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Fischel & Kahn v. Van Straaten Gallery Inc.

December 02, 1998

FISCHEL & KAHN, LTD., PLAINTIFF-APPELLEE,
v.
VAN STRAATEN GALLERY, INC., AN ILLINOIS CORPORATION AND THE NEW VAN STRAATEN GALLERY, INC., AN ILLINOIS CORPORATION, DEFENDANTS-APPELLANTS. THE NEW VAN STRAATEN GALLERY, INC., AN ILLINOIS CORPORATION AND VAN STRAATEN GALLERY, INC., AN ILLINOIS CORPORATION, COUNTER PLAINTIFFS-APPELLANTS,)
v.
FISCHEL & KAHN, LTD., COUNTER DEFENDANT-APPELLEE. WILLIAM VAN STRAATEN, SEABERG PICTURE FRAMING, INC., AN ILLINOIS CORPORATION AND FRAMEWAY STUDIOS, INC., AN ILLINOIS CORPORATION, THIRD PARTY PLAINTIFFS- APPELLANTS/CROSS-APPELLEES,
v.
FISCHEL & KAHN, LTD., AND JOEL FENCHEL, THIRD PARTY DEFENDANTS- APPELLEES/CROSS-APPELLANTS.



Appeal from the Circuit Court of Cook County No. 92L12797 Honorable Loretta C. Douglas, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Leavitt delivered the modified opinion of the court on denial of rehearing:

Appellants van Straaten Gallery, Inc., the New van Straaten Gallery, Inc., Seaberg Picture Framing, Inc., Frameway Studios, Inc., and William van Straaten appeal from the trial court's order finding them in contempt for refusing to disclose certain documents to appellees Fischel & Kahn, Ltd., and Joel Fenchel (Fischel & Kahn). On appeal, appellants claim the challenged documents are privileged and deny either the attorney-client or work product privileges were waived in this case.

The van Straaten Gallery and the New van Straaten Gallery are Illinois corporations engaged in the art gallery business in Chicago. Frameway Studios and Seaberg Picture Framing are Illinois corporations engaged in the business of framing art sold by the galleries. William van Straaten is the president and sole shareholder of these corporations, and, for this reason, we will refer to all of the appellants simply as "van Straaten."

In 1986, van Straaten solicited legal advice from attorney Joel Fenchel and his firm, Fischel & Kahn, regarding the recently enacted Illinois Consignment of Art Act (Act) (see 815 ILCS 320 (West 1996)) and its effect on his inventory and sale of consigned art. Specifically, the substance of the legal advice at issue concerned van Straaten's potential liability to the consignment artists in the event of the destruction of the consigned art. The parties disagree as to the advice given and the degree to which the advice was followed by van Straaten.

These issues took on significance when a fire wiped out the gallery and the consignment art within it in 1989. In 1990, van Straaten brought a negligence suit against the owner of building in which the gallery had been located and the company renovating the building at the time of the fire. Several of the consignment artists intervened and brought claims against van Straaten for damages resulting from the destruction of their artwork (the parties refer to this litigation as the Mesirow litigation, which we will adopt for purposes of this appeal). Van Straaten hired the firm of Pope & John to represent his companies in the Mesirow litigation. According to the parties, that litigation has settled, although the date of the settlement is somewhat unclear from the record.

Fischel & Kahn brought the instant action against van Straaten for payment of legal fees. Van Straaten counterclaimed for legal malpractice. In response to van Straaten's counterclaim, Fischel & Kahn filed a document request seeking all of the contents of Pope & John's files relating to the Mesirow litigation and the consignment artists' claims. Van Straaten objected to production of 38 of the documents (out of 170,000 pages of documents produced, according to van Straaten) on the basis of the attorney-client and work product privileges. The trial court reviewed the documents in camera and ruled that 16 were protected by the attorney-client privilege. Van Straaten was ordered to disclose the remaining 22 documents but refused to do so. As a result, on June 3, 1996, the trial court cited van Straaten for contempt and imposed a monetary sanction for its failure to produce those documents.

The documents, which have been filed under seal, can be classified into three groups. One group of documents consists of correspondence between van Straaten and Pope & John. A second group consists of correspondence between Pope & John and the firm originally retained by van Straaten to pursue his malpractice claim against Fischel & Kahn. The third group appears to be internal documents from Pope & John's file on van Straaten.

On appeal, the parties do not dispute that either the attorney-client or work product privilege would normally shield the sought-after documents from disclosure. Rather, they disagree as to whether van Straaten, by counterclaiming against Fischel & Kahn for malpractice, has put the contents of the documents "at issue" and thereby waived both privileges.

In Illinois, both the attorney-client privilege and the work product privilege (see 134 Ill. 2d R. 201(b)(2)) may be waived as to a communication put "at issue" by a party who is a holder of the privilege. See Waste Management, Inc. v. International Surplus Lines Ins. Co., 144 Ill. 2d 178, 199-200, 579 N.E.2d 322 (1991); M. Graham, Cleary & Graham's Handbook of Illinois Evidence § 505.7(5), at 306 (6th ed. 1994). Illinois case law offers few examples as to how a party places a communication "at issue" and thereby waives a privilege. One established example of waiver involves litigation between the attorney and client. When either party to the attorney-client relationship alleges a breach of duty by the other, the privilege is waived as to communications between the disputing parties. Thus, when a client sues his attorney for malpractice, or when a lawyer sues his client for payment of fees, waiver is applicable to earlier communications between the now-adversarial parties. See SPSS, Inc. v. Carnahan-Walsh, 267 Ill. App. 3d 586, 592, 641 N.E.2d 984 (1994) (legal malpractice claim); People v. O'Banner, 215 Ill. App. 3d 778, 793, 575 N.E.2d 1261 (1991) (allegation of ineffective assistance of counsel waives claim of privilege as to communications with attorney); Sokol v. Mortimer, 81 Ill. App. 2d 55, 65, 225 N.E.2d 496 (1967) (attorney suing for fees). This example of waiver is clearly inapplicable to the present case, since Fischel & Kahn seeks discovery of van Straaten's communications with subsequently retained attorneys, not communications between Fischel & Kahn and van Straaten.

Relying on our supreme court's decision in Waste Management, Fischel & Kahn asserts van Straaten has placed the various Pope & John documents in issue by suing for the attorney fees it paid to Pope & John in concluding the Mesirow litigation. In Waste Management, the insureds defended and settled several suits brought by parties alleging the migration of toxic waste from the insureds' waste disposal sites. The insureds then sought indemnification from their insurers for settlement and defense costs. When the insurers denied coverage, declaratory judgment actions were filed. The insurers sought discovery of the insureds' attorney's files from the underlying environmental litigation. The insureds resisted discovery of these materials on the basis of the attorney-client and work product privileges. Waste Management, 144 Ill. 2d at 185-87.

The supreme court in Waste Management held the attorney-client privilege had "no application" in the insurance coverage dispute at issue, in light of both the "common interest" doctrine and the cooperation clause in the insurance policy. Waste Management, 144 Ill. 2d at 191. Under the common interest doctrine, when an attorney acts for two different parties who have an interest in common, communications by either party to the attorney are not necessarily privileged in a subsequent controversy between the two parties. Waste Management, 144 Ill. 2d at 193. Despite the fact the insurer was not a party in the initial suit, the Waste Management court found the insureds' attorney in the underlying litigation had acted for the "mutual benefit" of the insureds and the insurer. Waste Management, 144 Ill. 2d at 194. In accordance with the common interest doctrine, the attorney-client privilege was "unavailable" to the insureds. Waste Management, 144 Ill. 2d at 193-94.

In addition, the privilege was inapplicable due to the cooperation clause in the insureds' contract with the insurers. The insurance policy at issue contained a broad cooperation clause which required the insureds to cooperate in conducting suits and enforcing rights to contribution or indemnification. Further, the insurers had the right to bring suits on behalf of the insureds with the insureds providing "all such information and assistance" reasonably sought by the insurers. Waste Management, 144 Ill. 2d at 192. Thus, the insureds had a contractual duty to disclose communications between themselves and defense counsel in the course of the underlying litigation. Waste Management, 144 Ill. 2d at 191-92.

In light of its determination that the attorney-client privilege was inapplicable, the Waste Management court was not required to address whether, by bringing a declaratory judgment action for indemnification of their defense and settlement costs, the insureds had put their communications with their attorney "at issue." In dicta, however, the court suggested they had:

"[I]t is the very conduct of defense counsel in the underlying litigation which is the basis of insurers' declaratory judgment action and its defense to insureds' declaratory judgment action. We therefore agree that defense counsel's litigation files in the underlying cases are relevant and at issue in ...


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