Two recent decisions from Judge Laurie Selber Silverstein of the United States Bankruptcy Court for the District of Delaware address common-interest and attorney work-product protection issues that arose in the bankruptcy case of In re Imerys Talc America, Inc., No. 19-10289 (Bankr. D. Del.).1 Those decisions delineate the interests (and concomitant privilege and work-product protections) of certain parties in Chapter 11 cases, and their reasoning provides instructive guidance on those often misunderstood issues outside of bankruptcy as well.
To determine whether parties share a common interest or whether the exchange of documents between two parties waives work-product protection, courts will evaluate whether the parties are adverse. Where the parties may be adverse on some issues but not on others, courts will likely conduct the inquiry—and evaluate whether communications are protected by privilege or work product—on an issue-by-issue basis. And in determining adversity, courts will likely look at the parties’ actual legal rights and interests, not just the legal rights and interests the parties have elected to pursue.
Prior to filing bankruptcy, Imerys Talc America, Inc., and certain affiliates (collectively, Imerys or the Debtors) mined, processed and distributed talc, which they sold to Johnson & Johnson for use in its baby powder. Imerys and Johnson & Johnson were named as defendants in thousands of personal-injury lawsuits claiming that Johnson & Johnson’s baby powder and/or talc mined by Imerys caused cancer. On February 13, 2019, Imerys filed for Chapter 11 in the US Bankruptcy Court for the District of Delaware with the goal of addressing those liabilities. During the course of the Chapter 11 case, Imerys reached agreements with the Official Committee of Tort Claimants (TCC) and the court-appointed future claimants’ representative (FCR) regarding the establishment of a trust that would assume Imerys’s talc personal-injury liability and use trust assets to pay those claims in accordance with trust distribution procedures (TDPs). The Debtors, TCC and FCR also reached settlements with the Debtors’ parent (Imerys S.A.) and certain former affiliates and insurers, the proceeds of which would be contributed to the trust. In 2020, the Debtors, TCC, FCR and Imerys S.A. (collectively, the Plan Proponents) proposed a Chapter 11 plan of reorganization (Plan) incorporating and seeking approval of these agreements and settlements. Johnson & Johnson and certain talc claimants objected to confirmation of the Plan and sought discovery in support of their objections from the Debtors, TCC, FCR, Imerys S.A. and other parties. Those parties opposed some of the discovery sought, arguing that the materials were privileged or subject to attorney work-product protection and that communications among the parties had not waived any such privilege or protection because the parties had a common interest.
Letter Opinion I
Judge Silverstein’s first Letter Opinion addressed communications among the Plan Proponents. Summarizing the common-interest doctrine, the court explained:
The common interest doctrine is an exception to the general rule that disclosure of a communication to a third party destroys any attendant privilege. In other words, the doctrine permits attorneys representing different parties with similar legal interests to share information without having to share it with others. “It expands the reach of the attorney-client privilege and work product doctrine by providing that, under certain circumstance[s], the sharing of privileged communications with third parties does not constitute a waiver of the privilege.”2
As the court explained, contrary to a common misconception, the common-interest doctrine is not itself a privilege. A communication between parties who share a common interest is not necessarily a privileged communication. Rather, the common-interest doctrine prevents such a communication from waiving attorney-client privilege or work-product protection in circumstances in which such privilege or protection would otherwise apply.
The court then summarized three prior decisions applying the common-interest doctrine in the context of a Chapter 11 plan:3
There are three take-a-ways from these cases relevant to the matter before me: (i) the common interest doctrine can be, but is not necessarily, applicable in the plan [confirmation] context; (ii) parties can simultaneously share a common legal interest with respect to some issues but not other issues; and (iii) to the extent that parties share a common legal interest, the common interest doctrine only protects the communications that are in furtherance of that common legal interest. Simply, [sic] put, context matters.
Accordingly, Judge Silverstein analyzed the question whether the common-interest doctrine applied to the communications at issue based on the subject matter and context of the communications.
First, the court held that the Plan Proponents could not rely on the common-interest doctrine to protect communications among them regarding the TDPs because the Plan Proponents’ interests with regard to the TDPs necessarily differed. “[A] debtor, in general, would seek to keep claim amounts . . . as well as payouts low,” whereas the TCC and FCR would want to maximize those amounts for the benefit of the claimants they represent.4 In addition, the FCR and TCC have divergent interests with respect to the allocation of trust funds between current claimants (represented by the TCC) and future claimants (represented by the FCR). Judge Silverstein also noted that “the invocation of the common interest doctrine could, in particular circumstances, be in tension with the search for the truth,” and that given the importance of the TDPs to the case, discovery of these communications was warranted.5
Second, the court held that communications among Plan Proponents regarding the Plan generally (that did not fall into other categories) were protected under the common-interest doctrine, but only beginning on the date that an agreement in principle was reached among those parties, because, as of that date, they shared a common interest in obtaining confirmation of the Plan.
Third, with respect to communications between the Plan Proponents, on the one hand, and parties with whom the Plan Proponents entered into settlements in return for contributions to the trust under the Plan, on the other hand, the court held that a common interest arose beginning on the date on which the Plan Proponents entered into a term sheet with each settling party regarding the settlement.
Fourth, with respect to communications among the Plan Proponents regarding maximization of the Debtors’ assets, the court explained that “courts have recognized a common legal interest [of] a debtor, a future claims representative and a tort claimants committee with respect to maximizing assets coming into a debtor’s estate, at least in the context of plan negotiations.”6 Based on that reasoning, the court held that (a) the Debtors and FCR shared a common interest beginning on the date on which the Debtors engaged the individual who would later be appointed as FCR as a legal representative for holders of future personal-injury claims; (b) the TCC and FCR shared a common interest beginning on the date on which the TCC was constituted; and (c) the Debtors shared a common interest with the TCC and FCR beginning on the petition date. The court found that Imerys S.A. did not share that legal interest, however, since its objective was to minimize the amount that it would have to pay to settle with the Debtors.
Finally, the court held that there was no common interest between the Debtors and their parent, Imerys S.A., that justified a conclusion that communications between the two did not waive privilege.7 The court distinguished an earlier case in which the bankruptcy court had found that there was a common legal interest between the debtor and its non-debtor parent in confirming a plan of reorganization, noting that “there is no evidence before me that Imerys S.A. was a co-defendant in the Imerys prepetition litigation or that Imerys S.A. shares derivative liability with Debtors” and that “there is also no evidence of a joint defense agreement between the Debtors and Imerys S.A., much less any evidence before me of decades-long coordinated defense efforts.”8
Letter Opinion II
Following Letter Opinion I, further discovery disputes arose regarding the discoverability (by Johnson & Johnson) of communications and documents exchanged between the Debtors and Imerys S.A. Specifically, at issue was whether the following categories of documents were protected by the attorney work-product doctrine: (i) presentations prepared by counsel for leadership of the Debtors and Imerys S.A. regarding a potential bankruptcy filing and legal strategy for such a filing, as well as communications regarding the same; and (ii) communications between in-house and outside counsel for the Debtors and Imerys S.A. regarding the negotiations between the Debtors and Imerys S.A. on the one hand and the TCC and FCR on the other. The Debtors and Imerys S.A. asked the court to revisit its prior ruling on the existence of a common interest between the two.
After reviewing a sample of the documents in camera, the court held that the documents were work product. The issue then was whether the exchange of those documents between the Debtors and Imerys S.A. waived attorney work-product protection. The court explained that “[d]isclosure to a third party of documents containing work product does not necessarily waive the protection of the work product doctrine as long as the disclosure furthers the doctrine’s underlying goal” and that in making such an inquiry, “courts often examine whether the disclosure was to an adversary or non-adversary.”9 In other words, the question of whether the parties shared a common interest and whether the documents retained work-product protection turned on the same question: whether the parties were adverse.
The court concluded that the documents were shared for the common purpose of strategizing around a bankruptcy filing and the issues arising the bankruptcy cases, and “in this sense, the Documents were shared consistent with the underlying purpose of the work product doctrine, namely to prepare for litigation.”10 But, the court noted, the documents also discussed potential alter ego claims against Imerys S.A. and an Imerys S.A. contribution to the Debtors’ estates—topics on which the court concluded that the Debtors and Imerys S.A. were adverse. The Debtors had argued that they were not adverse to Imerys S.A. on those issues (or any others) because “neither the Debtors nor [Imerys S.A.] considered themselves to be, nor positioned themselves as potential ‘adversaries’ in navigating the chapter 11 proceedings,” and in support, pointed to an email exchange with the TCC granting the TCC derivative standing to pursue causes of action against Imerys S.A. on behalf of the Debtors’ estates.11 The court rejected that argument, explaining that parties cannot simply “ignore with impunity their theoretical or legal alignments.”12 And the court noted several facts, including the retention of separate counsel for the Debtors and Imerys S.A. and the Debtors’ participation (along with the TCC and FCR) in the investigation of potential claims against Imerys S.A.13
The court held that parties that are adverse on an issue waive privilege with respect to communications on that issue even when the communications occur “in the context of a broader exchange of information.”14 Accordingly, the court held that documents discussing potential alter ego claims and the Imerys S.A. contribution to the Plan had to be produced. The court held that the Debtors and Imerys S.A. were not adverse and did share a common legal interest with respect to other aspects of bankruptcy planning and strategy.
The Imerys decisions provide useful guidance for parties—both inside and outside the bankruptcy context—who believe that they share a common legal interest and that, accordingly, their communications will not constitute a waiver of attorney-client privilege or work-product protections. First, parties need to consider, on an issue-by-issue basis, whether there are any issues on which their legal interests potentially diverge, even if there is no intention by either party to pursue those divergent interests. Communications on issues as to which the parties’ legal interests diverge—even theoretically—may be considered a waiver of attorney-client privilege or work-product protections. Second, documentation may matter, and parties should endeavor to reduce to writing settlements that could resolve adversity between the parties. The court concluded that a common interest between the Plan Proponents and certain parties with whom they settled did not arise until a term sheet for a settlement resolving their adverse interests was entered into. Likewise, if the Debtors had ever formally relinquished their claims against Imerys S.A. to the TCC or FCR (whose constituents would be the beneficiaries of such claims anyway), the court might have reached a different conclusion as to whether the Debtors and Imerys S.A. shared a common interest on that issue.