In a major decision concerning privilege waiver, the Illinois Supreme Court, in Center Partners, LTD v. Growth Head GP, LLC, ruled that the subject matter waiver doctrine does not apply to privileged communications disclosed in an extrajudicial context. The Court’s decision, which can be accessed here, answered a question of first impression in Illinois and will serve as influential authority when other states consider the scope of subject matter waiver.
Question at Issue
The precise question before the Court was whether, as a matter of law, the subject matter waiver doctrine applies to the disclosure of privileged information made outside of a litigation or judicial setting (an extrajudicial setting).
Where a privileged communication is voluntarily disclosed, the subject matter waiver doctrine extends this waiver to all other communications pertaining to the same subject matter. The purpose of the doctrine is to prevent a party from selectively disclosing favorable information while simultaneously withholding unfavorable information under the cloak of privilege. The question in Center Partners was whether the subject matter doctrine, and its underlying purpose, should apply in non-litigation contexts.
Facts of Case
The Center Partners case involved a complicated business transaction. In short, three companies negotiated the purchase of Rodamco North America, N.V., including the General Partner of one of Rodamco’s holdings. During the purchase negotiations, the purchasing entities and their lawyers exchanged privileged information concerning the legal implications of the transaction, rights and obligations of the parties to the transaction, and legal concerns and conclusions about the structure of a new partnership agreement. A couple of years after the transaction was complete, a group of minority limited partners sued for breach of contractual and fiduciary duties, and sought all communications actually disclosed between the purchasing entities and all privileged, non-disclosed communications concerning the same subject matter.
In an issue of first impression in Illinois, the Court ruled that the subject matter waiver doctrine does not apply where privileged communications are disclosed in an extrajudicial setting. The Court based its decision in large part on the doctrine’s underlying purpose. The purpose is to prevent a party from using an evidentiary privilege offensively (sword) to disclose favorable information and later defensively (shield) to withold unfavorable information pertaining to the same subject matter.
The Court reasonsed that, outside the litigation context, parties generally do not decide to disclose privileged information for sword and shield purposes. In many non-litigation settings, such as business transactions, parties disclose privileged information before litigation is initiated or even contemplated. And expanding the subject matter waiver doctrine to non-litigation contexts would produce a perverse result: parties may “leave attorneys out of commercial negotiations for fear that their inclusion would later force wholesale disclosure of confidential information.” Consequently, the Court found that the purpose of the subject matter waiver doctrine is simply not served by expanding it to non-litigation contexts.
The Court placed one limitation on its ruling. It stated that, if a disclosure is made during a business negotiation to gain a later tactical advantage in anticipated litigation, then the subject matter waiver doctrine would still apply if such a disclosure is later used by the disclosing party at any point during the litigation to gain a tactical advantage.
Most states have not addressed the issue whether the subject matter waiver doctrine applies in extrajudicial contexts, and this area of evidentiary privileges needs more development. The Illinois Supreme Court’s decision in Center Partners is based on sound reasoning and will likely serve as persuasive authority when the issue arises in other states. And while the decision was made in the non-litigation context of business transactions, it will likely serve as persuasive authority for disclosures made in other non-litigation contexts such as disclosures made during settlement negotiations, government investigations, regulatory compliance filings, or for public relations/media purposes. For a more detailed analysis of these issues, see an earlier PoP post recommending an IADC article by Andrew Kopon and M.C. Sungaila.