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Fischel & Kahn, Ltd. v. Van Straaten Gallery

January 21, 2000

FISCHEL & KAHN, LTD., APPELLEE,
v.
VAN STRAATEN GALLERY, INC. ET AL., APPELLANTS.



The opinion of the court was delivered by: Justice Miller

Agenda 16-November 1999.

Plaintiff, Fischel & Kahn, Ltd. (Fischel & Kahn), filed a complaint in the circuit court of Cook County against defendants, van Straaten Gallery, Inc., and the New van Straaten Gallery, Inc. (van Straaten), for attorney fees. Van Straaten filed a counterclaim alleging that Fischel & Kahn was professionally negligent in representing van Straaten. During discovery, Fischel & Kahn filed a request for the production of documents. Van Straaten refused to produce 38 documents resulting from representation by subsequent counsel, claiming that documents were protected by attorney-client and work product privileges.

Of the 38 documents van Straaten refused to produce, the trial court ordered the production of 22 documents. Van Straaten refused to produce any of the documents. As a result of van Straaten's failure to produce the documents, the trial court cited van Straaten for contempt and fined van Straaten. Van Straaten appealed. Fischel & Kahn cross-appealed. The appellate court found that van Straaten had waived any privileges as to some, but not all, of the contested documents and ordered van Straaten to turn over the documents for which it found van Straaten had waived any privilege. The appellate court vacated the trial court's order of contempt. 301 Ill. App. 3d 336. We allowed van Straaten's petition for leave to appeal (177 Ill. 2d R. 315(a)), and we now reverse that portion of the appellate court's opinion requiring disclosure.

BACKGROUND

In 1986, van Straaten retained the law firm of Fischel & Kahn to provide legal advice regarding the impact that the then recently enacted Illinois Consignment of Art Act (Consignment Act) (815 ILCS 320/0.01 et seq. (West 1996)) would have on van Straaten's art gallery business. Fischel & Kahn advised van Straaten that it could limit its liability to consignment artists in case of damage or destruction of the artists' work to the cost of the materials used to create the work. Fischel & Kahn drafted contractual language consistent with this advice for van Straaten to use in contracts with consignment artists.

On April 15, 1989, a fire destroyed van Straaten's gallery, including van Straaten's inventory of consigned art. Van Straaten filed suit against the owner of the building where the gallery was located and against the company that was renovating the building at the time of the fire. Several consignment artist intervened in this litigation, bringing claims against van Straaten for damages stemming from the destruction of their artwork. (The parties here refer to this action as the Mesirow litigation, for the name of one of the entities in the underlying litigation.) In July 1990, van Straaten retained the law firm of Pope & John to represent van Straaten in the Mesirow litigation. We note that Fischel & Kahn continued to represent van Straaten until no later than March 31, 1992.

Fischel & Kahn commenced the present action on October 14, 1992, when it filed a complaint in the circuit court of Cook County against van Straaten seeking payment of legal fees. In the complaint, Fischel & Kahn alleged that from on or about August 1, 1990, through March 31, 1992, Fischel & Kahn furnished professional legal services to van Straaten totaling $41,903.26.

Van Straaten answered the complaint by denying the allegations that payment was due to Fischel & Kahn. Additionally, van Straaten asserted several affirmative defenses alleging that no amount was due to Fischel & Kahn because Fischel & Kahn breached fiduciary duties owed to van Straaten; the contract for legal services was voidable at the discretion of van Straaten; and Fischel & Kahn breached its agreement to perform legal services for van Straaten. Van Straaten also filed a counterclaim against Fischel & Kahn. In the counterclaim, van Straaten alleged, among other things, that Fischel & Kahn committed malpractice in 1986 by negligently providing van Straaten with erroneous advice regarding the liability limiting contract provision Fischel & Kahn drafted for van Straaten to use with consignment artists.

In answering van Straaten's counterclaim, Fischel & Kahn denied that it was professionally negligent. Further, Fischel & Kahn filed several affirmative defenses of its own, alleging that van Straaten was contributorily negligent in failing to exercise ordinary care, that van Straaten assumed the risk of damages in failing to secure adequate insurance, and that the settlement of the disputes with the responsible parties constituted an accord and satisfaction of any claims for damages van Straaten might have resulting from the Mesirow litigation.

Fischel & Kahn filed a request for production of documents on July 30, 1993. In this request, Fischel & Kahn sought all of the contents of Pope & John's files relating to the Mesirow litigation and the consignment artists' claims. Van Straaten objected to the production of 38 of the documents based either on the attorney-client privilege or the work product doctrine.

After an in camera inspection, the trial court found that van Straaten had waived its attorney-client and attorney work product privileges with respect to 22 of the documents. The trial court believed these documents were relevant to claims made by van Straaten in its counterclaim and that van Straaten waived any privilege when it placed these claims into controversy by filing the counterclaim against Fischel & Kahn. The trial court ordered these 22 documents disclosed. The trial court, however, believed that 16 of the 38 contested documents remained privileged. Van Straaten refused to produce any of the 22 documents ordered disclosed and was held in contempt.

Van Straaten appealed, asking the appellate court to find that the privilege had not been waived and to reverse the trial court's order holding van Straaten in contempt for failure to produce the documents that it alleged were protected by the attorney-client and work product privilege. In a cross-appeal, Fischel & Kahn asked the appellate court to modify the order of the trial court finding 16 documents protected by the attorney-client and work product privilege by finding that van Straaten, in addition to waiving the privilege with respect to the 22 documents, also waived any privilege with respect to the 16 remaining documents.

The appellate court affirmed, concluding that van Straaten's counterclaim for malpractice and Fischel & Kahn's affirmative defenses to that action put the contents of the documents at issue, waiving both the attorney-client and work product privileges. 301 Ill. App. 3d at 341-42. Accordingly, the appellate court held that documents 1 through 10, 17, and 19 through 23 were discoverable. The appellate court held, however, that documents 11, 12, 14, 15, 16, and 18 remained privileged because these documents were correspondence between Pope & John and a law firm later retained by van Straaten to pursue the malpractice claim against Fischel & Kahn. The appellate court remanded the cause for the trial judge to consider the status of the 16 documents the trial court had found protected. Finally, the appellate court vacated the trial court's order of ...


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