Can You Share Your Attorney's Advice With Your Business Partners?

Our preview of the September term continues with Center Partners, Ltd. v. Growth Head GP, LLC [pdf].

Center Partners involves a dispute over the purchase of a property company. Defendants – a maze of corporations, partnerships and trusts we’ll call Westfield, Rouse and Simon – negotiated the purchase of the assets of Rodamco North America. Rodamco owned Head Acquisition, the general partner of Urban Shopping Centers. The same day the purchase agreement was signed, Westfield, Rouse and Simon entered into a separate agreement deciding who would get what among Rodamco’s assets, and the purchase each would pay, as well as entering into yet another agreement allocating Urban’s mall interests among themselves.

During the negotiations to buy Rodamco, Westfield, Rouse and Urban frequently shared with one another their individual attorneys’ legal advice as they attempted to work through the issues and structure the necessary agreements. But the trouble started later, when the plaintiffs – the minority limited partners of Urban – sued Westfield, Rouse and Simon for breach of fiduciary and contractual duties in connection with the acquisition.

In October 2008, the plaintiffs filed a motion to compel seeking production of all communications disclosed between Westfield, Rouse and Urban during the negotiations. The motion was granted on the grounds that the privilege had been waived. Eighteen months later, the plaintiffs filed a second motion, seeking all attorney-client communications in the possession of any defendant relating to the same subjects covered by the earlier documents, whether shared among the partners or not, arguing that the disclosure of some communications had worked a general subject-matter waiver. When the trial court granted that motion too, Westfield sought and received a “friendly contempt” order, and off to the Appellate Court the whole dispute went.

Illinois has recognized subject matter waiver in privilege law for nearly a century, but the defendants argued that such waivers were limited to litigation. They shared their attorneys’ advice in the course of a business negotiation. The Appellate Court disagreed: “[W]e find no reason to distinguish between a waiver occurring during the course of litigation or during a business negotiation.” In the alternative, the defendants argued that the waiver found by the trial court – which extended to 279 documents in all – was severely overbroad, but the Appellate Court held that the defendants had failed to specifically show which documents might still be protected.

Not surprisingly, the defendants have attracted heavyweight amicus support before the Supreme Court. The first brief, cosigned by the Illinois State Bar Association, the Association of Corporate Counsel and the Association of Corporate Counsel Chicago Chapter, argues that unless the Appellate Court’s decision is overturned, “Attorneys will have a difficult, if not impossible task of instructing clients about the risk of waiver.” The Bar Association points out that the Appellate Court’s decision is contrary to the letter and spirit of a number of different provisions of the Rules of Professional Conduct and their supporting commentary. For example, Comment 5 to Rule 1.6 recognizes that a lawyer may be impliedly authorized to make a disclosure that facilitates a satisfactory conclusion to a matter. Rule 1.6(b) permits limited disclosure in certain additional specified circumstances, such as where necessary to enable the affected persons to prevent or mitigate reasonably certain harm. Rule 2.3, entitled “Evaluation for Use by Third Persons,” specifically permits a lawyer to provide an evaluation of a matter for the use of someone other than the client, to the extent consistent with the representation – a rule which is arguably mooted by the Appellate Court’s decision. Finally, the decision is inconsistent with Federal Rule of Evidence 502, mirrored in Illinois’ Proposed Rule 502 – both of which limit subject matter waiver to court or agency litigation.

In a second amicus brief, the International Association of Defense Counsel and the Illinois Association of Defense Trial Counsel argue that the Appellate Court’s decision threatens the attorney-client relationship in a variety of circumstances beyond real estate negotiations, including settlement discussions, grand jury investigations, compliance with SEC filing requirements and patent disputes. This second group of amici urge the Court to squarely limit the doctrine of subject matter waiver to litigation alone, arguing that the rationale for the waiver – blocking one from using limited disclosure as a sword, while shielding related materials – is not applicable in most business transactional situations. If the Court is unwilling to limit the waiver, amici argue, the Court should adopt clear guidance for the lower courts to apply in determining the scope of the waiver.

Center Partners will be argued at the 9:00 am session of the Court on Tuesday, September 18, 2012. Join us back here tomorrow for a preview of the argument in Cooney v. Rossiter. 

Trackbacks (0) Links to blogs that reference this article Trackback URL
http://www.appellatestrategist.com/admin/trackback/285505
Comments (0) Read through and enter the discussion with the form at the end
Post A Comment / Question Use this form to add a comment to this entry.







Remember personal info?