The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
RONALD J. HOF IN HIS CAPACITY AS * CIVIL ACTION NO. 19-10696
CHAPTER 7 TRUSTEE OF THE *
BANKRUPTCY ESTATE OF * SECTION: “D”(1)
FOODSERVICEWAREHOUSE.COM *
* JUDGE WENDY B. VITTER
VERSUS *
* MAGISTRATE JUDGE
LAPORTE, A PROFESSIONAL * JANIS VAN MEERVELD
ACCOUNTING CORPORATION, ET *
AL. *
*********************************** *
ORDER AND REASONS
Before the Court is LaPorte, APAC’s Motion to Compel witnesses Kevin Bouma and
Madhu Natarajan to answer certain questions regarding communications that plaintiff contends are
protected by the attorney-client privilege. (Rec. Doc. 58).1 For the following reasons, the Motion
is DENIED.
Background
In this lawsuit, plaintiff Ronald J. Hof (the “Trustee”), in his capacity as trustee of the
Chapter 7 Bankruptcy Estate of FoodServiceWarehouse.Com, LLC (“FSW”) alleges that LaPorte,
APAC (“Laporte”) is liable for professional negligence arising out of LaPorte’s performance of
audit services for FSW for the 2013 and 2014 fiscal years. The Trustee contends that the board of
FSW relied on the 2013 audit in recommending and obtaining the approval of FSW’s membership
to explore the possibility of a public or private offering. To achieve that goal, FSW began
expanding and taking on debt. It sought $75,000,000 in financing from JP Morgan Chase Bank,
1 LaPorte also moved for a protective order regarding the use of documents at video depositions and to strike certain
testimony from a deposition transcript. Those issues were resolved at oral argument. (Rec. Doc. 68).
N.A. (“Chase”) in June 2015. Chase began its field examination around the time that LaPorte was
completing its field work in connection with its 2014 audit of FSW. According to the Trustee,
Chase identified “numerous accounting deficiencies and misstatements that LaPorte was required,
but failed, to identify and disclose in its audit opinions.” (Rec. Doc. 1-2, at 5). FSW was unable to
remedy the issues identified and Chase declined to advance funds to FSW in January 2016. FSW
alleges that it brought in an experienced CPA/auditor and a restructuring advisor in February and
March of 2016, but it was determined that restructuring would not be possible.
On May 20, 2016, FSW filed a bankruptcy petition. Since that time, the Trustee has
liquidated all of the assets of FSW, except this claim.
The Trustee filed this adversary proceeding against LaPorte in bankruptcy court on May
13, 2019. On May 28, 2019, the Trustee filed a motion in this court to withdraw the bankruptcy
reference. Trial is presently set to begin on January 11, 2021. The deadline to complete discovery
is September 25, 2020.
LaPorte seeks an order compelling Kevin Bouma and Madhu Natarajan, a former FSW
board member and employee respectively, to answer certain questions that they did not answer at
their depositions on the basis of the attorney client privilege. Bouma’s deposition was closed.
Natarajan’s deposition was left open and will continue on September 21, 2020.
Bouma was involved with FSW as a board member from its inception until his resignation
in 2016. Natarajan was employed by FSW as general manager and CEO. In November 2016, the
Trustee made damages claims against Bouma and Natarajan (among other past and present
officers, directors, managers, and employees of FSW). Bouma and Natarajan were represented by
independent counsel at that time, and they settled with the Trustee.
In advance of their depositions in the present case, Bouma and Natarajan each spoke with
counsel for the Trustee. The Trustee submits that their testimony is relevant here to both FSW’s
reliance on the LaPorte audits and to FSW’s damages. The Trustee submits that Bouma and
Natarajan were part of the management of FSW during the time period relevant to this lawsuit and
were among the most important individuals associated with FSW’s expansion and spending at the
time. During their depositions, counsel for the Trustee objected to either individual testifying about
the contents of their discussions with counsel or about the identity of the documents they were
shown during those discussions.
LaPorte argues that the attorney-client privilege is not applicable to the communications at
issue because the former employees’ conversations with counsel for the Trustee were not intended
to provide any legal advice to FSW. Instead, LaPorte argues that the conversations were intended
to help the Trustee’s counsel pursue claims on behalf of FSW’s creditors because FSW is
essentially a dissolved entity. Further, LaPorte points out that the Trustee earlier made claims
against Bouma and Natarajan. It argues that they cannot be considered “clients” of the Trustee.
The Trustee insists that the attorney-client privilege applies to the pre-deposition
communications because Natarajan and Bouma were employed by and/or directing the actions of
FSW during the relevant time period, they were among the most important individuals associated
with FSW’s expansion and spending, and they spoke with the Trustee’s counsel to enable counsel
to pursue this auditing malpractice case, a pre-bankruptcy petition asset of FSW.
Law and Analysis
1. Privilege over Communications with Former Employee
Louisiana state law governs privilege in this case asserting state law claims. Fed. R. Evid.
501. It appears that there is no reasoned Louisiana court decision addressing whether the
communications of a corporation’s counsel with the corporation’s former employees are
privileged. Hanover Ins. Co. v. Plaquemines Par. Gov't, 304 F.R.D. 494, 496 (E.D. La. 2015). In
Hanover, the Eastern District of Louisiana considered the two federal cases cited by the Louisiana
Supreme Court in entering a protective order preventing discovery of communications between
corporate counsel and former employees relating to the subject matter of the litigation.2 Id. at 497.
One was Justice Burger’s concurrence in the United States Supreme Court’s seminal decision in
Upjohn Co. v. United States, in which Justice Burger expressed his view that when a former
employee speaks “at the direction of the management with an attorney regarding conduct or
proposed conduct within the scope of employment,” the communications should be privileged.
449 U.S. 383, 403 (1981) (Burger, C.J., concurring). The other case cited by the Louisiana
Supreme Court was In re Allen, where the United States Fourth Circuit Court of Appeals held that
the attorney-client privilege extends to communications with former employees. 106 F.3d 582,
606 (4th Cir. 1997). At issue in Allen were counsel’s notes and summary of her interview of a
former employee. Id. In finding the communications privileged, the Fourth Circuit considered
that the former employee had been employed during the time period at issue in the litigation, that
the attorney interviewed the former employee at the direction of the former employer in order to
provide legal advice to the former employer, and that the attorney needed the information in order
to develop her legal analysis for the client. Id.
After considering these cases, the Hanover court concluded that:
the Louisiana Supreme Court would recognize the existence of a privilege between
counsel for a corporation and a former employee of the corporation, at a minimum,
where (1) the former employee was employed by the corporation during the time
2 The Louisiana Supreme Court entered the order without reasons, stating merely “Judgment of the trial court is
vacated and set aside. Relators' motion for protective order is granted, and a protective order is entered in their favor
preventing any discovery regarding privileged communications between relators' corporate counsel and any former
employees relating to the subject matter of this lawsuit.” Turner v. Lowery, 97-2533 (La. 10/29/97), 703 So. 2d 1.
relevant to the attorney's current representation of the corporation, (2) the former
employee possesses knowledge relevant to the attorney's current representation of
the corporation, and (3) the purpose of the communication is to assist the attorney
in “(a) evaluating whether the employee's conduct has bound or would bind the
corporation; (b) assessing the legal consequences, if any, of that conduct; or (c)
formulating appropriate legal responses to actions that have been or may be taken
by others with regard to that conduct.”
304 F.R.D. at 499–500 (quoting Upjohn, 449 U.S. at 403 (Burger, C.J., concurring). The court
found that communications between former employees and counsel for the former employers in
preparation for their depositions as well as the identity of the documents shown to the former
employees were protected by the attorney-client privilege. Id. at 500. The court observed that the
former employees had been employed with their respective employers at the time of the
construction project at issue in the litigation, they both had knowledge of the project and were the
most important individuals associated with the project, and they spoke with the corporate attorneys
in order to defend against the litigation. Id.
When a corporation files for bankruptcy and the trustee “prosecutes a right of action
derived from the debtor, the trustee stands in the shoes of the debtor.” In re Segerstrom, 247 F.3d
218, 224 (5th Cir. 2001). Thus, the trustee is vested with the authority to exercise the corporation’s
attorney-client privilege. Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 354
(1985). For example, post-termination communications between a former employee and the
bankruptcy trustee of the former employee have been found protected by the attorney-client
privilege. In In re Worldwide Wholesale Lumber, Inc., the Bankruptcy Court for the District of
South Carolina applied the Fourth Circuit’s analysis in Allen to hold that communications between
the trustee’s counsel and a former officer of the debtor were protected by the attorney client
privilege to the extent the communications concerned matters within the scope of his corporate
duties and were made for the purpose of investigation and rendering legal advice to the trustee.
392 B.R. 197, 202–03 (Bankr. D.S.C. 2008). Two conversations were at issue: one took place a
few weeks prior to the former officer’s deposition and the other took place just prior to the
deposition. Id. at 200. Both were protected. Id. at 203.
Applying the factors announced in Hanover, the court finds that the attorney client
privilege protects the communications between the Trustee’s counsel with Natarajan and Bouma
in preparation for their depositions. First, Natarajan and Bouma were directors or employees of
FSW during the time relevant to the current legal matter. Second, as a result of their roles during
that time period, Natarajan and Bouma possess knowledge relevant to counsel’s current
representation of the Trustee. In fact, Natarajan and Bouma were part of the management of FSW
during the relevant period. As the Trustee’s counsel pointed out at oral argument, the Trustee is
now the management of the company. Thus, to the extent only communications “at the direction
of management” are protected, the communications at issue here are covered. The final factor
concerns whether the communications were for the purpose of obtaining or giving legal advice.
There can be no doubt that the Trustee’s counsel’s discussions with Natarajan and Bouma were
for the purpose of formulating the Trustee’s legal response to the actions taken during Natarajan
and Bouma’s employment/directorship with FSW and for pursuing this litigation on behalf of
FSW’s bankruptcy estate.
LaPorte insists that Hanover does not apply here because the Trustee is pursuing this case
on behalf of FSW’s creditors and because at one time, the Trustee asserted claims against Natarajan
and Bouma arising out of their conduct as a director and employee of FSW during the relevant
period. In support of this argument, LaPorte cites an unpublished case from the Southern District
of New York that looked to Justice Burger’s concurrence in Upjohn to determine whether the
attorney-client privilege extended to communications with a former employee. In Krys v. Sugrue
(In re Refco Inc. Securities Litigation), the court held that communications between plaintiffs’
counsel and a former director and employee of a company called PlusFunds in advance of the
former employee’s deposition were not protected by the attorney-client privilege. 2012 U.S. Dist.
LEXIS 27480, at *14-16 (S.D.N.Y. Feb. 27, 2012). The plaintiffs were the Joint Official
Liquidators of the SPhinX funds and had been assigned the privilege rights of PlusFunds via a
court order. Id. at *20. PlusFunds was described as a “defunct entity.” Id. At the time, the plaintiffs
had live claims against the deponent in his role as a former PlusFunds director and the deponent
had been represented by independent counsel during meetings with plaintiffs’ counsel and at the
deposition. Id. at 21. The court concluded that “[i]n no sense can [a] former director of a defunct
entity who is potentially liable to the [plaintiffs] be considered a ‘client’ or agent of the [plaintiffs],
or acting at the direction of the [plaintiffs], such that the attorney-client privilege covers
conversations between him and the [plaintiffs’] attorneys.” Id.
LaPorte argues that similarly here, FSW is defunct and Bouma and Natarajan’s
conversations with the Trustee’s counsel cannot be viewed as assisting counsel in providing legal
advice to FSW especially where the Trustee previously had claims against Bouma and Natarajan
related to their work for FSW. The court disagrees. First, Krys does not apply Louisiana law and
LaPorte has presented no Louisiana authority that would support modifying the approach
announced in Hanover. Second, the court finds that the fact of FSW’s bankruptcy does not require
a unique analysis. The Trustee stands in the shoes of FSW’s management and it has the right to
assert the attorney-client privilege on FSW’s behalf. Thus, the Trustee is, for the purposes of this
litigation, the former employer. This conclusion is supported by the decision in Worldwide, which
held that pre-deposition communications between a bankruptcy trustee and a former officer of the
debtor were protected by the attorney-client privilege. 392 B.R. at 202-03. Although the
Worldwide court was not applying Louisiana law, it relied on the Allen case in assessing the
applicability of the attorney-client privilege, just as the Louisiana Supreme Court and the Eastern
District of Louisiana have done in Turner and Hanover respectively. Further, unlike in Krys, the
Trustee does not have live claims against Bouma and Natarajan and the deponents were not
represented by independent counsel during their meetings with the Trustee or during their
depositions.
LaPorte also cites a case from the Eastern District of Michigan, which concluded that
“counsel’s communications with a former employee of the client corporation generally should be
treated no differently from communications with any other third-party fact witness.” Infosystems,
Inc. v. Ceridian Corp., 197 F.R.D. 303, 306 (E.D. Mich. 2000). The court noted that both the
majority opinion and Justice Burger’s concurrence in Upjohn required that an employee be
communicating with counsel “at the direction of management” for the attorney-client privilege to
apply. Id. at 305 (quoting Upjohn, 449 U.S. at 403) (Burger, C.J., concurring). The court in
Infosystems expressed concern that:
Former employees are not the client. They share no identity of interest in the
outcome of the litigation. Their willingness to provide information is unrelated to
the directions of their former corporate superiors, and they have no duty to their
former employer to provide such information. It is virtually impossible to
distinguish the position of a former employee from any other third party who might
have pertinent information about one or more corporate parties to a lawsuit.
Id. (quoting Clark Equip. Co. v. Lift Parts Mfg. Co., No. 82 C 4585, 1985 WL 2917, at *5 (N.D.
Ill. Oct. 1, 1985)). The court concluded that the resisting party’s post-termination communications
with a former employee were not privileged because the resisting party had not met its burden to
show that the communications were different “in some relevant way from counsel’s
communications with other third party witnesses.” Id. Unfortunately, no detail is given in the
opinion about what level of employee the witness was. Regardless, by rejecting the attorney-client
privilege over communications with a former employee almost entirely,3 the Infosystems opinion
is clearly out of step with the Hanover and Turner decisions which did recognize the attorney-
client privilege over corporate counsel’s communications with a former employee in certain
circumstances. Louisiana law controls here. Further, the court must reject the idea that, at least as
to management employees like those under consideration here, a former employee is no different
than a third party. Although the former employee is no longer controlled by the employer, the
former employee’s testimony has the ability to bind the company in a way that a third-party’s
testimony cannot.
LaPorte further argues that if the Trustee’s counsel communicated information to Bouma
and Natarajan that they did not previously have knowledge of, this information should not be
protected by the attorney-client privilege. For example, in Peralta v. Cendant Corp., the District of
Connecticut held that corporate counsel’s communications with a former employee were only
privileged to the extent they concerned activities within the course of her employment. 190 F.R.D.
38, 41 (D. Conn. 1999). However, the court observed, if counsel had informed the former
employee:
of facts developed during the litigation, such as testimony of other witnesses, of
which [the former employee] would not have had prior or independent personal
knowledge, such communications would not be privileged, particularly given their
potential to influence a witness to conform or adjust her testimony to such
information, consciously or unconsciously.
3 The court acknowledged that:
there may be situations where the former employee retains a present connection or agency
relationship with the client corporation, or where the present-day communication concerns a
confidential matter that was uniquely within the knowledge of the former employee when he worked
for the client corporation, such that counsel's communications with this former employee must be
cloaked with the privilege in order for meaningful fact-gathering to occur.
Infosystems, 197 F.R.D. at 306.
Id. Additionally, the court held that discussions “during the break as to how a question should be
handled” were not privileged and “opposing counsel has the right to ask about matters that may
have affected or changed the witness’s testimony.” Id.; see Wade Williams Distribution, Inc. v.
Am. Broad. Companies, Inc., No. 00 CIV. 5002 (LMM), 2004 WL 1487702, at *1 (S.D.N.Y. June
30, 2004) (instructing that the deposition of a former employee be conducted in accordance with
the rules set forth in Peralta).
LaPorte has not presented an example of this type of limitation being imposed by a court
applying Louisiana law. In any event, the rules proposed by Peralta seem impractical here. To the
extent Bouma and Natarajan’s communications with the Trustee’s counsel concern their actions
during their employment with FSW, those communications are privileged even if they were also
discussing recent testimony. Parsing such a communication to extract some “unprivileged” portion
is not possible. They are one and the same: a privileged communication concerning the witness’s
time as an employee or board member of FSW made for the purposes of providing legal advice to
the Trustee of FSW’s bankruptcy estate. The court notes that LaPorte can, of course, question the
witnesses about matters that may have affected or changed their testimony, but this does not mean
it can ask about privileged communications. It could ask, for example, “before you read the
testimony of Witness X, what was your understanding of the situation involving witness X?” But
it cannot ask, “did the Trustee’s counsel show you the testimony of X, what did she tell you about
it, and what did you tell her about the situation involving witness X?”
Conclusion
For the foregoing reasons, the court finds that the test announced by the court in Hanover
is applicable here and that the Trustee has met his burden of showing that the three factors apply
to his counsel’s communications with Natarajan and Bouma in advance of their depositions.
Accordingly, the Motion to Compel is DENIED.
New Orleans, Louisiana, this 17th day of September, 2020.
vam Mog, vol
Janis van Meerveld
United States Magistrate Judge
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