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Court Rejects the Fiduciary Duty Exception

Two recent cases out of the First District of the Appellate Court in Illinois have bolstered the right of attorneys to assert the attorney client and work product privileges to withhold documents in the context of a malpractice claim against them. In Garvey v. Seyfarth Shaw LLP, 2012 Ill. App. LEXIS 132; 966 N.E. 2d 523 (1st Dist. Mar. 1, 2012) and MDA City Apartments, LLC v. DLA Piper LLP (US), 2012 Ill. App. LEXIS 201 (1st Dist. Mar. 22, 2012), the Court rejected the application of the “fiduciary-duty” exception to the attorney client and work product privileges. The opinions give instruction as to the underlying facts and factors which will frame and preserve an attorney’s asserted privilege as against his or her former client.

 
The Illinois Appellate Court Rejects the Fiduciary Duty Exception to Overcome Privilege by Attorneys in Malpractice Actions
By: Joseph R. Marconi 1

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Two recent cases out of the First District of the Appellate Court in Illinois have bolstered the right of attorneys to assert the attorney client and work product privileges to withhold documents in the context of a malpractice claim against them. In Garvey v. Seyfarth Shaw LLP, 2012 Ill. App. LEXIS 132; 966 N.E. 2d 523 (1st Dist. Mar. 1, 2012) and MDA City Apartments, LLC v. DLA Piper LLP (US), 2012 Ill. App. LEXIS 201 (1st Dist. Mar. 22, 2012), the Court rejected the application of the “fiduciary-duty” exception to the attorney client and work product privileges. The opinions give instruction as to the underlying facts and factors which will frame and preserve an attorney’s asserted privilege as against his or her former client.

As developed in the context of trust law, the “fiduciary-duty” exception nullifies the privileged status of legal advice given to a trustee or other fiduciary when the advice sought was motivated by and concerns the interests of the trust itself (and its beneficiaries). In such cases, the “real client” is often a beneficiary who is entitled to have access to that material.2 Courts in other states have expanded the fiduciary-duty exception to other fiduciary relationships besides that of trustees.

Contrarily, the Illinois First District twice, in the space of one month, rejected the application of that exception to claims by clients against their attorneys. In Garvy v. Seyfarth Shaw LLP, supra, a client brought malpractice claims against the attorneys on one matter, but agreed to allow the attorneys to continue to represent them on another matter. In MDA City Apartments, LLC v. DLA Piper, LLP, supra, DLA attorneys first faced a motion to disqualify filed by the opposing party (based on a conflict stemming from work the attorneys had done for members of a business entity that had a common ownership and interests of the opposing party), and later faced malpractice claims from MDA for allegedly not properly disclosing those conflicts in a timely fashion.

In both cases, the plaintiff clients sought communications between the defendant law firms and their in-house and outside counsels that dealt, as it turned out, exclusively with the ancillary malpractice claims being made against them. In both cases, the advice was not related to the representation of the complaining clients nor was it paid for by the clients — but rather the firms themselves. In both cases, the court found that the attorneys had the right to obtain legal advice for themselves in the handling of the actually or potentially adverse actions, and that the attorneys had a reasonable expectation that such advice would be confidential.

The holdings of these cases touched on several aspects of both the attorney client relationship and the nature and extent of privileged communications. With respect to the “fiduciary-duty” exception, the Court rejected the argument that communications discretely related to the claims or potential claims by clients against a firm were part and parcel with communications generated in the course of representing that client. The topic matter, the segregated administration and maintenance of the files, and the source of the payment for the representation were all material factors considered by the Court in its ruling.

The Court further rejected the assertion that the Professional Rules of Conduct which require attorneys to keep their clients reasonably informed or which preclude concurrent conflicts of interest do not impair the attorney’s expectation of confidentiality when consulting other professionals.

Attorneys are advised to ensure the viability of subsequent privilege claims by obtaining the resulting communications at their own expense, without billing the client for any fees or costs involved. The communications and work product sought for their own benefit must be completely segregated from the files generated in the course of representing the client. This is particularly important, and somewhat tricky, when motions to disqualify counsel are raised by the opposition in the underlying claim. When such issues arise, separate, segregated materials ought to be kept out of the underlying file. Attorneys should think long and hard about what information must be, should be, or should not be, imparted to the client — that is, what material was obtained for the client’s benefits and what materials were paid for by the client.

 

[1] Mr. Marconi is a shareholder at Johnson & Bell, Ltd., chairman of the business litigation/transaction group, and co-chair of the employment group. He gratefully acknowledges the assistance of Justin H. Volmert in drafting this article.

[2] For a history of the fiduciary-duty exception to attorney-client privilege, including the factors to consider in determining the “real client” able to claim the privilege in jurisdictions where the exception is recognized, see United States v. Jicarilla Apache Nation, 131 S.Ct. 2313 (2011).

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