the consideration or decision of
this case.
[
Footnote 1]
The Court of Appeals found that Andrew McGhee resigned his
position as officer and director of CDCB on October 21, 1980. 722
F.2d 338, 339 (1984). Frank McGhee, however, remained as an officer
and director.
See n 5,
infra.
[
Footnote 2]
The June 9 order had not made clear that Weintraub was barred
only from invoking the corporation's attorney-client privilege.
[
Footnote 3]
The Court of Appeals distinguished
O. P. M. Leasing,
where waiver of the privilege was opposed by the corporation's sole
voting stockholder, on the ground that the corporation in
O. P.
M. Leasing had no board of directors in existence during the
tenure of the trustee. Here, instead, Frank McGhee remained an
officer and director of CDCB during Notz' trusteeship. 722 F.2d at
341. The court acknowledged, however, a square conflict with
Citibank v. Andros.
After the Court of Appeals' decision in this case, the Court of
Appeals for the Ninth Circuit held that a bankruptcy examiner has
the power to waive the corporation's attorney-client privilege over
the objections of the debtor-in-possession.
In re Boileau,
736 F.2d 503 (1984). That holding also conflicts with the holding
of the Seventh Circuit in this case.
[
Footnote 4]
State corporation laws generally vest management authority in a
corporation's board of directors.
See, e.g., Del. Code
Ann., Tit. 8, § 141 (1983); N.Y.Bus. Corp. Law § 701 (McKinney
Supp.1983-1984); Model Bus.Corp.Act § 35 (1979). The authority of
officers derives legally from that of the board of directors.
See generally Eisenberg, Legal Models of Management
Structure in the Modern Corporation: Officers, Directors, and
Accountants, 63 Calif.L.Rev. 375 (1975). The distinctions between
the powers of officers and directors are not relevant to this
case.
[
Footnote 5]
It follows that Andrew McGhee, who is now neither an officer nor
a director,
see n 1,
supra, retains no control over the corporation's
privilege. The remainder of this opinion therefore focuses on
whether Frank McGhee has such power.
[
Footnote 6]
While this reference is to the role of a trustee in
reorganization, nothing in the Code or its legislative history
suggests that the debtor's directors enjoy substantially greater
powers in liquidation.
[
Footnote 7]
The propriety of the trustee's waiver of the attorney-client
privilege in a particular case can, of course, be challenged in the
bankruptcy court on the ground that it violates the trustee's
fiduciary duties. Respondents, however, did not challenge the
waiver on those grounds; rather, they asserted that the trustee
never has the power to waive the privilege.