Would Illinois Courts Protect Communications With Your Corporate Attorney?
February, 2006
Corporations may presume that communications with their attorneys concerning legal advice are protected from disclosure in litigation, particularly if those communications would be privileged in the state where they occur or corporate management is based. In fact, such communications may not be protected if the corporation is sued in Illinois.
Illinois’s Limited Privilege May Trump Another State’s Broader Privilege For Attorney-Client Communications
When faced with attorney-client privilege claims, many states apply a version of the subject matter test which protects communications with counsel on matters within the scope of an employee’s duties and made for the purpose of securing legal advice, from disclosure in litigation. See e.g., Sterling Fin. Mgmt. L.P. v. UBS Paine Webber, Inc., 782 N.E.2d 895, 900, 901-02 (Ill. App. Ct. 2002). In contrast, Illinois protects communications between an attorney and a corporate client, for the purpose of seeking or giving legal advice, only if the corporate employee is a member of the corporation’s “control group” as defined in Consolidation Coal Co. v. Bucyrus-Erie, Co., 432 N.E.2d 250, 257-58 (Ill. 1982). The subject matter test protects more types of communications by more people at different levels within a corporation than the control group test. Ford Motor Co. v. Leggat, 904 S.W.2d 643, 646 (Tex. 1995).
The limited protection provided to such communications under Illinois law poses problems for a corporation based outside of Illinois that is sued in Illinois and asked to produce communications between its officers or employees and corporate counsel. Under the choice of law rules applied by Illinois courts in such cases, corporations may find it difficult to keep their communications confidential.
In Sterling Financial Management L.P. v. UBS PaineWebber, Inc., 782 N.E.2d 895 (Ill. App. Ct. 2002), the Illinois Appellate Court, First District, noted that under Section 139 of the Restatement (Second) of Conflicts of Law, evidence that is privileged under the law of the state with the most significant relationship to the communication, but is not privileged under the law of the forum state, will be admitted absent special reasons why the forum’s policy should not be given effect. The Court proceeded to hold that the privilege law of Illinois (the forum), rather than New York (the state with the most significant relationship to the communications), governed the attorney-client privilege dispute therein. However, it went further and suggested, in dicta, that Illinois law presumptively prevails in all cases if the other interested state recognizes a broader privilege:
In view of the fact that Illinois does recognize the [attorney-client] privilege . . . but construes it strictly in the corporate context, we cannot foresee any situation where a special reason would exist not to give effect to this clear, strongly articulated policy in favor of another state’s broader corporate attorney-client privilege.
Id. at 905 (emphasis added).
Sterling’s suggestion that Illinois’s policy in favor of disclosure should prevail in every case is troublesome because it fails to give appropriate weight to other significant policy considerations.
For example, considerations of “fairness” (which is a relevant factor under Section 139), would frequently favor the law of the state with the most substantial contacts with the communication. For the privilege to be effective, parties “must be able to predict with some degree of certainty whether particular discussions will be protected” (Upjohn Co. v. United States, 449 U.S. 383, 393 (1981)), but Sterling’s approach would require a corporation that does business in several states to assume that its communications will receive only the protection afforded by the state with the narrowest privilege, even though its home state offers greater protection.
Furthermore, if the control group test applies in all cases, a significant portion of attorney communications in larger corporations may be subject to disclosure; however, a one-size-fits-all, “automatic,” approach is not appropriate. The control group test may not be unduly burdensome for corporations in which decision-making authority is concentrated in a relative few, but it ignores the reality of larger, more complex, corporations. See, e.g., Caremark, Inc. v. Affiliated Computer Servs., Inc., 192 F.R.D. 263, 268 (N.D. Ill. 2000) (noting that the “team” approach to decision making “is an example of the ‘modern corporate reality’ of decision making as a ‘process rather than a final act’ that the [Illinois Supreme Court] intended its control-group test to accommodate”).
It remains to be seen if Illinois’s other appellate districts or federal trial courts in Illinois will follow Sterling’s dicta or apply a more balanced approach. If those courts agree that Section 139 of the Restatement (Second) applies but reject an automatic application of Illinois law, the party claiming privilege will still need to show “special reasons” for applying another jurisdiction’s broader privilege.
Litigation Strategy
So what should a foreign corporation sued in Illinois do if asked to produce communications between officers or employees and corporate counsel? If possible, it should attempt to establish that the communications are privileged under Illinois’s control group test. However, if there is any doubt that Illinois law would protect the communications, it must establish “special reasons” why Illinois’s policy in favor of disclosure should not prevail. See, e.g., People v. Allen, 784 N.E.2d 393, 395 (Ill. App. Ct. 2003). An adequate record may convince the court that special reasons exist to apply the law of the state with the most significant relationship. Lastly, an appeal of an adverse ruling must be perfected if the corporation wishes to avoid compliance with an order to produce any disputed communications.
Clausen Miller’s attorneys have extensive experience litigating corporate attorney-client privilege claims, including claims that present conflict-of-law issues such as those addressed in Sterling. Our Appellate Practice Group is experienced in posturing such disputes for immediate review, which requires knowledge of Illinois rules that allow immediate appeals, in limited circumstances, of discovery rulings. Our attorneys work with corporate defendants to develop and implement strategies to assert and preserve attorney-client privilege claims under the law of both Illinois and the state having the most significant relationship to the communication, develop a factual record for appeal, if necessary, and litigate a resulting appeal.•
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