In re Leslie Controls, Inc., No. 10-12199 (Bankr. D. Del. Sept. 21, 2010), involved a very common scenario. A company in financial difficulty sought to negotiate a consensual restructuring with an ad hoc committee and, in that context, disclosed various confidential analyses. In this particular case, the company had asbestos exposure, the ad hoc committee represented asbestos plaintiffs, and the shared information included a memorandum and numerous e-mails concerning potential insurance recoveries under various bankruptcy scenarios. In short, the (soon to be) Debtor and the ad hoc committee were negotiating over the size of the pie and the divvying up of its pieces. Anyone who has ever been involved in such negotiations knows that they are not all fruit and sugar: there is also plenty of spice in the discussions.
In Leslie Controls’ subsequent bankruptcy, the company’s insurers demanded that the shared information be brought out of the oven for everyone to eat. The Debtor resisted on the basis that its analyses were based on a secret recipe — shared with the ad hoc committee — that was subject to the “common interest doctrine,” which permits attorneys representing different clients with common legal interests to share privileged information without causing a waiver of the attorney-client privilege. The most obvious example is co-defendants in litigation sharing legal strategy.
The insurers argued that the communications were about commercial matters — potential economic recoveries — and not about legal matters, and that Leslie Controls and the ad hoc committee did not share a common legal interest because they were fighting over the allocation of insurance proceeds rather than working hand-in-hand.
The Court made mincemeat of the insurers arguments. As the Court phrased it:
[T]he size of the pie and the sizes of the pieces of the pie are two separate questions. The parties are in accord as to the former and adversaries as to the latter.
Because of the common interest in the size of the pie, the Court concluded that the insurers should do their own baking with their own recipe. So how do you like them apples?
We need to be careful not to reach blanket conclusions from Leslie Controls. Not all prepetition negotiations involve the same pie and some Bankruptcy Courts are more crusty than others. Also, the shared information must first be subject to a valid attorney-client privilege. But if you can’t stand the heat of negotiations and the potential for a subsequent fire of disclosure, perhaps it is best to stay out of the kitchen altogether.