Ctr. Partners, Ltd. v. Growth Head GP, LLC

• Citation: 367 Ill.Dec. 20,2012 IL 113107,981 N.E.2d 345
• Decision Date: 29 November 2012
• Docket Number: 113128.,Nos. 113107,s. 113107
• Parties: CENTER PARTNERS, LTD., et al., Appellees, v. GROWTH HEAD GP, LLC, et al., Appellants.
• Court: Supreme Court of Illinois

2012 IL 113107
981 N.E.2d 345
367 Ill.Dec. 20

CENTER PARTNERS, LTD., et al., Appellees,
v.
GROWTH HEAD GP, LLC, et al., Appellants.

Nos. 113107, 113128.

Supreme Court of Illinois.

Nov. 29, 2012.

[981 N.E.2d 348]

Gino L. DiVito, Karina Zabicki DeHayes, Brian C. Haussmann and John M. Fitzgerald, Tabet DiVito & RothsteinLLC, Chicago, IL, John S.Kiernan, Carl Riehl and William H. Taft V, Debevoise & Plimpton LLP, New York, NY, for appellants Westfield et al.

Lynn H. Murray, Laura K. McNally, Pei Y. Chung and Claudia M. Rustad, Grippo & Elden LLC, Chicago, IL, David Lender and Jason Bonk, New York, NY, Thomas C. Frongillo, Boston, MA, Weil, Gotshal & Manges LLP, for appellants The Rouse Company et al.

Jeffrey L. Willian, Alyssa A. Qualls and S. Maja Fabula, Kirkland & Ellis LLP, Michael A. Pollard, Baker & McKenzie LLP, and Kevin M. Forde, Chicago, IL for appellees.

Stephen R. Swofford, Thomas P. McGarryand Nabil G. Foster, Hinshaw & Culbertson LLP, Chicago, IL, for amici curiae Illinois State Bar Association et al.

Andrew Kopon Jr., Mollie E. Werwas and Stacy M. Kramer, KoponAirdo, LLC, Michael Resis, SmithAmundsen LLC, Chicago, IL, Mary-Christine Sungaila, Snell & Wilmer L.L.P., Costa Mesa, CA, for a mici curiae International Association of Defense Counsel and Illinois Association of Defense Trial Counsel.

OPINION
Justice GARMAN delivered the judgment of the court, with opinion.

[367 Ill.Dec. 23]¶ 1 Defendants appeal from a circuit court of Cook County order that granted plaintiffs' motion to compel the production of certain documents containing privileged attorney-client communications.¹ Defendants

[981 N.E.2d 349]

367 Ill.Dec. 24]refused to comply with the court's order to compel production of documents and were found in contempt. Defendants appealed pursuant to Supreme Court Rule 304(b)(5) (eff. Feb. 26, 2010). The appellate court affirmed the granting of the motion to compel. 2011 IL App (1st) 110381, 354 Ill.Dec. 180, 957 N.E.2d 496. Defendants have appealed to this court, arguing the subject matter waiver doctrine should not apply to compel production of undisclosed, privileged communications where the disclosed communications were extrajudicial in nature and were not used to gain an advantage in litigation. This court granted leave to appeal. Ill. S.Ct. R. 315 (eff. Feb. 26, 2010). We have allowed the Illinois State Bar Association, Association of Corporate Counsel, Association of Corporate Counsel Chicago Chapter, the International Association of Defense Counsel, and Illinois Association of Defense Counsel to file amicus curiae briefs pursuant to Supreme Court Rule 345 ( Ill.S.Ct. R. 345) (eff. Sept. 20, 2010). For the following reasons, we reverse the judgments of the appellate and circuit courts and remand the cause to the circuit court.¶ 2 BACKGROUND

¶ 3 Defendants are independent real estate companies that own and operate retail shopping malls throughout the United States. In late 2001 and early 2002, defendants Westfield, Rouse, and Simon negotiated to jointly purchase the assets of a Dutch company, Rodamco North America, N.V. (Rodamco). Among the assets purchased with the acquisition of Rodamco was Urban Shopping Centers, L.P. (Urban), an Illinois limited partnership that owns high-end retail shopping centers across the United States. Defendants acquired a large majority interest in Urban, including full ownership of Head Acquisitions, L.P. (Head), Urban's general partner. Plaintiffs are minority limited partners in Urban.

¶ 4 The Business Negotiations

¶ 5 Defendants entered into a purchase agreement with Rodamco in January 2002. On the same day, defendants entered into a separate joint purchase agreement with one another that concerned the allocation of Rodamco's assets and the share of the purchase price each of them would pay. The purchase of Rodamco closed in May 2002. When the purchase closed, defendants executed an amended Head partnership agreement that included provisions allocating control over Urban's numerous mall interests amongst themselves. Plaintiffs were not a party to the Rodamco [367 Ill.Dec. 25

[981 N.E.2d 350]

purchase transaction or to the negotiations leading up to it.

¶ 6 During the course of the negotiations leading up to the purchase of Rodamco, defendants discussed legal issues in negotiating the transaction's terms. They also disclosed to each other some of their attorneys' views about the legal implications of the transaction, the legal importance of the documents under negotiation, and the rights and obligations of the parties to the transaction. Defendants also shared with one another some documents that concerned the legal and financial terms of the transaction. Additionally, defendants' attorneys discussed with one another the terms for a new partnership agreement concerning Urban's mall interests. In these discussions, attorneys for Westfield, Rouse, and Simon shared with each other their legal concerns and legal conclusions about the structure of a new partnership agreement and how it would operate. This new partnership arrangement has been referred to in this litigation as the “synthetic partnership.”

¶ 7 The Underlying Lawsuit

¶ 8 Plaintiffs first brought suit in 2004, alleging that, since purchasing Head, defendants had breached alleged fiduciary and contractual duties they owed to Urban and plaintiffs (as limited partners of Urban). Plaintiffs alleged that defendants' division of responsibility for Urban's mall interests under the “synthetic partnership” was a breach of defendants' alleged duties and deprived Urban of sufficient corporate opportunities.

¶ 9 At the heart of plaintiffs' claim is the Urban partnership agreement. Urban was founded to hold, manage, and grow a portfolio of shopping centers then owned by JMB Realty Corporation. In 1993 Urban went public, and by 2000 had become an industry leader in operating, managing, and developing regional malls. In late 2000 Rodamco bought Urban's outstanding shares and took the entity private. Plaintiffs continued to own units as Urban's limited partners. Head, a Rodamco subsidiary, became Urban's new general partner. Rodamco negotiated a partnership agreement with Urban's limited partners (including plaintiffs). The Urban partnership agreement defines the rights, obligations, and liabilities of Head as general partner, as well as the rights and responsibilities of the limited partners. It is plaintiffs' contention that the “[a]greement reflects an intent to grow Urban through the acquisition and development of additional properties.” The agreement does not permit Head or its affiliates to compete with Urban in business opportunities, such as acquiring additional real estate, attracting joint venture partners to acquire properties, or developing properties.

¶ 10 Plaintiffs alleged that defendants received legal advice on how to structure a “synthetic partnership,” so as to evade the contractual terms and avoid the legal and fiduciary obligations they owed as Urban's general partner. Plaintiffs claimed defendants allocated Urban's properties among themselves, stopped growing Urban's business through acquisitions or ground-up developments, disregarded partnership agreement terms, and stole Urban's opportunities for themselves.

¶ 11 The Motions to Compel

¶ 12 In 2008 plaintiffs filed their first motion to compel the production of privileged communications. Plaintiffs noted that, on the privilege log filed by defendants, one defendant had purposely disclosed privileged documents to another defendant. Plaintiffs sought the compelled production of documents that defendants had shared among themselves. Defendants objected, arguing that the sought-after documents were protected by the common interest doctrine, and were thus [367 Ill.Dec. 26]

[981 N.E.2d 351]

privileged. The circuit court, on December 10, 2008, granted plaintiffs' motion to compel, finding that certain documents containing legal advice could be produced on the ground that defendants had waived any assertion of privilege by sharing the information amongst themselves. The court, however, was careful to limit its order to only those documents that had been disclosed. The court wrote:

“Further, with regard to the documents to be produced as identified on Appendix B, defendants may redact the contents of any email in an email string if that communication with defendant's counsel was not circulated to any other defendant or third party.”

¶ 13 Following the production of the documents, the parties conducted further discovery, including depositions of defendants' executives. In March 2009 plaintiffs filed a second motion to compel, arguing, specifically, that defendant Westfield improperly directed Westfield witness Mark Stefanek, Westfield's chief financial officer, not to testify about matters as to which he had waived the attorney-client privilege. Plaintiffs claimed that Westfield attorneys permitted Stefanek to testify to the actual legal advice received from counsel, but then refused to allow him to testify about the rationale and other details of the legal advice. Plaintiffs argued that this “selective and offensive invocation of the attorney-client privilege waive[d] the privilege regarding the subject matter about which he voluntarily testified—his belief that Westfield had no duty to consider new business opportunities for Urban.” The circuit court denied the motion.

¶ 14 Plaintiffs filed a third motion to compel, the motion at issue in this appeal, in April 2010, seeking over 1,500 documents identified in defendants' privilege logs. In the third motion to compel, plaintiffs accused defendants of breaching their fiduciary duties to Urban by usurping business opportunities, in violation of the Urban partnership agreement. Plaintiffs alleged that, during depositions, defendants' witnesses confirmed that during the business negotiations in 2001–02 each defendant's individual counsel attended negotiating sessions and discussed with nonclients legal advice...