COMMODITY FUTURES TRADING COMMISSION, PETITIONER V. GARY WEIBTRAUB, ET AL. No. 84-261 In the Supreme Court of the United States October Term, 1984 The Solicitor General, on behalf of the Commodity Futures Trading Commission, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Seventh Circuit in this case. Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Seventh Circuit PARTIES TO THE PROCEEDING Petitioner, the Commodity Futures Trading Commission, applied to enforce an administrative subpoena in the district court and was the appellee in the court of appeals. Respondent Gary Weintraub, a respondent in the district court, did not appeal from the district court's order. Respondents Frank H. McGhee and Andrew McGhee intervened as respondents in the district court and were appellants in the court of appeals. TABLE OF CONTENTS Opinions below Jurisdiction Statutory provisions involved Statement Reasons for granting the petition Conclusion Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G Appendix H OPINIONS BELOW The original opinion of the court of appeals (App., infra, 1a-11a) is unreported. An order of the court of appeals modifying that opinion (App., infra, 12a-16a) is also unreported. The opinion of the court of appeals as modified is reported at 722 F.2d 338. JURISDICTION The judgment of the court of appeals was entered on November 21, 1983 (App., infra, 23a-24a). A timely petition for rehearing was denied on April 18, 1984 (App., infra, 21a-22a). On July 10, 1984, Justice Stevens extended the time within which to file a petition for a writ of certiorari to August 16, 1984. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTORY PROVISIONS INVOLVED Pertinent portions of the Bankruptcy Reform Act of 1978, 11 U.S.C. 101 et seq., are reprinted at App., infra, 25a-36a. QUESTION PRESENTED Whether the trustee of a corporation in bankruptcy has the power to assert or waive the debtor corporation's attorney-client privilege with respect to communications that took place before the petition in bankruptcy was filed. STATEMENT 1. This case arises out of a formal investigation by the Commodity Futures Trading Commission (CFTC) to determine whether Chicago Discount Commodity Brokers (CDCB) or persons associated with that firm violated the antifraud or other provisions of the Commodity Exchange Act (Act), 7 U.S.C. 1 et seq. CDCB was a discount commodity brokerage house registered with the CFTC as a futures commission merchant pursuant to 7 U.S.C. 6d(1). On October 27, 1980, the Commission filed a complaint against CDCB in the United States District Court for the Northern District of Illinois, alleging violations of the Act. The same day, the parties entered into a consent decree providing, inter alia, for a freeze on CDCB's assets and the appointment of a receiver. App., infra, 2a. CDCB's sole director and officer at this time was its president, respondent Frank H. McGhee. Respondent Andrew McGhee had resigned his positions as officer and director on October 21, 1980. Larry Cote, CDCB's secretary and vice president, had resigned the following day. App., infra, 14a. On November 4, 1980, the receiver, John K. Notz, Jr., filed a voluntary petition in bankruptcy on CDCB's behalf, seeking liquidation under Subchapter IV of Chapter 7 of the Bankruptcy Reform Act of 1978 (Bankruptcy Code), 11 U.S.C. 761 et seq. Notz was appointed interim trustee pursuant to Section 15701 of the Bankruptcy Code and was later made the permanent trustee pursuant to Section 702. App., infra, 2a. Upon filing of the bankruptcy petition, the CFTC commenced its formal investigation pursuant to 7 U.S.C. 12(a) and 15. On January 28, 1981, the Commission served an investigatory subpoena upon CDCB's former counsel, respondent Gary Weintraub, seeking his testimony regarding, inter alia, suspected fraudulent activities and misappropriation of customer funds by CDCB's officers and employees. Weintraub appeared for his deposition and responded to certain inquiries, but refused to answer 23 questions on the basis of CDCB's attorney-client privilege. App., infra, 2a-3a. 2. The Commission filed this subpoena enforcement action pursuant to 7 U.S.C. 15 on December 15, 1981 in the United States District Court for the Northern District of Illinois to compel Weintraub to answer the questions as to which he had asserted CDCB's privilege. After determining that waiver of the privilege would be in the best interests of CDCB's estate in light of potential claims by the estate against CDCB's former management and others, /1/ the trustee in bankruptcy, on March 11, 1982, waived the corporation's attorney-client privilege with respect to any communications that occurred on or before October 27, 1980. App., infra, 3a. On April 26, 1982, a United States magistrate granted the Commission's application for an order compelling Weintraub to answer, on the ground that the trustee had validly waived CDCB's privilege (id. at 19a-20a). The district court upheld the magistrate's order on June 9, 1982 (id. at 18a). Frank and Andrew McGhee were granted leave to intervene on June 30, 1982 (id. at 3a), and argued (in a request for recondiseration) that the trustee's waiver was ineffective over their objection. On July 27, 1982, the district court clarified its earlier order to provide that Weintraub must respond without asserting CDCB's attorney-client privilege /2/ (id. at 17a). The McGhees appealed from the July 27 order. /3/ 3. The court of appeals reversed (App., infra, 1a-16a). /4/ The Court concluded that a bankruptcy trustee does not have the power to waive a corporate debtor's attorney-client privilege with respect to communications that occurred before the filing of the bankruptcy petition (id. at 11a). Although it took note of the broad powers accorded a trustee under the Bankruptcy Code, the court concluded that those powers do not include the power to waive or assert the corporate debtor's attorney-client privilege for four reasons: the trustee does not under the Code "replace the corporation * * * (or) succeed to the positions of (its) officers and directors" (id. at 9a); waiver by the trustee of a corporate debtor would treat such debtors less favorably than individuals in bankruptcy (id. at 9a-10a); waiver by the trustee would discriminate against bankrupt corporations as compared to solvent corporations (id. at 10a); and, "most importantly," waiver by the trustee could chill attorney-client communications (id. at 10a-11a). The court of appeals recognized that its decision conflicts with Citibank, N.A. v. Andros, 666 F.2d 1192 (8th Cir. 1981), which held that the trustee of a corporation undergoing liquidation pursuant to the former Bankruptcy Act, 11 U.S.C. (1976 ed.) 110(a), could waive the debtor's attorney-client privilege, but declined to follow it (App., infra, 15a-16a). The court also noted that In re O.P.M. Leasing Service, Inc., 670 F.2d 383 (2d Cir. 1982), held that the trustee of a corporation undergoing reorganization pursuant to Chapter 11 of the Bankruptcy Code could waive the corporation's attorney-client privilege, but distinguished it on the ground that the board of directors of the corporation there was no longer in existence, while here, Frank McGhee remained an officer and director (App., infra, 14a-15a). REASONS FOR GRANTING THE PETITION The decision of the court of appeals conflicts with the decisions of two other circuits. It is based on a fundamental misunderstanding of the role of a trustee in bankruptcy and the power of corporate management to waive the attorney-client privilege, and will seriously impede the government's ability to investigate violations of federal regulatory and criminal statutes. Review by this Court is clearly warranted. 1.a. The decision below directly conflicts with the decision of the Eighth Circuit in Citibank, N.A. v. Andros, supra. /5/ In Citibank, the court held that the trustee in bankruptcy of a corporation undergoing liquidation under the former Bankruptcy Act /6/ may waive the debtor corporation's attorney-client privilege over the objection of its officers (666 F.2d at 1193 & n.3). The Eighth Circuit reasoned correctly that the power to assert or waive a corporation's attorney-client privilege rests with the corporation's management and that the bankruptcy trustee in a liquidation proceeding is vested with the authority to manage the debtor corporation (id. at 1195). Accordingly, the power to waive or assert the corporate debotr's attorney-client privilege is transferred to the trustee along with the other powers of management (ibid.). The court below recognized the conflict with Citibank, but declined to follow it, based on its own interpretation of the Bankruptcy Code and the policies behind it and the attorney-client privilege (App., infra, 15a-16a). b. The decision below also conflicts with the result in In re O.P.M. Leasing Services, Inc., supra. In O.P.M. Leasing, the Second Circuit held that the trustee of a corporation undergoing reorganization pursuant to Chapter 11 of the Bankruptcy Code, 11 U.S.C. 1101 et seq., could waive the corporation's attorney-client privilege over the objection of two of the corporation's former officers and directors, one of whom was its parent company's sole voting shareholder. While the court in O.P.M. Leasing stressed the fact that the debtor's board of directors was no longer in existence (670 F.2d at 386-387), the decision should not be distinguished on that basis. Whether or not pre-bankruptcy officers and directors formally retain their positions after a trustee is appointed, they thereafter lack the power to manage the corporation (see pages 9-11, infra). Accordingly, Frank McGhee, while technically still an officer and director of CDCB, possessed no greater authority in any relevant respect over the debtor than did the former officers and directors in O.P.M. Leasing court recognized that the management of a corporation is the proper entity to assert or waive its attorney-client privilege (670 F.2d at 387). When a trustee is appointed under Chapter 11, he is granted broad management powers equivalent in relevant respects to a Chapter 7 trustee (see pages 10-11 & note 12, infra). It follows that the trustee has the power to waive the privilege in either case. 2. The court of appeals' decision rests on a misunderstanding of the law of corporations and bankruptcy. a. The question raised by this case is who is the proper party to act for a corporation in asserting or waiving its attorney-client privilege when it is undergoing liquidation pursuant to Chapter 7 of the Bankruptcy Code. A corporation, as an artificial entity, must of course act through natural persons. The power to assert or waive the corporation's attorney-client privilege rests with its management -- normally the board of directors -- or those authorized by management to assert this power. /7/ See, e.g., Citibank, 666 F.2d at 1195; Stewart Equipment Co. v. Gallo, 32 N.J. Super. 15, 107 A.2d 527 (1954); Note, The Lawyer-Client Privilege: Its Application to Corporations, the Rule of Ethics, and Its Possible Curtailment, 56 Nw. U.L. Rev. 235, 243-244 (1961); see also United States v. DeLillo, 448 F. Supp. 840 (E.D.N.Y. 1978) (board of trustees of pension fund is proper entity to waive privilege, by analogy to corporations); cf. Garner v. Wolfinbarger, 430 F.2d 1093, 1103-1104 (5th Cir., 1970), cert. denied, 401 U.S. 974 (1971) (in derivative action, shareholders may for good cause overcome corporation's privilege). The corporation's privilege may not be asserted by individual directors or officers in their own right; indeed, the corporation may waive its privilege with respect to communications made by a director or officer to the corporation's attorney. E.g., Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 611 n.5 (8th Cir. 1978) (en banc); United States v. Piccini, 412 F.2d 591, 593 (2d Cir., 1969; In re Grand Jury Proceedings, 434 F. Supp. 648 (E.D. Mich. 1977), aff'd. per curiam, 570 F.2d 562 (6th Cir. 1978); In re Grand Jury Subpoena Duces Tecum, 391 F. Supp. 1029, 1034 (S.D.N.Y. 1975); Note, The Attorney-Client Privilege: A Look at its Effect on the Corporate Client and the Corporate Executive, 55 Ind. L.J. 407, 411 (1980). The question in this case thus requires a determination of who, for purposes of assertion or waiver of the corporation's privilege, constitutes the "management" of a corporate debtor undergoing Chapter 7 liquidation. The issue is not, as the court below suggested (App., infra, 9a), whether the trustee technically "replace(s) the corporation as an entity" or "succeed(s) to the positions of (its) officers and directors." The answer must be found in the powers accorded a Chapter 7 trustee by the Bankruptcy Code and in the policies behind the attorney-client privilege as it applies in the corporate context. /8/ b. A debtor undergoing liquidation is required to "surrender to the trustee all property of the estate and any recorded information * * * relating to property of the estate" /9/ (11 U.S.C. 521(3)). The trustee is "accountable for all property received" (11 U.S.C. 704(2)), and is legal representative of the estate, with the capacity to sue and be sued (11 U.S.C. 323). He is directed to reduce the proper of the estate to money and "close up (the) estate as expeditiously as is compatible with the best interests of parties in interest" (11 U.S.C. 704(1)). He must "investigate the financial affairs of the debtor" (11 U.S.C. 704(3)), and is empowered to sue officers, directors and other insiders to recover fraudulent or preferential transfers of the debtor's property (11 U.S.C. 547(b)(4)(B), 548). If continued operation of the debtor's business for a limited time is desirable, the court "may authorize the trustee to operate the business" (11 U.S.C. 721). When a commodity broker is liquidated, the trustee is required to comply with certain instructions of customers, to answer certain margin calls, and to prevent commodity contracts from remaining open (11 U.S.C. 765, 766(a) and (b)). He may also "operate the business of the debtor" in order to close certain commodity contracts (11 U.S.C. 766(b)). It is clear from the foregoing that a liquidation trustee is granted in all relevant respects complete management authority over the debtor. /10/ See 2 Collier on Bankruptcy Paragraph 323.01, at 323-2 (15th ed. 1984). Former management's role is limited to turning over the corporation's property to the trustee and to rpoviding certain information to the trustee and creditors (11 U.S.C. 521, 343). In liquidation cases, and in reorganization cases where a trustee has been appointed /11/ (see 11 U.S.C. 1107, 1108), former management is not authorized to continue operating the corporation's business. /12/ Because the liquidation trustee is granted, in essence, complete management authority, he is the proper party to waive or assert the corporate debtor's attorney-client privilege. /13/ See generally Proposed Fed. R. Evid. 503(c), 56 F.R.D. 183, 236 (1972); In re Grand Jury Proceedings, debtor undergoing liquidation have been deprived of the authority to manage; there is no reason why they should be deemed to continue to possess the authroity to act for the corporation with respect to its privilege. If such officers and directors object to a waiver of the privilege, it is solely as individuals; such objections are ineffective even with respect to their own communications (see pages 8-9, supra). c. This result serves the important policy of preventing former officers and directors from abusing the corporation's privilege in order to shield their own wrongdoing and prevent the effective assertion of valid claims by those injured by their actions. Decisions with respect to the privilege properly lie with the trustee, a fiduciary independent of prior management, /14/ accountable for all property of the estate (11 U.S.C. 704(2)), and under a duty to the debtor and the creditors to realize as much as possible from the estate (4 Collier, supra, Paragraph 704.,01(3), at 704-5). It is especially important for the trustee to investigate the conduct of prior management and to uncover and assert causes of action against the debtor's officers and directors (4 Collier, supra, Paragraph 704.07, at 704-17 -- 704-18). See generally 11 U.S.C. 704(3), 547, 548. Fulfillment of this duty would often be impossible if former management were allowed control over the corporation's attorney-client privilege. /15/ See generally In re Browy, 527 F.2d 799, 802 (7th Cir. 1976). In this very case, respondent Frank McGhee was convicted in 1983 of embezzling $3.5 million in CDCB's customer funds, in violation of Section 9(a) of the Commodity Exchange Act, 7 U.S.C. 13(a), and was sentenced to three years' incarceration. United States v. Frank McGhee, No. 83 CR262-1 (N.D. Ill. Oct. 7, 1983). Where, as here, the corporation may have causes of action against its officers and directors for fraud or other wrongful conduct, those individuals clearly have a conflict of interest with respect to whether the corporation's attorney-client privilege should be exercised. Cf. Pepper v. Litton, 308 U.S. 295, 306 (1939). Allowing the very insiders who may have defrauded the corporation to veto the trustee's waiver of the privilege would poorly serve the interests of the debtor and its beneficiaries, and would defeat the privilege's purpose of "promot(ing) broader public interests in the observance of law and administration of justice" (Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)). /16/ See generally Valente v. Pepsico, Inc., 68 F.R.D. 361, 369-370 n.16 (D. Del. 1975); cf. Garner v. Wolfinbarger, supra. On the other hand, the policy concerns expressed by the court of appeals (App., infra, 9a-11a) are misplaced. /17/ The "potential chilling effect on attorney-client communications" (id. at 10a) is no greater here than in the case of a solvent corporation: individual officers and directors always run the risk that present or successor management may waive the corporation's privilege with respect to their communications with counsel (see pages 8-9, spura). The chilling effect, if any, arises in all such cases from the fact that the privilege is that of the corporation, not its officers or directors. /18/ The court's statement (App., infra, 9a) that waiver by the trustee would "condone and inequality of treatment between bankrupt corporations and bankrupt individuals" is also unpersuasive. Corporations, as "artificial creature(s) of law" (Upjohn Co. v. United States, 449 U.S. 383, 389-390 (1981)), must act through natural persons to exercise their rights. It does not discriminate against a corporation to designate the trustee -- who now constitutes the "management" -- as the person to act on its behalf. /19/ Finally, the court's concern (App., infra, 10a) over discrimination against bankrupt corporations as compared to solvent ones is groundless. The same rule applies to both: the privilege may be waived by management. Any difference in treatment results from the fact that the management of a corporation undergoing liquidation is placed in the hands of a trustee pursuant to the Bankruptcy Code. /20/ Indeed, the court of appeals' decision could work to the disadvantage of corporations in bankruptcy by preventing them from discovering valid claims against officers and directors. See pages 12-13, supra. 3. The decision of the court of appeals will seriously impede the government's ability to enforce federal criminal, commodity, and securities laws by shielding vital information from investigators and administrative agencies and foreclosing an important avenue of voluntary cooperation between the government and bankruptcy trustees. It will, for example, substantially hinder the CFTC's ability to investigate and prosecute insiders of bankrupt commodity corporations. Because insiders' fraud frequently precipitates commodity firms' bankruptcies, /21/ the Commission's effectiveness is especially important in this context. /22/ See generally H.R. Rep. 95-595, 95th Cong., 1st Sess. 271 (1977) (Chapter 7 liquidation procedures for commodity brokers designed to give their customers "special protection"). The Securities and Exchange Commission (SEC) would similarly be adversely affected in its enforcement of federal securities laws, /23/ as would the government's use of grand juries to investigate persons associated with bankrupt corporations /24/ and its prosecution of fraud relating to bankruptcy cases under 18 U.S.C. 152. The voluntary cooperation of trustees with the government in the latter's investigations of prior management -- including, where appropriate, waiver of the attorney-client privilege -- is common because it is often in the interest of the estate to allow the government to undertake the burden and expense of such investigations, and then to file civil actions in their wake. /25/ In and out of the bankruptcy context, voluntary cooperation by persons or corporations being investigated by the government is extremely important to the effective enforcement of the law. /26/ The decision below also undermines the ability of the United States Trustees and the private bankruptcy trustees they supervise to perform their statutory obligations. /27/ Although corporate liquidations occur less frequently than Chapter 7 cases filed by individuals, corporate bankruptcies administered by United States Trustees usually involve significantly larger assets and liabilities; they have a disproportionate impact on the administration of the bankruptcy law because of their size, importance and complexity. Trustees in these cases are regularly confronted with inadequate or missing records coupled with allegations of fraud or preferential dealings by corporate officers. The waiver of the attorney-client privilege is of great practical concern because the attorney of a bankrupt corporation is often the best (and sometimes the only) repository of information about the corporation's prior affairs. If the trustee cannot obtain this information himself or authorize its disclosure to interested government agencies whose investigations coincide with the interests of the corporation and its creditors, he will be deprived of an important tool for the effective exercise of his responsibilities. See 11 U.S.C. 704(1) and (3). /28/ The principal application of the decision below will be to situations where prior management has, through illegal actions, injured the corporation and its creditors, shareholders, and customers. It grants officers and directors of insolvent corporations the power to foreclose effective investigation into their own misconduct, and will thereby frustrate the legitimate efforts of bankruptcy trustees and law enforcement authorities. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. REX E. LEE Solicitor General PAUL M. BATOR Deputy Solicitor General BRUCE N. KUHLIK Assistant to the Solicitor General KENNETH M. RAISLER General Counsel WHITNEY ADAMS Deputy General Counsel HELEN G. BLECHMAN Attorney Commodity Futures Trading Commission AUGUST 1984 /1/ See Brief of John K. Notz, Jr., Trustee, as Amicus Curiae 1. The trustee noted substantial actual or potential claims by the estate against respondents totalling more than $4 million (id. at 8). /2/ The earlier order had not explicitly limited the attorney-client privilege in question to that asserted on behalf of the corporation (App., infra, 18a). /3/ Because the district court refused to compel Weintraub to testify pending appeal (App., infra, 4a n.4), the Commission has not yet obtained answers to the questions at issue. While administrative proceedings have already been initiated against respondents, Weintraub's answers could provide information for additional causes of action, or claims against other persons. /4/ On its own motion, the panel revised its opinion on March 19, 1984 (App., infra, 12a-16a), but reached the same result as it had earlier (id. at 1a-11a). The CFTC's petition for rehearing was denied without opinion (id. at 21a-22a). The petition had been supported by several amici: the Securities and Exchange Commission, the United States Trustee for the Northern District of Illinois, and the trustee for CDCB. /5/ The decision below also conflicts with a recent decision of the Ninth Circuit, In re Boileau, No. 83-6259 (June 27, 1984), petition for reh'g. pending (filed July 13, 1984), and with the decisions of virtually every other court to have considered the question. In Boileau, the court held that an examiner in a reorganization proceeding who had been granted most of the powers of a trustee had the power to waive the debtor's attorney-client privilege. In reaching this conclusion, the court relied on precedents such as Citibank, holding that a trustee has the power to waive a debtor's attorney-client privilege, and noted without comment that the decision below conflicts with these authorities (slip op. 2743). See also Fulk v. Bagley, No. C-78-333-WS (M.D.N.C. Dec. 21, 1983), reconsideration denied (Jan. 3, 1984) (Chapter X reorganization under former Bankruptcy Act); In re Continental Mortgage Investors, No. 76-593-S (D. Mass. July 31, 1979 (Chapter X reorganization); In re Investment Bankers, Inc., 30 Bankr. 883, 886 (Bankr. D. Colo. 1983) (liquidation under Securities Investor Protection Act); In re Nat'l. Trade Corp., 28 Bankr. 872, 874 (Bankr. N.D. Ill. 1983) (reorganization); In re Featherworks Corp., 25 Bankr. 634, 643 (Bankr. E.D.N.Y. 1982), aff'd., 36 Bankr. 460 (E.D.N.Y. 1984); In re Smith, 24 Bankr. 3 (Bankr. S.D. Fla. 1982); In re Silvio De Lindegg Ocean Developments, Inc., 27 Bankr. 28 (Bankr. S.D. Fla. 1982) (liquidation); In re Kaleidoscope, Inc., 15 Bankr. 232, 239-240 (Bankr. N.D. Ga. 1981), rev'd. on other grounds, 25 Bankr. 729 (N.D. Ga. 1982) (Chapter X reorganization); In re Amjoe, Inc., 11 Collier Bankr. Cas. 2d (MB) 45 (Bankr. M.D. Fla. 1976); Weck v. District Court, 161 Colo. 384, 422 P.2d 46 (1967) (statutory accountant-client privilege); S. Stone & R. Liebman, Testimonial Privileges Section 1.19, at 35 & n.152 (1983) ("authorities are in accord that successors or trustees of bankrupt or dissolved corporations may assert or waive the privilege"). But see Ross v. Popper, 9 Bankr. 485 (S.D.N.Y. 1980) (Magis.). /6/ The debtor corporations in Citibank were liquidated under the former Bankruptcy Act, 11 U.S.C. (1976 ed.) 1 et seq. See In re Hy-Gain Electronics Corp., 11 Bankr. 119, 120 (D. Neb. 1978), rev'd., Citibank, N.A. v. Andros, supra. Section 70(a) of the former Act, 11 U.S.C. (1976 ed.) 110(a), relied on by the court of appeals in Citibank (666 F.2d at 1193 n.3), does not, for purposes of the instant case, differ from Section 541(a) of the current Bankruptcy Code as it applies to liquidation under Chapter 7. See 4 Collier on Bankruptcy Paragraph 541.02(2), at 541-14(15th ed. 1984); In re Silvio De Lindegg Ocean Developments, Inc., supra (following Citibank in Chapter 7 proceeding). Cf. In re Investment Bankers, Inc., supra (following Citibank in liquidation proceeding under Securities Investor Protection Act). /7/ In practice, a large corporation is typically managed by its top officers, but their authority legally derives from that of the board of directors. See Eisenberg, Legal Models of Management Structure in the Modern Corporation: Officers, Directors, and Accountants, 63 Calif. L. Rev. 375 (1975). The distinctions generally drawn between officers and directors are not relevant to the issue raised by this petition. /8/ The legislative history of the Bankruptcy Code indicates that Congress left this issue to be determined by the courts. See 124 Cong. Rec. 32400 (1978) (remarks of Rep. Edwards); id. at 339 (1978) (remarks of Sen. DeConcini). /9/ The estate is comprised in part of "all legal or equitable interests of the debtor in property (with certain enumerated exceptions,) as of the commencement of the case" (11 U.S.C. 541(a)(1)). It includes causes of action against officers and directors for misconduct and mismanagement. See 4 Collier on Bankruptcy Paragraph 541.10(8), at 541-67 (15th ed. 1984). /10/ The court of appeals' failure to recognize this may be attributable to its confusion of various provisions of the Bankruptcy Code. The court relied almost exclusively on 15A W. Fletcher, Private Corporations Section 7657 (rev. ed. 1981) in concluding that a corporation "is capable of numerous functions even after the filing of the petition in bankruptcy" (App., infra, 9a). The cited section of Fletcher's treatise, however, does not pertain to liquidation proceedings under present law, at least with respect to who has the power to act on behalf of the bankrupt entity. /11/ Under Chapter 11, a trustee may only be appointed or cause, such as "fraud, dishonesty, incompetence or gross mismanagement * * * by current management," or if such appointment is in the best interests of the estate and its beneficiaries (11 U.S.C. 1104(a)(1)). Under Chapter 7, by contrast, appointment or election of a trustee is automatic (11 U.S.C. 701, 702). /12/ While it is not necessary to reach the issue in order to decide this case, we note that when a trustee is appointed under Chapter 11, he should have the power to waive or assert the debtor corporation's attorney-client privilege for reasons analogous to those under Chapter 7. See generally 11 U.S.C. 323, 1106, 1108; 5 Collier, supra, at Paragraph 1106.01. /13/ The trustee may also assert or waive the privilege because the power to do so is an intangible asset that passes to the trustee under the Bankruptcy Code (11 U.S.C. 521(3), 704). See Citibank, 666 F.2d at 1195; O.P.M. Leasing, 670 F.2d at 386 n.2; In re Amjoe, 11 Collier Bankr. Cas. 2d (MB) 45 (M.D. Fla. 1976). Cf. Ex parte Fuller, 262 U.S. 91 (1923) (trustee has the authority to disclose the books of a bankrupt partnership over the partners' claims of privilege). /14/ Directors and officers are "insiders" who may not vote in the election of the trustee (11 U.S.C. 101(25)(B)(i) and (ii), 702(a)(3)). /15/ The court of appeals' decision would presumably apply not only to investigations by government agencies, but also to the trustee's own examination of the debtor corporation's counsel. See generally, e.g., 11 U.S.C. 542(e) (disclosure of recorded information to trustee is "(s) ubject to any applicable privilege"); In re O.P.M. Leasing Services, Inc., supra; In re Silvio De Lindegg Ocean Developments, Inc., surpa. See also Brief on John K. Notz, Jr., Trustee, as Amicus Curiae 3-4 (examination of Weintraub was undertaken by trustee as well as by the CFTC). /16/ It should also be noted that special fiduciary obligations are owed by officers of commodity brokers. See Gordon v. Shearson Hayden Stone, Inc., (1980-1982 Transfer Binder) Comm. Fut. L. Rep. (CCH) Paragraph 21,016, at 23,976 n.16 (1980), aff'd. mem. sub nom. Shearson Loeb Rhoades, Inc. v. CFTC, 673 F.2d 1339 (9th Cir. 1982); In re Resenbaum Grain Corp., 103 F.2d 656, 661 (7th Cir. 1939). /17/ The court's concerns are especially unpersuasive because it failed to take into account that the attorney-client privilege, which inhibits the truth-seeking process, must be "strickly confined within the narrowest possible limits consistent with the logic of its principle." 8 Wigmore on Evidence Section 2291, at 554 (McNaughton rev. 1961). See, e.g., Trammel v. United States, 445 U.S. 40, 50 (1980). /18/ If counsel was also acting as an attorney for the individual officer or director, the individual may be able to assert his own attorney-client privilege. E.g., Diversified Industries, Inc. v. Meredith, 572 F.2d at 611 n.5. /19/ The court's statement (App., infra, 10a) that waiver by the trustee would allow the attorney-client privilege to "vanish" on the "whim" of the trustee is plainly incorrect. The trustee's waiver must be based on his judgment as to the best interests of the estate (see page 12, supra), not on a "whim." And waiver of the privilege by the trustee, acting for the debtor, no more causes the privilege to "vanish" than does any other proper waiver by the party authorized to make it. /20/ Of course the Bankruptcy Code is premised on the need to treat insolvent individuals and corporations differently from solvent ones. The Code provides debtors with certain important advantages, such as a stay of creditors' actions (11 U.S.C. 362). /21/ See, e.g., In re Group J. David, Inc. and In re J. David Dominelli, No. 84-00633/634-P-INV-7 (Bankr. S.D. Cal. filed Feb. 13, 1984); In re J. David Securities, No. 84-01309-LM7 (Bankr. S.D. Cal. filed Mar. 22, 1984); In re Financial Partners, Ltd., No. 82-B-14-353 (Bankr. N.D. Ill. filed Oct. 22, 1982); In the Matter of T&D Management Co., Nos. 81-02568, 02569, 02570 (Bankr. D. Utah filed Aug. 10, 1981); In re Incomco, Inc., No. 80 13 11217 (Bankr. S.D.N.Y. filed Aug. 1, 1980); In re Auric Equities Corp., No. 80-13-10283 (Bankr. S.D.N.Y. filed Feb. 27, 1980); In re Trending Cycles for Commodities, Inc. No. 80-00099-BKC-TCB (Bankr. S.D. Fla. filed Jan. 31, 1980). /22/ The trustee is required to furnish, on request, information concerning the estate and its administration (including facts ascertained with respect to fraud, misconduct and mismanagement) to any party in interest (11 U.S.C. 704(6)). The CFTC has the right to raise, appear and be heard on any issue in a commodity broker liquidation (11 U.S.C. 762), and qualifies as a party in interest. As such, the Commission has participated in the CDCB liquidation. /23/ Insider misconduct often results in the bankruptcy of publicly held corporations when that conduct comes to light. See, e.g., In re Equity Funding Corp., 375 F. Supp. 1378, 1380-1381 (J.P.M.D.L. 1974); In re Saxon Industries, Inc., 29 Bankr. 319 (Bankr. S.D.N.Y. 1983). In part because of the frequency of such occurrences, the SEC has the right to participate in reorganization proceedings under Chapter 11 (11 U.S.C. 1109(a)). See S. Rep. 2073, 75th Cong., 3d Sess. 6-10 (1988). /24/ During a grand jury investigation in the Southern District of Illinois, for example, counsel for a corporation undergoing Chapter 11 reorganization, at the behest of its former officers and contrary to the waiver of the trustee, relied on the decision below to invoke the attorney-client privilege on behalf of the corporation, thereby shielding the officers from potentially damaging revelations concerning possible securities fraud and other violations. In re Grand Jury Proceedings, No. 83-3337 (S.D. Ill.). /25/ Where such cooperation is not, in the trustee's judgment, in the best interests of the estate because of possible third-party claims against it, the trustee presumably would not waive the privilege. /26/ Indeed, voluntary cooperation by corporations with the SEC is so common that an entire body of law has developed with respect to whether a voluntary waiver of the attorney-client privilege in favor of the SEC also waives the privilege with respect to others who seek the same information. See, e.g., Permian Corp. v. United States, 665 F.2d 1214 (D.C. Cir. 1981); Diversified Industries, Inc. v. Meredith, supra. /27/ United States Trustees serve in 18 judicial districts to supervise the administration of Chapter 7 cases and private trustees appointed in those cases (28 U.S.C. 586(a)(1) and (3)). When a private trustee is not available for appointment, the United States Trustee is authorized to act at trustee. 11 U.S.C. 15701 (b). /28/ The Securities Investor Protection Corporation would also be adversely affected in its ability to protect the customers of stockbrokers that undergo bankruptcy APPENDIX