Your client corporation is working with other entities to purchase a target corporation. The deal is progressing and your client is compelled to share certain attorney-client communications with the other entities with which they are working. Recently, the Illinois Appellate Court has found that those shared communications – and all communications relating to the same subject matter – are discoverable.
In Center Partners, Ltd., et al. v. Growth Head GP, LLC, et al., 2011 IL App (1st) 110381 (August 30, 2011), the First District affirmed the circuit court’s finding that a company’s sharing of privileged communications during a business negotiation resulted in a subject-matter waiver of all attorney-client communication concerning the same subject. As background, Defendants are in the business of owning and operating shopping malls. In 2001 and 2002, Defendants negotiated to purchase the assets of Rodamco North America, N.V. (“Rodamco”). One of Rodamco’s assets was Head Acquisition, L.P. (“Head”), the general partner of the Plaintiff Urban Shopping Centers, L.P. (“Urban”).
In January 2002, Defendants entered into a purchase agreement with Rodamco. Defendants also entered into a joint purchase agreement with one another concerning “the allocation of Rodamco’s assets and the purchase price each would pay.” Center Partners, 2011 IL App (1st) 110381 (¶4). In May 2002, the purchase of Rodamco closed. On the same day, Defendants executed an amended partnership agreement including provisions “allocating control over Urban’s numerous mall interests among themselves.” Id.
Urban subsequently filed suit alleging breach of fiduciary and contractual duties related to the purchase of Rodamco’s assets and specifically to the acquisition of Head. Urban sought discovery of communications between Defendants concerning the acquisition of Head and how Defendants agreed to operate and collect revenue from the various shopping malls owned by Urban. Defendants acknowledged they shared among themselves legal advice each of them received from their attorneys regarding the Rodamco purchase. Specifically, it was disclosed that Defendants shared: (1) their attorneys’ positions regarding the terms of the transaction, (2) certain communications from their attorneys in written legal documents, and (3) certain legal views concerning specific aspects of the transaction and the allocation of control over Urban’s mall interests. Center Partners, 2011 IL App (1st) 110381 (¶5).
In October 2008 Urban filed a motion to compel. The circuit court granted the motion ordering Defendants to produce attorney-client communications shared during negotiations. Center Partners, 2011 IL App (1st) 110381 (¶6). In April 2010, Plaintiff filed a second motion to compel seeking all attorney-client communications concerning the purchase negotiations – even those communications which had not been shared. Plaintiff argued Defendants’ disclosure of certain attorney-client communications amounted to a subject-matter waiver as to all communications regarding the purchase of Rodamco. The circuit court agreed and granted the second motion to compel. Some Defendants appealed after the circuit court entered a finding of contempt. Id. at (¶7).
The First District began its analysis with a general discussion of attorney-client privilege. The Court noted the purpose of the attorney-client privilege “is to enable a person to consult freely and openly with an attorney without any fear of compelled disclosure of the information communicated.” Center Partners, 2011 IL App (1st) 110381 (¶12), citing IRMO Decker, 153 Ill. 2d 298, 312-313 (1992). The Court also noted the attorney-client privilege was to be construed narrowly and the party claiming the attorney-client privilege bears the burden of presenting factual evidence establishing the privilege. Id. at ¶12. The Court cautioned the attorney-client privilege can be waived by a client who voluntarily discloses the privileged information to a third party, and the scope of the waiver extends to all communications relating to the same subject matter. Id. at ¶13.
The First District also discussed the subject-matter waiver doctrine and its history in Illinois. In 1914, the Illinois Supreme Court initially recognized subject-matter waiver with respect to attorney-client privilege. Center Partners, 2011 IL App (1st) 110381 (¶14), citing People v. Gerold, 265 Ill. 481 (1914). In Gerold, a client who voluntarily testified to confidential communications between himself and his attorney waived the attorney-client privilege and the waiver extended to all communications concerning the same subject matter as the disclosed communications. Gerold, 265 Ill. at 448. In subsequent cases, Illinois courts further illustrated the application of the subject-matter waiver doctrine. For instance, a client’s disclosure of conversations with her attorney during a deposition amounted to a waiver of the attorney-client privilege as to all communications about the same subject matter (In re Grand Jury January 246, 272 Ill. App. 3d 991, 997 (1995)), and a defendant’s testimony as to portions of conversations with her attorney amounted to a waiver of the attorney-client privilege as to the remainder of the conversation (People v. O’Banner, 215 Ill. App. 3d 778, 793 (1991)).
The Center Partners Court then considered whether disclosing attorney-client communications with a third-party during a business transaction resulted in the waiver of the privilege afforded all attorney-client communications concerning the same subject matter. The Court found Defendants’ disclosures of privileged attorney-client communications regarding the purchase of Rodamco resulted in a subject-matter waiver of all privileged communications regarding the purchase. Center Partners, 2011 IL App (1st) 110381 (¶15).
In its analysis the Court did not accept Defendants’ contention that the facts of Center Partners were distinguishable from prior case law because previous waivers occurred in context of litigation. Id. at ¶16. As to this point, the Court stated it found “no reason to distinguish between a waiver occurring during the course of litigation or during a business negotiation. Once the privileged communication is disclosed to a third party, the privilege is waived, and the scope of the waiver extends to all communications relating to the same subject matter.” Id. The Court also considered and found without merit Defendants’ argument that even if the documents were discoverable based on the subject-matter waiver doctrine, at least some of the documents should be protected according to the work-product doctrine. Center Partners, 2011 IL App (1st) 110381 (¶20). The Court noted the work-product doctrine is designed to protect the work of an attorney in preparation for trial or litigation. The Court reasoned that because the documents were prepared to assist and guide a business transaction – and at the time the parties were not involved in litigation – the documents fell outside the scope of the work-product doctrine and were discoverable. Id. at ¶21-22.
Finally, the Center Partners Court clarified it was not holding “that disclosure of certain privileged communication during negotiations nullifies all privileged communication and information as related to a particular business transaction, but, rather and specifically, as related only to the subject matter of the privilege that is already waived.” Center Partners, 2011 IL App (1st) 110381 (¶19) (emphasis in original). Following Center Partners attorneys who facilitate business transactions are on notice about the pitfalls of clients sharing confidential attorney-client communications with third parties and should caution clients not to waive the confidentiality afforded attorney-client communications in an effort to “get the deal done.”