Federal Evidence Review

In bankruptcy fraud and money laundering trial, after noting issue, circuit concluded any attorney-client privilege that may have applied was waived when the counsel’s performance was challenged, in United States v. Bauer, 551 F.3d 786 (8th Cir. Dec. 29, 2008) (Nos. 08-1209, 08-1043)

The Eighth Circuit recently noted an interesting issue that communications with counsel involving information intended for a public filing (a bankruptcy petition in the case) may not be privileged. The opinion cited to case law applying this principle in tax cases. Ultimately, the circuit concluded the privilege was waived since the defendants called into question the performance of their bankruptcy counsel.

In the case, defendants Cyril and Rae Bauer were prosecuted for committing bankruptcy fraud and money laundering after they initially claimed the value of their home was $80,000 on their bankruptcy petition, but then submitted a fire insurance claim that the value of their home was $280,000, after the bankruptcy petition was discharged. Other undisclosed assets were discovered, including an Individual Retirement Account. The bankruptcy court ordered that the Bauers provide the bankruptcy trustee with access to the insurance proceeds and IRA. Instead, the Bauers cashed these assets and spent or concealed the proceeds. During the trial, the defendants blamed “sloppy attorneys and poor legal advice” for the circumstances. In response, the government called a lawyer who represented the Bauers in their initial bankruptcy filing. The jury convicted the defendants. On appeal, the defendants claimed the trial court violated the attorney-client privilege by allowing their prior counsel to testify.

The Eighth Circuit affirmed the admission of the counsel’s testimony. A threshold question was whether the communication was protected by the attorney-client privilege. Specifically, the circuit noted the “information [was] communicated from the Bauers to their attorneys for the purpose of disclosure in publicly filed bankruptcy schedules.” Bauer, 551 F.3d at 792 n.3. The circuit questioned whether these communications were protected. Bauer, 551 F.3d at 792 n.3 (citing United States v. Cote, 456 F.2d 142, 145 n.3 (8th Cir. 1972) (“In tax cases waiver is often not even an issue since the privilege is said not to attach to information which the taxpayer intends his attorney to report in the contents of a tax return.”)). After noting this issue, the circuit concluded that any privilege that may have applied, however, was waived when the counsel’s performance was challenged by the theory of defense. Bauer, 551 F.3d at 792 (citing Baker v. General Motors Corp., 209 F.3d 1051, 1055 (8th Cir. 2000) (“A waiver of the attorney-client privilege may be found where the client places the subject matter of the privileged communication at issue.”)).

The Bauer case highlights and interesting issue concerning the scope of the attorney-client privilege. Where counsel assists a client in a public filing, some of the communications may not be protected by the privilege.