Handling Privilege and Discovery Issues in Corporate Litigation
Exploring privilege assertions and discovery rules in Illinois law for corporate litigation cases, emphasizing the burden of proof on privilege assertion, strong disfavor of privileges, and exceptions in certain circumstances. Understanding the importance of disclosure in legal proceedings and the nuances of attorney-client privilege in protecting sensitive information and strategies.
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BY: Donald Patrick Eckler Paul J. Stroka James J. Sipchen Date: June 25, 2010
These issues effect all of our practices,corporate entities in which we deal with, irrespective of what side of the case we are on. Any case involving corporate entities, current employees, former employees, defendants implicates these issues. or multiple Opportunity to take advantage of opposing counsel that is not aware of these issues and better protect our client.
The general rule with respect to discovery in Illinois is stated in the heading to Supreme Court Rule 201(b)(1): Full disclosure required. In Illinois the assertion of privilege is governed by Supreme Court Rule 201(b)(2), which in relevant part states: 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.
It is a well established principal under Illinois law that the assertion of a privilege is the exception; not the rule. See Golminas v. Fred Teitelbaum Const. Co., 112 Ill.App.2d 445, 448-449 (2ndDist. 1969); [Waste Management, Inc. v. Int l Surplus Supply Lines Ins. Co., 144 Ill.2d 178, 190 (1991)]. ( [I]n Illinois we adhere to a strong policy of encouraging disclosure,with an eye toward ascertaining the truth which is essential to the proper disposition of a lawsuit. ) Privileges are strongly disfavored under Illinois law. In re Marriage of Daniels,240 Ill.App.3d 314, 324-25 (1stDist. 1992). Footnote: That is not to say, however, that Illinois courts have not found privileges that exist and which can be protected beyond those referred to in SCR 201(b)(2). See People v. Ryan, 30 Ill.2d 456 (1964). (Finding that an insurer-insured privilege exists); FMC Corp. v. Liberty Mutual Ins. Corp., 236 Ill.App.3d 355 (1stDist. 1992) (finding that an accountant- client privilege exists based on state statute).
Accordingly, construe privilege and the work-product doctrine. Archer Daniels Midland Co. v. Koppers Co., Inc.,138 Ill.App.3d 276,278 (1stDist.1985). Illinois courts of narrowly assertions attorney-client Finally, the party who asserts the privilege has the burden of showing the facts that give rise to the privilege. Claxton v. Thackston, 201 Ill.App.3d 232,234 (1stDist.1990).
The attorney-client privilege is designed to protect from discovery documents which reflect communications made in confidence between lawyer and client. Shapo v. Tires N Tracks, Inc., 336 Ill.App.3d 387,393 (1stDist.2002). To be entitled to the protection of the attorney-client privilege, a claimant must show that the statement originated in confidence that it would not be disclosed, was made to an attorney acting in his legal capacity for the purpose of securing legal advice or services, and remained confidential. Hosp.,319 Ill.App.3d 280,285-86 (1stDist.2001). Rounds v. Jackson Park
Not every disclosure from client to attorney is entitled to protection from discovery. The attorney-client privilege protects only those disclosures informed legal advice which might not have been made absent the privilege. Cangelosi v. Capasso, 366 Ill.App.3d 225,228-29 (2ndDist.2006). necessary to obtain Furthermore, the attorney-client privilege does not protect communications primarily regarding business advice. CNR Inv., Inc. v. Jefferson Trust & Sav. Bank., 115 Ill.App.3d 1071, 1076 (3rdDist. 1983). Thus, for the privilege to apply, the confidential communications must be primarily legal in nature.
The work product doctrine protects material prepared by or for a party in preparation for trial that contains theories,mental impressions, or litigation plans of the party s attorney. See Ill. Sup.Ct.Rule 201(b)(2). Materials are protected if they are prepared for any litigation or trial as long as they were prepared by or for a party to the subsequent litigation. Fischel & Kahn, Ltd v. van Straaten Gallery,Inc.189 Ill.2d 579,591 (2000).
What constitutes work product under Illinois Rules is narrower than what is protected from discovery in the federal system. Milynarski v.Rush-Presbyterian St.Lukes Med. Ctr.,213 Ill.App.3d 427,432 (1stDist.1991). Illinois only protects opinion work product, i.e., matter which discloses the theories, mental litigation plans of a party s attorney. documents prepared in preparation for trial include: impressions Id. Examples of or Memoranda made by counsel of his impression of a prospective witness, as distinguished from verbatim statements of such witness, trial briefs, documents revealing a particular marshaling of the evidentiary facts for presentment at the trial, and similar documents which reveal the attorney's mental processes' in shaping his theory of his client's cause. Monier v.Chamberlain,35 Ill.2d 351,359-60 (1966).
Generally, where there is a mixture of unprivileged factual material and protected opinion work product such as attorneys notes and memoranda of oral conversations with witnesses or employees then these are not routinely discoverable unless the party seeking discovery can show that it is absolutely impossible to secure the factual information from other sources. Mlynarski, 213 Ill.App.3d at 433.
With respect to corporate entities,Illinois employs a version of the control group test. Consolidation Coal Co. v. Bucyrus-Erie Co., 89 Ill.2d 103, 118-19 (1982). Under the Illinois formulation of the control group test,the following analysis applies: As a practical matter, the only communications that are ordinarily held privileged under this test are those made by top management who have the ability to make a final decision rather than those made by employees those positions are merely advisory. employee whose advisory role to top management in a particular area is such that a decision be made without his advice or opinion,and whose opinion in fact forms the basis of any final decision by those with actual authority, is properly within the control group. However, the individuals upon whom he information are not members of the control group. We believe that an would not normally may rely for supplying
The control group test adopted by the Illinois courts directly opposes the United States Supreme Court s ruling in Upjohn Co. v. United States, 449 U.S. 383 (1981). In Upjohn, the United States Supreme Court rejected the control group test holding that the test frustrates the very purpose of the privilege by discouraging communication of relevant information. Id.at 392. Specifically, the Court concluded that the privilege can extend to any employee who communicates with counsel at the direction of her superiors, regarding matters within the scope of her duties. Id.at 394.
The Illinois Supreme Court has refused to follow Upjohn and continues to adhere to the more limited control group test because it believes that the control group test strike[s] a reasonable balance by protecting consultations with counsel by those who are the decision makers or those who substantially influence corporate minimizing the amount of relevant factual material which is immune from discovery. Consolidation Coal, 89 Ill.2d at 118-119. decisions and by The Illinois Supreme Court s emphasis on the disclosure of relevant information was paramount to its decision,while the United States Supreme Court s ruling rested on its desire for communication. This difference in approach is telling and instructive for the following analysis.
The threshold consideration is to determine whether an individual is a member of the control group. Under Consolidation Coal, a person is deemed within the control group if: (1) the agent served as an advisor to top management of the corporate client; (2) this advisory role was such that the corporate principal would not normally have made a decision without the agent's advice; and (3) the agent's opinion or advice in fact formed the basis of the final decision made by those with actual authority within the corporate principal. Archer Daniels Midland Company, 138 Ill.App.3d at 279-280.
In addition, merely because an employee supplies information or facts to top management, that does not place that individual in the control group. Id. The rule under Illinois law is such that with respect to some issues an individual may be in the control group, but with respect to others that same individual may not be in the control group. In order to determine who is and who is not in control group Illinois courts have looked at the role that the individual played in the organization and not that individual s title. In Knief v.Sotos,181 Ill.App.3d 959, 964 (2ndDist. 1989), the court held that a head waitress and a bar manager were not in the control group with respect to litigation decisions, and therefore, those individuals communications with counsel representing the restaurant/bar were not protected from disclosure.
In order meet the burden of establishing that an individual is in the control group the proponent of the privilege must supply facts to establish the basis for the assertion. Midwesco-Paschen Joint Venture for Viking Projects v. Imo Industries, 265 Ill.App.3d 654 (1stDist. 1994), the court considered the claim that a field service manager in charge of an allegedly defective product sold to plaintiff was in the control group. In The court found that the manager was a member of the control group based on testimony which established that the manager had direct managerial responsibility over the subject product, and that advice from that manager was obtained with respect to liability for the subject product. Id. at 663;see also Mlynarski,213 Ill.App.3d at 431-432.
The courts of the State of Illinois have not addressed the issue of whether communications with a former employee of a corporation who was previously in the control group are protected under the attorney-client privilege. However, jurisdictions have addressed this issue and have come to varying conclusions. many of these cases discuss the issue within the framework of Upjohn since that decision represents the majority view. a number of cases from other Not surprisingly,
Although Illinois applies the control group test,these cases remain instructive since the type of relationship which is necessary to create the privilege in the first instance (whether arising under Upjohn or under the control group test) is an independent and separate question from whether (and/or to what extent) that privilege continues to apply to discussions with corporate counsel post-employment.
In one line of cases, the courts have held that corporate counsel s discussions with a former employee remained privileged under Upjohn insofar as the subject matter of those conversations duties of the former employee during his tenure with the corporation. Construction Co. v. The Home Depot, Inc., 167 F.Supp 2d 182,185 (D.P.R.2001). concerned the Miramar
In Miramar, a former employee was designated as the corporate representative for the litigation. The Court concluded that the attorney-client privilege did indeed encompass him. It noted that a number of cases have held that the attorney-client privilege communications with Miramar, 167 F.Supp.2d at 185, citing, In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 658 F.2d 1355, 1361, n. 7 (9thCir. 1981); Command Transport, Inc.v.Y.S. Line (USA) Corp.,116 F.R.D.94,96 (D.Mass.1987). applies employees. to former
Similarly, in Peralta v. Cendant Corp., 190 F.R.D. 38, 41 (D.Conn. 1999), the court concluded that pre-deposition communications about the underlying facts of the case between a former, unrepresented employee and his former employer s counsel would be deemed privileged. However, any communications between the former employer s attorney and the former employee which went beyond the deponent s knowledge of the employment and inquired into other activities, were not subject to any privilege. For example, if the attorney for the informed the deponent of facts developed during the litigation, such as testimony of other witnesses of which the deponent did not have prior or independent personal knowledge, those communications would not be privileged. circumstances of plaintiff s employer
In a second line of cases, courts have extended the privilege to communications with former employees, but not as far as cases such as Miramar and Peralta. In Infosystems, Inc. v. Ceridian Corp., 197 F.R.D. 303, 306 (E.D.Mich. 2000), the court extended the privilege to former employees, but limited it to communications which themselves were privileged and which occurred during relationship. the employment
The Infosystems court explained that the willingness of former provide information unrelated to directions corporate superiors counsel s communications with a former employee of the generally should differently from communications with any other third-party fact witness. employees is generally from and, therefore, to former client be corporation treated no
In a third related line of cases, Judge Holderman found that the attorney-client privilege communications with former employees. See Barrett Indus. Trucks, Inc. v. Old Republic Ins. Co., 129 F.R.D. 515 (N.D.Ill. 1990); Clark Equip. Co. v. Lift Parts Mfg. Co., 1985 U.S. Dist. LEXIS 15457 (N.D.Ill.).Clark held that: does not extend to Former employees are not the client. They share no identity of interest in the outcome of the litigation.Their willingness to provide information is unrelated to the directions of their former corporate superiors, and they have no duty to their former provide such information. It is virtually impossible to distinguish the position of a former employee from any other party who might have pertinent information about one or more corporate parties to a lawsuit. employer to
The closest that the Illinois courts have come to addressing the application of attorney-client privilege to former employees is SPPS, Inc. v. Carnhan-Walsh, 267 Ill.App.3d 586, 592 (1stDist,1992). SPPS, Inc. involved a motion by the plaintiff corporation (SPPS) to disqualify counsel representing the defendants. The defendants were former officers and board members of the company who were participating in statutory appraisal proceedings to determine the fair value of their shares. SPSS claimed that its former corporate attorney had disclosed confidential information relating to the matters at issue. to the defendants
The Illinois Appellate Court relied upon Gottlieb v. Wiles,143 F.R.D.241,246-47 (D.Colo.1992) in its ruling. In Gottlieb, the court addressed a situation where a former chief executive and chairman of the board of a corporation to which he was now adverse refused the former executive access to documents which would have been available to the former executive at the time he was in those positions with his former company. The Gottlieb court found that the documents which the former executive could have seen while he was in the control group could not be restricted from disclosure.
The doctrine goes by many names: the common interest doctrine, the joint defense privilege,the joint defense doctrine. The joint defense privilege, more properly identified as the common interest rule, has been described as an extension of the attorney client privilege. U.S. v. Schwimmer, 892 F.2d 237,243 (2ndCir.1989) citing Waller v.Fin.Corp.of Am.,828 F.2d 579,583 n.7 (9th Cir.1987).
The common interest rule serves to protect the confidentiality of communications passing from one party to the attorney for another party where a joint defense effort or strategy has been decided upon and undertaken by the parties and their respective counsels. Id. communications made in the course of an ongoing common enterprise and intended to further the enterprise are protected, even if the other attorney represents a client with some adverse interests. Eisenberg v. Gagnon, 766 F.2d 770,787 (3d Cir.1985). Only those
The common interest must be more than a mere business or similar interest, it must be a legal and identical interest. Dexia Credit Local v.Rogan,231 F.R.D. 287 (N.D.Ill.2005).
Illinois courts recognize the existence of the common interest doctrine but have only addressed the doctrine on a few occasions. See Waste Mgmt., 144 Ill.2d at 178; Western State Ins. Co. v. O Hara, 357 Ill.App.3d 509 (4thDist. 2005); Allianz Ins. Co. v. Guidant Corp., 373 Ill.App.3d 652 (2ndDist.2007).
It is important to note that no Illinois case has addressed the common interest doctrine . There was a presentation on this issue at the recent IADTC conference advocating the use of the doctrine. I am far more skeptical of its viability given the tendency of Illinois courts to narrowly construe privileges. Fortunately, or unfortunately, much of the law on this issue has been made in the Northern District of Illinois.
The courts have not explicitly defined what is sufficient to create a common legal interest as opposed to a common business interest. However, there is a strong suggestion in the case law that when the parties are agreement they are adverse and have inconsistent interests. See Oak Indus. v. Zenith Indus., 1988 WL 79614 (N.D.Ill.1988);Baxter Travenol Laboratories v. Abbott Laboratories,1987WL 12919 (N.D.Ill.1987). negotiating a merger
The law seems to suggest that after a merger agreement is consummated an argument can be made that the interests between the parties become legal. In re JP Morgan Chase & Co. Securities Litigation, 2007 WL 2363311 (N.D. Ill. 2007).
The most recent case from the Northern District is In re JP Morgan Chase & Co. Securities Litigation,2007 WL 2363311 (N.D.Ill.2007). In JP Morgan, a plaintiff representative brought an action for violation of section 14(a) of the Securities and Exchange Act. Specifically the plaintiff alleged that JP Morgan breached its duty to its shareholders during the course of its merger with Bank One. and putative class
The court held that the shared pre-merger documents were not privileged and ordered that documents shared before the signing of the merger agreement be disclosed. Morgan 2007 WL 2363311, *5. However, the court ruled that the communications after the signing of the merger were protected from disclosure. JP The court stated that the privilege did not attach to documents shared prior to the merger because the entities interests were in conflict as each company wanted to get the best deal from the other company, and to the extent that one succeeded in its goal, the other suffered. Id. at *6, see also Tenneco Packaging Specialty and Consumer Products, Inc. v.S.C.Johnson & Son,Inc.1999WL 754748 (N.D.Ill 1999).
For further support of the existence of the common interest doctrine in the Northern District of Illinois see Baxter Travenol Laboratories v. Abbott Laboratories, 1987 WL 12919 (N.D.Ill. 1987) (holding that an opinion letter relating to the validity of patents to be developed by Baxter pursuant to a licensing agreement was sufficiently encompassed by the common interest doctrine to protect its disclosure to Abbott.) The court held that: Although a community of legal interest usually arises between parties engaged in or anticipating imminent litigation, litigation or impending litigation is not a prerequisite for the existence of a community of legal interests; corporations seek legal advice in order to plan their conduct and avoid litigation as well as to deal with present or imminent litigation, and a community of legal interest may arise in the former situation as well as the latter. Id.at *1.
This holding conflicts with that of Oak Indus. v. Zenith Indus., 1988 WL 79614 (N.D. Ill. 1988). The court in Oak Industries addressed whether, in a patent infringement lawsuit, Zenith could effectively assert a privilege for furnishing an opinion letter on the patent with potential buyers during negotiations for the sale of its consumer electronics business. The Oak Industries privilege, finding that there was no common interest between the potential buyers and Zenith and thus the disclosure constituted a waiver. court held that Zenith could not assert The Oak Industries court, in finding that Zenith had waived the privilege, recognized that its holding was contrary to a case with very similar facts,Hewlett-Packard v.Bausch & Lomb,115 F.R.D. 308 (N.D.Cal.1987).
In Hewlett-Packard, [a Industries, defendant sought protection for the opinion letter of its patent counsel which had been disclosed to a potential buyer. Hewlett-Packard 115 F.R.D. at 309. The defendant asserted that it disclosed the document to the potential buyer in anticipation of litigation and citied Union Carbide v. Dow Chemical, 619 F.Supp. 1036 (Del.Ch.1985) in support. Id. at 309-10. patent infringement case] like Oak The Hewlett-Packard court struggled with what was a common legal interest and what was meant by to anticipate joint litigation as defined by the Union Carbide court. Id. The court found that even though the transaction which prompted the disclosure was not consummated, that the disclosure was in anticipation of joint litigation and protected by the common interest doctrine. Id.
In Blanchard v. Edgemark Fin. Corp., 192 F.R.D. 233 (N.D.Ill. 2000). A securities fraud case, Edgemark sought to protect from disclosure documents it had forwarded Old Kent during the merger of the two entities. In addition to sending the documents to Old Kent, Edgemark also sent the documents to its investment banker at Donaldson, Lufkin, and Jenrette. Blanchard 192 F.R.D. at 236. As a result, the court found that the privilege was vitiated because of the disclosure of document to a third party not in a common interest with the parties to the merger. Id. at 237
The Blanchard court reasoned that because the interest in disclosing investment bank was merely financial, and not legal, the privilege was waived as to the disclosed documents. Id; See also, Stenovich v. Wachtell, Lipton,Rosen,Katz,756 N.Y.S.2d 367 (2003). the documents to the It is important to note that the court decided the issue without addressing whether the documents themselves were privileged, because the purpose for the disclosure of investment banker made constituted a waiver. Id. at 236. the documents to the
In American Legacy Foundation v. Lorillard Tobacco Co., 2004 WL 2521289 (Del.Ch. 2004), the court was faced with a situation where in anticipation of litigation,American Legacy entered into an agreement with its advertising agency, Arnold. American Legacy was created by the 1999 Master Settlement Agreement between 46 state attorneys general and the five major tobacco companies. American Legacy, 2004WL 2521589,*1 (Del.Ch.2004). In anticipation that one or all of the tobacco companies would bring suit for the advertising seeking to discourage youth smoking, American Legacy entered into a joint defense agreement with Arnold. American Legacy, 2004 WL 2521589 at *3.
See also Rayman v.American Charter Fed.Sav. & Loan Association, 148 F.R.D. 647 (D. Neb. 1993); Cavallaro v. United States, 153 F. Supp.2d 52 (D. Mass.2001).
In its analysis of the documents over which the privilege was asserted, the court reasoned that because they were letters containing defense counsel s analysis of the case, present posture, costs anticipated, and expenses incurred, they were protected from disclosure. Id.at 655.
In order to assert the privilege over the documents and conversations sought to be protected the following actions should be considered: 1. To the extent possible, communications should be between counsel for the parties. U.S. v. Schwimmer, 892 F.2d 237, 243 (2nd Cir. 1989). To the extent necessary, any communications between counsel of one party and representatives of the other that are not parties must be with individuals in the other parties control group as defined by Illinois law. Consolidation, 89 Ill.2d at 118-19;
2. advice being sought for the common goal of prevailing in the instant litigation, a legal objective common to the parties and that also effectuates the common business interests of the parties. People v. Adam,51 Ill.2d 46 (1972); All communications should be related to legal 3. parties and the members of the control group for both parties should be the intended or actual recipients of any materials for which the attorney- client privilege or work product doctrine will be asserted. Consolidation,89 Ill. 2d at 115-16; Adam,51 Ill.2d at 48; No individuals beyond the counsel for the
4. witnesses should be made, rather, should only make memoranda including the attorneys impressions of the witnesses testimony and potential appearance as a witness. The Illinois courts have created a very limited exception to the work-product doctrine for rare instances in which memoranda with attorneys notes may be obtained even intermingle statements impressions of counsel. See Consolidation 89 Ill.2d at 111-10; No verbatim statements of potential when of those witnesses notes and
5. contain relationship created in the merger agreement and specifically identifying that preparation for this litigation relates to the common legal interests of the entities; The joint language defense agreement affirming should special the
6. agreement is being entered into for the purposes of this litigation and for protecting the communications between the parties and their counsel. See American Legacy,2004WL 2521589,at *4; Any agreement should make clear that the 7. for any documents that are exchanged between the parties to preclude their disclosure to individuals not entitled to the confidential documents. See Tenneco Packaging Specialty and Consumer Products, Inc. v. S.C.Johnson & Son,Inc.1999WL 754748 (N.D.Ill 1999); There must be substantial procedures in place
8. preparation of witnesses of one party by counsel for the other should be done without a written work product of those discussions. American Charter Fed. Sav. & Loan Association, 148 F.R.D.647 (D.Neb.1993); To the extent possible, communications in See Rayman v. 9. determine provides an unfair advantage to one of the parties in the litigation. See Rayman v. American Charter Fed. Sav. & Loan Association, 148 F.R.D. 647 (D.Neb. 1993); Hewlett-Packard v. Bausch & Lomb, 115 F.R.D. 308 (N.D.Cal.1987) Any documents exchanged should be vetted to if their protection from disclosure
10. A confidentiality agreement should be executed by each individual who is to be party to the communications or to receive the documents sought to be protected under the common interest. See Tenneco Packaging Specialty and Consumer Products, Inc. v. S.C. Johnson & Son, Inc. 1999 WL 754748 (N.D. Ill 1999).
