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BorgWarner, Inc. v. Kuhlman Elec. Corp.

Court of Appeals of Illinois, First District, First Division

December 8, 2014

BORGWARNER, INC., and KUHLMAN CORPORATION, Plaintiffs and Counterdefendants-Appellees,
v.
KUHLMAN ELECTRIC CORPORATION and KEC ACQUISITION CORPORATION, Defendants and Counterplaintiffs-Appellants

Page 512

Appeal from the Circuit Court of Cook County. No. 10 L 8893. Honorable Sanjay T. Tailor, Judge Presiding.

SYLLABUS

In a dispute arising from an indemnification agreement for toxic tort liability included in a merger agreement with respect to a manufacturing site in Mississippi that plaintiffs initially had purchased and then sold to defendants, the trial court did not err in denying defendants' motion for a protective order and requiring defendants to provide plaintiffs with documents pertaining to the polychlorinated biphenyl contamination of the site and the lawsuits seeking damages from the contamination, since neither the attorney-client privilege nor the work-product doctrine applied in the instant case, and, therefore, the order compelling disclosure of the documents was affirmed and the contempt order was vacated pursuant to Supreme Court Rule 304(b) based on defendants' good faith in appealing the issue.

For APPELLANTS: Thomas J. Heiden, Mary Rose Alexander, Michael J. Nelson, Andrew J. Mellen, Robert C. Collins, III, Latham & Watkins, LLP, Chicago, Illinois; James R. Figliulo, Figliulo & Silverman, PC.

For Appellees: Caesar A. Tabet, Daniel L. Stanner, John M. Fitzgerald, Katherine M. O'Brien, Ashley Crettol Insalaco, Tabet, DiVito & Rothstein, LLC, Chicago, Illinois.

JUSTICE CUNNINGHAM delivered the judgment of the court with opinion. Presiding Justice Delort and Justice Harris concurred in the judgment and opinion.

OPINION

Page 513

CUNNINGHAM, J.

[¶1] This appeal arises from the February 21, 2013 order entered by the circuit court of Cook County, which denied a motion for protective order filed by defendants Kuhlman Electric Corporation (KEC) and KEC Acquisition Corporation (KAC) to protect from disclosure certain allegedly privileged documents requested by plaintiffs BorgWarner, Inc. (BorgWarner), and Kuhlman Corporation (Kuhlman) and granted BorgWarner and Kuhlman's motion to compel KEC and KAC to produce these documents, in a dispute arising out of an indemnification agreement for toxic tort liability. This appeal also arises from the circuit court's May 2, 2013 order finding KEC and KAC in direct civil contempt for refusing to comply with the court's February 21, 2013 order to produce the documents. On appeal, KEC and KAC argue that the circuit court erred in denying their motion for a protective order and requiring them to provide BorgWarner and Kuhlman with the privileged documents. For the following reasons, we affirm in part and vacate in part the judgment of the circuit court of Cook County.

[¶2] BACKGROUND

[¶3] This case involves a complex procedural background and only the most pertinent facts are set forth in this opinion. For the past 50 years, KEC has owned and operated a manufacturing site in Crystal Springs, Mississippi (the Crystal Springs site). In March 1999, BorgWarner purchased Kuhlman and all of its subsidiaries, including KEC, which represented to BorgWarner at that time that there was no contamination on its property.

[¶4] Shortly thereafter, pursuant to an August 30, 1999 " Agreement and Plan of Merger" (the merger agreement), KAC purchased KEC from BorgWarner and the sale transaction closed on October 5, 1999. In the merger agreement, KEC represented that it was in compliance with environmental laws and that it had no " material liability" at the Crystal Springs site. Pursuant to the merger agreement, BorgWarner and Kuhlman agreed to indemnify KEC and KAC for certain preclosing environmental liabilities and to pay reasonable fees and costs in connection with those matters. KEC and KAC in turn agreed to indemnify BorgWarner and Kuhlman for any damages, penalties, fines and liabilities as a result of " any breach of or other default under any covenant of [KEC] contained in this agreement." The merger agreement provided that the parties' obligations would be governed by Illinois law.

[¶5] On April 19, 2000, KEC and KAC sent a letter to BorgWarner and Kuhlman stating that KEC had " become aware of facts that may give rise to claims for indemnification" based on the discovery of polychlorinated biphenyl (PCB) contamination in the soil at the Crystal Springs site. The April 19, 2000 letter was the first time that either KEC or KAC had given BorgWarner or Kuhlman any indication of potential contamination at the Crystal Springs site. KEC and KAC represented to BorgWarner and Kuhlman that they

Page 514

had no prior knowledge of any environmental contamination at the Crystal Spring site. Beginning in 2001, as a result of the PCB contamination, thousands of toxic tort lawsuits were filed against KEC, BorgWarner and Kuhlman, seeking compensation for personal injury and property damage that were allegedly caused by the PCB contamination at the Crystal Springs site (the underlying tort actions). Pursuant to their duty to indemnify under the 1999 merger agreement, BorgWarner and Kuhlman retained the law firm of Seyfarth Shaw to jointly defend them and KEC in the underlying Mississippi tort actions. Based on KEC and KAC's representations that they had no prior knowledge of the contaminants at the Crystal Springs site, and subject to a reservation of rights, BorgWarner and Kuhlman spent millions of dollars defending against the underlying tort actions, as well as conducting clean-up and remediation activities at contaminated properties in Mississippi. During defense of the underlying tort actions, KEC and KAC continued to assert the position that they had no prior knowledge of the contamination.

[¶6] In February 2004, in response to a subpoena issued in the underlying tort cases, KEC's environmental counsel, Dickinson Wright PLLC (Dickinson Wright), revealed that it possessed an environmental report which, as a result of environmental testing performed in 1988, documented the presence of contamination at the Crystal Springs site (the Stalwart Report). As a result of the conflict of interest created by the Stalwart Report, Seyfarth Shaw ultimately withdrew as lead joint counsel for BorgWarner, Kuhlman, and KEC in the underlying Mississippi tort actions, and the parties retained separate counsel while continuing to jointly defend in the underlying tort actions. In July 2004, BorgWarner and Kuhlman entered into a " Joint Defense and Confidentiality Agreement" (JDCA) with KEC and KAC, in order to outline the parties' common interest relating to the underlying Mississippi tort actions and to reduce to writing the basis for the necessary exchange of privileged information in furtherance of their common interest in the underlying tort actions. The 2004 JDCA stated that the parties agreed to be bound by the JDCA as it related to all litigation brought by third parties against them alleging personal injury and property damage associated with contamination at the Crystal Springs site, as well as any claims by BorgWarner, Kuhlman, KEC or KAC against insurers relating to the underlying tort actions.

[¶7] In 2006, BorgWarner filed a separate lawsuit in the circuit court of Cook County against KEC's former attorney, Dickinson Wright, alleging fraud and legal malpractice (the Dickinson Wright lawsuit). See BorgWarner, Inc. v. Dickinson Wright PLLC, No. 06 L 4663 (Cir. Ct. Cook Co.). In the Dickinson Wright lawsuit, BorgWarner claimed that Dickinson Wright, with whom it had an attorney-client relationship, knew of the PCB contamination at the Crystal Springs site as early as 1988 but concealed the information from BorgWarner. In May 2008, Dickinson Wright filed a third-party complaint against KEC, and KEC sought defense and indemnification for the Dickinson Wright lawsuit from BorgWarner and Kuhlman. During the course of discovery in the Dickinson Wright litigation, BorgWarner sought to compel disclosure of certain KEC documents over which KEC asserted attorney-client privilege. ...


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