Page 50 - Sharp-Hundley 2012

and is discoverable or admissible in litigation” (emphasis added). It further conceded that “Illinois has long
recognized the doctrine of subject matter waiver,” but noted that prior holdings under that doctrine had
involved disclosures made in connection with court proceedings. The doctrine
is justified in that context because of the “shield and sword” theory: “a litigant
should not be able to disclose portions of privileged communications with his
attorney to gain a tactical advantage in litigation (the sword), and then claim the
privilege when the opposing party attempts to discover the undisclosed portion
of the communication or communications relating to the same subject matter”
(the shield). To avoid such prejudice, a waiver as to the entire subject matter is
held.

However, the court noted that in the business negotiation setting, concerns of prejudice are absent,
as the introduction of such communications into the business negotiations does nothing to cause
prejudice to the opponent in court or to subvert the “truth-seeking” court process.

Impact On Deals Noted: The court conceded that a number of trial courts across the country
had appeared to hold that subject matter waiver applied even to extra-judicial disclosures, but it said
cases declining to extend subject matter waiver to extra-judicial disclosures were “more persuasive.” In
addition, citing In re Keeper of the Records, 348 F.3d 16 (1st Cir. 2003), it noted that finding subject
matter waiver in the business transaction context “would provide perverse incentives: parties would leave
attorneys out of commercial negotiations for fear that their inclusion would later force wholesale disclosure
of confidential information.” Quoting another case, it said that “[l]egal doctrine that impedes frank
communication between buyers and sellers also sets the stage for more lawsuits,” which is to be
discouraged.

The court said it is “of no matter” if disclosure was made to gain a tactical advantage during the
business negotiation, provided no law or ethics rule was broken.

Work-Product Issue Avoided: The reversal on privilege grounds meant the high court did not
have to address that portion of the Appellate Court decision which held that the work-product doctrine did
not apply because the lawyers were not working “in anticipation of litigation.” See Sharp Thinking No. 52.
The Supreme Court opinion is silent on that issue.

Distinguishable Contexts Apparent: It bears emphasizing that the plaintiffs in Center Part-
ners were only limited partners, whom the court implicitly treated as strangers to the
disclosures and to the privilege. The limited partnership was publicly held, so perhaps
the court's treatment was justified on that basis, though some explicit analysis on this
aspect would have been helpful. Look for future disagreement as to whether the same
rule holds when the limited partnership is small and closely-held.

Look also for arguments that a different rule applies when the dispute arises
between the parties to the transaction (the “morning after” issue addressed in our
previous writing (see n.1)). Though the high court opinion arguably would support a no-
subject-matter-waiver rule in that context, the court expressly assumed no law or ethics
duty would be broken. Plaintiffs can be expected to argue that the no-subject-matter-waiver rule thus
does not apply when a fraud allegedly is committed in connection with the transaction.

John\SharpThinking\#80.doc
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