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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Bankruptcy Court Highlights Pitfalls to Avoid When Retaining Experts

By Francis J. Lawall and Marcy J. McLaughlin Smith
July 01, 2023

The retention of an expert is obviously common and essential in many litigation scenarios. However, simply because the expert is retained by counsel in anticipation of litigation, does not automatically render all communications privileged. This is generally true whether the litigation is pending in a bankruptcy or nonbankruptcy proceeding. Therefore, the terms of an expert's retention, as well any decision as to what information is disclosed must be carefully considered in advance. A recent decision by the Bankruptcy Court for the Northern District of Texas, Northwest Senior Housing v. Intercity Investment Properties (In re Northwest Senior Housing), 2023 Bankr. LEXIS 1001 (Bankr. N.D. Tex. 2023), addressed these important issues involving the retention of a public relations firm and highlights some important pitfalls to avoid.

Northwest Senior Housing Corp., a Chapter 11 debtor, brought an adversary proceeding that asserted that certain disclosures made by the defendants violated a nondisclosure agreement between the parties. Pre-petition, the defendants' counsel entered into a consulting agreement with a public relations firm (the PR firm), which contemplated the provision of public relations advice in connection with anticipated litigation with the debtor.

Within the adversary, the debtor sought discovery from the defendants and the PR firm related to communications and documents exchanged between them. The defendants and PR firm asserted privilege and refused to produce, resulting in the debtor filing a motion to compel. The bankruptcy court determined that there were two key issues: 1) whether the attorney-client privilege applied between the PR firm and the defendants based on the PR firm's retention by the defendants' counsel; and 2) whether the consulting-expert privilege applied to protect the communications from production. Finding that neither privilege applied, the bankruptcy court ordered production.

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