522 B.R. 28
Bankr. S.D.N.Y.2014Background
- China Medical Technologies, a Cayman Islands holding company with U.S.-traded securities, faced allegations of massive improper transfers; its Cayman court-appointed Liquidator seeks discovery in the U.S.
- The Audit Committee (formed to meet NASDAQ/Sarbanes-Oxley independence rules) retained Paul Weiss; Paul Weiss retained AlixPartners for forensic work.
- Paul Weiss and AlixPartners produced a large volume of materials to the Liquidator but withheld certain documents claiming attorney-client privilege, attorney mental impressions, and work-product protection.
- Liquidator served a Fed. R. Bankr. P. 2004 subpoena in this chapter 15 ancillary proceeding in the Southern District of New York seeking withheld materials.
- The court had to decide (1) whether U.S. or Cayman privilege law governs and (2) whether the Audit Committee’s privileges devolved to the Liquidator (i.e., whether the Audit Committee is separate from the company).
Issues
| Issue | Liquidator's Argument | Subpoenaed Entities' Argument | Held |
|---|---|---|---|
| Choice of law for privilege disputes in this chapter 15 Rule 2004 inquiry | Apply Cayman law (internal affairs/touching-base) because primary insolvency is in Cayman and this is an ancillary proceeding | Apply U.S. law because the investigations, engagement, communications, and governing law were centered in the U.S.; Rule 2004 inquiries are governed by federal common law | U.S. privilege law applies (touching-base analysis favors the jurisdiction with the predominant interest; here U.S.) |
| Ownership of privilege: do Audit Committee privileges belong to China Medical (now to Liquidator) or to the Audit Committee itself? | Liquidator: Audit Committee was not truly separate/independent and therefore its privileges belong to the company and thus to the Liquidator | Subpoenaed Entities: Audit Committee retained independent counsel and is separate; its privileges are its own and do not devolve to trustee/liquidator | Audit Committee is separate under U.S. law; its attorney-client and attorney mental-impression protections remain with the Committee and are not owned by the Liquidator |
| Scope/exceptions (work product, other protections) | Liquidator seeks broader access, arguing exceptions and that work product may be discoverable | Subpoenaed Entities assert privilege/work-product protections for documents and communications prepared for legal advice | Court preserves attorney-client and mental-impression protections; recognizes work-product protections but acknowledges available exceptions and leaves Liquidator free to argue them on the merits |
Key Cases Cited
- CFTC v. Weintraub, 471 U.S. 343 (trustee controls corporate privilege upon bankruptcy)
- Upjohn Co. v. United States, 449 U.S. 383 (attorney-client privilege protects candid communications with counsel)
- In re Asia Global Crossing, Ltd., 322 B.R. 247 (Bankr. S.D.N.Y. 2005) (Rule 2004 subpoenas governed by federal common law privilege rules)
- Anwar v. Fairfield Greenwich Ltd., 982 F. Supp. 2d 260 (S.D.N.Y. 2013) (apply law of jurisdiction with predominant interest for privilege issues)