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Fiduciary Duty Exception to Privilege Inapplicable in Illinois

By Oran F. Whiting, Litigation News Associate Editor – April 30, 2012


In a recent legal malpractice case, the Illinois Court of Appeals for the First District declined to recognize a fiduciary duty exception to the attorney-client privilege. Consequently, the attorney-client privilege shielded communications between the defendant law firm and both its in-house and outside counsel regarding the plaintiff-client’s legal malpractice claim.

Facts Underlying Garvy
In Garvy v. Seyfarth Shaw LLP, the plaintiff-client initiated a legal malpractice lawsuit against the defendant law firm. Garvy initiated the suit at a time when the law firm represented him in a chancery proceeding in his capacity as a shareholder in his family’s company. The defendant firm forwarded Garvy a letter advising him of several potential conflicts of interest, including the possibility of the firm itself being named a party when the company’s other shareholders filed the chancery proceeding. The firm also advised Garvy to seek the advice of independent counsel.

Garvy retained independent counsel, who ultimately initiated a malpractice suit against the defendant firm. During settlement negotiations for the legal malpractice claims, Garvy’s independent counsel repeatedly assured the defendant firm that Garvy wanted the firm to continue to represent him in the chancery proceedings and strenuously objected to any suggestion that the defendant firm might withdraw. In fact, Garvy had offered to waive the conflicts of interest and executed a tolling agreement concerning his malpractice action.

During settlement negotiations and before withdrawing from the chancery proceeding, the defendant firm communicated with its in-house and outside counsel regarding the malpractice claims. Following the firm’s withdrawal from the chancery proceeding, Garvy sought production of those communications. The Circuit Court of Cook County in Chicago ordered the law firm to produce the documents.

Court of Appeals Declines to Adopt Exception
The Illinois Court of Appeals for the First District reversed the circuit court’s ruling. The court held that the communications were privileged, citing United States v. Jicarilla Apache Nation, a recent U.S. Supreme Court case that explains the history and proper application of the fiduciary duty exception to the attorney-client privilege. The appellate court presumed that the lower court based its ruling on the fiduciary duty exception because the lower court failed to explicitly state the rationale behind its decision in its order or on the record. The court of appeals declined to apply this exception, however, noting that the exception had not been adopted in Illinois.

The fiduciary duty exception, as it is generally recognized in other jurisdictions, allows a party who is the beneficiary in a fiduciary relationship to have access to legal advice rendered to the fiduciary. It arose in the context of trust law in England 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. American law began recognizing the exception in the 1970s in cases involving shareholder and trust suits.

According to the appellate court in Garvy, even if the exception were recognized in Illinois, it would not be applicable. The exception does not apply if the communications concern the personal liability of the fiduciary or are in contemplation of adversarial litigation.

The court of appeals also rejected the plaintiff’s proposition that the defendant law firm had no expectation of confidentiality based on the Rules 1.4 and 1.7 of the Illinois Rules of Professional Conduct governing attorney conduct and disclosure. Citing Rules 1.6(b)(4) and 5.1 of the Illinois Rules of Professional Conduct and the Amici Curiae Brief of the Illinois State Bar Association and the Chicago Bar, the court confirmed that the rules do not preclude a lawyer from securing confidential legal advice about the lawyer’s personal responsibility.

Maintaining the Status Quo Not Such a Surprise
“The First District obviously did not want to use this case as a vehicle to create new law or to adopt this [fiduciary duty] exception,” opines John C. Martin, Chicago, cochair of the ABA Section of Litigation’s Ethics and Professionalism Committee. “Certainly there are more compelling claims with more compelling facts, because this case does not present a good set of circumstances for the fiduciary to be entitled to the exception.”

“The plaintiff should have had an uphill battle for production of the documents given that the fiduciary exception has not been adopted in Illinois,” says Jennifer B. Bechet, New Orleans, cochair of the Section of Litigation’s Ethics and Professionalism Committee. “As the appellate court pointed out, the plaintiff wanted it both ways; the firm’s continued representation in one case and access to what are clearly privileged documents in another,” she says. “The plaintiff asked for the world and almost got it.”

Ethical “Curiosities”
“Ethically speaking, there are many curiosities in this case,” according to Bechet. “Why did the firm continue its representation of Garvy for as long as it did when it knew of his intent to file a legal malpractice action against it? The firm was obviously aware of and concerned about the issue of conflicts,” she says.

Bechet also points to “an ethical question as to whether the plaintiff could actually waive the conflicts that were presented. Although the firm’s communications with its attorneys are clearly privileged, why even take the chance of being compelled, incorrectly, to produce them? In fact, that is exactly what happened here.”

Martin sees another ethical issue. “The one interesting spin on the question presented in this case is whether the firm has an obligation or duty to disclose to a client that it has done something wrong if the client neither knows nor is aware of it,” he says. “Certainly, a firm’s judgment may be impeded if it is nervous about ending up in a legal malpractice claim.”

Keywords: fiduciary duty, Illinois Court of Appeals, Garvy vs. Seyfarth Shaw, Illinois Rules of Professional Conduct

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