In re Fundamental Long Term Care, Inc.

530 B.R. 816, 2015 Bankr. LEXIS 1846, 2015 WL 3473474
CourtUnited States Bankruptcy Court, M.D. Florida
DecidedJune 1, 2015
DocketCase No. 8:11-bk-22258-MGW
StatusPublished

This text of 530 B.R. 816 (In re Fundamental Long Term Care, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Fundamental Long Term Care, Inc., 530 B.R. 816, 2015 Bankr. LEXIS 1846, 2015 WL 3473474 (Fla. 2015).

Opinion

MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISQUALIFY SHUMAKER, LOOP & KENDRICK LLP AS TRUSTEE’S COUNSEL

Michael G. Williamson, United States Bankruptcy Judge

While this bankruptcy case was pending, the state court receiver for Trans Health Care, Inc. uploaded 86 boxes of documents to an on-line database hosted by the law firm of Proskauer Rose.1 The Receiver then gave access to that database to various lawyers that were defending THI and THMI in state court negligence actions filed by six probate estates that are creditors in this case. When one of those law firms produced its litigation files to the Chapter 7 Trustee, as it was required to do by this Court, it included an e-mail with a username and password for accessing the database. The Trustee’s counsel used that username and password to access the documents the Receiver uploaded to the database, some of which the Receiver (and others) claim are privileged. The Court must decide whether the Trustee’s counsel should be disqualified because they accessed the database that allegedly contains privileged information.

Florida courts employ a two-part test in determining whether to disqualify counsel based on alleged access to privileged information. First, did counsel actually obtain access to privileged or confidential information? Second, did counsel gain an unfair informational or tactical advantage as a result of obtaining access to confidential or privileged information? Because the Receiver and others failed to demonstrate that the Trustee’s counsel actually gained access to privileged information and'obtained an unfair tactical or informational advantage as a result, the motion to disqualify Trustee’s counsel will be denied.

Background

This is the third motion to disqualify Shumaker, Loop & Kendrick (“SLK”)— counsel to the chapter 7 Trustee and the Debtor’s wholly owned subsidiary, Trans Health Management, Inc. (“THMI”) — in one capacity or another.2 Initially, Christine Zack (a key player in this proceeding) sought to disqualify SLK as Trustee’s counsel because Steve Berman (an SLK lawyer) allegedly refused to destroy a privileged document that was inadvertently forwarded to him.3 SLK claimed the doc[818]*818ument was not privileged because it was not a communication made to secure legal advice and, in any case, had been disclosed to third parties.4 More significantly, in a second motion to disqualify, Fundamental Administrative Services sought to disqualify SLK from representing THMI in the state court litigation filed by the Probate Estates because, in short, the firm was allegedly colluding with the Probate Estates to allow the Probate Estates to obtain astronomical judgments against THMI so the Trustee and Probate Estates could collect those judgments against FAS (and others).5 The Court denied the second motion for disqualification, although it did require the Trustee to provide the Court with an update on the status of her past and current representation of the Debtor and THMI.6 This third motion for disqualification is based on SLK’s alleged surreptitious access of privileged documents.7

As background, the Trustee previously subpoenaed documents (including litigation files) from various law firms that THMI’s former parent, Trans Health, Inc, (“THI”), retained to represent THI and THMI in six negligence cases the Probate Estates filed in state court.8 A number of parties objected that the litigation files (and other documents) were protected from disclosure by the attorney-client privilege and work product doctrines.9 This Court ultimately ruled that the Trustee was entitled to all of THMI’s litigation files under the co-client exception to the general rule that disclosure of communications to a third party waives attorney-client privilege.10

Wisler Pearlstine, one of the law firms that had defended THMI in the state court negligence cases, produced its litigation files to the Trustee.11 Wisler Pearlstine’s production apparently included the law firm’s physical litigation files. One of the documents in Wisler Pearlstine’s litigation files was an e-mail from Maria Chavez^-Ruark to three Wisler Pearlstine lawyers, as well as three lawyers at another firm that was representing THMI (Wilkins Tip-ton), forwarding a username and password for the lawyers to use to access a “Relativity” database hosted by the Proskauer Rose law firm.12

The Relativity database contained 86 boxes of documents belonging to THI. THI apparently was storing 2,000 boxes of documents at a storage facility in Maryland.13 Sometime in the spring and summer of 2012, the THI Receiver culled through the 2,000 boxes of documents and identified 76 boxes that were relevant to the state court actions the Probate Estates filed against THI and THMI and disputes between the THI Receiver and the Trustee over the control of THMI’s defense.14 In the late fall of 2012, the THI Receiver located an [819]*819additional ten boxes of documents that were relevant to the same dispute.15 The 86 boxes, which Proskauer Rose agreed to store on its Relativity database under the terms of a joint defense agreement between the THI Receiver, Proskauer Rose, and others, contained THI’s books and records, including various corporate and financial documents.16

Between October 2013 and April 2014, SLK used the password from Ruark’s email to access the Relativity database.17 According to an investigation by Pros-kauer Rose, SLK accessed and printed 52,904 of the 53,319 documents on the database, with the vast majority of those documents being printed between November 2-12, 2013.18 The THI Receiver also claims that SLK downloaded or exported the coding for each of the documents the firm accessed. The document coding that the THI Receiver says SLK exported reflects (with respect to each document) whether a document is responsive to a pending document request, privileged (and, if so, the nature of the privilege), or confidential.

The THI Receiver, along with Fundamental Long Term Care Holdings (“FLTCH”), moved to disqualify SLK as Trustee’s counsel in this case based on its review of the Relativity database.19 According to the THI Receiver and FLTCH, the Court should disqualify SLK because the firm: (1) surreptitiously gained access to documents that are privileged; and (2) has gained an informational or tactical advantage as a result of having improperly obtained access to privileged information.20

Conclusions of Law

The THI Receiver and FLTCH correctly state the test for whether SLK should be disqualified as Trustee’s counsel. The THI Receiver and FLTCH bear the burden of proving that the Trustee’s counsel actually obtained an informational or tactical advantage as a result of gaining access — whether surreptitiously or not — to privileged information.21 The THI Receiver and FLTCH, however, fall woefully short of satisfying either of the two prongs necessary for disqualification.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

GEN. ACC. v. Borg-Warner Acceptance Corp.
483 So. 2d 505 (District Court of Appeal of Florida, 1986)
Atlas Air, Inc. v. GREENBERG TRAURIG, PA
997 So. 2d 1117 (District Court of Appeal of Florida, 2008)
In Re Jet 1 Center, Inc.
310 B.R. 649 (M.D. Florida, 2004)
In re Fundamental Long Term Care, Inc.
489 B.R. 451 (M.D. Florida, 2013)

Cite This Page — Counsel Stack

Bluebook (online)
530 B.R. 816, 2015 Bankr. LEXIS 1846, 2015 WL 3473474, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-fundamental-long-term-care-inc-flmb-2015.