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Grochocinski v. Mayer Brown Rowe & Maw LLP

June 9, 2008

DAVID GROCHOCINSKI, NOT INDIVIDUALLY, BUT SOLELY IN HIS CAPACITY AS THE CHAPTER 7 TRUSTEE FOR THE BANKRUPTCY ESTATE OF CMGT, INC., PLAINTIFF,
v.
MAYER BROWN ROWE & MAW LLP, RONALD B. GIVEN, AND CHARLES W. TRAUTNER, DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Morton Denlow

MEMORANDUM OPINION AND ORDER

Plaintiff David Grochocinski, in his capacity as the Chapter 7 trustee for the bankruptcy estate of CMGT, Inc., ("Plaintiff"), has moved for a protective order to prohibit the production of privileged documents to Defendants Mayer Brown Rowe & Maw LLP, Ronald B. Given, and Charles W. Trautner ("Defendants"). Plaintiff asserts these documents, as identified in his privilege log, are protected by the attorney-client privilege and the work-product doctrine. Defendants object to the protective order, arguing in part that all documents relating to Plaintiff's pre-lawsuit investigation and mental impressions about this case are not privileged because Plaintiff's pre-lawsuit investigation has been put at-issue and because any attorney-client or work product privileges have been waived. For the reasons stated below, the Court grants in part and denies in part Plaintiff's motion.

I. FACTUAL BACKGROUND

A. PRE-SUIT INVESTIGATION

On September 21, 2004, Plaintiff was appointed the Chapter 7 trustee for the bankruptcy estate of CMGT, Inc. ("Estate"). After Plaintiff was appointed trustee, he learned that the Estate may have legal malpractice claims against Defendants, its former attorneys. Because Plaintiff had no involvement with CMGT prior to its bankruptcy, he did not have first hand knowledge of the occurrence facts that gave rise to the potential malpractice claim. Thus, he and his attorneys conducted a pre-suit investigation and evaluation of potential claims against Defendants and others.

Plaintiff's pre-suit investigation included conducting legal research, speaking with occurrence witnesses, and reviewing documents relating to CMGT. Relvant to this motion, Plaintiff and his attorneys had discussions with Gerry Spehar ("Spehar") about CMGT and related matters that were eventually alleged in Plaintiff's complaint. Spehar is the principal of Spehar Capital, LLC ("SC"), which CMGT hired pursuant to a written contract to locate and secure sources of financing for CMGT. Plaintiff's claims relate directly to SC and events in which SC was involved.

B. MALPRACTICE ACTION FILED AND REMOVED TO FEDERAL COURT

On August 23, 2006, Plaintiff filed a two-count complaint against Defendants in the Circuit Court of Cook County, Illinois. The Complaint alleges Defendants committed legal malpractice in their representation of CMGT, Inc. in a previous lawsuit in California against SC by (1) negligently advising CMGT not to settle the claim with SC prior to litigation and (2) by negligently advising CMGT not to appear in, and defend against, the litigation that SC ultimately filed. A $17 million default judgment was entered in that lawsuit ("Spehar Lawsuit") against CMGT.

On October 10, 2006, Defendants removed the case to the United States District Court for the Northern District of Illinois. On November 30, 2006, Defendants moved to dismiss Plaintiff's complaint, arguing that Plaintiff failed to establish the elements of a legal malpractice claim as required under Rule 12(b)(6), and that this case should be dismissed with prejudice as a sanction because it is a "fraud on the judicial system."

According to Defendants, the Spehar Lawsuit and this lawsuit are part of a fraudulent scheme because SC knew at the time it filed the Spehar lawsuit that CMGT could not afford to defend itself, and that as a creditor of CMGT, it could receive a substantial portion of any settlement or judgment in this lawsuit. After the default judgment was entered, the bankruptcy court approved a post-petition financing arrangement between SC and CMGT, in which SC agreed to advance up to $18,500 to the Estate to pursue this lawsuit and Plaintiff agreed that SC would receive a large share of the recovery in this case.

After the Court denied Defendants' motion to dismiss, Defendants moved the Court to reconsider, arguing the court overlooked the critical fact that SC is the true party in interest in this lawsuit because it stands to recover the lion's share of any recovery by Plaintiff. Defendants contend that Plaintiff deliberately or through inadvertence made no effort to vacate the Default Judgment, but instead decided to partner with Spehar to pursue this case.

Pl. Mot. at 5-6; Dock. No. 50, Mot. to Reconsider at 1-2. Defendants argued that even absent evidence of fraud, the Court should dismiss the case because the result will be "absurd" if Plaintiff wins.

C. LIMITED DISCOVERY ORDERED TO PROCEED

District Court Judge Virginia M. Kendall denied Defendants' motion to reconsider, but expressed concern about Plaintiff's failure to move to vacate the default judgment that was entered in the Spehar lawsuit, SC's involvement in financing the costs of this litigation, and Plaintiff's motivation for filing this case. Def. Resp., Ex. A. As a result, Judge Kendall ordered the parties to engage in limited discovery regarding this "unclean hands" issue. Id. She indicated that discovery on this issue is to be broad, covering Plaintiff's behavior throughout the period of time leading up to this lawsuit. Id. at 4-5; Def. Resp., Ex. B at 6. Defendants indicated their intent to take discovery from Plaintiff and SC, as well as from some of CMGT's shareholders to attempt to show the inadequacy of Plaintiff's pre-filing investigations.*fn1 Def. Resp., Ex. A.

Accordingly, Defendants served Plaintiff with interrogatories and document requests, and also issued a third-part subpoena to Spehar. Plaintiff objected to most of the written discovery requested, and filed a motion for a protective order asserting that the documents are protected by the attorney-client privilege and/or the work product doctrine. That motion is currently before this Court.

II. LEGAL STANDARDS

A. ATTORNEY-CLIENT PRIVILEGE

In civil actions involving an element of a claim or defense to which state law applies, privilege is determined in accordance with state law. Caremark, Inc. v. Affiliated Computer Servs., Inc., 192 F.R.D. 263, 265 (N.D. Ill. 2000); FED.R.EVID. 501. Because this Court has jurisdiction over this case based on diversity of citizenship, and Plaintiff's legal malpractice claim arises under Illinois law, the issue of attorney-client privilege is governed by Illinois law. Caremark, 192 F.R.D. at 265; FED.R.EVID. 501.

Under Illinois' definition of the attorney-client privilege, "where legal advice of any kind is sought from a professional legal advisor in his capacity as such, the communications relating to that purpose, made in confidence by the client, are protected from disclosure by himself or by the legal advisor," unless the protection is waived. Fischel & Kahn, Ltd. v. van Straaten Gallery, Inc., 727 N.E.2d 240, 243 (Ill. 2000).

B. WORK-PRODUCT DOCTRINE

While issues of attorney-client privilege are controlled by the forum state's law in diversity cases, issues of work-product doctrine are controlled by federal law. Abbott Laboratories v. Alpha Therapeutic Corp., 200 F.R.D. 401, 405 (N.D. Ill. 2001). The work product doctrine protects "1) [d]ocuments and tangible things; 2) prepared in anticipation of litigation or for trial; and 3) by or for a party or by or for a party's representative." Hickman v. Taylor, 329 U.S. 495 (1947); Caremark, Inc. v. Affiliated Computer Services, Inc., 195 F.R.D. 610, 613 (N.D. Ill. 2000); Fed. R. Civ. P. 26(b)(3). "Opinion" work product which reveals the mental impressions or opinions of an attorney is generally not discoverable. Caremark, 195 F.R.D. at 616. "Ordinary" or "fact" work product may be discoverable only if, after the party asserting the protection establishes the necessary elements, the party seeking discovery of the documents demonstrates a substantial need for the information and that it would be exceedingly difficult to obtain the information any other way. Id.

Materials that are produced in the ordinary course of a party's business, and not to prepare for litigation, are outside the scope of the work product doctrine. Allendale Mut. Ins. Co., v. Bull Data Sys., Inc., 145 F.R.D. 84, 87 (N.D. Ill. 1992). To establish work product protection, a party must show the primary motivating purpose behind the creation of a document was to aid in possible future litigation. Id. The person preparing the materials may be any representative of the client, regardless of whether the representative is acting for the lawyer. Caremark, 195 F.R.D. at 615. Thus, whether a document is protected depends on the motivation behind its preparation, rather than on the person who prepares it. Id.

III. DISCUSSION

Plaintiff asserts the documents included in its privilege logs are protected by either attorney-client privilege or the work product doctrine, and therefore need not be disclosed to Defendants. Defendants argue that all of the documents should be produced because Plaintiff waived any privilege over the communications by putting Plaintiff's pre-filing investigations at issue. Alternatively, Defendants argue that even if the at issue waiver doctrine does not apply, most of the documents should still be produced because Plaintiff waived his attorney-client privilege by disclosing the documents to a third party, and because Defendants have a substantial need for the documents that are otherwise protected by the work product doctrine. The Court addresses each of these issues in turn.

A. THE "AT-ISSUE" WAIVER DOCTRINE

Defendants argue that Plaintiff's pre-filing investigations and his "good faith" belief that he has a legitimate malpractice claim are at issue, thus waiving any attorney-client or work product privileges over the relevant documents. This case presents a unique situation, prompting Defendants to challenge Plaintiff's intentions for filing this lawsuit. The events leading up to this lawsuit have also caused Judge Kendall to question whether Plaintiff filed this lawsuit in good faith. The Court briefly outlines these events, as presented by Defendants, below.

1. Relationship Between CMGT and SC

In 2001, CMGT retained SC to locate financing for its start-up business. Pursuant to the parties' written agreement, SC was retained on a "non-exclusive basis" and was entitled to a "finders fee" upon the successful closing of financing from a list of prospects that was attached to the Agreement. By 2003, however, SC still had not secured any financing, and CMGT did not have the financial ability to continue in business.

Accordingly, in mid 2003, CMGT pursued a deal with one of its own shareholders to which the shareholder and a group of outside investors would form a new entity ("Newco") which would be capitalized with $2.5 million. Newco would then purchase CMGT's assets for either $500,000 in cash or a 20% ownership in Newco (the "Newco Deal"). CMGT's shareholders approved the Newco Deal and voted to take a 20% interest in Newco. This deal was initiated and negotiated without SC's assistance, nor were any of the ...


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