Garvy v. Seyfarth Shaw LLP , 2012 IL App (1st) 110115 ( 2012 )

ILLINOIS OFFICIAL REPORTS
Appellate Court
Garvy v. Seyfarth Shaw LLP, 2012 IL App (1st) 110115
Appellate Court PETER GARVY, Plaintiff-Appellee, v. SEYFARTH SHAW LLP,
Caption Defendant-Appellant (Edward J. Karlin, Defendant; Lowis and Gellen
LLP, Third-Party Defendant).
District & No. First District, Fourth Division
Docket No. 1-11-0115
Filed March 1, 2012
Held In a legal malpractice action arising from defendant’s representation of
(Note: This syllabus plaintiff in chancery litigation, the trial court’s orders requiring defendant
constitutes no part of to produce documents and communications between defendant’s in-house
the opinion of the court and outside counsel related to plaintiff’s malpractice action were reversed
but has been prepared where it was not shown that plaintiff could not obtain similar information
by the Reporter of from other sources.
Decisions for the
convenience of the
reader.)
Decision Under Appeal from the Circuit Court of Cook County, No. 07-L-4924; the Hon.
Review Daniel J. Pierce, Judge, presiding.
Judgment Reversed in part and vacated in part; cause remanded.
Counsel on Jenner & Block LLP, of Chicago (Jeffrey D. Colman, John R. Storino,
Appeal and Justin A. Houppert, of counsel), for appellant.
Flaherty & Youngerman, P.C., of Chicago (Michael J. Flaherty and C.
Corey S. Berman, of counsel), for appellee.
Illinois State Bar Association, of Springfield (Mark D. Hassakis and
Charles J. Northrup, of counsel), Chicago Bar Association (J. Timothy
Eaton and Dan L. Boho, of counsel), and Mayer Brown LLP, both of
Chicago (James D. Holzhauer, of counsel), for amici curiae.
Panel JUSTICE STERBA delivered the judgment of the court, with opinion.
Presiding Justice Lavin and Justice Pucinski concurred in the judgment
and opinion.
OPINION
¶1 Plaintiff-appellee Peter Garvy sued defendant-appellant Seyfarth Shaw LLP (Seyfarth)
and defendant Edward J. Karlin for legal malpractice, fraud, and breach of fiduciary duty.
During the discovery phase of the proceedings, Seyfarth objected to Garvy’s requests to
produce communications between Seyfarth attorneys and both in-house and outside counsel
related to Garvy’s claims against Seyfarth, on the grounds that the communications were
protected by attorney-client privilege or the work-product doctrine. In response to Garvy’s
motion to compel, the circuit court ruled that communications related to Garvy’s claims
against Seyfarth were not privileged as to Garvy during the period of time that he was
represented by Seyfarth and ordered Seyfarth to produce certain documents and
communications. Seyfarth subsequently informed the circuit court that it would not comply
with the order to the extent that it involved attorney-client communications or work product,
and the circuit court ordered Seyfarth held in contempt and entered a $100 fine against it. On
appeal, Seyfarth first contends that the circuit court’s discovery and contempt orders are void
because the circuit court improperly denied Karlin’s motion for substitution of judge as of
right pursuant to section 2-1001(a)(2) of the Illinois Code of Civil Procedure (Code) (735
ILCS 5/2-1001(a)(2) (West 2008)). Seyfarth further contends that the documents and
communications in question are protected by the attorney-client privilege and work-product
doctrine and that Garvy waived any conflict of interest that could potentially pierce those
privileges. For the following reasons, we reverse the order of the circuit court and remand
for further proceedings.
-2-
¶2 BACKGROUND
¶3 In 2001, Garvy retained Seyfarth to provide corporate advice related to the management
of the Garvy Holding Company (GHC), which was privately owned by Garvy, his father,
Eugene Garvy (Gene) and his four siblings, Maria Garvy, Joseph Garvy, Elizabeth Garvy and
Anthony Garvy (Siblings). Garvy and the Siblings each owned 20% of the common shares
and 6,000 preferred shares in GHC and Gene owned 8,950 preferred shares in GHC. At that
time, the GHC board of directors (Board) consisted of three people: Garvy, Gene and
Garvy’s mother, Adeline Garvy. GHC is the holding company for all issued and outstanding
shares of Vegetable Juices, Inc. (VJI).
¶4 Garvy and Gene were in agreement on issues related to the management of GHC and
sought legal advice from Seyfarth regarding how to keep the Siblings from interfering with
their management decisions. Seyfarth advised Garvy to issue 11,000 preferred shares to
certain key management personnel in lieu of compensation bonuses, and allegedly further
advised him not to put the issuance of the shares before the GHC shareholders for discussion,
ratification or approval. Seyfarth also advised Garvy to increase the size of the GHC Board
from three to seven members. In addition to the original Board members, the new Board
would consist of two of the Siblings and two people who held management positions in GHC
and whose votes were controlled by Garvy. The Board voted to issue 11,000 preferred shares
and informed the Siblings of the issuance at the GHC shareholders’ meeting. The Board was
also increased to seven members.
¶5 The Siblings objected to the issuance of the 11,000 shares and demanded that they be
rescinded. On Seyfarth’s advice, Garvy entered into settlement negotiations with the Siblings
through Seyfarth. The negotiations involved the terms of two settlement agreements between
Garvy and the Siblings, an employment agreement and a shareholders’ agreement. The terms
of the agreements provided, inter alia, that the Board would be reduced to five members,
comprised of Garvy and the Siblings, and that the 11,000 preferred shares would be
rescinded.
¶6 Prior to the execution of the agreements, Garvy sought advice from Seyfarth regarding
his intention to purchase 8,500 of Gene’s preferred shares. The intended purchase would
mean that Garvy would then own 14,500 preferred shares which, together with his common
shares, would give him minority control of the Board and the ability to prevent any
transaction that would require a two-thirds majority vote. Seyfarth allegedly advised Garvy
to delay the purchase of the preferred shares until after the agreements had been signed by
all parties. Seyfarth allegedly further advised Garvy not to disclose his intended purchase to
the Siblings.
¶7 The employment agreement and shareholders’ agreement were both executed on July 31,
2002. On August 13, 2002, Gene sold 8,500 preferred shares to Garvy for $10 per share.
Because the purchase of the shares gave Garvy voting rights and a minority control interest,
the actual value of the shares exceeded $3.5 million. When the Siblings learned of the
purchase, they threatened to void the shareholders’ agreement. In the meantime, Adeline,
who had commenced divorce proceedings, accused Gene of dissipating marital assets by
selling the shares to Garvy. She subsequently filed a fraudulent conveyance claim against
-3-
Garvy and Gene. Garvy retained Seyfarth to represent him in the fraudulent conveyance
litigation.
¶8 In August 2004, the Siblings voted to terminate Garvy as president and chief executive
officer of GHC and as president of VJI, in part because of his failure to disclose the intended
purchase of the 8,500 preferred shares. The Siblings also filed a lawsuit against Garvy and
Gene in the circuit court of Cook County (the chancery litigation). The complaint in the
chancery litigation alleged that the issuance of the 11,000 preferred shares was unlawful
because it violated the preemptive rights of the existing shareholders. The complaint further
alleged that the 8,500 preferred shares transferred from Gene to Garvy were undervalued and
that the failure to disclose the transfer constituted a breach of fiduciary duty. Garvy asked
Seyfarth to represent him in the chancery litigation.
¶9 At the direction of its in-house counsel, Peter Woodford, Seyfarth sent Garvy and Gene
a letter dated November 3, 2004, regarding the potential conflicts of interest in Seyfarth’s
representation of either or both of them in the chancery litigation. In the letter, Seyfarth noted
that the complaint in the chancery litigation alleged that Garvy and Gene engaged Seyfarth
to advise them on how they could “obtain control over GHC and VJI,” and Seyfarth advised
them on the issuance of the preferred shares. The letter confirmed that, according to
Seyfarth’s billing records, it did indeed provide advice concerning the composition of the
GHC Board, as well as on the issuance of the preferred shares. Seyfarth stated that it would
likely be treated as counsel to GHC, rather than to Garvy and Gene personally, and would
most likely have to produce its files regarding the representation. Moreover, Seyfarth stated
that it was likely that the plaintiffs would seek to add Seyfarth as a defendant and assert a
malpractice claim regarding the issuance of shares without recognizing the shareholders’
preemptive rights, or claim that Seyfarth aided and abetted an illegal scheme perpetrated by
Garvy and Gene.
¶ 10 The letter also discussed allegations in the complaint related to the 8,500 preferred shares
that were transferred from Gene to Garvy after the employment and shareholders’ agreements
were executed. The letter noted that the complaint alleged that the transfer was the result of
advice rendered by Seyfarth for the purpose of assisting Garvy and Gene in retaining control
of GHC. The complaint further alleged that the failure to disclose the transfer constituted a
breach of fiduciary duty which invalidated the shareholders’ agreement. Seyfarth explained
that the subject of whether the agreement should be invalidated was a very complicated legal
question. In addition to the conflicts presented by the allegations as discussed in the letter,
Seyfarth noted that it was also representing Garvy in the fraudulent conveyance litigation and
had worked closely with Gene’s separate attorney in the divorce proceeding.
¶ 11 The letter went on to explain that because Garvy’s and Gene’s interests could diverge as
a result of the various proceedings against both of them, Seyfarth advised them to consider
and decide between themselves, with the advice of independent counsel, whether they
wanted Seyfarth to represent both of them in the chancery litigation. Finally, Seyfarth
explained that because its prior advice would be an issue in the chancery litigation, there was
the potential that Seyfarth could be seen as taking positions to favor its own interests over
the interests of Garvy and Gene. The fact that Seyfarth attorneys could be witnesses could
also adversely affect its ability and effectiveness in representing either of them. The letter
-4-
discussed various ways in which the issues could develop during the course of the litigation
and disclosed what Seyfarth intended to argue with respect to the different counts in the
alternative scenarios. Finally, the letter stated: “Because plaintiffs have made so many
allegations relating to the role of Seyfarth Shaw in this matter, we strongly encourage you
to seek independent counsel regarding the import of this consent and your rights in this
matter.” (Emphasis in original.) The letter concluded with the following:
“If, after reviewing the issues and conflicts described above with separate counsel,
you wish Seyfarth Shaw to continue to represent you in this lawsuit, please sign this letter
below as your acknowledgement [sic] of the potential conflicts of interest between
yourselves, and yourselves and Seyfarth Shaw, and as your consent to Seyfarth Shaw’s
representation of you in light of this discussion of the conflicts and potential
developments as the lawsuit proceeds.
We emphasize that you remain completely free to engage independent counsel at any
time even if you do decide to sign the consent set forth below, and we will cooperate
fully with independent counsel’s review of the matter.”
¶ 12 There is no evidence in the record that Garvy ever signed the letter. Shortly after his
receipt of the letter, Garvy retained Allan Horwich of Schiff Hardin as independent counsel
to address the issues raised in the letter. Horwich asserted legal malpractice claims against
Seyfarth on behalf of Garvy and entered into precomplaint settlement discussions with
Woodford. On December 23, 2004, Horwich sent Woodford a letter regarding the settlement
negotiations and stated that it was his understanding that Garvy would like to continue to
proceed with representation by Seyfarth in the chancery litigation. On February 16, 2005,
Horwich requested that Seyfarth enter into a tolling agreement regarding Garvy’s claims
against Seyfarth. Seyfarth entered into the tolling agreement and settlement discussions
continued on the malpractice claims. On February 24, 2005, in a communication to follow
up on the tolling agreement, Horwich stated, “I understand that [Garvy] is satisfied with the
way the [chancery] litigation has been handled to this point and wishes to proceed with
Seyfarth and, as well, that Seyfarth is prepared to proceed.”
¶ 13 In June 2006, Seyfarth retained Jenner & Block (Jenner) to represent Seyfarth with regard
to Garvy’s malpractice claims. On September 27, 2006, Jenner sent Horwich a letter
regarding the settlement of Garvy’s claims. Jenner requested a resolution of Garvy’s claims
in the near future, independent of the chancery litigation. Jenner further stated that its strong
recommendation to Seyfarth was that the existing arrangement where Seyfarth continued to
represent Garvy in the chancery litigation while Garvy had pending malpractice claims
against Seyfarth could not continue much longer. On November 9, 2006, Jenner sent another
letter to Horwich, confirming that during a prior telephone conversation, Horwich had
offered to waive any conflict of interest between Garvy and Seyfarth with respect to
settlement discussions in the chancery litigation. The letter stated that based on that offer and
on Garvy’s actions, it was Jenner’s understanding that Garvy consented to Seyfarth handling
the settlement discussions in the chancery litigation. However, the letter went on to state that
if the chancery litigation did not settle “during the standstill period or a reasonable extension
thereof,” Seyfarth would withdraw from the litigation. On November 16, 2006, Horwich sent
a letter to Jenner stating that Garvy’s position with respect to Seyfarth withdrawing from the
-5-
chancery litigation was that such a withdrawal would be an unwarranted change in position
and inconsistent with the assurances given to Garvy by Seyfarth. On March 1, 2007, Schiff
Hardin sent a letter to Jenner regarding Seyfarth’s commitment and responsibility as Garvy’s
counsel. The letter noted that after first warning that Seyfarth would withdraw if settlement
did not appear likely, Jenner had subsequently announced that Seyfarth would withdraw
regardless of the impact on the chancery litigation settlement. The letter stated that Garvy had
consistently objected that withdrawal would not only be contrary to prior commitments but
could sabotage settlement prospects. On May 2, 2007, after settlement discussions in the
chancery litigation terminated unsuccessfully, Seyfarth withdrew as Garvy’s counsel.
¶ 14 On May 11, 2007, Garvy filed a complaint against Seyfarth and Karlin, alleging legal
malpractice, fraud and breach of fiduciary duty. After several dismissals without prejudice,
Garvy filed a fourth amended complaint. The circuit court denied Seyfarth’s motion to
dismiss on 9 of the 10 counts in the complaint. The case was then transferred to another
judge and Seyfarth and Karlin filed a motion to reconsider the ruling on the motion to
dismiss. On February 3, 2010, the circuit court continued the motion for reconsideration and
stated that the parties should proceed with discovery. The court further stated that the
likelihood of a reversal on the previous ruling was “slim to none.” On February 19, 2010,
Karlin filed a motion for substitution of judge. The circuit court denied the motion, stating
that it probably said more than it should have when ruling on the previous motion, but that,
at the February 3 hearing, “the defendant not only has tested the water but found the water
to be not of its liking.”
¶ 15 During the discovery process, Garvy sought the production of Seyfarth’s internal and
external communications related to its representation of Garvy, including all information
related to Garvy’s legal malpractice claims. On September 10, 2010, Garvy filed a motion
to compel Seyfarth to produce all internal and external communications and work product
regarding Garvy that were authored or received during the time period that Seyfarth
represented Garvy, and to compel Jenner to produce any work product and all
communications with Seyfarth regarding Garvy that were authored or received during that
same time period. In the alternative, Garvy sought to compel Seyfarth and Jenner to produce
privilege logs for all documents withheld upon a claim of privilege. Garvy further requested
an in camera review of the documents listed in the privilege logs for which Seyfarth or
Jenner asserted any common law privilege.
¶ 16 At the hearing on the motion to compel on November 3, 2010, the circuit court asked
why Garvy was not entitled to information that could support his claim that the firm was
acting on its own behalf and not his. Counsel for Seyfarth responded that Garvy was fully
advised of the potential conflicts of interest in the November 3, 2004, letter. The circuit court
raised the possibility that the disclosure in the letter may not have been complete, and stated
that it was similar to asking a student to grade his own paper. Counsel responded that the
letter advised Garvy to seek independent counsel, which he did, and that he then waived the
conflicts. The circuit court ordered Seyfarth to produce all internal communications with
Woodford until the date of Seyfarth’s withdrawal as Garvy’s counsel, with the exception of
communications related to requests for ethics advice. However, the court ruled that
Woodford’s ultimate conclusions regarding ethics issues were subject to disclosure. The
-6-
court further ordered Seyfarth to produce a privilege log identifying all documents involving
ethics advice and tender the log to the court for an in camera inspection. Finally, the court
ordered Seyfarth to produce a privilege log identifying all documents and communications
pertaining to Seyfarth’s representation of Garvy with persons outside Seyfarth prior to
Seyfarth’s withdrawal and tender the log to the court for an in camera inspection. A written
order was issued on November 18, 2010. The order stated that the transcript from the
November 3, 2010, hearing controlled to the extent that the written order was silent or
inconsistent with the court’s oral rulings.
¶ 17 Seyfarth filed a motion to reconsider and, in the alternative, asked the circuit court to
certify the issue for appeal. At a hearing on November 22, 2010, the circuit court denied the
motion to reconsider. The circuit court stated that there had been a very simple solution,
namely, that Seyfarth should have simply withdrawn despite Garvy’s objection. The court
also denied the request for certification, stating that it would only cause further delay. The
court then stated that if Seyfarth intended to appeal by way of the contempt process, it
believed that its November 18 order should be modified to order Seyfarth to produce all
communications between Seyfarth and Jenner up to the point of Seyfarth’s withdrawal. The
circuit court did not conduct an in camera inspection of the ethics advice privilege log, but
instead ordered Seyfarth to tender it to Garvy. Seyfarth tendered the log in open court.
Seyfarth also presented an additional privilege log it had prepared of all communications
with in-house counsel related to its representation of Garvy prior to May 2, 2007. The court
did not inspect this log either, but instead ordered Seyfarth to tender it to Garvy, and Seyfarth
did so in open court. Seyfarth stated that it had not yet been able to complete the privilege
log of communications between Seyfarth and Jenner due to the volume of documents
involved and the court ordered Seyfarth to tender that log at the next hearing, to the extent
reasonably possible.
¶ 18 On December 9, 2010, Seyfarth tendered the privilege log of communications with
persons outside Seyfarth regarding Garvy’s claims against Seyfarth prior to Seyfarth’s
withdrawal on May 2, 2007. The circuit court did not review the log, but ordered Seyfarth
to tender it to Garvy. Seyfarth tendered the log in open court. The circuit court also reviewed
the changes to the written order of November 22, 2010, ordering Seyfarth to produce the
actual documents and communications with outside persons rather than simply producing
a privilege log, and signed the amended order. The circuit court also clarified that its ruling
was that the attorney-client privilege did not apply to the documents and communications in
question. Seyfarth then informed the court that it would not comply with the circuit court’s
orders to produce documents or communications regarding Seyfarth’s representation of
Garvy with either in-house or outside counsel. Seyfarth’s counsel asked the circuit court to
hold him personally in civil contempt for purposes of appeal. The circuit court instead held
Seyfarth in civil contempt and entered a $100 fine against it. Seyfarth timely filed this appeal.
On June 6, 2011, this court granted a motion for leave to file an amici curiae brief on behalf
of the Illinois State Bar Association and the Chicago Bar Association.
-7-
¶ 19 ANALYSIS
¶ 20 As an initial matter, we must address two motions that this court ordered to be taken with
the case. Seyfarth’s first contention on appeal is that the circuit court’s discovery and
contempt orders are void because the court erred in denying Karlin’s motion for substitution
of judge as of right pursuant to section 2-1001(a)(2) of the Code (735 ILCS 5/2-1001(a)(2)
(West 2008)), in an order entered on March 15, 2010. On January 28, 2011, Garvy filed a
motion to strike and dismiss the appeal of the March 15 order, and on February 8, 2011, this
court ordered that the motion be taken with the case. Relying on Powell v. Dean Foods Co.,
405 Ill. App. 3d 354 (2010), and In re Austin D., 358 Ill. App. 3d 794 (2005), Seyfarth
argued in its opening brief that it had standing to challenge the denial of Karlin’s substitution
motion.
¶ 21 Subsequent to the filing of the briefs in this case, our supreme court decided this issue
in Powell v. Dean Foods Co., 2012 IL 111714. This court granted Seyfarth’s motion for
leave to cite Powell as additional authority. In its motion, Seyfarth argues that, despite the
supreme court’s reversal of the appellate court decisions in both Powell and Austin D., this
court still has jurisdiction to determine whether the circuit court erred in denying Karlin’s
substitution motion. Seyfarth contends that: (1) Powell is distinguishable because the
codefendant there was dismissed with prejudice and therefore the supreme court did not
address the remaining defendants’ “entire case” argument, (2) this court will eventually need
to address the issue so, in the interest of judicial efficiency, we should address it now, and
(3) Karlin has an interest in the appeal and Seyfarth is asserting and protecting his rights as
his employer. The second and third arguments clearly have no merit. This court does not
have the authority to decide an issue over which it has no jurisdiction simply because it
would be more efficient to do it now rather than later. Also, because the outcome of the
litigation is not yet known, it cannot be said that this court will eventually need to address
the substitution issue. Moreover, the mere fact that Karlin is an employee of Seyfarth with
an interest in the litigation does not give Seyfarth standing to assert and protect his rights
when Karlin is also a separately named defendant in the litigation. Therefore, we must
determine whether, in light of Powell, Seyfarth has standing to appeal the denial of its
codefendant’s substitution motion.
¶ 22 The supreme court held that the defendants in Powell did not have standing to challenge
an order denying a codefendant’s substitution motion. Id. ¶ 42. The court reasoned that none
of the defendants could claim that they had been prejudiced by the denial because each party
could have separately sought a substitution of judge. Id. ¶¶ 39-42. In fact, of the three
remaining defendants who were parties to the appeal, two had previously sought and
obtained a substitution of judge, and the court concluded that the third defendant was not
prejudiced because he could have filed a motion for substitution of right or for cause but
elected not to do so. Id. ¶¶ 40-41. In the case sub judice, Seyfarth could have filed its own
motion for substitution of right and, thus, it has no standing to appeal the circuit court’s
denial of its codefendant’s substitution motion.
¶ 23 Seyfarth’s attempt to distinguish Powell is unavailing. The defendants in Powell argued
that because the appellate court held that their codefendant’s substitution motion should have
been granted, which would have entitled the codefendant to a new trial before a different
-8-
judge, all defendants who were parties to the “entire case” were entitled to a new trial. Id.
¶ 45. The supreme court declined to address this argument because the codefendant had been
dismissed from the case. Id. ¶ 46. Given that dismissal, the court stated that there was no
need to remand the case for a new trial before a different judge. Id. The supreme court went
on to vacate the appellate court’s order because the remaining defendants in the case lacked
standing to challenge the order. Id. ¶ 47. Seyfarth argues that because Karlin has not been
dismissed from the case and has a real interest in the matter, this language supports its
position that this court has jurisdiction to determine whether the circuit court erred in
denying Karlin’s substitution motion. However, such an interpretation would render the
supreme court’s reasoning in Powell feckless. The defendants in Powell made just such an
argument to the supreme court, contending that they each had “a personal stake and a direct,
immediate and substantial interest in the outcome.” Id. ¶ 38. The supreme court rejected that
argument, noting that in order to show prejudice, the defendants would have to show that
they had a right to the substitution as a result of the codefendant’s motion. Id. ¶ 42. However,
the court reasoned that none of the defendants had that right, because some of the defendants
had already sought and obtained a substitution of judge and the remaining defendant could
have filed its own motion but chose not to do so. Id. Therefore, the remaining defendants had
no standing to appeal the denial of the substitution motion. Id.
¶ 24 Seyfarth’s attempt to avoid this result is ultimately another efficiency argument. Because
Karlin is still a party to the litigation and can appeal the denial of his substitution motion if
he is not satisfied with the final disposition of the case, Seyfarth would like us to decide this
issue prior to trial. We note that unlike the situation in Powell, where the appellate court had
already determined that the denial of the substitution motion was reversible error, no such
determination has been made here. As previously noted, the fact that it might be more
efficient for us to determine at this stage in the litigation whether the circuit court erred in
denying the substitution motion does not give this court the authority to decide an issue over
which we currently have no jurisdiction. Under our supreme court’s decision in Powell,
Seyfarth has no standing to appeal the circuit court’s denial of its codefendant’s substitution
motion. Therefore, Garvy’s motion to dismiss the appeal of the circuit court’s March 15,
2010, order denying Karlin’s motion for substitution of judge is granted.
¶ 25 The second motion that this court ordered to be taken with the case involves the privilege
logs that Seyfarth produced and subsequently tendered to Garvy. On August 5, 2011, Garvy
filed a motion to supplement the record on appeal with the three privilege logs. Seyfarth filed
a response to the motion together with a motion to strike Garvy’s appellate brief on the
grounds that it relies extensively on three privilege logs that were never accepted, reviewed
or considered by the circuit court during its consideration of the orders that are now being
appealed. This court granted the motion to supplement the record on August 16, 2011, and,
on August 18, 2011, ordered Garvy to file a memorandum explaining whether the circuit
court considered the privilege logs. Garvy subsequently filed a memorandum and Seyfarth
filed a response to the memorandum. On September 7, 2011, this court ordered that the
motion to strike Garvy’s responsive brief be taken with the case.
¶ 26 Illinois Supreme Court Rule 329 (eff. Jan. 1, 2006) allows the parties to supplement the
record to include documents that were before the trial court but not part of the record on
-9-
appeal. However, it is well settled that matters not properly part of the record and not
considered by the court in the proceedings below will not be considered on review even if
they are included in the record. People v. Joya, 319 Ill. App. 3d 370, 380-81 (2001); Avery
v. Sabbia, 301 Ill. App. 3d 839, 843-44 (1998). To the extent that arguments in a brief rely
on documents that are not properly part of the record, the reviewing court will disregard
them. Avery, 301 Ill. App. 3d at 844.
¶ 27 Our review of the record discloses that the circuit court never viewed the privilege logs,
but ordered Seyfarth to tender them to Garvy’s counsel, which Seyfarth did in open court.
There is no indication in the record that the circuit court considered anything in the privilege
logs in its discovery rulings. Garvy’s memorandum to this court merely contains a recitation
of the events in the proceedings below that led to the circuit court’s order to produce various
privilege logs and the actual production of those logs. The memorandum includes a quote
from the circuit court in which it stated that it would review the privilege logs, but ultimately
acknowledges that the circuit court never reviewed the logs. Instead, Garvy merely argues
that, prior to entering its discovery orders, the circuit court was aware of the category of
documents that were included in each individual log. Thus, the privilege logs are not properly
part of the record on appeal. This court has not reviewed the privilege logs and has not relied
on the content of the logs in any way in reaching its decision in this appeal.
¶ 28 Seyfarth asks this court to strike Garvy’s entire responsive brief and grant Garvy leave
to file a brief that does not contain improper citations to and arguments based on the
privilege logs. However, inasmuch as this court ordered that the motion be taken with the
case, we decline at this point in the appeal to strike the entire brief. In the alternative,
Seyfarth asks this court to strike all matters outside the record and all arguments related to
the privilege logs. We hereby order that all references to the supplemental record containing
the privilege logs and all arguments made in reliance on the contents of the privilege logs
themselves be stricken from the responsive appellate brief. This court has not considered any
arguments made in reliance on the contents of the logs in reaching its final decision.
¶ 29 We now address Seyfarth’s remaining issues on appeal. Seyfarth contends that the circuit
court erred in ordering Seyfarth to produce communications with its in-house general counsel
and outside counsel because: (1) the fiduciary exception to the attorney-client privilege is not
recognized under Illinois law, (2) public policy considerations supporting the attorney-client
privilege in general apply equally to attorneys who seek legal advice, and (3) Garvy waived
any claim to a conflict that could potentially pierce the attorney-client privilege. Discovery
orders are generally subject to an abuse of discretion standard of review; however, we review
the circuit court’s determination of whether a privilege applies de novo. Mueller Industries,
Inc. v. Berkman, 399 Ill. App. 3d 456, 463 (2010).
¶ 30 The purpose of the attorney-client privilege is to encourage clients to engage in full and
frank discussion with their attorneys without the fear of compelled disclosure of information.
Upjohn Co. v. United States, 449 U.S. 383, 389 (1981); Waste Management, Inc. v.
International Surplus Lines Insurance Co., 144 Ill. 2d 178, 190 (1991). However, the
privilege has limits and must be narrowly construed. Waste Management, 144 Ill. 2d at 190.
Under Illinois law, the attorney-client privilege protects “communications which the claimant
either expressly made confidential or which he could reasonably believe under the
-10-
circumstances would be understood by the attorney as such.” Id.
¶ 31 Garvy argues that the attorney-client privilege does not apply because Seyfarth continued
to represent him at the time it sought legal advice and, therefore, owed him an ongoing
fiduciary duty. The fiduciary-duty exception to the attorney-client privilege arose in the
context of trust law and was based on the principle that the beneficiary of a trust had a right
to the production of legal advice rendered to the trustee relating to the administration of the
trust. Mueller, 399 Ill. App. 3d at 468. The theory behind the exception was that because the
advice was obtained using the authority and funds of the trust and the beneficiary was the
ultimate recipient of the benefit of the advice, the beneficiary was entitled to discover the
communications between the attorney and the fiduciary. Id. The fiduciary-duty exception
does not, however, apply to legal advice rendered concerning the personal liability of the
fiduciary or in anticipation of adversarial legal proceedings against the fiduciary. Id. at 469.
¶ 32 In the proceedings below and on appeal, Garvy relies on cases from other jurisdictions
that have applied the fiduciary-duty exception to the attorney-client privilege. In Thelen Reid
& Priest LLP v. Marland, No. C 06-2071 VRW, 2007 WL 578989, at *1-2 (N.D. Cal. Feb.
21, 2007), a law firm represented both Marland and a separate client in relation to the same
matter. A contract dispute arose between Marland and the law firm, and Marland sought the
production of documents that the law firm claimed were protected under the attorney-client
privilege. Id. at *1. The documents included communications between the law firm and the
attorneys for the separate client that were related to its dispute with Marland and the
litigation in the underlying matter that involved both clients. Id. at *4. The Thelen court held
that because the interests of the parties were intertwined and the law firm had a fiduciary
duty to Marland, the law firm was required to produce documents related to its representation
of Marland that were created during the time of that representation. Id. at *7. The court
recognized an exception for certain documents relating to consultations on the firm’s ethical
and legal obligations to Marland; however, it ordered the law firm to produce its conclusions
with respect to those ethical issues. Id. at *8.
¶ 33 In Koen Book Distributors, Inc. v. Powell, Trachtman, Logan, Carrle, Bowman &
Lombardo, P.C., 212 F.R.D. 283, 284 (E.D. Penn. 2002), the client told the law firm it was
considering a malpractice action against the firm. Over the next month, the client consulted
with independent counsel regarding any potential claims. Id. During that time, the attorneys
who represented the client consulted with another attorney at the firm concerning the legal
and ethical issues related to the potential malpractice action. Id. At the end of a month’s time,
the client terminated the law firm’s services. Id. The Koen court ordered the law firm to
produce any documents related to the possible malpractice action that were generated during
the time period that it still represented the client. Id. at 286-87. The court reasoned that
during that time, the firm still owed a fiduciary duty to its client and it could have either
withdrawn immediately or sought the client’s consent to continue its representation “ ‘after
full disclosure and consultation.’ ” Id. at 286.
¶ 34 Although it is not stated explicitly in either the written orders or in the transcripts of the
proceedings, the circuit court appears to have relied, at least in part, on both Thelen and Koen
in determining that the attorney-client privilege does not apply to the documents in question.
The circuit court ordered the production of all documents and communications involving the
-11-
time period before Seyfarth withdrew as Garvy’s counsel, and stated that had Seyfarth simply
withdrawn immediately, the issue would have been avoided. The circuit court also made an
exception for documents relating to ethics advice, but ordered that the conclusions as a result
of that advice be produced. The circuit court made it clear that it did not believe Seyfarth had
fully disclosed the conflict or that Garvy’s consent to Seyfarth’s continued representation was
an informed consent. Finally, the circuit court explained:
“The Court is of the opinion that as long as an attorney is representing a client, the
attorney’s paramount obligation runs to the client.
Attorneys hold probably the highest fiduciary relationship that can exist between
parties. And as long as an attorney is representing the client, that client is entitled to
complete assurance of the compliance by the fiduciary with the fiduciary’s duties and
obligations.
***
But the Court is inclined to agree with the plaintiff that as long as Seyfarth continued
to represent Mr. Garvy, Mr. Garvy is entitled to know what was going on with his lawyer
as far as his lawyer’s duty of fidelity to Garvy’s best interest and not their own.”
Thus, it is clear to this court that the circuit court based its rulings on the fiduciary-duty
exception to the attorney-client privilege.
¶ 35 However, Illinois has not adopted the fiduciary-duty exception to the attorney-client
privilege. See Mueller, 399 Ill. App. 3d at 469. The cases relied on by Garvy and the circuit
court do not persuade us to create new law in Illinois by adopting it here. Moreover, even if
Illinois did recognize the fiduciary-duty exception, it would not apply to the case sub judice.
The United States Supreme Court recently discussed the history of the fiduciary-duty
exception to the attorney-client privilege in American law in United States v. Jicarilla
Apache Nation, 564 U.S. ___, 131 S. Ct. 2313 (2011). The Court noted that the leading case
on the fiduciary exception is Riggs National Bank of Washington, D.C. v. Zimmer, 355 A.2d
709 (1976), in which the court outlined factors to be considered in determining the “real
client” to whom the attorney-client privilege properly belongs. Jicarilla, 564 U.S. ___, 131
S. Ct. at 2321-22. The first factor considered by the Riggs court was whether there were any
adversarial proceedings pending between the fiduciary and the beneficiary at the time the
legal advice was sought. Id. at ___, 131 S. Ct. at 2322 (citing Riggs, 335 A.2d at 712). This
factor was important because, if adversarial proceedings were pending, it would indicate that
the fiduciary was seeking legal advice in a personal rather than a fiduciary capacity, and the
exception would not apply. Id. at ___, 131 S. Ct. at 2322. This goes to the heart of the
purpose behind the fiduciary-duty exception, and, to the extent the cases relied on by Garvy
do not take this factor into consideration, they misapply the exception. Therefore, even if
Illinois did recognize the fiduciary-duty exception, it clearly would not apply here where
Seyfarth sought legal advice in connection with Garvy’s legal malpractice claims against it,
and not in its fiduciary capacity as Garvy’s counsel in the chancery litigation.
¶ 36 Moreover, even under the case law relied upon by Garvy and the circuit court, the
exception would not apply. The court in Koen stated that the law firm could have either
withdrawn or obtained the client’s consent “ ‘after full disclosure and consultation.’ ” Koen,
-12-
212 F.R.D. at 286. We disagree with the circuit court’s conclusion that Seyfarth had not fully
disclosed the conflicts and that the court could not determine whether Garvy’s consent to
Seyfarth’s continued representation was informed. The circuit court did not accept that the
letter of November 3, 2004, in which Seyfarth disclosed its conflicts of interest to Garvy and
Gene, constituted full disclosure. The court said it could not be sure that the law firm had
fully disclosed everything and that it was the equivalent of “the student grading the paper.”
Under this reasoning, the disclosure requirement is frustrated and rendered rather
meaningless. The law firm must disclose any conflicts, but its disclosure will never be
considered full disclosure because it is coming from the law firm. We cannot agree with this
reasoning.
¶ 37 It is equally unclear what could have convinced the circuit court that Garvy’s consent to
Seyfarth’s continued representation in spite of the conflicts was informed consent. Seyfarth
strongly encouraged Garvy to seek independent counsel. Garvy sought such counsel within
a week of receiving Seyfarth’s letter, and, through his independent counsel, asserted legal
malpractice claims against Seyfarth shortly thereafter. Throughout attempted settlement
negotiations related to Garvy’s legal malpractice claims, his independent counsel repeatedly
assured Seyfarth that Garvy wanted Seyfarth to continue to represent him in the chancery
litigation and strenuously objected to any suggestion that Seyfarth might withdraw. Indeed,
Garvy insisted Seyfarth remain in the case during sensitive settlement negotiations because
to do otherwise would harm Garvy’s interests. It is clear from the record that the conflicts
were disclosed, that Garvy sought independent legal advice, and that his consent to
Seyfarth’s continued representation in the chancery litigation was fully informed. Moreover,
Garvy entered into a tolling agreement with Seyfarth in order to preserve his malpractice
claims. Garvy cannot have it both ways. He cannot insist that Seyfarth continue to represent
him in the chancery litigation while he has malpractice claims pending against Seyfarth, but
then use that continued representation to insist that Seyfarth produce all documents related
to legal advice sought in relation to the malpractice claims generated during that time.
¶ 38 As previously stated, not only do we decline to apply the fiduciary-duty exception to the
attorney-client privilege when it is not currently the law in Illinois, but the exception would
not even apply where, as here, the legal advice sought was in connection to an adversarial
proceeding between the fiduciary and the client. The documents sought by Garvy are clearly
protected by the attorney-client privilege as “communications which the claimant either
expressly made confidential or which he could reasonably believe under the circumstances
would be understood by the attorney as such” (Waste Management, 144 Ill. 2d at 190). Thus,
we conclude that the documents and communications related to legal advice sought by
Seyfarth in connection with Garvy’s legal malpractice claims against it are protected from
disclosure by the attorney-client privilege.
¶ 39 Garvy attempts to avoid this result by arguing that he is not asserting a fiduciary-duty
exception to the attorney-client privilege, although he specifically argued in terms of this
exception in the proceedings below. Rather, he now contends that Seyfarth could not
establish that it had an expectation that the communications would be confidential when they
related to a current client to whom it owed a fiduciary duty, and therefore, the attorney-client
privilege does not attach and there is no need to determine whether an exception to the
-13-
privilege applies. Garvy cites to DeLuna v. Burciaga, 223 Ill. 2d 49, 72-73 (2006), for the
proposition that this is not an “unpaved area of law” in Illinois. The language cited by Garvey
discusses the well-settled importance of the attorney-client relationship and the weighty
obligations placed on an attorney to maintain public confidence in the system of justice. Id.
However, this language, while it may be relevant to Garvy’s underlying malpractice claims,
has no relevance to the issue of whether Illinois has adopted the fiduciary-duty exception to
the attorney-client privilege or whether such an exception would even apply here. Garvy’s
argument that the requirements of the privilege can never be satisfied because the attorney
is a fiduciary is simply an attempt to avoid a discussion of the applicability of the fiduciary-
duty exception by calling it something other than an exception, thereby rendering the
exception itself meaningless.
¶ 40 Garvy also argues that Seyfarth could have no expectation that its communications with
counsel regarding Garvy’s malpractice claims would be confidential because of the
disclosure requirements imposed by Rules 1.4 and 1.7 of the Illinois Rules of Professional
Conduct (Ill. Rs. Prof’l Conduct Rs. 1.4, 1.7 (eff. Jan. 1, 2010)). As noted by amici, the very
rules that Garvy relies on for this proposition recognize that “[a] lawyer’s confidentiality
obligations do not preclude a lawyer from securing confidential legal advice about the
lawyer’s personal responsibility to comply with these Rules” (emphasis added) (Ill. Rs. Prof’l
Conduct R. 1.6(b)(4) cmt. 9 (eff. Jan. 1, 2010)), and that lawyers are permitted to make
confidential reports of ethical issues to designated firm counsel (Ill. Rs. Prof’l Conduct R.
5.1 cmt. 3 (eff. Jan. 1, 2010)). Thus, we reject the proposition that Seyfarth could not have
had an expectation of confidentiality based on the disclosure requirements in the rules that
govern attorney conduct.
¶ 41 We further note that Garvy’s argument is based on his contention that Seyfarth failed to
fully disclose the conflicts as required by the rules. As previously discussed, this court has
rejected that argument. Even if we had not, while a violation of the rules may have relevance
to the underlying claims, it has no relevance to the issue of whether the documents in
question are protected by the attorney-client privilege. Garvy’s counsel also contended during
oral argument that Seyfarth had not disclosed that it was seeking legal counsel in relation to
Garvy’s malpractice claims but was carrying on “secret” communications with counsel that
were adverse to Garvy. This argument is not supported by the record. Seyfarth’s in-house
counsel entered into precomplaint settlement negotiations with Garvy’s independent counsel
as soon as he asserted his malpractice claims, and Seyfarth’s outside counsel took over the
negotiations approximately one year later. It was therefore evident to Garvy from the time
he retained independent counsel that Seyfarth was receiving legal advice on the issue of
Garvy’s malpractice claims.
¶ 42 Garvy’s final argument related to Seyfarth’s expectation of confidentiality is specifically
related to communications with in-house counsel. Garvy contends that, as a member of the
firm, Seyfarth’s in-house counsel represented Garvy as well, creating a situation in which the
attorney-client privilege would not attach. Garvy’s argument is stated in terms of “common”
representation and “conflicting” representation. In Mueller, this court addressed the dual-
representation doctrine in the context of two external clients of the law firm. Mueller, 399
Ill. App. 3d at 464. The Mueller court held that the attorney-client privilege did not apply
-14-
where one client knew that the law firm represented another client on matters related to its
representation of him, and could not reasonably have expected that his communications with
his attorney would be confidential. Id. at 465. However, the Mueller court limited its holding
to communications related to the business, the interest the two clients had in common. Id.
Even if we were to conclude that Seyfarth representing itself is similar to the representation
of an external client, the representation did not involve a common interest with Garvy. Thus,
the dual-representation doctrine is not applicable here and the attorney-client privilege
applies to communications with Seyfarth’s in-house counsel regarding Garvy’s malpractice
claims.
¶ 43 Garvy also argues in his responsive appellate brief that, even if the documents in question
are not discoverable under the fiduciary-duty exception, they are discoverable under the
crime fraud exception. However, as Seyfarth notes in its reply brief and its motion to strike
Garvy’s responsive brief, this argument has been waived. In general, issues not raised in the
trial court are waived and may not be raised for the first time on appeal. Hamilton v. Conley,
356 Ill. App. 3d 1048, 1053 (2005). Although this court has the authority to consider an issue
that has been waived (id.), we decline to do so here. First, to the extent that Garvy’s
arguments are based on the contents of the privilege logs, those arguments have been stricken
from his brief. Second, in the proceedings below, Garvy’s counsel specifically stated to the
circuit court that he was not claiming the crime fraud exception to the attorney-client
privilege. Therefore, this argument has been waived.
¶ 44 Once it has been established that the information sought is protected by the attorney-
client privilege, the party seeking the information has the burden of establishing that the
information is not privileged, by showing that an exception to the privilege applies. In re
Marriage of Decker, 153 Ill. 2d 298, 321 (1992). Garvy has not shown that any exception to
the privilege applies; thus, the circuit court erred in ordering the disclosure of the
communications and documents from in-house and outside counsel related to Garvy’s claims
against Seyfarth.
¶ 45 Finally, the circuit court also ordered Seyfarth to produce documents prepared by both
in-house and outside counsel that Seyfarth claimed were protected under the work-product
doctrine. “The work-product doctrine provides a broader protection than the attorney-client
privilege, and is designed to protect the right of an attorney to thoroughly prepare his case.”
Waste Management, 144 Ill. 2d at 196. Work product that reveals the mental impressions,
opinions, or trial strategy of an attorney is only discoverable “upon a showing of
impossibility of securing similar information from other sources.” Id.
¶ 46 We have found no evidence in the record of any showing of impossibility of securing
similar information from other sources, and must therefore conclude that the circuit court
ordered the disclosure of the documents covered by the work-product doctrine in the absence
of such a showing. On appeal, Garvy argues that the work-product doctrine does not apply
when the client is seeking discovery of his own attorney’s mental impressions. However,
Garvy only cites to cases that are not binding on this court in support of this argument,
namely Koen, 212 F.R.D. 283, and Spivey v. Zant, 683 F.2d 881 (5th Cir. 1982). To the
extent that these cases would even be considered persuasive, it would only be in the context
of the “real client” analysis undertaken in the fiduciary-duty exception. The mental
-15-
impressions Garvy seeks to obtain are not those related to his attorney’s representation of
him in the chancery litigation, but those related to the adversarial proceedings between
himself and his attorney. Under Illinois law, the work-product of both in-house and outside
counsel is not discoverable here where Garvy has not shown that it is impossible for him to
obtain information related to his malpractice claims from similar sources. Indeed, Garvy is
entitled to, and has obtained, all documents relating to Seyfarth’s representation of him in
the chancery litigation, out of which his malpractice claims arise. Thus, the circuit court erred
in ordering the disclosure of Seyfarth’s in-house and outside counsel’s work product related
to Garvy’s legal malpractice claims.
¶ 47 For the reasons stated, we reverse the circuit court’s orders directing Seyfarth to produce
documents and communications between in-house and outside counsel related to Garvy’s
legal malpractice claims. We also vacate the circuit court’s contempt order against Seyfarth
(see Cangelosi v. Capasso, 366 Ill. App. 3d 225, 230 (2006) (noting that “[w]here a party’s
refusal to comply with a trial court’s order constitutes a good-faith effort to secure an
interpretation of the two privileges in question, it is appropriate to vacate a contempt citation
on appeal”)), and remand for further proceedings.
¶ 48 Reversed in part and vacated in part; cause remanded.
-16-