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07/15/94 MIDWESCO-PASCHEN JOINT VENTURE FOR VIKING

July 15, 1994

THE MIDWESCO-PASCHEN JOINT VENTURE FOR THE VIKING PROJECTS, PLAINTIFF-APPELLEE,
v.
IMO INDUSTRIES, INC., DEFENDANT-APPELLANT, AND FEDERAL INSURANCE COMPANY, DEFENDANT.



Appeal from the Circuit Court of Cook County. The Honorable Joseph N. Casciato, Judge Presiding.

Released for Publication August 25, 1994.

Egan, Rakowski, Giannis

The opinion of the court was delivered by: Egan

PRESIDING JUSTICE EGAN delivered the opinion of the court:

This is an appeal by the defendant, Imo Industries, Inc., (Imo), from an order holding it in contempt for refusing to comply with a discovery order.

The underlying dispute in this case involves the performance of three steam turbines sold to the plaintiff, the Midwesco-Paschen Joint Venture for the Viking Projects (Midwesco), by Imo for use in Midwesco construction. Imo and Midwesco executed purchase agreements for these turbines. Imo warranted that the turbines would satisfy stated performance guidelines. The agreements have a liquidated damages clause for computation of damages owed to Midwesco if the turbines did not meet the stated requirements. Midwesco alleged that the turbines failed to meet the agreed minimum performance levels and that Imo was liable for liquidated damages.

Midwesco and Imo both ran tests on the equipment. They were unable to resolve their dispute, and on May 10, 1990, Midwesco filed a complaint seeking recovery of what it argued was the amount due under the liquidated damages clause.

Midwesco served a request to produce documents on Imo. Contrary to Midwesco's assertions in this court, Midwesco's attorneys visited Imo's principal place of business in New Jersey and obtained copies of many requested documents. Imo withheld other documents, however, under claims of privilege. Judge Jerome Burke ordered Imo to produce a log of all documents that it was withholding. Imo eventually produced its log which contained 32 pages of small print listing the 171 documents or groups of documents for which Imo claimed a privilege. Much of the language used in the Imo log to describe the documents is boilerplate and gives us little idea of what each document contains. For example, 27 documents for which the attorney-client privilege was claimed are described with identical language, and the majority of the documents withheld are described as "contain[ing] facts and theories regarding possible liability and nonliability." Cf., Waste Management, Inc. v. International Surplus Lines Insurance Co. (1991), 144 Ill. 2d 178, 187, 579 N.E.2d 322, 161 Ill. Dec. 774 ("Insureds provided the court with a detailed log of the withheld documents.")

Midwesco filed a motion stating that the parties were unable to reach any accord on discovery and requested that the Judge make an in camera inspection of all documents listed on Imo's privileged documents log. On July 9, 1992, after reviewing four boxes of documents, Judge Joseph Casciato ordered Imo to produce most documents listed on its log. Imo refused to comply in full with the order and was found in contempt and fined $100.

Because this case involves the invocation of the attorney-client privilege by a corporation, our Discussion appropriately begins with the principles of law enunciated in Consolidation Coal Co. v. Bucyrus-Erie Co. (1982), 89 Ill. 2d 103, 432 N.E.2d 250, 59 Ill. Dec. 666. In Consolidation Coal, the supreme court held that not every communication made by an employee of a corporation to the corporation's attorney is privileged. The court held that a rule limiting the privilege to employees forming "top management" was too narrow and adopted an expanded version of a control-group test. Under that test, there are two tiers of corporate employees whose communications with the corporations attorneys are protected. The first tier consists of the decision-makers, or top management. The second tier consists of those employees who directly advise top management, and upon whose opinions and advice the decision-makers rely. ( Consolidation Coal, 89 Ill. 2d at 120.) The court also said that the person claiming privilege has the burden of showing facts which give rise to the privilege; the claimant must show that the communication originated in a confidence that it would not be disclosed; that it was made to an attorney acting in his legal capacity for the purpose of securing legal advice or services; and that it remained confidential. Consolidation Coal, 89 Ill. 2d at 119.

Before we determine whether Imo has met its burden, we will address the parties' claims of the applicable standard of review. Midwesco maintains that the Judge's order must be affirmed unless we determine that he abused his discretion. Imo maintains that we must review the record de novo. We do not agree with Midwesco that an abuse of discretion is the proper standard in this case, although we concede that Midwesco has cited language from other cases which seemingly supports its argument. In Maxwell v. Hobart Corp. (1991), 216 Ill. App. 3d 108, 576 N.E.2d 268, 159 Ill. Dec. 599, the appellate court considered whether documents were protected from discovery because of two statutes. The court made a preliminary statement that it would not disturb a discovery ruling on appeal absent a manifest abuse of discretion and cited Computer Teaching Corp. v. Courseware Applications, Inc. (1990), 199 Ill. App. 3d 154, 556 N.E.2d 816, 145 Ill. Dec. 198. We note that Computer Teaching involved a trial Judge's determination of the relevancy of the material sought to be discovered. Similarly in Maxwell, the court made its own evaluation of the facts and agreed with the trial Judge's holding that certain records were "relevant and probative to issues in the case." ( Maxwell, 216 Ill. App. at 114.) In the other case cited by Midwesco, Profesco Corp. v. Dehm (1990), 196 Ill. App. 3d 127, 553 N.E.2d 101, 142 Ill. Dec. 751, an attorney who had been held in contempt for refusal to obey a discovery order asked on appeal that his fines be vacated. He argued that he had acted in good faith. The appellate court held that the trial Judge was in the best position to determine whether a party's conduct amounted to a deliberate or contumacious flouting of judicial authority and that the trial Judge's exercise of his discretion should be afforded considerable deference. Neither case cited by Midwesco is applicable to the facts in this case.

In Niven v. Siqueira (1985), 109 Ill. 2d 357, 487 N.E.2d 937, 94 Ill. Dec. 60, the issue was whether material was protected from discovery by provisions of the Code of Civil Procedure (Ill. Rev. Stat. 1983, ch. 110, pars. 8-201, 8-202). A medical malpractice claim was made against several defendants, including Northwestern Hospital. The plaintiff subpoenaed records in the possession of the Joint Commission on Accreditation of Hospitals which related to Northwestern's accreditation. The Commission refused to comply with the subpoena and, after a hearing, was fined for contempt.

At the hearing the Commission introduced an Accreditation Manual for Hospitals, which describes the purposes of the Commission and the procedures it followed. The purpose of the introduction of the manual was to show that the Commission was one of the "allied medical societies" as that term was used in section 8-2101 of the Code. The moving parties argued that the record was insufficient to warrant the quashing of their subpoena because there was no affidavit supporting the introduction of the manual. To that argument, the supreme court said this in reversing the contempt order:

"The applicability of a discovery privilege is a matter of law for the court to determine, but the question of whether specific materials are part of a medical study is a factual question within that legal determination. Hence, if plaintiffs had desired to challenge the authenticity or accuracy of the accreditation manual they would have been entitled to a verification of the manual or an evidentiary hearing on the matter. Instead, plaintiffs chose to oppose the motion to quash solely by arguing that the materials, gathered and used as described in the accreditation manual were not protected by section 8-2101. They cannot now object that affidavits were not filed and an evidentiary hearing was not held." (Emphasis added.) Niven, 109 Ill. 2d at 368.

A number of cases have addressed the factual issue of whether an employee is a member of a control group, but none of the cases discussed the applicable standard of review. In Mlynarski v. Rush-Presbyterian-St. Luke's Medical Center, (1991), 213 Ill. App. 3d 427, 572 N.E.2d 1025, 157 Ill. Dec. 561, the appellate court reversed a Judge's finding that the defendant had not maintained its burden of showing that the employee was a member of the control group. In Claxton v. Thackston (1990), 201 Ill. App. 3d 232, 559 N.E.2d 82, 147 Ill. Dec. 82, the appellate court held, as a matter of law, that the factual allegations of the employee's affidavit did not establish that the employee was a member of the corporation's control group. In Archer Daniels Midland Co. v. Koppers (1985), 138 Ill. App. 3d 276, 485 N.E.2d 1301, 93 Ill. Dec. 91, the trial Judge made a finding that an employee was not a member of a control group and that the privilege did not apply. The appellate court affirmed but in so doing made an extensive analysis of the evidence and made its own Conclusion that the employee "was not a part of the control group." Archer Daniels, 138 Ill. App. 3d at 280.

In Knief v. Sotos (1989), 181 Ill. App. 3d 959, 537 N.E.2d 832, 130 Ill. Dec. 503, the plaintiff maintained that the trial Judge abused his discretion when he held that certain employees were members of the control group. The appellate court reversed the trial Judge and held, as a matter of law, that the defendants failed to meet their burden of proving that the employees were members of the control group. The court did not say, as the plaintiff suggested, that the trial Judge abused his discretion.

Last, in CNR Investments, Inc. v. Jefferson Trust & Savings Bank (1983), 115 Ill. App. 3d 1071, 451 N.E.2d 580, 71 Ill. Dec. 612, the appellate court held that, as a matter of law, the defendant had failed to establish that the document was prepared in confidence; that two other documents were prepared by members of a corporation's control group; and that another document was prepared with the expectation that it would remain confidential.

After reviewing all these cases and applying the holding of Nivens that the applicability of a discovery privilege is a matter of law for the court to determine, we Judge that all the factors which the party invoking privilege must establish shall be reviewed under a de novo standard. It would be illogical to review a Judge's finding as to one factor under a manifest weight of the evidence standard or an abuse of discretion standard and other findings of other factors under a de novo standard.

We turn now to the exhibits for which Imo claims privilege. The first four documents are exhibits 1 through 4. They are communications sent by Thomas O'Brien to Gary Walker. O'Brien is Imo's senior counsel. Walker is the general manager of the turbine division of Imo.

First, we agree with Imo that Midwesco has waived any argument that Walker is not a member of the control group. Second, we reject Midwesco's argument that only communications from a client to an attorney are covered by the attorney-client privilege and not communications from the attorney to the client. Midwesco cites Consolidation Coal and Dalen v. Ozite Corp. (1992), 230 Ill. App. 3d 18, 594 N.E.2d 1365, 171 Ill. Dec. 845, in support of its argument that the exhibits are not privileged because they were sent from the lawyer to the employee. In Consolidation Coal, the court, relying on Wigmore, noted the "threshold requirements" of the attorney-client privilege, including "a showing that the communication * * * was made to anattorney acting in his legal capacity for the purpose of securing legal advice or services." (Emphasis added.) ( Consolidation Coal, 89 Ill. 2d at 119.) Midwesco bases its argument on this use of the word, "to." We do not believe that Consolidated Coal is to be read as broadly as Imo suggests. That case did involve a communication from an employee to the attorney, and the language which Midwesco seizes upon was addressed to the facts of that case.

In Dalen, a corporation, Ozite, argued that a memorandum written by its attorney was not discoverable by the plaintiff, Dalen. As its response to Dalen's document production request, Ozite allowed Dalen's attorney access to all of its files. While examining Ozite's files, Dalen's attorney found the memorandum. The trial Judge determined that Ozite waived its attorney-client privilege. The appellate court affirmed the trial Judge, but not on the ground upon which the trial Judge had relied or that the parties had argued. The appellate court held that the attorney-client privilege did not apply because the memorandum in issue was not written by the client for ...


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