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Center Partners, Ltd., et al v. Growth Head Gp

November 29, 2012


The opinion of the court was delivered by: Justice Garman

JUSTICE GARMAN delivered the judgment of the court, with opinion.

Chief Justice Kilbride and Justices Freeman, Thomas, Karmeier, Burke, and Theis concurred in the judgment and opinion.


¶ 1 Defendants appeal from a circuit court of Cook County order that granted plaintiffs' motion to compel the production of certain documents containing privileged attorney-client communications.*fn1

Defendants refused to comply with the court's order to compel production of documents and were found in contempt. Defendants appealed pursuant to Supreme Court Rule 304(b)(5) (eff. Feb. 26, 2010). The appellate court affirmed the granting of the motion to compel. 2011 IL App (1st) 110381. Defendants have appealed to this court, arguing the subject matter waiver doctrine should not apply to compel production of undisclosed, privileged communications where the disclosed communications were extra-judicial in nature and were not used to gain an advantage in litigation. This court granted leave to appeal. Ill. S. Ct. R. 315 (eff. Feb. 26, 2010). We have allowed the Illinois State Bar Association, Association of Corporate Counsel, Association of Corporate Counsel Chicago Chapter, the International Association of Defense Counsel, and Illinois Association of Defense Counsel to file amicus curiae briefs pursuant to Supreme Court Rule 345 (Ill. S. Ct. R. 345) (eff. Sept. 20, 2010). For the following reasons, we reverse the judgments of the appellate and circuit courts and remand the cause to the circuit court.


¶ 3 Defendants are independent real estate companies that own and operate retail shopping malls throughout the United States. In late 2001 and early 2002, defendants Westfield, Rouse, and Simon negotiated to jointly purchase the assets of a Dutch company, Rodamco North America, N.V. (Rodamco). Among the assets purchased with the acquisition of Rodamco was Urban Shopping Centers, L.P. (Urban), an Illinois limited partnership that owns high-end retail shopping centers across the United States. Defendants acquired a large majority interest in Urban, including full ownership of Head Acquisitions, L.P. (Head), Urban's general partner. Plaintiffs are minority limited partners in Urban.

¶ 4 The Business Negotiations

¶ 5 Defendants entered into a purchase agreement with Rodamco in January 2002. On the same day, defendants entered into a separate joint purchase agreement with one another that concerned the allocation of Rodamco's assets and the share of the purchase price each of them would pay. The purchase of Rodamco closed in May 2002. When the purchase closed, defendants executed an amended Head partnership agreement that included provisions allocating control over Urban's numerous mall interests amongst themselves. Plaintiffs were not a party to the Rodamco purchase transaction or to the negotiations leading up to it.

¶ 6 During the course of the negotiations leading up to the purchase of Rodamco, defendants discussed legal issues in negotiating the transaction's terms. They also disclosed to each other some of their attorneys' views about the legal implications of the transaction, the legal importance of the documents under negotiation, and the rights and obligations of the parties to the transaction. Defendants also shared with one another some documents that concerned the legal and financial terms of the transaction. Additionally, defendants' attorneys discussed with one another the terms for a new partnership agreement concerning Urban's mall interests. In these discussions, attorneys for Westfield, Rouse, and Simon shared with each other their legal concerns and legal conclusions about the structure of a new partnership agreement and how it would operate. This new partnership arrangement has been referred to in this litigation as the "synthetic partnership."

¶ 7 The Underlying Lawsuit

¶ 8 Plaintiffs first brought suit in 2004, alleging that, since purchasing Head, defendants had breached alleged fiduciary and contractual duties they owed to Urban and plaintiffs (as limited partners of Urban). Plaintiffs alleged that defendants' division of responsibility for Urban's mall interests under the "synthetic partnership" was a breach of defendants' alleged duties and deprived Urban of sufficient corporate opportunities.

¶ 9 At the heart of plaintiffs' claim is the Urban partnership agreement. Urban was founded to hold, manage, and grow a portfolio of shopping centers then owned by JMB Realty Corporation. In 1993 Urban went public, and by 2000 had become an industry leader in operating, managing, and developing regional malls. In late 2000 Rodamco bought Urban's outstanding shares and took the entity private. Plaintiffs continued to own units as Urban's limited partners. Head, a Rodamco subsidiary, became Urban's new general partner. Rodamco negotiated a partnership agreement with Urban's limited partners (including plaintiffs). The Urban partnership agreement defines the rights, obligations, and liabilities of Head as general partner, as well as the rights and responsibilities of the limited partners. It is plaintiffs' contention that the "[a]greement reflects an intent to grow Urban through the acquisition and development of additional properties." The agreement does not permit Head or its affiliates to compete with Urban in business opportunities, such as acquiring additional real estate, attracting joint venture partners to acquire properties, or developing properties.

¶ 10 Plaintiffs alleged that defendants received legal advice on how to structure a "synthetic partnership," so as to evade the contractual terms and avoid the legal and fiduciary obligations they owed as Urban's general partner. Plaintiffs claimed defendants allocated Urban's properties among themselves, stopped growing Urban's business through acquisitions or ground-up developments, disregarded partnership agreement terms, and stole Urban's opportunities for themselves.

¶ 11 The Motions to Compel

¶ 12 In 2008 plaintiffs filed their first motion to compel the production of privileged communications. Plaintiffs noted that, on the privilege log filed by defendants, one defendant had purposely disclosed privileged documents to another defendant. Plaintiffs sought the compelled production of documents that defendants had shared among themselves. Defendants objected, arguing that the sought-after documents were protected by the common interest doctrine, and were thus privileged. The circuit court, on December 10, 2008, granted plaintiffs' motion to compel, finding that certain documents containing legal advice could be produced on the ground that defendants had waived any assertion of privilege by sharing the information amongst themselves. The court, however, was careful to limit its order to only those documents that had been disclosed. The court wrote:

"Further, with regard to the documents to be produced as identified on Appendix B, defendants may redact the contents of any email in an email string if that communication with defendant's counsel was not circulated to any other defendant or third party."

¶ 13 Following the production of the documents, the parties conducted further discovery, including depositions of defendants' executives. In March 2009 plaintiffs filed a second motion to compel, arguing, specifically, that defendant Westfield improperly directed Westfield witness Mark Stefanek, Westfield's chief financial officer, not to testify about matters as to which he had waived the attorney-client privilege. Plaintiffs claimed that Westfield attorneys permitted Stefanek to testify to the actual legal advice received from counsel, but then refused to allow him to testify about the rationale and other details of the legal advice. Plaintiffs argued that this "selective and offensive invocation of the attorney-client privilege waive[d] the privilege regarding the subject matter about which he voluntarily testified-his belief that Westfield had no duty to consider new business opportunities for Urban." The circuit court denied the motion.

¶ 14 Plaintiffs filed a third motion to compel, the motion at issue in this appeal, in April 2010, seeking over 1,500 documents identified in defendants' privilege logs. In the third motion to compel, plaintiffs accused defendants of breaching their fiduciary duties to Urban by usurping business opportunities, in violation of the Urban partnership agreement. Plaintiffs alleged that, during depositions, defendants' witnesses confirmed that during the business negotiations in 2001-02 each defendant's individual counsel attended negotiating sessions and discussed with nonclients legal advice regarding: (1) acquisition structure and use of a "synthetic partnership" to avoid certain partnership obligations; and (2) liability and obligations as Urban's general partner, including continuing obligations to acquire and develop additional properties through Urban. Plaintiffs specifically pointed to the deposition testimony of defendants' witnesses, including arguments concerning the testimony of Stefanek that had been raised in the prior motion to compel, to support compelled production of the requested documents.

¶ 15 Plaintiffs first contended that Anthony Deering, defendant

Rouse's former chief executive officer, testified to privileged attorney-client discussions during his deposition. During the January 12, 2010, deposition, plaintiffs' attorney asked Deering if he ever conferred with anyone at Rouse as to whether Rouse had a duty to consider putting new acquisitions within Urban. Rouse's deposition counsel objected, as it called for a legal conclusion, and cautioned Deering not to disclose any attorney-client communications about that issue he may have had at the time. Deering could otherwise answer the question. Deering testified that he had consultations with the other defendants' officers and outside counsel about structuring the partnership. Plaintiffs' attorney asked Deering if he had received legal advice, to which Deering responded "yes." At that point, one of Rouse's attorneys intervened, and informed Deering that any communication his attorneys had with him, in the presence of Simon and Westfield, could be disclosed. However, the Rouse attorney instructed Deering that any legal advice his attorney gave to him in private should not be disclosed. Plaintiffs' attorney then asked Deering what the legal rationale was for Deering's conclusion that Rouse had no duty, after the transaction was complete, to put new acquisitions within Urban. Rouse's attorney again cautioned Deering that it was acceptable to disclose communications he had with his attorney when people from Simon and Westfield were present, but private, privileged communications should not be disclosed. Deering answered plaintiffs' question, saying that his attorney did not give a synopsis of why the synthetic partnership structure worked, but did outline the structure and assured defendants that it would be acceptable and sustainable. Plaintiffs' attorney later again asked Deering what the basis was for his understanding that, after the closing of the Rodamco transaction, Rouse did not feel it had a duty to put new acquisitions within Urban. After again being warned by counsel to be cognizant of not disclosing attorney-client communications, Deering testified that the synthetic partnership insulated Rouse from having to do anything extraordinary in terms of presenting corporate opportunities, acquisitions or any other deals to Urban. That understanding was based on advice given to him at the time by Rouse's attorney, and was given in front of representatives from Simon and Westfield.

¶ 16 Plaintiffs next cited to the testimony of Robert Minutoli, a former Rouse vice president. Minutoli confirmed during the January 28, 2010, deposition that he discussed the substance of legal advice he received with representatives from Simon and Westfield concerning the synthetic partnership. Minutoli was warned by his counsel not to discuss anything that was covered by attorney-client privilege. Plaintiffs' attorney asked if he could recall any aspects of the rationale for the advice that defendants could buy the Urban partnership yet leave behind certain provisions of the partnership agreement with a liquidating entity. After objections from Rouse's counsel, Minutoli answered that it was his recollection that Rouse was in full compliance with the partnership agreement.

¶ 17 Plaintiffs, in the third motion to compel, also cited to the January

7, 2009, deposition testimony of Westfield chief financial officer Mark Stefanek. Plaintiffs' attorney asked Stefanek what basis he had for believing there was no duty to consider business opportunities for Urban. Over the objection of counsel, Stefanek answered his belief was based on legal advice from Westfield's attorneys. Plaintiffs' counsel then asked what the basis was for Westfield's attorneys' legal advice that Westfield had no duty to put any new business opportunities before Urban. Westfield's attorney at the deposition objected and instructed Stefanek not to answer. The following exchange then occurred:

"[Plaintiffs' counsel]: Well, he's already testified to the legal advice. I take it you are waiving, right, privilege?

[Westfield's counsel]: No, we are not waiving. [Plaintiffs' counsel]: Well, you let him testify to the legal advice.

[Westfield's counsel]: I have-you-I have given my instruction. You can proceed."

¶ 18 Plaintiffs' counsel then told Stefanek that he was only asking his basis for his belief as a businessman, not legal advice. Stefanek testified that he believed that, while Westfield had a duty on behalf of Urban to consider new business opportunities for Urban in the form of existing redevelopments on existing Urban properties, it did not have a duty to consider new acquisitions on behalf of Urban. Plaintiffs' counsel then asked if this understanding was based on legal advice from Westfield's counsel, to which Westfield's deposition counsel objected. Later in the deposition, plaintiffs' counsel asked the same question, to which there was another objection. Plaintiffs' attorney later asked Stefanek if it was "logical" to think that legal advice was shared between defendants, leading to this exchange:

"[Stefanek]: Well, we all signed it, so it would seem pretty logical that-you know, that-that anything significant would have been discussed with everybody, yes.

[Plaintiffs' attorney]: Again, I think that's-there's been a waiver in light of the court's prior ruling on that, [Westfield's attorney], and did you want to reconsider your advice to instruct him not to answer that?

[Westfield's attorney]: What's your question? [Plaintiffs' attorney]: I would like to know what the legal advice was.

[Westfield's attorney]: If-if-as the-what-if-do you mind asking the foundational question, whether he knows what the legal advice that was shared was?

[Plaintiffs' attorney]: You received legal advice on why Simon, Rouse and Westfield believed they could exclude certain provisions of the Urban partnership agreement. Correct?

[Stefanek]: I received advice what-based on why we could.

[Plaintiffs' attorney]: Okay. And you believe that it's logical that advice was shared with the other partners, ...

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