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Robert R. McCormick Foundation v. Arthur J. Gallagher Risk Management Services, Inc.

Court of Appeals of Illinois, Second District

July 20, 2018

THE ROBERT R. McCORMICK FOUNDATION and THE CANTIGNY FOUNDATION, Plaintiffs-Appellants,
v.
ARTHUR J. GALLAGHER RISK MANAGEMENT SERVICES, INC., Defendant-Appellee.

          Appeal from the Circuit Court of Du Page County. No. 13-L-481, Honorable Kenneth L. Popejoy, Judge, Presiding.

          HUTCHINSON JUSTICE delivered the judgment of the court, with opinion. Justices Zenoff and Birkett concurred in the judgment and opinion.

          OPINION

          HUTCHINSON JUSTICE.

         ¶ 1 These consolidated interlocutory appeals are a sequel to an appeal we decided over two years ago, Robert R. McCormick Foundation v. Arthur J. Gallagher Risk Management Services, Inc., 2016 IL App (2d) 150303 (Foundations I). In these appeals, however, we consider the scope of attorney-client privilege and whether the trial court should have granted a renewed request for a stay.

         ¶ 2 Plaintiffs, the Robert R. McCormick Foundation and the Cantigny Foundation (the Foundations) sued their former insurance broker, Arthur J. Gallagher Risk Management Services, Inc. (Gallagher). The Foundations were formerly the second largest shareholder group in the Tribune Company (Tribune), a large multimedia corporation. The Foundations sold their preferred stock for some $2 billion during a leveraged buyout (LBO) of the company in 2007. Less than one year after the transaction, Tribune filed for bankruptcy protection. The buyout itself, as we noted in Foundations I, left many Tribune creditors "holding the proverbial bag." Id. ¶ 3.

         ¶ 3 After the LBO, in 2009, the Foundations hired Gallagher to procure for them directors' and officers' (D&O) liability insurance. Gallagher obtained $25 million in D&O coverage for the Foundations through (what was essentially) a single policy with Chubb Insurance (Chubb). The Foundations allege that in 2010 Gallagher advised that they could obtain the same coverage- "apples-to-apples"-at a reduced premium with (what was essentially) a $25 million policy from Chartis Insurance (Chartis). The Foundations purchased the Chartis policy and let the Chubb policy lapse.

         ¶ 4 Soon after Tribune exited bankruptcy in 2011 (see In re Tribune Co., 464 B.R. 126 (Bankr. D. Del. 2011)), aggrieved shareholders filed a number of federal suits across the country against more than 5000 defendants; the suits were eventually consolidated in the Southern District of New York. See In re Tribune Co. Fraudulent Conveyance Litigation, 831 F.Supp.2d 1371 (J.P.M.L. 2011). The Foundations were named as defendants in three of the suits (which remain ongoing, as we discuss below). These suits generally allege that the Foundations- through their directors and officers, and acting in concert with other "controlling shareholders"- orchestrated the LBO through actual and constructive fraud. Accordingly, the suits seek to unwind the LBO and to claw back creditors' funds.

         ¶ 5 Relevant here, when the Foundations tendered the suits (the LBO litigation) to Chartis under their D&O policy, Chartis denied coverage under a policy exclusion for claims "in any way relating to any purchase or sale of securities." The Foundations, asserting that Chubb would have defended and indemnified them under their former policy, sued Gallagher for breach of contract and professional negligence resulting in a loss of coverage. On Gallagher's motion for summary judgment, the trial court determined that an exclusion in the Chubb policy, too, would have barred coverage for the LBO litigation. In Foundations I, we held that the Chubb exclusion in question did not necessarily bar coverage, and we reversed the court's judgment. On remand, Gallagher tendered several affirmative defenses and the parties proceeded with discovery.

         ¶ 6 During discovery, Gallagher subpoenaed the Foundations and their legal counsel for, among other things, the following:

"1. Any reports or opinion letters prepared for *** the Foundations *** relating to the Tribune Co. or the LBO.
2. Any and all communications related to the Foundations' Director[s'] and Officers['] insurance policy or coverage.
3. Any and all communications with the Foundations related to the Tribune Bankruptcy.
4. Any and all communications with the Foundations related to the LBO Litigation."

         The Foundations indicated that there were documents and electronic communications responsive to Gallagher's request (and filing a roughly 40-page privilege log (see Ill. S.Ct. R. 201(n) (eff. July 1, 2014)) but refused to tender them, citing attorney-client privilege. The Foundations then asked the court to quash the subpoenas or, in the alternative, "stay or phase" the case until the completion of the LBO ...


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