Archive for November 2011

Loose Lips Sink Privileges in Partnership

November 10, 2011

The Illinois Appellate Court has recently provided a cautionary tale regarding the attorney-client privilege and the potentially broad scope of the subject-matter waiver if the privileged information is shared with third parties.  Specifically, in the context of a business negotiation, the attorney-client privilege can be waived by the client when the client voluntarily discloses the privileged information to its joint venture partner.

In Center Partners, Ltd. v. Growth Head GP, LLC, N0. 1-11-0381 (Ill. App. Ct. Aug. 30, 2011), the parties created a partnership for the ownership and operation of numerous shopping malls across the country.  Defendants Westfield America Trust (Westfield), The Rouse Company (Rouse), and Simon Property Group, Inc. (Simon) negotiated to purchase the assets of Rodamco North America, N.V. (Rodamco).  One of Rodamco’s assets was Head Acquisition, L.P. (Head) which was the general partner of plaintiff Urban Shopping Centers, L.P. (Urban).

Following a dispute related to the purchase of Rodamco’s assets, including the acquisition of Head, Urban filed suit alleging breach of fiduciary and contractual duties.  Urban sought the discovery of communications between Westfield, Rouse, and Simon concerning how they agreed to operate and collect revenue from the various shopping malls owned by Urban.  Westfield and Rouse conceded that during the negotiations leading up to the purchase of Rodamco, each had voluntarily disclosed to the other various attorney-client privileged information they had received from their attorneys regarding the purchase.

In 2008, Urban filed a motion to compel the attorney-client communications that were disclosed among Westfield, Rouse and Simon during their negotiations to purchase Rodamco.  The circuit court granted the plaintiff’s motion and ordered immediate disclosure of this information due to Westfield, Rouse and Simon’s waiver of the privilege.  Later, the court also ordered the disclosure of all privileged communication by and between the defendants concerning the purchase negotiations including information not disclosed among Westfield, Rouse and Simon.  The defendants promptly appealed that the disclosure order was too excessive and that the “attorney work-product doctrine” covered all communications that the attorney-client privilege did not.

The Appellate Court upheld the lower court, holding that the attorney-client privilege can be waived when a client voluntarily discloses the privileged information to a third party.  Specifically, the court found that the “subject-matter waiver doctrine” requires a party who discloses some privileged communication to reveal all privileged communications on the same subject matter.

In light of the defendants’ disclosures to one another, the Appellate Court held the scope of the attorney-client privilege extends to all communications relating to the same subject matter, regardless of whether the disclosure was in the context of litigation or a business negotiation.  Similarly, the court held that specific documents failed to qualify for protection under the “attorney work-product doctrine” because they were not generated in preparation for trial or litigation.  The Appellate Court affirmed the judgment of the circuit court and granted the motion to compel.

The Center Partnersdecision highlights the precarious nature of partnership and joint venture agreements and serves as a poignant anecdote for attorneys and clients relating to disclosure of privileged information.  Once privileged information is shared to a third party, the privilege can be waived and the scope of the waiver could be held to extend to all communications of the same subject matter.

Click Center Partners, Ltd. v. Growth Head GP, LLC to view the Center Partners Appellate brief.

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