If negotiators compare legal notes as they discuss a possible business deal between their respective companies, does that conversation constitute a waiver of attorney-client privilege for the entire transaction?
It may be surprising, but the answer isn't clear. In fact, no state supreme court had ever ruled on that question until this past November, when the Illinois Supreme Court found that sharing legal advice under these circumstances does not create a waiver.
Amar Sarwal, chief legal officer for the Association of Corporate Counsel in Washington, D.C., cheered the ruling in an interview with Corporate Counsel. "For our members who engage in business negotiations constantly and counsel their clients on contracts, the idea that every piece of legal advice about a contract could be made public would deeply disrupt the negotiations," Sarwal says.
The case arose in Cook County over a business transaction between companies that own and operate shopping malls across the country. During their discussions, the negotiators shared among themselves certain legal advice each of them received from their attorneys regarding the purchase. The plaintiffs argued that each defendant waived attorney-client privilege by discussing the legal advice with the others. They filed a motion to compel production of over 1,500 documents on the defendants' privilege logs, claiming that the documents fell under the "subject matter waiver" of attorney-client privilege.
The trial court agreed with the plaintiffs, and ordered the documents to be produced. The defendants declined and were found in contempt. A state appeals court upheld the ruling.
Then, in what is believed to be the first state supreme court to decide the issue, the Illinois court overturned the ruling. "We hold that subject matter waiver does not apply to the extrajudicial disclosure of attorney-client communications not thereafter used by the client to gain an adversarial advantage in litigation," the opinion said.
ACC had filed an amicus brief in January 2012, along with the Illinois State Bar Association and the Cook County Chapter of ACC, asking the Supreme Court to overturn the lower courts. The brief argued that the lower court ruling would "undermine the public policy interests of the legal profession in Illinois, create an impossible environment for business negotiations in Illinois, and unfairly place lawyers into a minefield of ethical conflicts and potential malpractice claims."
Sarwal calls the opinion well thought out. "This decision reaffirms the importance of the privilege," he says. "This court really understood that if the clients don't feel conversations are confidential, they will be less than candid with their attorneys." Sarwal adds, "If the Supreme Court decision had gone otherwise, companies doing business in Illinois, or even dealing with Illinois companies, could have a real problem."
It's likely that the lower court ruling, had it been left standing, could have been expanded to include not just businesses, but any individual who retained a lawyer for any purpose, Sarwal observes. He also stresses that lawyers in private practicenot just in-house lawyerswere also concerned about the case, as evidenced by the Illinois Bar Association joining the amicus.
Charles Northrup, general counsel of the state bar association, and Alexandra Darrow, a senior counsel at ADP Inc. (and advocacy chair of ACC's Chicago chapter), joined Sarwal in the amicus. The final ruling provided practical advice to the legal profession on how privileged communications with their clients can be protected.
"Any court confronting an assault on the privilege would do well to review this opinion," Sarwal says.