• Court Grants Motion For Protective Order, Holding That Affidavits Of Debtor's Former Employees Prepared By Preference Defendants For Mediation Were Protected Attorney Work Product Under Rule 26(b)
  • December 28, 2012
  • Law Firm: Morris James LLP - Wilmington Office
  • Burtch v. Luminescent Systems, Inc., et al. (In re AE Liquidation, Inc.), Case No. 08-13031 (MFW), Adv. Nos. 10-55460 (MFW), 10-55384 (MFW) (December 11, 2012) (J. Walrath)

    On November 25, 2008, AE Liquidation, Inc. (the “Debtor”) filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code, which case was subsequently converted to chapter 7 on March 5, 2009, at which time Jeoffrey L. Burtch (the “Trustee”) was appointed as trustee.

    On November 18, 2010, the Trustee commenced preference actions against Luminescent Systems, Inc. and Astronics Advanced Electronic Systems Corp. (collectively, the “Defendants”).  After the parties were directed to go to mediation, but before the mediation took place, the Defendants gathered affidavits from two former employees of the Debtor.

    The mediation was ultimately unsuccessful, and the parties conducted discovery, during which the Defendants prepared a privilege log asserting that the affidavits and related documents were protected by the attorney work product doctrine and the mediation privilege.  The Trustee disagreed, and the Defendants filed a Motion for a Protective Order, arguing that the affidavits and related documents were protected as: (1) documents prepared for the purpose of mediation under Federal Rule of Civil Procedure 16(c) and Local Rule of Bankruptcy Procedure 9019-5; (2) for good cause under Federal Rule of Civil Procedure 26(c)(1); and/or (3) as attorney work product under Federal Rule of Civil Procedure 26(b).

    The Court disagreed with the Defendants’ first two arguments, but granted the motion on the basis of the third argument, finding that the affidavits were protected attorney work product for the reasons set forth in greater detail below.

    First, the Court held that the affidavits, though not admissible as evidence under Local Bankruptcy Rule 9019-5 (providing that “[n]o person may rely on or introduce as evidence” documents prepared for the purpose of mediation), were not exempt from discovery under Local Bankruptcy Rule 9019-5, both by the express terms of Local Bankruptcy Rule 9019-5 (“[i]nformation otherwise discoverable or admissible in evidence does not become exempt from discovery...merely by being used by a party in the mediation”) and by the narrow scope of the limitations provided in the rule on the use of such documents (e.g., inadmissible as evidence).

    Second, the Court swiftly disposed of the Defendants’ argument that the affidavits were undiscoverable for “good cause” under Fed. R. Civ. P. 26(c)(1), reasoning that the “Defendants made no proffer of good cause that disclosure of the affidavits and related documents would cause any embarrassment, oppression, or undue burden sufficient to protect the documents.”

    Third, although the Defendants did not raise the attorney work product argument in their motion, the Court found that the privilege log, which was attached to the Defendants’ motion, was sufficient evidence to meet the Defendants’ burden of proof.  In finding that the affidavits were protected by the attorney work product doctrine, the Court evaluated three factors: (1) whether the documents were created in anticipation of litigation; (2) whether the documents were ordinary or opinion work product; and (3) based on the type of work product, whether the party seeking discovery had overcome the attorney work product protection.

    The Court found that the documents were “clearly prepared ‘in anticipation of litigation,’” as they were prepared in preparation for the mediation.  Next, because the documents at issue consisted of affidavits and emails exchanged between the Defendants’ attorneys and two third-party witnesses, the Court found it unlikely that there were any protected attorneys’ opinions in the documents and held that they were ordinary, fact-based work product “not entitled to the heightened protection of opinion work product.”  Finally, the Court held that the Trustee failed to overcome the attorney work product protection, concluding that the Trustee’s sole argument (that the documents would be used to impeach witnesses in depositions and at trial) was insufficient to overcome the protections to which the documents were entitled.

    Accordingly, for the reasons set forth above, the Court granted the Defendants’ Motion for a Protective Order with respect to the affidavits and related documents.