A casual viewer might be forgiven after watching the oral argument last week in Center Partners, Ltd. v. Growth Head GP, LLC for being uncertain exactly what the law of Illinois was regarding the applicability of subject matter waiver to disclosures of attorney-client communications outside litigation. In a nearly hour-long debate, opposing counsel presented diametrically opposed visions. According to plaintiffs, the matter was simple: you either want secrecy or you don’t, and applying subject matter waiver outside litigation was hardly a big deal. Defendants, backed by a number of high-powered amici, argued that plaintiffs were seeking an unprecedented and dangerous extension of waiver which would divorce the doctrine from its rationale. Although predicting what an appellate court is likely to do from its questions is always a dicey business, judging from several Justices’ questions, the Court may be preparing to side with the plaintiffs.
Click here for our preview of the argument in Center Partners. The defendants bought the assets of a company which (through a series of corporate relationships too complex to review here) owned a number of shopping centers. The same day, they entered into a side deal dividing up control of the target’s assets among themselves. Everything was going fine until the plaintiffs – limited partners in the shopping center company – sued them for breach of fiduciary and contractual duties.
The problem was that the three defendants had shared attorney-client communications among themselves during the negotiations for the asset purchase. First, plaintiffs filed a motion to compel production of all of the shared communications: granted. But then, plaintiffs filed a second motion, seeking all communications regarding the same subject as the shared communications, arguing that the disclosures had worked a general subject matter waiver. The second motion was granted too, and following a “friendly contempt” order (to make the dispute appealable), the Appellate Court affirmed.
So: does subject matter waiver apply outside the context of litigation? And if so, how broad is the waiver?
The defendants argued that the Appellate Court had erred in both respects: subject matter waiver shouldn’t have been applied at all, and even if it had, the Appellate Court had applied far too broad a waiver. In response to a question from Justice Burke, counsel stated that no litigation had been ongoing at the time of the disclosures, and none had been anticipated (a view counsel for the plaintiffs disputed later). When counsel argued that waivers are applied in order to prevent the privilege from interfering with a court’s truth-seeking function, Justice Garman wondered whether that rationale might equally support a broad application of the waiver rule.
Justice Thomas asked counsel whether, even if parties are permitted to share attorney-client communications with some people while preserving the privilege, at some point the dissemination of a communication has simply gone too far? Counsel acknowledged that although the common interest privilege had not been claimed, the scope of the waiver should have been limited to the shared communications themselves. Justice Karmeier asked counsel whether it mattered for his position why attorney-client communications had been shared, and counsel responded that it did not.
During plaintiffs’ argument, several Justices continued to wonder whether the basis on which subject matter waiver rested could be logically limited to litigation only. Historically, general waivers have been imposed because otherwise a party can use protected communications as a sword, letting out only what the party wants to, and a shield – hiding additional communications which might give context to, or even contradict, the disclosed material. Justice Theis asked whether there was some suggestion in the record below of similarly misleading partial disclosures. Justice Thomas echoed the point, arguing that absent a subject matter waiver, a party would be free to selectively disclose what it chose in a negotiation, knowing that it would be available for later litigation, while keeping the rest of the story protected. In response to a question from Justice Garman, counsel argued that defendants were relying on attorney advice in the underlying dispute. Justice Burke asked why the waiver had to sweep so broadly, but counsel disputed the assertion of defendants’ counsel that the defendants had not expected litigation at the time of the disclosures.
In rebuttal, counsel for the defendants denied that defendants were relying on attorney advice below. In response to Justice Thomas’ concern that refusing to apply subject matter waiver to business negotiations might lead to an unfair partial waiver, counsel argued that the initial disclosure itself should be excluded on hearsay and relevance grounds, making a general waiver to place the initial disclosure in context unnecessary.
We expect Center Partners to be decided within the next two to four months.