TRUSTEES: THE ABILITY TO WAIVE THE DEBTOR'S ATTORNEY / CLIENT PRIVILEGE

By
Ralph McCullough,
with Chris Whelchel and Sharyn Epley

Introduction

"Outside the context of a bankruptcy proceeding, it is clear that the attorney-client privilege

belongs to the client alone." (1) "However, upon the filing of a bankruptcy petition, the relationship between the attorney and his client changes as the Bankruptcy Code provides for the appointment of a trustee who succeeds to many of the interests of the debtor." (2) Based upon this concept, many bankruptcy trustees have advanced the theory that they may, in fulfilling their duties under the Bankruptcy Code, unilaterally waive the debtor's attorney client privilege. By waving the attorney-client privilege, the trustee can effectively complete his discovery process and abide by the rules provided in the bankruptcy code. Therefore, the waiver of the attorney-client privilege will allow the trustee to expedite his assigned tasks and serve legal efficiency.

The attorney-client privilege exists to facilitate free and open communications between the client and the attorney. Such privilege is paramount in our judicial system; free and open communications between the advocate and those who he represents must exist in order to have effective representation. However, the privilege can, and does operate as a barrier to discovering the truth. Nevertheless, the attorney-client privilege only applies regarding communications made in confidence by privileged persons for the purpose of obtaining legal assistance, so outside and casual conversations are not covered by the privilege. (3) At its core, the privilege protects the vulnerable party from producing documents which otherwise are damaging to their case. In recognizing this dilemma, Courts can refuse to apply the privilege's cloak of protection in certain instances that perpetuate a criminal act, such as fraud, or to make disclosures necessary to the client's representation. (4) Invoking the attorney-client privilege can be particularly damaging to the trustee because it prevents the trustee from fully investigating the debtor's claim. These exceptions sometimes cover the trustee's needs, such as when the debtor's attorney must reveal that the debtor is attempting to fraudulently conceal assets, but often the attorney is unaware of the wrongdoing, or causes the wrongdoing, leaving the trustee in a bind and unable to complete his investigation and evaluation of the debtor. Therefore, in ceratin situations, it is critical that the bankruptcy trustee, in fulfilling their duties assigned by the bankruptcy code, have the power to unilaterally waive the attorney-client privilege.

This article first discusses why the trustee needs the power to unilaterally waive the debtor's attorney-client privileges. Next, the article discusses whether the trustee has the power to unilaterally waive the debtor's attorney client privilege in order to eliminate the privilege's barrier of protection which denies the trustee the ability to carry out their duties set forth in the bankruptcy code. Because it is well established that the attorney-client privilege attaches to corporations as well as individuals, the article explores the trustee's waiver for an individual debtor, and for a corporate debtor.

Finally, the article reviews the three methods bankruptcy courts have taken in determining whether the trustee can unilaterally waive the debtor's attorney-client privileges. This article summarily rejects cases that unilaterally waive and bar waiver of the attorney-client privilege in favor of a line of cases in which courts have effectively balanced the interests of the debtors with the duties of the trustee on an individual, case-by-case basis.

I. Why give Trustee's the power?

Why does a bankruptcy trustee need to waive the debtor's attorney-client privilege? As will be discussed, answering this underlying question is central to determining whether the trustee can unilaterally waive the debtor's privileges. Some of the more noted reasons are to assess whether the debtor has a pre-petition civil action against a third party such as an insurance company for bad faith refusal to settle claims. Also, the trustee, in the 2004 meetings, may suspect the debtor of attempting to fraudulently conceal estate assets. Concealment could have disastrous implications in bankruptcy cases, by not only preventing creditors from collecting, but also potentially leading to separate criminal charges.

Lifting the privilege's protection can expose the debtor to potential harm by hindering communication between attorney and client, especially when the trustee and the debtor are in an adversarial relationship, or when the debtor's interest must not only be preserved, but promoted as well. This potential blockade to effective representation, must be balanced against the trustee's ability to carry out their duties pursuant to the Bankruptcy Code in determining whether the trustee can unilaterally waive the individual debtor's attorney-client privileges.

In the context of the corporate debtor, the United States Supreme Court in, Commodity Futures Trading Comm'n v. Weintraub, (5) accepted the argument that trustees, in advancing their duties under the Bankruptcy Code, may unilaterally waive the corporate debtors' attorney client privilege. Because the trustee is "accountable for all property received" (6) and is required to maximize the estate's value, (7) and effectively operates the corporation during reorganization, the trustee plays a role similar to that of the corporation's management, during the reorganization. (8) Because the corporate directors fail to retain any managerial power in a bankruptcy reorganization, management also should not retain control over the attorney-client privilege. (9) Thus, the bankruptcy trustee should also control the corporation's attorney-client privilege regarding pre and post bankruptcy communications. (10)

However, because "the Supreme Court was very careful not to extend its holding in Weintraub to that of an individual debtor," (11) outside the context of a corporate-debtor, there currently exits a split of authority as to whether the bankruptcy trustee can waive the debtors attorney-client privilege. (12) Because a corporation must speak through agents, during insolvency the bankruptcy trustee in essence becomes a sort of agent, effectively speaking for the agent. An individual differs from a corporation because an individual can always act for herself, whether during solvency or insolvency, so control over an individual's attorney-client privilege cannot pass to the trustee using this clear cut corporate agency theory.

This uncertainty has led courts to take three different approaches to determine whether the trustee can unilaterally waive the debtor's attorney-client privilege. "At one end of the spectrum are cases" where the bankruptcy court held the bankruptcy trustee, as a matter of law, superseded the attorney-client privilege of an individual debtor. (13) Conversely, at the other end of the spectrum are cases providing that the attorney-client privilege cannot be waived by the trustee on the debtor's behalf. (14)

"In addition, a few federal courts have adopted a middle-of-the-line approach and have held that the particular circumstances of the case must be examined to determine if the bankruptcy trustee has the power to waive the debtor's attorney-client privilege over his objection." (15) As illustrated in this article, this mainstream approach is pursuant to public interest in protecting the debtor from harm, as well as insuring trustees have a mechanism for exercising their duties provided in the Bankruptcy Code. For these reasons, future courts, in addressing this issue, should follow the balancing approach to ensure both the protection of the debtor's confidentiality and allow the bankruptcy trustee to fully exercise his duties as provided in the bankruptcy code.

II. The Corporate Debtor

The Supreme Court in, Commodity Futures Trading Commission v. Weintraub et al., (16)

determined that a trustee could unilaterally waive a corporation's attorney-client privileges. The decision created an absolute rule allowing a trustee to assume the corporate-debtors confidential information. The Supreme Court has sustained Weintraub for over fifteen (15) years, evidencing that the Court considers the waiver issue for corporate debtors settled law.

In Weintraub, the Commodity Futures Trading Commission ("Commission") filed a complaint against Chicago Discount Commodity Brokers ("CDCB"), alleging violations of the Commodity Exchange Act. (17) That same day the director of CDCB entered into an agreement with the Commission for the appointment of a receiver to file for CDCB's Chapter 7 liquidation. The bankruptcy court then appointed the receiver as the Chapter 7 trustee. During the investigation the Commission sought to depose CDCB's former corporate counsel, Weintraub. During the deposition, Weintraub refused to answer several questions and asserted CBCD's attorney-client privilege. (18) The Commission then motioned to compel Weintraub to answer and also asked the Chapter 7 trustee to waive CBCD's attorney-client privilege, so the trustee could also compel Weintraub's answer. The Commission asserted that by beginning to enter bankruptcy the trustee now maintained the power to control all of the corporation's rights, including the right to assert or waive the attorney-client privilege. The United States Magistrate compelled Weintraub's testimony and held that the trustee was "successor in interest of all assets, rights and privileges of CDCB, including the attorney-client privilege at issue herein." (19)

As previously stated, The Supreme Court held that the Bankruptcy Code's total displacement of all corporate responsibilities from the director to the trustee, upon entering bankruptcy holds that the trustee must also control the power to unilaterally waive the corporation's attorney-client privilege. (20) If the director maintained control over the privilege, the director would only serve to defeat bankruptcy law and prohibit the trustee from investigating potential causes of action against the debtor corporation. (21) "Without control over the privilege, the trustee might not be able to discover hidden assets or looting schemes, and therefore might not be able to make the necessary showing" of fraud or other causes of action to defeat the attorney-client privilege. (22)

In addition, the Court held that the trustee should obtain control over the attorney-client privilege because the trustee can equitably balance the needs of creditors with the needs of the debtor. The trustee's fiduciary duty extends to both creditors and shareholders, even though in bankruptcy the creditor's needs outweigh those of the shareholders. (23) Therefore, the trustee, in deciding whether or not to waive the corporation's attorney-client privilege will weigh both the shareholders's needs and the debtor's needs before making an equitable decision. (24)

Logically, the trustee should assume control over the assertion of the attorney-client privilege. The bankruptcy system should move swiftly and follow the bankruptcy code to provide just compensation, protection and relief for all debtors and creditors. First, the code does not expressly forbid the trustee from asserting this single power or even mention the debtor corporation's attorney-client privilege. Instead, the trustee expressly receives all of the corporation's rights and responsibilities once the company enters bankruptcy and presumably also the power to waive the corporation's attorney-client privilege. (25)

In addition, the legislative history provides that Congress had no intent to leave the power to assert the attorney-client privilege with the corporation's directors. (26) Congress actually specifically "den[ied] any attempt to create an attorney-client privilege assertable on behalf of the debtor against the trustee." (27) Further, Congress stated that "[t}he extent to which the attorney client privilege is valid against the trustee is unclear under current law and is left to be determined by the courts on a case by case basis." (28)

Moreover, giving the trustee control over the debtor corporation's attorney client privilege will not destroy the sanctity of confidential attorney-client communications. (29) The trustee's control over the privilege simply places the insolvent corporation in the same position as a solvent corporation whose subsequent purchaser or management waive prior management's attorney-client privilege as to earlier communications. (30) Although management of an insolvent corporation may still be wary of speaking with counsel for fear of loss of attorney-client privilege, they now are in the same position as solvent corporations with respect to the privilege. In keeping with notions of fairness and justice, insolvent corporations do not deserve special treatment with respect to attorney-client privilege, simply because of their insolvency status. (31) Therefore, by giving the trustee the privilege, the trustee can protect attorney-client communications, while ensuring the fair treatment of all corporations, both the insolvent and the solvent.

Even over the corporate debtor's objection, a bankruptcy trustee may waive the corporation's attorney-client privilege. (32) In short, the Chapter 7 trustee's power to waive the corporate debtor's privilege arises because the trustee's role includes fiduciary and management duties toward the company. (33) The Weintraub court reasoned that decisions such as waiving privileges should be made by "the actor whose closely resemble those of [a corporation's] management," which is the trustee. (34)

III. The Individual Debtor

There is a plethora of case law available which asserts the traditional notions of the attorney client privilege, and that the right to the privilege's protection rests exclusively with the client. While such rule generally rings true, those cases do not address or account for the unique circumstances surrounding a bankruptcy case. (35) Because of the lack of statutory or case law, trustees inevitably face the complex problem of whether or not to attempt to unilaterally waive individual debtor's attorney-client privileges, and the difficulty in forming an argument without statutory authority, or Supreme Court precedent.

Most of the cases addressing the issue of attorney client privilege waiver do so in the context of a corporate debtor. Because "The individual debtor who seeks legal advice on his own behalf is...fundamentally different from the corporate debtor's manager," (36) the Supreme Court's decision in Weintraub (37) does not provide a basis for determining whether a trustee can unilaterally waive the individual debtor's attorney-client privileges. Thus, the only Supreme Court guideline is only applicable to corporate debtors and not to individual debtors.

Despite the lack of precedent Bankruptcy Courts began to address the waiver issue, and in doing so came to contrasting decisions. Some courts were fearful to allow a trustee to unilaterally waive the individual debtor's attorney client privilege, and issued opinions precluding trustees from assuming the debtor's privileges. (38)Other courts took positions at the other end of the spectrum and allowed trustees to always assume the debtor's attorney-client privileges. (39) Because the Supreme Court has not addressed if either of these methods properly determined whether the trustee obtains waiver power over the attorney client privilege, future courts still continue to be influenced by previous opinions. Therefore, both opposing opinions will be discussed throughout this article.

Nevertheless, many courts have recently begun to move away from these rigid and absolute decisions. (40)Emerging as the most logical and fair test is the "middle-of-the-line" approach, whereby courts conduct an inquiry which requires balancing the interests of all parties in a full and frank discussion of the attorney-client relationship, and weighs the harm to the debtor upon such a disclosure against the trustee's duty to maximize the value of the debtor's estate and vigorously represent the interests of the estate. (41) This test was first formed in In Re Bazemore, and has grown, as evidenced through subsequent decisions, into the most popular method of determining when a trustee can unilaterally waive the individual debtor's attorney-client privilege. (42)

This article will address all three approaches, and in doing so, will note the deficiencies in the two approaches that attempt to form an absolute rule, and preclude individual case determinations. Further, the article supports the logical, and flexible "middle-of-the-ground approach" which allows the court to make flexible decisions after evaluating the potential harm to the debtor, and the ability of the trustee to carry out his duties provided for in the Bankruptcy Code. A. Absolute rule allowing a trustee to waive the debtor's attorney client privilege

At one end of the spectrum are cases like In re Smith, where the bankruptcy court held the bankruptcy trustee, as a matter of law, could waive an individual Chapter 7 debtor's attorney client privilege. (43) In Smith, the court entered an order for a Rule 205 examination, pursuant to B.R. 205. (44) One creditor had secured a $4,000,000.00 judgement against Smith as a result of a prior State Court wrongful death action. Because of this large judgement, the debtor commenced this Chapter 7 proceeding. However, the creditor felt that the debtor had assets that the debtor was not presenting before the trustee. Specifically, the creditor was seeking to determine if the debtor had any possible claims against the debtor's insurance carrier for bad faith refusal to settle, or for legal malpractice. During the examination, the debtor refused to answer several questions and invoked his attorney client privilege on the advice of his lawyer. The creditor then filed a motion to compel. (45)

The Smith court held that the trustee and the creditor were empowered to determine whether the debtor maintained the possibility of any potential action that could result in a recovery for the debtor's estate, and inter alia for the creditor. (46) In determining whether the attorney-client privilege protected the debtor from answering questions in a Rule 205 examination, the court found that "any attorney-client privilege which the debtor had passes by operation of law to the bankruptcy trustee." (47) Public policy reasons also support this approach realizing the trustee's need to make a fair disposition of the debtor's assets. However, public policy also weakens this argument as the waiver of the attorney-client privilege risks hindering attorney client communications. Nevertheless, this case holds that a trustee could unilaterally waive all of the debtor's attorney-client privileges and compel the debtor to answer the questions posed in the 205 examination. The broad language in this case appears to universally give the trustee an absolute privilege to eliminate a Chapter 7 debtor's attorney-client privilege rights without regard to the individual circumstances surrounding each case. In addition, this technique fails to address the potential harm the loss of the privilege will cause the debtor, public policy, or even the possibility of other less obtrusive ways of obtaining confidential information. (48)

This first rational is sometimes called the "privilege as property" method, because the attorney client privilege simply passes to the trustee as part of the estate's non-exempt property, so it can be waived at the trustee's discretion. (49) However, most scholars do not adhere to this rule because the rule relies on the control of property. This concept could lead to discrimination because in some bankruptcy cases the trustee gains control of the property, and the attorney client privilege, while in other cases the debtor maintains control of the property and the privilege. (50)

B. Absolute bar against the Trustee having the power to unilaterally waive the individual debtor's attorney client privilege.

The attorney client privilege serves to protect clients and put them at ease so they feel comfortable with and receive the best possible representation. Naturally, the court is extremely hesitant in disturbing or altering a client's attorney client privilege. This hesitancy naturally applies to debtor clients as well. After Weintraub, courts were initially reluctant to extend the Weintraub doctrine to an individual debtor situation for fear of disturbing the client's attorney client privilege. Two events from this case led courts to place a bar against the trustee from ever wielding such power; the language in Weintraub, and the lack of similarities between the corporate debtor and the individual debtor. (51)

McClarty v. Gudenau illustrates both of these events. In McClarty, the United States District Court for the Eastern District of Michigan, Southern Division, held that a plaintiff trustee could never waive the debtor's attorney client privilege in an attempt to compel production of documents in an action for legal malpractice, and to move for sanctions against the defendants.

In McClarty, the plaintiff trustee served a request upon defendants to produce defendants' entire file on the case in which the malpractice allegedly occurred. The defendants responded that they would be willing to produce the entire file provided that they receive authorization from the plaintiff's ward in bankruptcy, the plaintiff in the underlying action, and her insurance carrier. Implicitly stated in the defendants' letter, and explicitly stated in the defendants' briefs, was the defendants denial to produce the file, on grounds of the attorney-client privilege. (52)

In response to the defendants' refusal to produce the documents, plaintiff filed a motion to compel. Plaintiff argued that "the Trustee stands in stead of [Debtor] as client and clients are universally entitled to see their file!" (53) The plaintiff insisted that once debtor entered bankruptcy, the trustee assumes all of the debtor's rights, including the right to waive the attorney client privilege. In addition the trustee implictly noted that the refusal of production prohibited the trustee from completing his duties pursuant to the bankruptcy code. Of particular interest, plaintiff, faced with the familiar and burdensome task of arguing in support of the trustee's ability to waive the debtor's attorney-client privilege without case law addressing the issue, cited no case law in support of the trustee's proposition that the privilege passes to the trustee. (54)

In determining that the trustee could not waive the debtor's attorney client privilege, the court relied on In Re Hunt, (55) a decision concerning the trustee's ability to waive the corporate debtor's privilege and therefore a decision not on point with the current situation in McClarty. (56) The McClarty court recognized the issues in both cases were consistent as to "whether the Independent Trustees can step into the [debtor's] shoes and direct the attorneys to [decline to assert the attorney-client privilege on the clients' behalf]." (57)However, Hunt, specifically addressed the trustee's ability to waive the corporate debtor's attorney client privilege and did not consider the effect or possible necessity of a trustee's waiver of the attorney client privilege on an individual debtor.

Instead of forming precedent for trustees to follow in later individual debtor actions, the McClarty court simply held that individuals are distinctly unique from corporations, so the trustee's ability to waive the corporation's attorney client privilege, should not extend to individuals. McClarty simply contrasted the individual and the corporate entity, without providing significant analysis or justification for their unwillingness to specifically investigate the possibility of waiving an individual debtors attorney client privilege. Specifically, the court held,that a corporate manager does not expect to retain control over the privilege in perpetuity, whereas an individual does reasonably expect to retain such control over her own life, along with the individual debtor's greater interest in privacy, provides convincing reasons to distinguish the individual debtor from the corporate debtor.

So, a trustee could waive a corporation's attorney client privilege, because of a lack of expectation in the privilege, while the trustee could not waive an individual 's privilege because that person always expects to maintain his attorney client privilege. (58) The court further held the primary purpose of the attorney-client privilege is to facilitate free and open communications between a client and a lawyer. The court believed that if a client knows that should she fall on hard financial times, her privilege may be unilaterally waived by a stranger who is appointed to serve as her Trustee in bankruptcy, and in her eyes may favor her creditors and the assets of her estate more than her. In instances such as these, the purpose of the attorney-client privilege and a primary obligation of our legal system may be eroded. "This policy consideration justifies a rule that preserves the control of the privilege to the debtor." (59) Thus, "it is for the debtor in the first instance, and not the Trustee or this Court, to determine whether to waive her privilege with her former attorneys." (60)

The McClarty court's broad language therefore completely precludes a trustee from waiving the individual debtor's attorney-client privilege. However, the McClarty court's decision is fundamentally flawed for a variety of reasons. First, the court incorrectly compares and contrasts individual and corporate debtors, holding that there are fundamental expectation differences concerning the attorney client privilege between the two classes of debtors. Each person, whether acting on their own behalf, or on their company's behalf, will have the same expectations and beliefs concerning the attorney client privilege. Secondly, the court implicitly assumes the individual debtor will cooperate with the trustee's request for a waiver of the privilege when such waiver would benefit the debtor. In essence McClarty holds that a trustee would never actually need to resort to waiving the debtor's attorney-client privilege, because the debtor will always follow the trustee's recommendations. Unfortunately, some debtors try to conceal things from the court, or simply may not trust or believe the trustee, so they may be reluctant to follow the trustee's recommendations. In addition, the individual debtor may be incapable of determining when it is in their best interest to waive their attorney-client privilege. Also, although it appears that a trustee may favor a creditor over a debtor, trustees do not because all trustees are required to act in equity. Trustees must maintain a fiduciary duty with both creditors and debtors, even though in bankruptcy a creditor's needs will usually outweigh the debtor's needs. Finally, the debtor must not always retain the attorney client privilege because the debtor will also obtain the ability to use the privilege as a shield for concealing estate assets and defrauding the court. (61) Debtors often try to defraud the court, so the trustee should be permitted to investigate all potential hidden assets. In these instances, it would be essential for the trustee to obtain the right to waive the attorney client privilege to complete his investigative duties. Therefore, there are certain instances where the trustee must be able to step in and waive the attorney client privilege, in order to complete his duties as prescribed in the bankruptcy code and look out for the best interests of the debtor.

C. The Balancing Approach (62)

In Re Bazemore is the seminal case which formed the "middle-ground" approach. This approach evaluates the individual merits of each case, and employs a balancing test before determining whether the trustee has the ability to unilaterally waive the individual debtor's attorney client privilege (63) Bazemore's introduction of the balance test signaled a new method of dealing with the issue in the context of the individual debtor. In short, the balancing test entails the court to inquire into the potential harm to the individual debtor, and the ability of the trustee to carry out his statutory duties. The court then balances these two interests. Where the debtor cannot be harmed, the trustee is allowed to unilaterally waive the debtor's attorney-client privileges.

The issue presented to the Bazemore court was whether the trustee in a Chapter 7 individual bankruptcy case has the authority to waive the attorney-client privilege. In the case the Bazemores had a $50, 0000 judgement against them from an automobile accident, in which their insurer and the insurer's lawyer provided to the Bazemores by the insurer refused the plaintiffs offers to settle. After the verdict, the same lawyer assisted the Bazemore's in filing their Chapter 7 petition. The lawyer then refused to answer the trustee's questions concerning his representation of the debtors in the earlier state court action asserting his attorney client privilege. Thus, the trustee was blocked from investigating to see if the Bazemeor's had a potential claim against the lawyer or the insurance company for bad faith refusal to settle. Such a claim would be a large asset in the Bazemore's bankruptcy estate. (64)

In seeking to maximize the value of the estate, the trustee must have full access to the estate, while balancing the attorney client privilege's purpose of protecting the debtor from harm and protecting the public policy of maintaining free dialog between the lawyer and the client. In this instance, no more harm could possibly come to the Bazemores,(they already had to declare bankruptcy) so the waiver will not intrude on attorney and client communications or on the exercise of their legal rights. In this case, the attorney client privilege was not protecting the client, but being used as a shield for the attorney, to possibly avoid a future claim. The attorney client privilege was and has never been designed to protect attorneys such as this one. Because allowing the trustee to unilaterally waive the Bazemore's attorney-client privilege would not harm the Bazemores, (and might actually benefit them) the policies against granting the trustee such power was not present, thereby allowing the trustee to assume the debtor's attorney-client privilege.

In re Miller (65) also illustrates the growing trend of courts employing a "middle-ground" approach. In In re Miller, the trustee attempted to waive the individual debtors' attorney-client privilege and filed a motion to compel discovery from the debtors' former counsel after the debtors refused produce the documents. The court held the trustee has the ability to waive the debtors' attorney client privilege, and granted the trustee's motion to compel discovery.

In Miller, the debtors, who were represented by legal counsel, filed for relief under Chapter 7 of the United States Bankruptcy Code. Not long thereafter, the Chapter 7 trustee examined the Debtors in accordance with 11 U.S.C. § 341(a). (66) At this examination, the trustee discovered that the debtors had failed to disclose in their bankruptcy schedules a potential personal injury claim. The debtors were therefore requested by the trustee to amend their bankruptcy schedules to reflect this potential claim. In addition, the debtors were advised that they were legally obligated to immediately turnover any monies that they received as a result of their personal injury claim to the trustee. (67)

After the debtors had received their bankruptcy discharge, the debtors received an insurance settlement on her personal injury claim (approximately $9,500). However, the debtors, in contravention to the Trustee's directive failed to turnover these funds, and instead exhausted the insurance proceeds on personal matters. As a consequence, the trustee brought an adversary complaint to revoke the debtors' discharge on the basis that the debtors, by failing to turnover the insurance proceeds, intended to defraud the trustee. (68)

Sometime thereafter, in order to gather the information necessary to prove the requirements of the Bankruptcy Code sections providing when a court shall revoke a discharge, (69) the trustee brought a Motion to compel discovery from the debtors' former legal counsel. The reason stated by the Trustee for requiring such information was to determine if the debtors' were "aware that it was unlawful to embark upon the cause upon which they set." (70) Stated otherwise, the trustee was attempting to determine, through the aid of records and other information, whether the debtors knew that they were fraudulently concealing assets.

The debtors objected to the trustee's discovery request on the grounds that the information the trustee sought was protected from disclosure by the attorney-client privilege. In response, the trustee raised two issues: First, the trustee contended that the debtors were not entitled to assert the attorney-client privilege because he, as the bankruptcy trustee, is actually the holder of the debtors' attorney-client privilege, for once a debtor enters bankruptcy the trustee effectively steps into the debtor's shoes and acquires all of his rights and privileges concerning the proceeding, including the attorney client privilege. In the alternative, the trustee asserted that even if he is not the holder of the debtors' attorney-client privilege, the "crime-fraud"exception to the attorney-client privilege negated the debtors' entitlement to claim the privilege. (71)

In deciding the first issue, the Miller court, upon examining each of the three approaches used by previous courts chose not to adopt a bright-line standard for determining whether a trustee obtains the power to unilaterally waive the individual debtor's attorney-client privilege. Instead, the court concluded that the balancing approach, "in which the individual circumstances of the case are considered...seemed to conform most closely with the provisions of the Bankruptcy Code." (72) This "middle-of-the-ground" decision allowed the court not only to confer an opinion based on the individual facts of the case, but to also evaluate the effect the Bankruptcy Code has on the traditional attorney-client privilege. After evaluating the facts of present case, the Miller court determined the trustee does have the power to unilaterally waive the individual debtor's attorney-client privileges. And in waiving the privilege, the trustee can effectively complete his assigned duties pursuant to the bankruptcy code. (73)

In eliminating the brightline approach that gives the trustee the unequivocal power to waive the debtor's attorney-client privilege, the court examined the powers given to the trustee through the Bankruptcy Code. The court noted that a trustee is conferred with a large degree of power in order to fulfill his duties as set forth in the Bankruptcy Code. "Nevertheless, the trustee's powers, vis-a-vis the debtor, are not limitless." (74)

By way of illustration, the Bankruptcy Code confers absolutely no power upon the trustee to make decisions concerning how a debtor manages his every day affairs such as where the debtor will live or work. (75) Instead, pursuant to §§ 323(a) and 541(a) of the Bankruptcy Code, the trustee's powers are limited to that of a representative of all the property that comes into a debtor's bankruptcy estate. In essence, the trustee's power in relationship to the debtor is limited to that of a transferee of all of the property included in the debtor's bankruptcy estate. (76)

Because a person's right to assert the attorney-client privilege does not constitute such an alienable commodity, this court found that a trustee is not conferred the absolute right to waive a debtor's attorney-client privilege. Such an absolute right "does not appear to comport with the overall structure of the Bankruptcy Code." (77)

Nevertheless, in eliminating the absolute bar against the trustee waiving the debtor's attorney-client privileges, the court relied on the Bankruptcy Code's statutory scheme which the trustee can readily obtain needed information. "At the same time, if the trustee were entirely precluded from obtaining information held in confidence by the debtor's attorney, the trustee's ability to perform his duties under the Bankruptcy Code could, in many cases be severely hampered." (78) The Bankruptcy Code expressly provides mechanisms which the trustee has in order to carry out the trustee's duties.

For example, the Bankruptcy Code imposes upon a debtor the duty to "cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties under the Bankruptcy Code." (79) Such duties may even include surrendering to the trustee "any recorded information, including books, documents, records, and papers, relating to property of the estate" (80) because trustee examinations are for the "purpose of discovering assets and unearthing frauds." (81)

Therefore, based upon these statutorily imposed obligations, it seems apparent that Congress envisioned a scheme whereby the attorney-client privilege, which is simply a judicially created doctrine, would give way, in appropriate situations, to the needs of the bankruptcy trustee to carry through with his duties under the Bankruptcy Code. (82)

So naturally, the balancing approach sets the perfect balance between Congress's intentions, the Bankruptcy Code and the trsutee's duties within the code and the needs and potential harm to the client-debtors.

Thus, we are inevitably led to the gravamen of the issue; what constitutes an "appropriate situation" in which the bankruptcy trustee can unilaterally waive the individual debtor's attorney client privilege in order to carry out the trustee's statutory duties as provided in the Bankruptcy Code? In short, the inquiry requires balancing all of the interests involved in a full and frank discussion of the attorney-client relationship, including the potential harm to the debtor upon a disclosure, and the trustee's duty to maximize the value of the debtor's estate and represent the interests of the estate. (83)

The Miller court, after evaluating the individual facts of the case before it and refusing to employ an absolute rule either barring or allowing the trustee to waive the debtors' attorney-client privileges, determined that the case before it did not provide an "appropriate situation" in which the bankruptcy trustee could waive the individual debtors' attorney-client privilege. Of significance in the Miller court's decision was in balancing the facts, the court realized the significance of the trustee's and the debtor's adversarial relationship. As a consequence, "the [t]rustee's assumption of the Debtor's attorney-client privilege could potentially cause the Debtors a great deal of harm, as the Trustee's sole purpose for seeking to waive the Debtors' attorney-client privilege is to use that information directly against" (84) the debtors. Also, given the debtors' potential criminal prosecutions, the degree of harm "becomes particularly acute." (85) In this case, the debtors had just cause for fearing that the trustee would not act in the debtor's best interests.

While the trustee in Miller, could not unilaterally waive the debtors' attorney-client privileges, Miller, unlike some of the preceding cases, evidences some court's refusal to place an absolute bar against a trustee assuming such privilege. Miller based its middle-ground approach on the statutory obligations and duties placed on the trustee by the Bankruptcy Court. In doing so, the Miller court's decision effectively weighed the burden placed on the trustee, attempting to sufficiently fulfill his duties as provided in the bankruptcy code and investigate the matter, against the blockade of client protection caused by the attorney client privilege. This decision also evidences a trend toward evaluating these issues on an individual, case-by-case basis. Therefore, all bankruptcy courts have begun to heed the trend started by In Re Bazemore and have found that the determination of whether the trustee can waive the attorney client privilege, should be made on a fact specific, case by case basis. (86)

IV. Conclusion

The language in the In Re Miller decision best summarizes court's increasing reliance on the balancing test to determine whether an individual debtor's attorney-client privilege can be unilaterally waived by a bankruptcy trustee:

Upon examining each of these approaches, this Court concludes that the latter approach, in which the individual circumstances of the case are considered, is the proper approach as the former two approaches, being absolute in nature, do not take into consideration the many varied situations that are involved in an individual Chapter 7 case. In addition,...a middle of the line approach seems to conform most closely with the provisions of the Bankruptcy Code. (87)

The balancing approach best allows trustees to fully investigate the debtors and fulfill their duties as stated in the code, while maintaining the protections guaranteed by the attorney client privilege. This approach still protects the debtors from all potential harms and ensures free flowing communication between the lawyer and the client. The approach also gives the trustee a mechanism to prevent fraud and to sometimes aid the debtors. Thus, the balancing approach provides the best method to measure the debtor's need for protection against the trustee's duties under the code to determine if and when it is appropriate to waive the attorney client privilege.

Perhaps In Re Ingram, a case ruled upon by the South Carolina Bankruptcy Court, provides a perfect example of how the balancing approach, when properly employed, acts to protect both the individual debtor's and trustee's interests. (88) Of particular interest, the court, following the same line of reasoning as in Bazemore and Miller, specifically stated that when the debtor will not be harmed by lifting the debtor's privileges, the trustee will have the power to unilaterally waive the debtor's attorney client privilege. Of further interest, because I was appointed trustee in the case, I appreciate the frustration a trustee is taxed with when a debtor refuses to waive his attorney client privilege, despite such waiver being in their best interest.

In July, 1993, Trenton B. Ingram ("debtor") was involved in a vehicular collision wherein the car he was driving struck a pedestrian. The car that the debtor was driving was insured by Allstate Insurance Company and Allstate employed an insurance adjuster to represent the debtor in evaluating the claim. Prior to the initiation of a tort suit for the personal injuries, the injured pedestrian offered to settle the case with the debtor if the adjuster would agree to pay the victim $15,000.00, the limit of Allstate's liability coverage. The insurer refused the settlement offer.

In response to Allstate's refusal, the victim initiated a suit against the debtor to recover for medical expenses Plaintiff sustained as a result of her personal injuries. Allstate secured an attorney to represent the debtor in the personal injury suit. Prior to the end of the trial, the victim made additional offers to the debtor to settle the case. Of particular interest, all of the Plaintiff's offers to settle were consistent with, and did not exceed her medical expenses. Allstate's attorney continued to reject all of the victim's offers. A judgment was returned against the Debtor for $150,000.00, exceeding the Plaintiff's settlement offer by approximately $135,000.00.

In response to the large judgment, the Bankruptcy Court entered its Order for Relief under Chapter 7 of the United States Bankruptcy Code, placing the Debtor into an involuntary bankruptcy, and I was appointed trustee. Property of the debtor's estate consisted solely of the debtor's claim against the insurance company.

Specifically, I was appointed on August 20, 1998. The debtor's First Meeting of Creditor's pursuant to 11 U.S.C. §341 (the "First Meeting") was held on October 9, 1998. The debtor failed to attend the First Meeting therefore, I continued the First Meeting until November 6, 1998. I provided the debtor with notice of the continued First Meeting. The debtor did not attend the continued First Meeting. On November 17,1998, I scheduled an examination of the debtor pursuant to Bankr. Rule 2004. A subpoena was issued compelling the debtor's attendance. The debtor did not appear. Therefore, I rescheduled the 2004 examination for December 7, 1998. The debtor attended the rescheduled 2004 examination. At this examination, I inquired as to the Debtor's assets and liabilities including a potential claim against Allstate, and concluded that the debtor did have a claim against Allstate for the bad faith handling of the state court action. On October 28, 1998, I filed an Adversary Proceeding, Adv. Proc. No. 98-80251-W, alleging several causes of action for recovery of a bad faith insurance claim. Further, I submitted written demands on Allstate's attorneys for the turnover of the debtor's client file. Allstate's attorneys refused the requests, citing that the information requested was protected by the attorney client privilege.

As evidenced by the debtor's continual absence from the examination hearings, and countless other attempts to reach the debtor, the debtor was, to say the least, less than willing to cooperate with the bad faith claim, despite such cooperation being in the debtor's best interest. In fact, during this time the insurer was in continual contact with the debtor. The debtor was convinced his interests would be best served by protecting the files pursuant to the attorney client privilege. Once again,

lifting the privilege, and production of the files, would only help the debtor. There was no possibility of the debtor's rights being diminished in any way.

Citing the aforementioned reasons, and following the same reasoning as the Miller court, the South Carolina Bankruptcy Court allowed the debtor's attorney-client file to be released without the debtor's approval. In response to this decision, the insurance company appealed, however, prior to outcome of the appeal, the parties settled. While the case disappeared from any court dockets, its legacy as an example of why the trustee should be allowed, in proper situations, the power to unilaterally waive the debtor's attorney client privileges, remains. Surely, similar situations have occurred, and continue to arise throughout the United States. In order to act in the best interests of both the debtor and the trustee, bankruptcy courts should employ the balancing approach test to determine whether the trustee can unilaterally waive the individual debtor's attorney client privileges.

1. Moore v. Eason (In Re Bazemore), 216 B.R. 1020, 1023 (Bankr. S.D. Ga. 1998).

2. In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355 (N.D. Ohio Feb 1, 2000) (citing Gresk v. Brown [ In Re Brown], 227 B.R. 875, 879 (Bankr. S.C. Ind. 1998).

3. See Ct. App. R.407, R. 1.6; Model Rule 1.6- take your pick

4. See Ct. App. R.407, R. 1.6; Model Rule 1.6- take your pick

5. See Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 356, 105 S.Ct. 1986, 1995 (1985).

6. U.S.C.A. §§ 323, 541.

7. See U.S.C.A. §704(1).

8. See Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 353, 105 S.Ct. 1986, 1995(1985).

9. See Id.

10. Id.

11. See Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 356-357, 105 S.Ct. 1986, 1995 (1985).(stating, in relevant part: "our holding today has no bearing on the problem of individual bankruptcy, which we have no reason to address in this case. As we have stated, a corporation, as an inanimate entity, must act through agents. When the corporation is solvent, the agent that controls the corporation's management. Under our holding today, this power passes to the trustee because the trustee's functions are more closely analogous to those of management outside of bankruptcy than are the functions of the debtor's directors. An individual, in contrast, can act for himself; there is no 'management' that controls a solvent individual's attorney-client privilege. If control over that privilege passes to a trustee, it must be under some theory different from the one that we embrace in this case").

12. See In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355, 357 (N.D. Ohio Feb 1, 2000).

13. Id at 357 (citing In Re Smith, 24 B.R. 3, 4 (Bankr. S.D. Fla 1982).

14. Id at 357 (citing In Re Tippy Togs of Miami, Inc., 237 B.R. 236, 239 (Bankr. S.D. Fla. 1999), and In Re Silvio de Lindegg Ocean Developments of America, Inc., 27 B.R. 28, 28 (Bankr. S.D. Fla. 1982)). See also McClarty v. Gudenau, 166 B.R. 101, 102 (E.D. Mich. 1994).

15. Id at 357 (citing Foster v. Hill, 188 F.3d 1259, 1265-1266 (10th Cir. 1999), In Re Rice, 224 B.R. 464, 469 (Bankr. D. Or. 1998), In Re Bazemore, 216 B.R. 1020, 1022-1024 (Bankr. S.D. Ga. 1998).

16. See Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 105 S.Ct. 1986 (1985).

17. See 7 U.S.C.A. §§1 et. seq.

18. In total, Weintraub refused to answer 23 questions.

19. Id. at 346.

20. Id. at 353.

21. Id. at 353 (stating that the corporation's management could use the attorney-client privilege and inhibit detection of misappropriated or diverted funds and insider fraud.).

22. Id. at 354.

23. See Id. at 354-355.

24. See Id. at 354-356.

25. See Commodity Futures Trading Comm'n v. Weintrub, 471 U.S. 343, 350, 105 S.Ct. 1986, (1985).

26. See Id. at 350.

27. In re O.P.M. Leasing Serv. Inc., 13 B.R. 54, 70 (S.D.N.Y. 1981).

28. See Commodity Futures Trading Comm'n v. Weintrub, 471 U.S. 343, 351 105 S.Ct. 1986, (1985) quoting 124 Cong. Rec 32400 (1978) (remarks of Rep. Edwards); id., at 33999 (remarks of Sen. DeConcini).

29. See Id. at 357.

30. Id.

31. Id. (stating that preventing debtor's director from controlling the attorney client privilege does not amount to "economic discrimination").

32. See Commodity Futures Trading Comm'n v. Weintrub, 471 U.S. 343, 105 S.Ct. 1986 (1985).

33. See In Re Bazemore, 216 B.R. 1020, 1023-1024 (Bankr. S.D. Ga. 1998).

34. McClarty v. Gudenau, and Sullivan, Ward, Bone, Tyler & Asher, P.C. , 166 B.R. 101 (E.D. Mich. 1994) (citing Commodity Futures Trading Comm'n v. Weintrub, 471 U.S. 343, 351-352 (1985)).

35. McClarty v. Gudenau, and Sullivan, Ward, Bone, Tyler & Asher, P.C. , 166 B.R. 101 (E.D. Mich. 1994).

36. McClarty v. Gudenau, and Sullivan, Ward, Bone, Tyler & Asher, P.C. , 166 B.R. 101 (E.D. Mich. 1994) (citing In Re Hunt, 153 Bank. 445, 452 (Bankr. N.D. Tex. 1992).

37. See Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 105 S.Ct. 1986 (1985) (stating: "our holding today has no bearing on the problem of individual bankruptcy, which we have no reason to address in this case").

38. See McClarty v. Gudenau, and Sulivan, Ward, Bone, Tyler & Asher, P.C., 166 B.R. 101 (E.D. Mich. 1994); In Re Hunt, 153 B.R. 445 (Bankr. N.D. Tex. 1992).

39. See In Re Smith 24 B.R. 3 (Bankr. S.D. Fla. 1982).

40. See In Re Bazemore, 216 B.R. 1020,(Bankr. S.D. Ga. 1998); In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355 (N.D. Ohio Feb 1, 2000).

41. See In Re Bazemore, 216 B.R. 1020, 1023-1024 (Bankr. S.D. Ga. 1998) (citing Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 105 S.Ct. 1986 (1985)).

42. See In Re Bazemore, 216 B.R. 1020 (Bankr. S.D. Ga. 1998).

43. See In Re Smith, 24 B.R. 3, 4(S.D. Fla. 1982).

44. Rules Bankr.Proc. 205, 11 U.S.C.A.

45. See In Re Smith, 24 B.R. 3, 4(S.D. Fla. 1982).

46. Id. at 4-5.

47. Id. at 5.

48. It is interesting to note that in holding that the attorney-client privilege passes from debtor to trustee upon the debtor's entering bankruptcy, this case only cites cases with corporate debtors as precedent. In essence Smith closes the gap between corporate and individual debtors with regard to this topic.

49. See Julianna M. Thomas, Fifteen Years after Weintraub: Who controls the Individual's Attorney-Client Privilege in Bankruptcy?, 80 B.U.L. 635, 658 (2000).

50. Id. at 659. In addition during Weintruab, the Supreme Court declined to address the privilege is property argument. This tactic significantly weakened the argument and no recent court decisions have utilized this concept.

51. See Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 356, 105 S.Ct. 1986, 1995(1985) ( stating "But our holding today has no bearing on the problem of individual bankruptcy, which we have no reason to address in this case." and that "[a]n individual, in contrast, can act for himself; there is no 'management' that controls a solvent individual's attorney-client privilege.").

52. See McClarty v. Gudenau, and Sullivan, Ward, Bone, Tyler & Asher, P.C. , 166 B.R. 101 (E.D. Mich. 1994).

53. McClarty v. Gudenau, and Sullivan, Ward, Bone, Tyler & Asher, P.C. , 166 B.R. 101 (E.D. Mich. 1994).

54. Id.

55. In Re Hunt, 153 B.R. 445 (Bankr. N.D. Tex. 1992) (holding that due to the lack of similarities between a corporate debtor and the individual debtor, the issue as to whether a trustee can waive the debtor's attorney-client privilege is "fundamentally different" and the courts should not rely on case law confusing the two types of debtors).

56. See Id.

57. In Re Hunt, 153 B.R. 445, 450-51 (Bankr. N.D. Tex. 1992).

58. This reasoning is fundamentally flawed. How could a long term corporate president or company owner's expectation of the applicability of attorney client privilege differ that much from an individual's expectation of the attorney client privilege.

59. McClarty v. Gudenau, and Sullivan, Ward, Bone, Tyler & Asher, P.C. , 166 B.R. 101, 102 (E.D. Mich. 1994).

60. McClarty v. Gudenau, and Sullivan, Ward, Bone, Tyler & Asher, P.C. , 166 B.R. 101, 102 (E.D. Mich. 1994).

61. McClarty v. Gudenau, and Sullivan, Ward, Bone, Tyler & Asher, P.C. , 166 B.R. 101, 102 (E.D. Mich. 1994) (specifically stating, "[i]t is anticipated that the debtor will cooperate with the Trustee's request for a waiver of the privilege).

62. Another less successful compromise model is the Documents as Property Model. In this model the debtors questionable documents are property whose title transfers to the trustee once the debtor enters bankruptcy. These documents are not privileged and pass by law to the bankruptcy trustee. Here, the debtor still maintains control of her attorney client privilege, which eliminates the hindrance of communication between the lawyer and the client. This approach has several limitations, namely it does not apply to oral communications and many of the documents affected by this approach would not be considered privileged. See Julianna M. Thomas, Fifteen Years after Weintraub: Who controls the Individual's Attorney-Client Privilege in Bankruptcy?, 80 B.U.L. 635, 658 (2000); Ex Parte Fuller, 262 U.S. 91 (1923).

63. In Re Bazemore, 216 B.R. 1020, 1023-1024 (Bankr. S.D.Ga. 1998).

64. Id. at 1022.

65. In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355 (N.D. Ohio Feb 1, 2000).

66. 11 U.S.C. § 341(a) (2000) (providing: "[w]ithin a reasonable time after the order for relief in a case under this title, the United States trustee shall convene and preside at a meeting of creditors").

67. See In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355 (N.D. Ohio Feb 1, 2000) (stating most of the facts cited within this article verbatim as originally provided in the Transcript of Debtors' 341 examination, pgs. 8-12).

68. See In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355 (N.D. Ohio Feb 1, 2000) (stating most of the facts cited within this article verbatim).

69. 11 U.S.C. §§ 727(d)(1) & (2) (2000) (providing: On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under...this section if such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge, the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee).

70. See In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355 (N.D. Ohio Feb 1, 2000) (stating most of the facts cited within this article verbatim as originally provided in Trustee's Memorandum, dated 7-7-99, p. 2).

71. See Ct. App. R. 407, R.1.6. The crime fraud exemption provides that communications regarding future crimes are not covered under the attorney client privilege.

72. In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355, 357 (N.D. Ohio Feb 1, 2000). Numerous other courts have also followed this balancing approach, some holding that the trustee should hold the privilege and some holding that the debtor should retain the privilege. Whyte v. Williams, 152 B.R. 123 (Bankr. N.D. Tex. 1992); In Re Foster, 188 F.3d 1259 (10th Cir. 1999); In Re Barne 251 B.R. 367 (Bankr. D. Minn. 2000); In Re Rice, 224 B.R. 464 (Bankr. D. Or. 1998); In Re Fairbanks 135 B.R. 717 (Bankr. D.N.H. 1991).

73. Id.

74. Id at 357.

75. See In Re Hunt, 153 B.R. 445, 453 (Bankr. N.D. Tex. 1992).

76. In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355, 366 (N.D. Ohio Feb 1, 2000).

77. Id.

78. Id.

79. Id (citing 11 U.S.C § 521(3)).

80. Id (citing 11 U.S.C. § 521(4)). See also In Re Kaufman, 35 B.R. 26, 28 (Bankr. D. Hawaii 1983) (holding that a debtor cannot rely on the Fifth Amendment to avoid turning over to trustee the documents, records and assets belonging to the estate).

81. Id. citing In re GHR Energy Corp., 33 B.R. 451, 453 (Bankr. D. Mass. 1983).

82. Id.

83. See In Re Bazemore, 216 B.R. 1020, 1023-1024 (Bankr. S.D. Ga. 1998) (citing Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 105 S.Ct. 1986 (1985)).

84. In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355, 371 (N.D. Ohio Feb 1, 2000).

85. Id.

86. In Re Bazemore, 216 B.R. 1020 (Bankr. S.D.Ga. 1998) (holding that determining whether a trustee has the power to unilaterally waive the individual debtor's attorney client privilege rests on the individual facts of the case sub judice).

87. In Re Miller, Op. No. 98-3141, 2000 Bankr. Lexis 355, 362 (N.D. Ohio Feb 1, 2000).

88. See In Re Ingram, Docket No. 98-5909 (Bankr. S.C. 1998).

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