We have blogged previously about the intersection of fraud and bankruptcy. A recent decision from the U.S. District Court for the Central District of California justifies an addition to that series of posts.
Thomas Girardi had a long and distinguished career as a plaintiffs’ attorney, including litigating the case depicted in the 2000 biographical legal drama, Erin Brockovich.
But in 2020, things took a sudden turn for Girardi and his law firm, Girardi & Keese (“G&K”). Accused of misappropriating client funds, multiple creditors filed involuntary bankruptcy petitions against Girardi and G&K pursuant to Chapter 7 of the Bankruptcy Code.
The bankruptcy court in G&K’s case appointed a trustee to “take possession of the property of the estate.” United States v. Girardi, 2:23-cr-47-JLS, ECF No. 299 at 7 (Jul. 25, 2024, C.D. Cal.). That court “authorized the trustee to immediately enter onto the premises of [G&K] and take possession of the books and records.” Id. Further, by operation of the Bankruptcy Code, the trustee had a duty to make criminal referrals if justified. See 18 U.S.C. § 3057(a).
Girardi’s troubles compounded when federal prosecutors in both Illinois and California filed indictments against him. As part of the criminal cases, prosecutors sought and received, without a warrant, documents from the trustee in G&K’s involuntary bankruptcy proceedings. Girardi argued that such materials should be suppressed because, inter alia, they were obtained in violation of his Fourth Amendment right against unreasonable searches and seizures.
The court rejected Girardi’s argument. Despite beginning with the axiom that “statutory bankruptcy law cannot contravene Fourth Amendment Constitutional law,” the court nonetheless relied primarily on statutory text, and precedent based on a prior version of the Bankruptcy Code, to conclude that Girardi had no reasonable expectation of privacy in the documents turned over by G&K’s trustee.
First, the court found dispositive the Ninth Circuit precedent in Bisno v. United States, 299 F.2d 711 (9th Cir. 1961). In that case, the court of appeals found that under similar facts, it was “clear that no rights of [the defendant] under the Fourth . . . Amendment were violated.” Id. at 717. “The records involved were not recovered from [the defendant] by a search or seizure of any kind but vested in the trustee in bankruptcy by operation of law as of the date of the filing of the petition in bankruptcy. Hence rights under the Fourth Amendment are not involved.” Id.
Similarly, the court in Girardi found that because the materials at issue were provided by the bankruptcy trustee, the Fourth Amendment was not applicable. While the Bankruptcy Code at the time of Bisno included a provision that “vested” title of documents related to the debtor’s property with the trustee, the current Code’s grant of authority to the trustee to “take possession of the books and records” of the debtor “give the same foundational underpinning” relied upon by the Ninth Circuit. Girardi, ECF No. 299 at 10.
The district court went on to find that, even absent Bisno, it would find against Girardi because he did not establish the requisite reasonable expectation of privacy in the materials he sought to suppress. Id. The court critiqued Girardi for not differentiating between materials required to be disclosed as part of any bankruptcy (e.g., lists of creditors) – for which Girardi appeared to concede that he did not have a reasonable expectation of privacy – and other materials in the case at bar that could be protected by the Fourth Amendment. Instead, Girardi used the hypothetical example of a “salacious diary” that was turned over to a trustee but had no relevance to the trustee’s duties.
The court sidestepped this potentially complicated question, pointing out that Girardi "does not in any matter attempt to divide the broad, self-described category of [evidence] he seeks to suppress into any subcategories he believes should be shielded." Therefore, the court held, Girardi failed to meet his burden of establishing an expectation of privacy in the materials. Accordingly, there could be no Fourth Amendment violation. Id. at 11.
