Case Information
*1 I LLINOIS O FFICIAL R EPORTS Supreme Court
Center Partners, Ltd. v. Growth Head GP, LLC,
Docket Nos. 113107, 113128 cons.
Filed November 29, 2012
Held The doctrine of subject matter waiver did not apply to disclosures which were otherwise protected by the attorney-client privilege where they were ( Note: This syllabus made in an extrajudicial context and were not thereafter used to gain a constitutes no part of tactical advantage in the litigation—motion to compel production the opinion of the court but has been prepared reversed.
by the Reporter of
Decisions for the
convenience of the
reader . )
Decision Under Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Charles R. Review
Winkler, Judge, presiding.
Judgment Judgments reversed.
Cause remanded. *2 Counsel on Gino L. DiVito, Karina Zabicki DeHayes, Brian C. Haussmann and John M. Fitzgerald, of Tabet DiVito & Rothstein LLC, of Chicago (John S. Appeal
Kiernan, Carl Riehl and William H. Taft V, of Debevoise & Plimpton LLP, of New York, New York, of counsel), for appellants Westfield et al . Lynn H. Murray, Laura K. McNally, Pei Y. Chung and Claudia M. Rustad, of Grippo & Elden LLC, of Chicago, and David Lender and Jason Bonk, of New York, New York, and Thomas C. Frongillo, of Boston, Massachusetts, all of Weil, Gotshal & Manges LLP, for appellants The Rouse Company et al.
Jeffrey L. Willian, Alyssa A. Qualls and S. Maja Fabula, of Kirkland & Ellis LLP, Michael A. Pollard, of Baker & McKenzie LLP, and Kevin M. Forde, all of Chicago, for appellees.
Hinshaw & Culbertson LLP, of Chicago (Stephen R. Swofford, Thomas P. McGarry and Nabil G. Foster, of counsel), for amici curiae Illinois State Bar Association et al.
Andrew Kopon Jr., Mollie E. Werwas and Stacy M. Kramer, of Kopon Airdo, LLC, and Michael Resis, of SmithAmundsen LLC, all of Chicago, and Mary-Christine Sungaila, of Snell & Wilmer L.L.P., of Costa Mesa, California, for amici curiae International Association of Defense Counsel and Illinois Association of Defense Trial Counsel.
Justices
JUSTICE GARMAN delivered the judgment of the court, with opinion.
Chief Justice Kilbride and Justices Freeman, Thomas, Karmeier, Burke, and Theis concurred in the judgment and opinion.
OPINION
Defendants appeal from a circuit court of Cook County order that granted plaintiffs’
motion to compel the production of certain documents containing privileged attorney-client
communications.
[1]
Defendants refused to comply with the court’s order to compel production
*3
of documents and were found in contempt. Defendants appealed pursuant to Supreme Court
Rule 304(b)(5) (eff. Feb. 26, 2010). The appellate court affirmed the granting of the motion
to compel.
malls throughout the United States. In late 2001 and early 2002, defendants Westfield, Rouse, and Simon negotiated to jointly purchase the assets of a Dutch company, Rodamco North America, N.V. (Rodamco). Among the assets purchased with the acquisition of Rodamco was Urban Shopping Centers, L.P. (Urban), an Illinois limited partnership that owns high-end retail shopping centers across the United States. Defendants acquired a large majority interest in Urban, including full ownership of Head Acquisitions, L.P. (Head), Urban’s general partner. Plaintiffs are minority limited partners in Urban. The Business Negotiations Defendants entered into a purchase agreement with Rodamco in January 2002. On the
same day, defendants entered into a separate joint purchase agreement with one another that concerned the allocation of Rodamco’s assets and the share of the purchase price each of LLC, TRCGP Inc., The Rouse Company, L.P., The Rouse Company, Rouse LLC, GGP L.P., General Growth Properties, Inc., Urban Shopping Centers, L.P., Head Acquisition L.P., SPG Head GP, LLC, Simon Property Group, LP, and Simon Property Group, Inc. Urban Shopping Centers, L.P., Head Acquisition L.P., SPG Head GP, LLC, Simon Property Group, LP, and Simon Property Group, Inc. do not appeal from the circuit court’s order on the motion to compel.
Plaintiffs are Center Partners, Ltd., Urban-Water Tower Associates, Miami Associates, L.P., and Old Orchard Limited Partnership, all Illinois limited partnerships, individually and derivatively on behalf of Urban Shopping Centers, L.P.
We adopt the approach taken by the appellate court and will refer to plaintiffs simply as “plaintiffs.” We will refer to defendants as “defendants,” except where necessary to make the distinction we will refer to “defendant Westfield” (Westfield America Trust, Westfield America Inc., Westfield America Limited Partnership and Growth Head GP, LLC), “defendant Rouse” (Rouse- Urban LLC, TRCGP, Inc., The Rouse Company, LP, The Rouse Company, Rouse LLC, GGP LP, and General Growth Properties, Inc.), and “Simon” (Simon Property Group, LP, and Simon Property Group, Inc.).
them would pay. The purchase of Rodamco closed in May 2002. When the purchase closed, defendants executed an amended Head partnership agreement that included provisions allocating control over Urban’s numerous mall interests amongst themselves. Plaintiffs were not a party to the Rodamco purchase transaction or to the negotiations leading up to it.
¶ 6 During the course of the negotiations leading up to the purchase of Rodamco, defendants
discussed legal issues in negotiating the transaction’s terms. They also disclosed to each other some of their attorneys’ views about the legal implications of the transaction, the legal importance of the documents under negotiation, and the rights and obligations of the parties to the transaction. Defendants also shared with one another some documents that concerned the legal and financial terms of the transaction. Additionally, defendants’ attorneys discussed with one another the terms for a new partnership agreement concerning Urban’s mall interests. In these discussions, attorneys for Westfield, Rouse, and Simon shared with each other their legal concerns and legal conclusions about the structure of a new partnership agreement and how it would operate. This new partnership arrangement has been referred to in this litigation as the “synthetic partnership.” The Underlying Lawsuit Plaintiffs first brought suit in 2004, alleging that, since purchasing Head, defendants had
breached alleged fiduciary and contractual duties they owed to Urban and plaintiffs (as limited partners of Urban). Plaintiffs alleged that defendants’ division of responsibility for Urban’s mall interests under the “synthetic partnership” was a breach of defendants’ alleged duties and deprived Urban of sufficient corporate opportunities. At the heart of plaintiffs’ claim is the Urban partnership agreement. Urban was founded
to hold, manage, and grow a portfolio of shopping centers then owned by JMB Realty Corporation. In 1993 Urban went public, and by 2000 had become an industry leader in operating, managing, and developing regional malls. In late 2000 Rodamco bought Urban’s outstanding shares and took the entity private. Plaintiffs continued to own units as Urban’s limited partners. Head, a Rodamco subsidiary, became Urban’s new general partner. Rodamco negotiated a partnership agreement with Urban’s limited partners (including plaintiffs). The Urban partnership agreement defines the rights, obligations, and liabilities of Head as general partner, as well as the rights and responsibilities of the limited partners. It is plaintiffs’ contention that the “[a]greement reflects an intent to grow Urban through the acquisition and development of additional properties.” The agreement does not permit Head or its affiliates to compete with Urban in business opportunities, such as acquiring additional real estate, attracting joint venture partners to acquire properties, or developing properties. Plaintiffs alleged that defendants received legal advice on how to structure a “synthetic partnership,” so as to evade the contractual terms and avoid the legal and fiduciary obligations they owed as Urban’s general partner. Plaintiffs claimed defendants allocated Urban’s properties among themselves, stopped growing Urban’s business through acquisitions or ground-up developments, disregarded partnership agreement terms, and stole Urban’s opportunities for themselves.
¶ 11 The Motions to Compel In 2008 plaintiffs filed their first motion to compel the production of privileged
communications. Plaintiffs noted that, on the privilege log filed by defendants, one defendant had purposely disclosed privileged documents to another defendant. Plaintiffs sought the compelled production of documents that defendants had shared among themselves. Defendants objected, arguing that the sought-after documents were protected by the common interest doctrine, and were thus privileged. The circuit court, on December 10, 2008, granted plaintiffs’ motion to compel, finding that certain documents containing legal advice could be produced on the ground that defendants had waived any assertion of privilege by sharing the information amongst themselves. The court, however, was careful to limit its order to only those documents that had been disclosed. The court wrote:
“Further, with regard to the documents to be produced as identified on Appendix B, defendants may redact the contents of any email in an email string if that communication with defendant’s counsel was not circulated to any other defendant or third party.” Following the production of the documents, the parties conducted further discovery,
including depositions of defendants’ executives. In March 2009 plaintiffs filed a second motion to compel, arguing, specifically, that defendant Westfield improperly directed Westfield witness Mark Stefanek, Westfield’s chief financial officer, not to testify about matters as to which he had waived the attorney-client privilege. Plaintiffs claimed that Westfield attorneys permitted Stefanek to testify to the actual legal advice received from counsel, but then refused to allow him to testify about the rationale and other details of the legal advice. Plaintiffs argued that this “selective and offensive invocation of the attorney- client privilege waive[d] the privilege regarding the subject matter about which he voluntarily testified—his belief that Westfield had no duty to consider new business opportunities for Urban.” The circuit court denied the motion. Plaintiffs filed a third motion to compel, the motion at issue in this appeal, in April 2010,
seeking over 1,500 documents identified in defendants’ privilege logs. In the third motion to compel, plaintiffs accused defendants of breaching their fiduciary duties to Urban by usurping business opportunities, in violation of the Urban partnership agreement. Plaintiffs alleged that, during depositions, defendants’ witnesses confirmed that during the business negotiations in 2001-02 each defendant’s individual counsel attended negotiating sessions and discussed with nonclients legal advice regarding: (1) acquisition structure and use of a “synthetic partnership” to avoid certain partnership obligations; and (2) liability and obligations as Urban’s general partner, including continuing obligations to acquire and develop additional properties through Urban. Plaintiffs specifically pointed to the deposition testimony of defendants’ witnesses, including arguments concerning the testimony of Stefanek that had been raised in the prior motion to compel, to support compelled production of the requested documents. Plaintiffs first contended that Anthony Deering, defendant Rouse’s former chief
executive officer, testified to privileged attorney-client discussions during his deposition. During the January 12, 2010, deposition, plaintiffs’ attorney asked Deering if he ever *6 conferred with anyone at Rouse as to whether Rouse had a duty to consider putting new acquisitions within Urban. Rouse’s deposition counsel objected, as it called for a legal conclusion, and cautioned Deering not to disclose any attorney-client communications about that issue he may have had at the time. Deering could otherwise answer the question. Deering testified that he had consultations with the other defendants’ officers and outside counsel about structuring the partnership. Plaintiffs’ attorney asked Deering if he had received legal advice, to which Deering responded “yes.” At that point, one of Rouse’s attorneys intervened, and informed Deering that any communication his attorneys had with him, in the presence of Simon and Westfield, could be disclosed. However, the Rouse attorney instructed Deering that any legal advice his attorney gave to him in private should not be disclosed. Plaintiffs’ attorney then asked Deering what the legal rationale was for Deering’s conclusion that Rouse had no duty, after the transaction was complete, to put new acquisitions within Urban. Rouse’s attorney again cautioned Deering that it was acceptable to disclose communications he had with his attorney when people from Simon and Westfield were present, but private, privileged communications should not be disclosed. Deering answered plaintiffs’ question, saying that his attorney did not give a synopsis of why the synthetic partnership structure worked, but did outline the structure and assured defendants that it would be acceptable and sustainable. Plaintiffs’ attorney later again asked Deering what the basis was for his understanding that, after the closing of the Rodamco transaction, Rouse did not feel it had a duty to put new acquisitions within Urban. After again being warned by counsel to be cognizant of not disclosing attorney-client communications, Deering testified that the synthetic partnership insulated Rouse from having to do anything extraordinary in terms of presenting corporate opportunities, acquisitions or any other deals to Urban. That understanding was based on advice given to him at the time by Rouse’s attorney, and was given in front of representatives from Simon and Westfield. Plaintiffs next cited to the testimony of Robert Minutoli, a former Rouse vice president. Minutoli confirmed during the January 28, 2010, deposition that he discussed the substance of legal advice he received with representatives from Simon and Westfield concerning the synthetic partnership. Minutoli was warned by his counsel not to discuss anything that was covered by attorney-client privilege. Plaintiffs’ attorney asked if he could recall any aspects of the rationale for the advice that defendants could buy the Urban partnership yet leave behind certain provisions of the partnership agreement with a liquidating entity. After objections from Rouse’s counsel, Minutoli answered that it was his recollection that Rouse was in full compliance with the partnership agreement. Plaintiffs, in the third motion to compel, also cited to the January 7, 2009, deposition
testimony of Westfield chief financial officer Mark Stefanek. Plaintiffs’ attorney asked Stefanek what basis he had for believing there was no duty to consider business opportunities for Urban. Over the objection of counsel, Stefanek answered his belief was based on legal advice from Westfield’s attorneys. Plaintiffs’ counsel then asked what the basis was for Westfield’s attorneys’ legal advice that Westfield had no duty to put any new business opportunities before Urban. Westfield’s attorney at the deposition objected and instructed Stefanek not to answer. The following exchange then occurred:
“[Plaintiffs’ counsel]: Well, he’s already testified to the legal advice. I take it you *7 are waiving, right, privilege?
[Westfield’s counsel]: No, we are not waiving.
[Plaintiffs’ counsel]: Well, you let him testify to the legal advice. [Westfield’s counsel]: I have—you—I have given my instruction. You can proceed.” Plaintiffs’ counsel then told Stefanek that he was only asking his basis for his belief as
a businessman, not legal advice. Stefanek testified that he believed that, while Westfield had a duty on behalf of Urban to consider new business opportunities for Urban in the form of existing redevelopments on existing Urban properties, it did not have a duty to consider new acquisitions on behalf of Urban. Plaintiffs’ counsel then asked if this understanding was based on legal advice from Westfield’s counsel, to which Westfield’s deposition counsel objected. Later in the deposition, plaintiffs’ counsel asked the same question, to which there was another objection. Plaintiffs’ attorney later asked Stefanek if it was “logical” to think that legal advice was shared between defendants, leading to this exchange:
“[Stefanek]: Well, we all signed it, so it would seem pretty logical that—you know, that—that anything significant would have been discussed with everybody, yes.
[Plaintiffs’ attorney]: Again, I think that’s—there’s been a waiver in light of the court’s prior ruling on that, [Westfield’s attorney], and did you want to reconsider your advice to instruct him not to answer that?
[Westfield’s attorney]: What’s your question?
[Plaintiffs’ attorney]: I would like to know what the legal advice was. [Westfield’s attorney]: If—if—as the—what—if—do you mind asking the foundational question, whether he knows what the legal advice that was shared was? [Plaintiffs’ attorney]: You received legal advice on why Simon, Rouse and Westfield believed they could exclude certain provisions of the Urban partnership agreement. Correct?
[Stefanek]: I received advice what—based on why we could.
[Plaintiffs’ attorney]: Okay. And you believe that it’s logical that advice was shared with the other partners, Simon and—Rouse? Is that correct? [Stefanek]: Seems logical that it would be, yes.” In the third motion to compel plaintiffs argued that defendants could not have it both ways, and having disclosed legal advice on these subjects with each other outside of any confidential relationship in 2001-02, they could not in litigation object that advice on those same subjects is privileged. Plaintiffs also accused defendants of disclosing “tid-bits” to plaintiffs that “act as a sword, while asserting privilege as a shield as to other materials on these same subjects.” Plaintiffs contended that any privilege regarding legal advice on the Rodamco acquisition structure and the “synthetic partnership” had been waived when Rouse’s witnesses testified that the structure was created by Rouse attorneys who relayed their legal analyses and conclusions to Simon and Westfield and their attorneys. Plaintiffs requested the production of all documents relating to the Rodamco acquisition structure and *8 “synthetic partnership.” Plaintiffs also claimed that the attorney-client privilege regarding legal advice on obligations and liabilities to Urban’s general partners had been waived, since witnesses for defendants testified defendants and their attorneys freely shared legal advice on this subject matter with each other. Plaintiffs requested the production of all documents defendants had withheld regarding the Urban partnership agreement.
¶ 20 Defendants argued in response that they had not intentionally waived the attorney-client
privilege by asserting the advice of counsel as a defense or otherwise placing privileged communications at issue in the litigation, and that the disclosure of even privileged attorney- client communications in a business negotiation does not as a matter of law result in a “subject matter waiver” of all other undisclosed communication a party has with its attorney. The circuit court asked defendants to submit the documents requested by plaintiffs for an in camera review, informing the parties it could not make a decision on the motion to compel without first looking at the requested documents. In October 2010, the circuit court granted the motion to compel, finding that since “[d]efendants had shared privileged communications it follows that the subject of those communications is susceptible to discovery.” The court rejected defendants’ motion to reconsider. Defendant Westfield’s counsel advised the circuit court that Westfield would not produce the documents to plaintiffs and asked to be held in “friendly contempt.” The court entered a contempt order against Westfield. Westfield and Rouse appealed separately from the court’s order compelling disclosure of the requested documents and communications. [2] The Appellate Court Ruling The appellate court affirmed the circuit court’s ruling on the motion to compel. The
appellate court held that when, in 2001 and 2002, defendants “disclosed privileged attorney-
client communications among one another regarding the purchase of Rodamco and
specifically the acquisition of Head, those disclosures resulted in a subject-matter waiver of
all privileged communications regarding the purchase.” 2011 IL App (1st ) 110381, ¶ 15.
Concerning defendants’ argument that prior Illinois cases on subject matter waiver were
inapplicable to the instant case because those disclosures occurred in the context of litigation
rather than a business transaction, the court wrote, “[W]e find no reason to distinguish
between a waiver occurring during the course of litigation or during a business negotiation.”
¶ 25 I. Application of the Subject Matter Waiver Doctrine
to Extrajudicial Disclosures ¶ 26 The first question this court must answer is whether, as a matter of law, the subject matter
waiver doctrine applies to the disclosure of privileged statements made outside of a litigation or judicial setting, i.e. , in an “extrajudicial” setting. Illinois courts have not previously been confronted with the question of extending the subject matter waiver doctrine to extrajudicial settings. Therefore, the question is one of first impression in this court. The issue of whether the subject matter waiver doctrine extends to extrajudicial
disclosures is a question of law concerning the application of privilege rules in discovery,
and thus is reviewed
de novo
.
Norskog v. Pfiel
,
settings, some discussion of the attorney-client privilege is necessary. Our court rules govern
disclosure of privileged material and work product during discovery.
Waste Management,
Inc. v. International Surplus Lines Insurance Co.
,
“(2) Privilege and Work Product. All matters that are privileged against disclosure on the trial, including privileged communications between a party or his agent and the attorney for the party, are privileged against disclosure through any discovery procedure. Material prepared by or for a party in preparation for trial is subject to discovery only if it does not contain or disclose the theories, mental impressions, or litigation plans of the party’s attorney. The court may apportion the cost involved in originally securing the discoverable material, including when appropriate a reasonable attorney’s fee, in such manner as is just.” Ill. S. Ct. R. 201(b)(2) (eff. July 1, 2002). Where legal advice of any kind is sought from a lawyer in his or her capacity as a lawyer,
the communications relating to that purpose, made in confidence by the client, are protected
*10
from disclosure by the client or lawyer, unless the protection is waived.
Fischel & Kahn, Ltd.
v. Van Straaten Gallery, Inc.
,
¶ 31 “ ‘The purpose of the attorney-client privilege is to encourage and promote full and frank
consultation between a client and legal advisor by removing the fear of compelled disclosure
of information.’ ”
Waste Management
,
attorney-client privilege belongs to the client, rather than the attorney, although the attorney
asserts the privilege on behalf of the client.
Decker
,
According to Wigmore, “[t]he client’s offer of his own or the attorney’s testimony as to a
specific communication
to the attorney is a waiver as to all other communications to the
attorney on the same matter.” (Emphasis in original.) 8 John Henry Wigmore, Evidence
§ 2327, at 638 (McNaughton rev. ed. 1961). Further, a client’s offer of his own or his
“attorney’s testimony as to a
part of any communication
to the attorney is a waiver as to the
whole of that communication, on the analogy of the principle of completeness.” (Emphasis
in original.) 8 John Henry Wigmore, Evidence § 2327, at 638 (McNaughton rev. ed. 1961);
In re Sealed Case
,
that when a client voluntarily testifies and waives the privilege, such waiver “extends no
further than the
subject-matter concerning which testimony had been given by the client.
”
(Emphasis added.)
People v. Gerold
,
“Although voluntary disclosure of confidential information does not effectively waive an attorney-client privilege as to all other non-disclosed communications that may have taken place [citation], where a client reveals portions of her conversation with her attorney, those revelations amount to a waiver of the attorney-client privilege as to the remainder of the conversation or communication about the same subject matter.” In re Grand Jury January 246 ,272 Ill. App. 3d 991 , 997 (1995) (citing People v. O’Banner ,215 Ill. App. 3d 778 , 793 (1991)). The purpose behind the doctrine of subject matter waiver is to prevent partial or selective
disclosure of favorable material while sequestering the unfavorable.
Graco Children’s
Products, Inc. v. Dressler, Goldsmith, Shore & Milnamow, Ltd.
, No. 95 C 1303, 1995 WL
360590, *8 (N.D. Ill. June 14, 1995). “This is so because the privilege of secret consultation
is intended only as an incidental means of defense, and not as an independent means of
attack, and to use it in the latter character is to abandon it in the former.” 8 John Henry
Wigmore, Evidence § 2327, at 638 (McNaughton rev. ed. 1961). Courts have characterized
*12
this reasoning as the “sword” and the “shield” approach, in that a litigant should not be able
to disclose portions of privileged communications with his attorney to gain a tactical
advantage in litigation (the sword), and then claim the privilege when the opposing party
attempts to discover the undisclosed portion of the communication or communications
relating to the same subject matter.
In re Echostar Communications Corp.
,
matter waiver doctrine thusly:
“The purpose underlying the rule of partial disclosure is one of fairness to discourage the use of the privilege as a litigation weapon in the interest of fairness. A party should not be permitted to assert the privilege to prevent an inquiry by an opposing party where the professional advice, itself, is tendered as a defense or explanation for disputed conduct. [Citation.] VLI introduced portions of the advice of its new patent counsel in support of its claim that the disclosures concerning the prospect of the patent reinstatement were adequate given the uncertainty surrounding that issue. It would be manifestly unfair to permit selective utilization of these portions and at the same time assert the attorney-client privilege to shield any inquiry into the totality of counsel’s advice and its factual basis. [Citation.]” Zirn v. VLI Corp. ,621 A.2d 773 , 781-82 (Del. 1993).
See also
Sylgab Steel & Wire Corp. v. Imoco-Gateway Corp.
,
to Extrajudicial Settings The issue for the court to decide in this case is whether the subject matter waiver doctrine extends to disclosures of privileged communications made in an extrajudicial setting. Defendants argue that the purpose of the doctrine would be defeated if the court applied it to disclosures made outside of litigation, since the purpose of the doctrine is prevent a party from using the privilege as a weapon to gain tactical advantage in litigation. Further, defendants claim extending subject matter waiver outside of litigation would hamper attorneys’ ability to provide legal advice to clients during business transactions and other matters. Plaintiffs respond that some courts have found subject matter waiver extends to extrajudicial disclosures, and that such an extension would be in keeping with this state’s policy of open disclosure and search for the truth. First, both parties would concede that the vast majority of cases to apply the subject
matter waiver doctrine have done so in the context of judicial disclosures. This court could
find no Illinois state case, and the parties could point to none, that applied the doctrine to a
disclosure made in an extrajudicial
[3]
setting. Illinois cases have applied subject matter waiver
in the context of litigation. In
Gerold
, the disclosures giving rise to subject matter waiver
occurred during court testimony in a criminal case.
Gerold
,
extrajudicial disclosures made in a book written by Claus von Bulow and his attorney Alan
Dershowitz about Von Bulow’s prosecution for the murder of his wife. The plaintiffs had
filed a civil suit against Von Bulow over his wife’s murder. After the civil suit commenced,
Von Bulow and Dershowitz published a book chronicling Von Bulow’s first trial, successful
appeal, and eventual acquittal at a second trial. The plaintiffs moved to compel discovery of
certain discussions between Von Bulow and Dershowitz based on the alleged waiver of
attorney-client privilege with respect to communications related in the book. The trial court
found Von Bulow waived the privilege via the publishing of the book, and extended waiver
*14
to: (1) the contents of the published conversations; (2) all communications between Von
Bulow and Dershowitz relating to the published conversations; and (3) all communications
between Von Bulow and any defense attorney relating to the published conversations.
Von
Bulow
,
the court refused to extend subject matter waiver when “the privilege-holder or his attorney
[have] made extrajudicial disclosures, and those disclosures have not subsequently been
placed at issue during litigation.”
Von Bulow
,
same subject matter as those disclosed in the book, the court noted that subject matter waiver
“has been invoked most often where the privilege-holder has attempted to use the privilege
as both ‘a sword’ and ‘a shield’ or where the attacking party has been prejudiced at trial.”
Von Bulow
,
“[W]here, as here, disclosures of privileged information are made extrajudicially and without prejudice to the opposing party, there exists no reason in logic or equity to broaden the waiver beyond those matters actually revealed. Matters actually disclosed in public lose their privileged status because they obviously are no longer confidential. The cat is let out of the bag, so to speak. But related matters not so disclosed remain confidential. Although it is true that disclosures in the public arena may be ‘one-sided’ or ‘misleading’, so long as such disclosures are and remain extrajudicial, there is no legal prejudice that warrants a broad court-imposed subject matter waiver. The reason is that disclosures made in public rather than in court—even if selective—create no risk of legal prejudice until put at issue in the litigation by the privilege-holder. Therefore, insofar as the district court broadened petitioner’s waiver to include related conversations on the same subject it was in error.” (Emphases in original.) Von Bulow ,828 F.2d at 103 . A subsequent federal appellate court opinion, In re Keeper of the Records , reaffirmed the
holding of Von Bulow . In In re Keeper of the Records , XYZ Corporation made a decision to recall a medical device. XYZ conducted a conference call with its co-venturer Smallco to discuss the recall. The participants in the discussion included two officers of XYZ, outside counsel for XYZ, the principals of Smallco, and Smallco’s medical advisor. During the conference call, XYZ’s outside counsel advocated for XYZ’s position in the face of strong counterarguments from the Smallco representatives. The federal government soon commenced an investigation of XYZ and, as part of that investigation, filed a motion to compel the production of certain documents. The government argued that XYZ had waived *15 the attorney-client privilege during its conference call with Smallco because XYZ’s outside counsel had given legal advice in the presence of third parties and had disclosed legal advice previously provided to XYZ, thus effecting a waiver of attorney-client privilege as to all communications on the same subject matter. The trial court agreed and granted the motion. On appeal, the reviewing court agreed with the trial court that any previously privileged information actually revealed during the call lost any veneer of privilege. However, the court rejected any application of subject matter waiver to the extrajudicial conference call. The court noted that:
“Virtually every reported instance of an implied waiver extending to an entire subject matter involves a judicial disclosure, that is, a disclosure made in the course of a judicial proceeding. See von Bulow ,828 F.2d at 103 (collecting cases). This uniformity is not mere happenstance; it exists because such a limitation makes eminently good sense. Accordingly, we hold, as a matter of first impression in this circuit, that the extrajudicial disclosure of attorney-client communications, not thereafter used by the client to gain adversarial advantage in judicial proceedings, cannot work an implied waiver of all confidential communications on the same subject matter.” In re Keeper of the Records ,348 F.3d at 24 . The court went on to explain the rationale behind its holding, noting “[t]here is a
qualitative difference between offering testimony at trial or asserting an advice of counsel
defense in litigation, on the one hand, and engaging in negotiations with business associates,
on the other hand.”
In re Keeper of the Records
,
Ohio 2005), as an example of a court applying subject matter waiver to purely extrajudicial disclosures. In OM Group , a plaintiff shareholder sued defendant corporation in a *16 shareholder action. The defendant corporation’s audit committee was conducting an investigation of defendant. The audit committee’s counsel, and a forensic accounting firm hired by counsel, gave a power point presentation to the corporation’s board of directors regarding the findings of the ongoing investigation. The plaintiff shareholder filed a motion to compel production of documents underlying the presentation. After being provided the power point presentation itself, along with two spreadsheets regarding the investigation, defendant refused to provide any of the requested underlying documents. The plaintiff argued that the defendants waived any privilege over the documents containing the same subject matter as the presentation. The defendants argued that the scope of any waiver should be narrowly construed because they would not gain an unfair tactical advantage by the power point presentation and the two spreadsheets. The court ordered the production of the underlying documents, finding they were within
the scope and subject matter of the audit committee’s intentional disclosure. OM Group , 226 F.R.D. at 593. The court rejected the defendants’ pledge that they would not use the underlying documents for a tactical advantage in the litigation, reasoning:
“Defendants attempt to restrict application of the fairness doctrine solely to whether they would gain a tactical advantage in litigation by not disclosing the underlying documents. The Court does not interpret the fairness doctrine so narrowly. The Court must consider, not only whether there is a tactical benefit, but whether it is fair to uphold the privilege considering the nature of the disclosure.” OM Group , 226 F.R.D. at 593. Plaintiff also points to a comment from the Restatement (Third) of The Law Governing
Lawyers, stating “[w]ith respect to out-of-court partial disclosures, the substantial majority
of decisions announces a broad and almost automatic subject-matter-waiver rule.”
Restatement (Third) of The Law Governing Lawyers § 79, Reporters Notes cmt. f (2000).
The comment cites to several federal court cases in support. In
In re Sealed Case
, 877 F.2d
976 (D.C. Cir. 1989), a company that had contracted with the Department of Defense was
being audited by the Defense Contract Audit Agency (DCAA). During the audit, an internal
company document containing legal advice was disclosed to the DCAA. While
acknowledging that “a waiver of the privilege in an attorney-client communication extends
‘to all other communications relating to the same subject matter,’ ” the court remanded the
cause to the lower court for a determination of how broadly to apply the waiver.
In re Sealed
Case
,
disclosures more persuasive. First, limiting application of subject matter waiver to disclosures made in litigation better serves the purpose of the doctrine. The purpose of the doctrine is to prevent a party from strategically and selectively disclosing partial attorney- client communications with his attorney to use as a sword, and then invoking the privilege as a shield to other communications so as to gain a tactical advantage in litigation . See In re Keeper of the Records , 348 F.3d at 24. Expanding the doctrine to cover extrajudicial disclosures that are not made for tactical advantage in litigation would necessarily broaden the scope of the doctrine’s purpose. When a partial disclosure is made in the litigation context, the apparent prejudice that could result to the opposing party is obvious: a party has injected into the litigation communications with his attorney which may aid in the party’s prosecution or defense of a claim, yet the party can also frustrate the truth-seeking process by claiming privilege when the opposition seeks to discover the full context of the confidential communications. Such an abuse of the judicial process should be looked upon with disfavor, and the doctrine of subject matter waiver ensures that the full context of the partial disclosure is discoverable so the court may fulfill its truth-seeking function and extend fairness to the opposing party. That same purpose is not served, however, when the doctrine is expanded to cover disclosures made before litigation is initiated or, in many cases, even contemplated. Next, the cases cited in support of limiting the doctrine to the context of litigation are
more thorough and persuasive than those cited in opposition. As discussed above, both
In
re Keeper of the Records
and
Von Bulow
contain detailed and thorough reasoning as to why
the subject matter waiver doctrine should not be extended to purely extrajudicial disclosures.
See
In re Keeper of the Records
,
declined to decide whether the defendants gained a tactical advantage in litigation through
its extrajudicial partial disclosures, instead relying solely on fairness to apply subject matter
waiver.
OM Group
,
recognize that the present case involves a business transaction and business negotiations would be uniquely burdened by extending subject matter waiver. We find informative the analysis of the court in Hewlett-Packard Co. v. Bausch & Lomb Inc. :
“This court also is concerned about the effect that finding waiver too freely might have on the sort of business transaction in which defendant and GEC were involved. Holding that this kind of disclosure constitutes a waiver could make it appreciably more difficult to negotiate sales of businesses and products that arguably involve interests protected by laws relating to intellectual property. Unless it serves some significant interest courts should not create procedural doctrine that restricts communication between buyers and sellers, erects barriers to business deals, and increases the risk that prospective buyers will not have access to important information that could play key roles in assessing the value of the business or product they are considering buying. Legal doctrine that impedes frank communication between buyers and sellers also sets the stage for more lawsuits, as buyers are more likely to be unpleasantly surprised by what they receive. By refusing to find waiver in these settings courts create an environment in which businesses can share more Rules of Evidence, if a disclosure is made in a federal proceeding or to a federal office or agency and the disclosure waives the privilege, the waiver extends to an undisclosed communication in a federal or state proceeding if the waiver is intentional, the disclosed communication concerns the same subject matter, and the communications ought to, in fairness, be considered together. Fed. R. Evid. 502(a).
freely information that is relevant to their transactions. This policy lubricates business deals and encourages more openness in transactions of this nature.” Hewlett- Packard Co. v. Bausch & Lomb Inc. ,115 F.R.D. 308 , 311 (N.D. Cal. 1987). It is of no matter if disclosure made during a business negotiation is done to gain a
tactical advantage during the
business negotiation
. Such a disclosure during a business
negotiation is not in the province of this court, but is between the two entities engaging in
the negotiation, unless a law or Illinois legal ethics rule was broken. Further, to address a
point raised at oral argument, if a disclosure is made during a business negotiation to gain
a later tactical advantage in anticipated litigation, subject matter waiver would still apply if
such a disclosure is later used by the disclosing party at any point
during the litigation
to gain
a tactical advantage. See
In re Keeper of the Records
,
Placed Disclosures at Issue in Litigation Plaintiffs contend, in the alternative, that even if this court holds that subject matter waiver does not apply to extrajudicial disclosures, the doctrine would still apply in this case because defendants are using the legal advice they received to advance their defense in the underlying lawsuit. Specifically, plaintiffs argue that defendants’ witnesses (Rouse’s officers Deering and Minutoli and Westfield executive Stefanek [6] ), during deposition testimony, disclosed privileged communications in order to gain a tactical advantage in the litigation. Defendants respond that plaintiffs’ alternative argument is completely unsupported by the record. While privileged extrajudicial disclosures are not subject to subject matter waiver, if
those same privileged communications are later reused in a judicial setting, the circumstances
of the initial disclosure will not immunize the client against a claim of waiver. See
In re
*20
Keeper of the Records
,
from an affirmative, consensual act consisting of an intentional relinquishment of a known
right.
Maniez v. Citibank, F.S.B.
,
waiver applies to all of the communications relating to the same subject matter.
Rowe
International Corp. v. Ecast, Inc.
,
privilege as to attorney-client communications discussed openly among defendants. Again, for the same reasons discussed above, we do not find Stefanek’s testimony to have waived the privilege. Attorney-client communications shared among defendants had already been deemed waived by the circuit court in its December 10, 2008, order. Defendants had objected to the motion to compel, invoking the privilege. When Stefanek was deposed on January 7, 2009, a month after the order, the transcript reveals Stefanek, Westfield’s attorney and plaintiffs’ attorney were operating under the assumption that any privilege as to the shared communications had been deemed waived, pursuant to the order of the circuit court. This is particularly illustrated in the following exchange after plaintiffs’ counsel asked whether Stefanek’s understanding of the synthetic partnership was based on legal advice received from counsel:
“[Stefanek]: Well, we all signed it, so it would seem pretty logical that—you know, that—that anything significant would have been discussed with everybody, yes.
[Plaintiffs’ attorney]: Again, I think that’s— there’s been a waiver in light of the court’s prior ruling on that , [Westfield’s attorney], and did you want to reconsider your advice to instruct him not to answer that?
[Westfield’s attorney]: What’s your question?
[Plaintiffs’ attorney]: I would like to know what the legal advice was. [Westfield’s attorney]: If—if—as the—what—if—do you mind asking the foundational question, whether he knows what the legal advice that was shared was? [Plaintiffs’ attorney]: You received legal advice on why Simon, Rouse and Westfield believed they could exclude certain provisions of the Urban partnership agreement. Correct?
[Stefanek]: I received advice what—based on why we could.” (Emphasis added.) Clearly, the parties assumed that waiver had occurred, based on the court’s ruling regarding the extrajudicial third-party disclosures made by defendants to each other during the 2001-02 business negotiations. By sharing information with each other, defendants, during the 2001-02 negotiations, had waived the attorney-client privilege with respect to documents and communications containing legal advice disclosed to third parties. However, for the reasons stated above in discussing Deering’s and Minutoli’s testimony, Stefanek did not waive the privilege during the deposition as to the shared communications. Plaintiffs further argue that Stefanek waived the privilege as to certain advice he received *22 from Westfield’s attorneys about the structure of the partnership, outside of the shared communications covered by the circuit court’s December 10, 2008, order. During the deposition, plaintiffs’ attorney asked Stefanek what the basis was “for [Stefanek’s] awareness that there was no duty to consider new business opportunities for Urban.” Westfield’s attorney immediately objected, stating “[s]ame objection; same instruction.” Stefanek then answered that the basis was legal advice given by Westfield attorney Peter Schwartz sometime during the acquisition of Rodamco. Plaintiffs’ attorney then asked Stefanek the basis for Schwartz’s legal advice. Westfield’s attorney again objected and instructed Stefanek not to answer the question. The following exchange then occurred:
“[Plaintiffs’ attorney]: Well, he’s already testified to the legal advice. I take it you are waiving, right, privilege?
[Westfield’s attorney]: No, we are not waiving.
[Plaintiffs’ attorney]: Well, you let him testify to the legal advice. [Westfield’s attorney]: I have—you—I have given my instruction. You can proceed.
[Plaintiffs’ attorney]: I just want you to know that we are going to move to compel because you can’t have it both ways. You can’t have him testifying to legal advice and then say that you are not waiving. So this will be a motion— [Westfield’s attorney]: He’s—
[Plaintiffs’ attorney]: —to compel. I just want to meet and confer on that now.
So—
[Westfield’s attorney]: Proceed with your questioning.
[Plaintiffs’ attorney]: Okay. That’s fine. So you are going to continue to stand on that instruction?
[Westfield’s attorney]: Yeah. I am instructing him not to—not to reveal attorney- client advice.
[Plaintiffs’ attorney]: All right.” Plaintiffs’ attorney asked again about the basis for the legal advice. Westfield’s attorney interjected, instructing Stefanek not to provide the content of the communication. When plaintiffs’ counsel asked what the rationale for the legal advice was, Westfield’s attorney stated, “I object it is—Instruct not to answer.” Based on the transcript excerpt provided in the record, we do not find that defendant
Westfield waived the privilege through Stefanek’s testimony. The record reveals that, while
Stefanek did testify to legal advice received from Westfield’s attorneys about the synthetic
partnership, he did not testify as to the actual content and basis of the legal advice. See
United States v. O’Malley
,
¶ 74 Plaintiffs finally argue that defendants have necessarily put the legal advice received from
counsel “at issue,” and thus effected an implied waiver by using legal advice as a defense in
support of defendants’ claims of “good faith” in constructing the synthetic partnership. See
Lama
,
an extrajudicial context when those disclosures are not thereafter used by the client to gain a tactical advantage in litigation. Further, the cited deposition testimony of defendants’ corporate officers did not waive the attorney-client privilege so as to allow application of subject matter waiver to certain attorney-client communications. For the foregoing reasons, the appellate and circuit courts’ judgments are reversed. The cause is remanded to the circuit court for proceedings consistent with this order. Judgments reversed. Cause remanded.
Notes
[1] There are numerous parties in this case, and referring to all the parties by name would be onerous and confusing. The parties are as follows. Defendants: Growth Head GP, LLC, Westfield America Limited Partnership, Westfield America, Inc., Westfield America Trust, Rouse-Urban,
[2] Simon did not appeal the circuit court order. Simon is not a party to the appeal in this court.
[3] For purposes of this opinion, the court relies on the Black’s Law Dictionary definition of “extrajudicial.” Extrajudicial is defined as “[o]utside court; outside the functioning of the court system <extrajudicial confessions>. — Also termed out-of-court .” Black’s Law Dictionary 665 (9th ed. 2009).
[4] In its brief, defendant Westfield cites to
In re Estate of Hoover
,
[5] In
AMCA
it is not exactly clear if the disclosures were made before or after the initiation
of litigation. See
AMCA
,
[6] Plaintiffs also cited to the deposition testimony of a witness for Simon. However, as Simon
waived the privilege and chose not to appeal the circuit court’s order, we will not consider the
testimony of Simon’s witness. Only the client may waive the privilege.
Decker
,
[7] It should be noted that Stefanek’s testimony formed the basis of plaintiffs’ second motion to compel. Plaintiffs argued that Stefanek “voluntarily injected” the legal advice into the case to suit a defensive position of defendant Westfield and was then refusing to answer questions related to the rationale of the legal advice. The circuit court denied plaintiffs’ motion.