Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

American International Specialty Lines Insurance Co. v. NWI-I

January 16, 2007

AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, PLAINTIFF,
v.
NWI-I, INC. F/K/A FRUIT OF THE LOOM INC., LEPETOMANE II, INC., AS TRUSTEE OF THE FRUIT OF THE LOOM SUCCESSOR LIQUIDATION TRUST, AND LEPETOMANE III, INC., AS TRUSTEE OF THE FRUIT OF THE LOOM CUSTODIAL TRUST. DEFENDANTS.



The opinion of the court was delivered by: Michael T. Mason, United States Magistrate Judge

Judge Gottschall

Mag. Judge Michael T. Mason

MEMORANDUM OPINION AND ORDER

This matter comes before the Court on two discovery motions. Plaintiff, American International Specialty Lines Insurance Company ("AISLIC"), filed a motion to compel responses to plaintiff's first set of document requests and interrogatories. Defendants, NWI-I, LePetomane II, Inc., as Trustee of the Fruit of the Loom Successor Liquidation Trust ("SLT") and LePetomane III, Inc., as Trustee of the Fruit of the Loom Custodial Trust ("CT"), filed a motion for protective order and to determine the attorney-client privilege. For the reasons set forth below, defendants' motion for protective order and to determine the attorney-client privilege is granted in part and denied in part and plaintiff's motion to compel is granted in part and denied in part.

Background

This case involves a $100,000,000 pollution legal liability insurance policy ("the Policy") issued by AISLIC to Fruit of the Loom, Inc. ("Old FTL") in 1998. The Policy covers seven contaminated properties (the "Seven Properties") formerly owned by Old FTL or other affiliated corporations that have gone through Chapter 11 bankruptcy reorganization. Plaintiff seeks a declaration that defendants are not entitled to coverage under the Policy. Defendants filed a counterclaim alleging that plaintiff is obligated to pay the full policy limit for remediation costs associated with the Seven Properties.

On December 29, 1999, Old FTL, NWI Land Management Corp. ("NWI") and thirty affiliates (collectively, "the FTL debtors") filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware ("the FTL Bankruptcy"). The United States Environmental Protection Agency ("EPA") and several state environmental agencies filed proofs of claim in the bankruptcy proceedings, alleging that Old FTL owed them money for clean-up work conducted at several sites covered by the Policy.

The defendants in this action are among several successors of Old FTL to emerge from the FTL Bankruptcy. On March 19, 2002, the bankruptcy court confirmed the Third Amended Plan of Joint Reorganization ("the Joint Plan"). According to the Joint Plan, the successors of Old FTL after bankruptcy were: (1) the FTL Liquidation Trust, a/k/a the FOL Liquidation Trust; (2) the Unsecured Creditors Trust; (3) the NWI Successor, now known as the Successor Liquidation Trust ("SLT"); (4) the Custodial Trust ("CT"); (5) Reorganized Fruit of the Loom, which consisted of Reorganized Debtors, Newco and any successor; and (6) Newco, to which the Apparel Business Assets were transferred (referred to herein as "New FTL").*fn1

In or around April 2002, Old FTL and NWI entered into a settlement agreement ("the Environmental Settlement Agreement") in the FTL Bankruptcy that resolved certain environmental claims. The Environmental Settlement Agreement provided that the Seven Properties would be transferred to the CT. The CT was created pursuant to the Joint Plan and the Custodial Trust Agreement to own the Seven Properties, carry out administrative functions regarding the Seven Properties and to manage and/or fund remedial actions on those properties. The SLT was created pursuant to the Joint Plan and the Successor Liquidation Trust Agreement to hold certain assets of NWI and Old FTL and to distribute its assets to provide funding to the CT. Old FTL changed its name to NWI-I and became a wholly-owned subsidiary of the SLT. The assets currently held by NWI-I consist of equity interests in NWI and certain insurance policies, including the Policy at issue in this litigation.

According to the Environmental Settlement Agreement, the SLT is the legal successor in interest to certain rights under the Policy. Furthermore, pursuant to the Successor Liquidation Trust Agreement, the assets transferred to the SLT include both the stock of NWI-I and the rights, claims, or interests of Old FTL or NWI under the contracts to be assumed and/or assumed and assigned by NWI and Old FTL to the SLT (consisting of, among other insurance policies, the Policy at issue here).

Both the Custodial Trust Agreement and the Successor Liquidation Trust Agreement include a section entitled "Preservation of Privilege." This section provides:

In connection with the rights, claims and causes of action that constitute the [Successor Liquidation Trust Assets or the Custodial Trust Assets], any attorney-client privilege, work-product privilege, or other privilege or immunity attaching to any documents or communications (whether written or oral) transferred to the [SLT or CT] shall vest in the [SLT or CT] and its representatives, and the Parties are authorized to take all necessary actions to effectuate the transfer of such privileges.

During the FTL Bankruptcy, the FTL debtors were represented by Milbank, Tweed, Hadley & McCloy LLP ("Milbank"). Saul Ewing LLP ("Saul Ewing") served as local counsel. After confirmation, Milbank represented the FOL Liquidation Trust. Milbank did not represent NWI-I or the SLT, except for a brief engagement representing the SLT, with permission of its client, for the limited purpose of clarifying a portion of the Joint Plan that Milbank had drafted.

Motion for Protective Order

In June 2006, plaintiff served subpoenas on the law firms that represented the FTL debtors in the bankruptcy proceedings. The subpoenas requested thirty-eight categories of documents. In early August 2006, Milbank contacted counsel for defendant NWI-I to advise her that Milbank had already produced some documents in response to plaintiff's subpoena but that it had withheld others on attorney-client privilege grounds. Counsel for NWI-I instructed Milbank to continue to assert all applicable privileges on behalf of NWI-I.

Counsel for defendants subsequently informed Milbank that based on the terms of the Joint Plan and the minimal assets that were transferred to NWI-I, she did not believe that NWI-I had "succeeded" to the attorney-client privilege between the FTL debtors and Milbank. However, while defense counsel did not believe that the pre-confirmation attorney-client privilege between Milbank and the FTL debtors belonged to NWI-I after confirmation, she advised that it was possible that a privilege may belong to the SLT and the CT with respect to the assets transferred to them under the Successor Liquidation Trust Agreement and the Custodial Trust Agreement. Accordingly, defense counsel requested that Milbank continue to assert all applicable privileges for any documents that relate to Successor Liquidation Trust Assets and Custodial Trust Assets.

Defendants argue that it is unclear what attorney-client privilege, if any, exists between any of the defendants and Old FTL's attorneys, both pre-bankruptcy and during the bankruptcy, specifically with respect to the Policy, the Seven Properties, the Environmental Settlement Agreement and the August 9, 2002 Order that are at issue in this litigation.*fn2 Furthermore, defendants contend that it is not clear who holds the attorney-client privilege when, as was the case in the FTL Bankruptcy, a debtor's assets are transferred to multiple successor entities. Therefore, defendants ask this Court to determine the extent of any attorney-client privilege held by the defendants, individually or collectively.

Defendants argue that this determination is pivotal to a proper evaluation of their ongoing obligations to respond to plaintiff's other discovery requests. A privilege issue such as this one typically arises in the context of a motion to quash brought by either the defendants or the law firm or a motion to compel brought by the plaintiff. Plaintiff argues that defendants' motion for protective order is unnecessary and unwarranted because no one has moved to quash the subpoenas and because defendants have not identified any specific documents over which they are asserting a claim of privilege. Both contentions are true. However, this Court finds that plaintiff's motion to compel brings the attorney-client issue to the forefront. Indeed, as plaintiff states in the motion to compel, plaintiff's document requests call for defendants to search for and produce responsive documents from outside counsel to Old FTL during the bankruptcy because such documents are in defendant NWI-I's control. Even if the motion to compel did not raise the attorney-client privilege issue, clearly this is an issue that must be resolved in order to streamline discovery in this case. Therefore, we find it appropriate to address defendants' motion for protective order at this time.

Defendants ask this Court to find that: (1) NWI-I retains the attorney-client privilege as it pertains to the Policy; (2) the SLT and the CT retain the attorney-client privilege as it pertains to the environmental condition and remediation of the Seven Properties; and (3) NWI-I, the SLT and the CT retain the attorney-client privilege as it pertains to the Environmental Settlement Agreement and the August 9, 2002 Order.

We begin our analysis with the United States Supreme Court's decision in Commodity Futures Trading Comm'n. v. Weintraub, 471 U.S. 343, 105 S.Ct. 1986 (1985). The issue in Weintraub was whether the trustee of a corporation in bankruptcy had the power to waive the debtor corporation's attorney-client privilege with respect to communications that took place before the filing of the petition in bankruptcy. The Court noted that "for solvent corporations, the power to waive the corporate attorney-client privilege rests with the corporation's management and is normally exercised by its officers and directors." Id. at 348. Furthermore, the Court stated that "when control of a corporation passes to new management, the authority to assert and waive the corporation's attorney-client privilege passes as well." Id. at 349. Indeed, "new managers installed as a result of a takeover, merger, loss of confidence by shareholders, or simply normal succession, may waive the attorney-client privilege with respect to communications made by former officers and directors." Id.

The Court found that because the attorney-client privilege is controlled, outside of bankruptcy, by a corporation's management, the person whose duties most closely resemble those of management should control the privilege in bankruptcy. Id. at 351-52. The Weintraub court noted that the Bankruptcy Code gives the trustee wide-ranging management authority over the debtor while the debtor's directors retain virtually no management power during bankruptcy. Id. at 352. Therefore, the Court found that the "trustee plays the role most closely analogous to that of a solvent corporation's management." Id. at 353. Accordingly, the Weintraub court held that ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.