August 09, 2011 5:54pm PT by Alex Ben Block
Judge Rejects David Bergstein Trustee's Request to Abolish Attorney-Client Privilege
A federal bankruptcy court judge has denied a request by Ronald Durkin, the trustee overseeing ThinkFilm, Capitol Film, R2D2 and two other bankrupt movie businesses, to be relieved of the attorney-client privilege obligation which he inherited when he took charge of the companies earlier this year.
Judge Barry Russell said in bankruptcy court in Los Angeles Tuesday that he was denying the motion because Durkin already had enough control of the five debtor companies, that he didn't "need" an order relating to those entities to do what he wishes.
The companies which were run by David Bergstein were forced into an involuntary bankruptcy and are the subject of continuing litigation and court hearings.
The judge also said Durkin's request to waive privilege went too far because it appeared to be part of an attempt to exert the trustee's control over a dozen other related companies which Durkin has asked the court to consolidate into the bankruptcy case and put under his control.
Russell said that Durkin seemed to want back door permission to control the subsidiaries but he would have to wait until there was a hearing on his request for "substantive consolidation" of the other companies to determine what would happen.
The rebuke to the trustee follows by a day another ruling issued by Judge Russell which denied a request by Durkin's lawyer, Leonard Gumport, for reconsideration of a July 27 punitive award to lawyers for Bergstein and Tutor. The judge had ordered Gumport to personally pay legal fees for wasting the other sides time by removing a state court case involving Bergstein's former lawyer Susan Tregub to make it part of the federal bankruptcy case. Russell had ordered that case back to state court, and apparently will allow Bergstein's side to depose the trustee and his attorney despite their objections.
Bergstein's lawyers had asked that the award be increased from $5,000 to $15,000.
In his Monday ruling, Russell signaled that he is not happy with the approach the trustee has been taking, and that there is no assurance Durkin will win on his motion for consolidation, any more than he was successful in his request to waive legal privilege. "I am troubled not only by the fact that the consolidation and control motion is irrelevant to why he removed the Tregub action," the judge wrote in his August 8 order, "but also that he assumes that he will prevail on both (motions)."
Russell increased the award Gumport has to pay the other side's lawyers to $8,000.
Bergstein and former business partner Ronald Tutor had filed objections to the trustee's request to waive attorney client privilege, saying they had no objection to public release of a half dozen documents which until today were covered by attorney-client privilege. Hours after the judges ruling, the documents in question were emailed to creditors for the first time.
The documents are exhibits to a filing by Gumport in support of the attorney client motion. Most are communications between lawyers representing Bergstein, Tutor and the debtor companies discussing the case, and what information Bergstein should put into a March 2010 declaration opposing the involuntary bankruptcy.
The memos, written just after the filing of the involuntary bankruptcy case on March 17, 2010, repeatedly mention that R2D2 was a holding company for a number of the businesses and was jointly owned by Bergstein and Tutor. That conflicts with claims made to the court that Tutor sold his interests in the businesses to Bergstein in January 2009, long before the bankruptcy was filed.
The notes, which include Bergstein's corporate organization charts and documents prepared by his tax accounting firm, also appear to raise questions about his lawyers role in what the trustee has alleged was a cover up of what was really going on. If the trustee is proven right, some or all of the attorneys could be subject to disciplinary action.
David Molner of the Aramid Entertainment Fund, who has been a leader among the creditors in the bankruptcy action, said in a statement: "Regardless of whether the Trustee won or lost a particular motion, it is now clear that Ron Tutor and David Bergstein have been repeatedly lying to creditors and to the court - about fundamentally important issues - for well over a year."
Bergstein said in an email Tuesday to The Hollywood Reporter that, "We won this hearing today," and than referring to the Monday ruling: "The judge increased the amount of sanctions against Mr. Gumport and admonished him repeatedly. This ruling is much more the tone of the judges' attitude today towards Mr. Gumport than your account."
A hearing on the substantive consolidation request is scheduled for September 7.