Good-Faith Defense to Fraudulent-Transfer Claims Results in At-Issue Waiver

In a fraudulent-transfer lawsuit arising out of a bankruptcy action, a Florida bankruptcy court ruled that a defendant-bank’s assertion of a good-faith defense waived the attorney–client privilege over emails between bank employees and its counsel.  The court, however, limited the waiver to documents evidencing the bank’s state-of-mind during the period of the alleged improper transfers.  In re: Mongelluzzi, 2017 WL 1843049 (Bankr. M.D. Fla. May 8, 2017).  You may read the decision here.


Frank Mongelluzzi owned and operated several companies, and he and his business entities maintained 61 accounts at a regional bank.  After Mongelluzzi and his companies filed bankruptcy, the bankruptcy trustees filed various complaints against the bank seeking to avoid allegedly fraudulent transfers under 11 U.S.C. § 548.

The trustees claimed that Mongelluzzi and his companies had engaged in a check-kiting scheme, that the bank had knowledge of this scheme, and that the bank devised a controlled exit strategy to reduce its financial exposure from $25M to $3M.

Good-Faith Defense and At-Issue Waiver

In response, the bank asserted an affirmative defense, under Bankruptcy Code § 548(c), that it never exercised dominion over Mongelluzzi’s funds and took each transfer in good faith.  And in response to discovery requests, the bank objected to producing several email communications based on the attorney–client privilege.

The trustees, however, asserted that the bank waived the privilege over the emails by asserting a good-faith defense under § 548(c).  In other words, the bank put the subject of the emails—its good-faith conduct—at issue, which results in waiver.  And the trustees sought all of the bank’s privileged emails listed on the privilege log.


The court noted that the “at issue” waiver doctrine embodies a fairness principle, and arises from the maxim that a party cannot use the attorney–client privilege as a sword and a shield.  At-issue waiver applies when “(1) assertion of the protection results from some affirmative act by the party invoking the protection; (2) through this affirmative act, the asserting party puts the protected information at issue by making it relevant to the case; and (3) application of the protection would deny the opposing party access to information vital to its defense.”

Relying on In re Gibco, Inc., 185 F.R.D. 296 (D. Colo. 1997), the bankruptcy court found that the bank’s good-faith defense resulted in at-issue waiver—the bank put its “state of mind” regarding Mongelluzzi’s transactions at issue in the litigation.

No Blanket Waiver

The court, however, refused to find waiver with respect to all the bank’s privileged communications.  Rather, the court limited its at-issue waiver ruling to those privileged communications that relate to the bank’s state-of-mind during the relevant time period.  And after an in camera review, the court delineated those communications to which waiver applied and those were the privilege remained intact.