Email in the legal profession has been around for about twenty years, now, and has, for many lawyers and clients, become the primary form of communication. Email has always been a bit of a trap for people who are generally careful writers, as its often casual nature leads writers to ignore grammar rules and other writing conventions.
While our use of email still has many flaws, we’re getting better. Most sophisticated businesspeople understand that emails in a professional setting should be written in a professional way. And many people now understand the first rule of email communication: don’t send an email unless you are comfortable with your wife/husband, son/daughter, boss/employee, and grandmother reading that message. Emails are easy to distribute and have a habit of finding their way into the wrong hands. For the most part, we get that now. Mistakes are still made, but the business community has gotten better about thinking twice before pressing “Send.”
THE PRIVILEGED EMAIL YOU SEND TODAY COULD EASILY WIND UP IN THE HANDS OF THE COMPANY’S CREDITORS IF IT EXPERIENCES FINANCIAL DISTRESS IN THE FUTURE
I’m now asking you to think three times. The attorney/client privilege is well known and frequently relied on by lawyers and their clients to communicate sensitive matters knowing that their communication will be protected. However, in the context of a bankruptcy, this protection may not be fully available. In many bankruptcy cases, creditors of the estate, often working through an official committee of unsecured creditors, will end up owning certain litigation rights such as the right to pursue officers and directors for breach of fiduciary duties. These litigation rights frequently include derivative and similar causes of action owned by the debtor company. This acquisition of rights by creditors is accomplished either through negotiation in the context of a plan of reorganization or liquidation, or by the creditors asking the bankruptcy court to assign them those rights (because it would be futile to ask debtor’s counsel to pursue claims against the very people who hired them). Sophisticated officers and directors know this going into a restructuring and are aware that creditors will be scrutinizing their past actions.
BEFORE YOU PRESS “SEND,” THINK THREE TIMES
What they don’t realize (and what many corporate and even litigation attorneys don’t realize) is that most courts will hold that when a debtor’s causes of action are transferred to creditors in a bankruptcy case, so are the attorney/client privilege rights associated with those causes of action. And since the client owns the attorney/client privilege, those creditors investigating the actions of the officers and directors will have the right to waive that privilege, obtain the privileged documents, and use those documents to pursue their litigation. Businesspeople and their counsel should be aware that the privileged email they send today, when the company is healthy, could easily wind up in the hands of the company’s creditors years down the road if the company experiences financial distress.
So, before you press “Send,” think three times.