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Urban 8 Fox Lake Corp. v. Nationwide Affordable Housing Fund 4, LLC

United States District Court, N.D. Illinois, Eastern Division

January 13, 2020

URBAN 8 FOX LAKE CORPORATION, URBAN 8 ZION CORPORATION, Plaintiffs,
v.
NATIONWIDE AFFORDABLE HOUSING FUND 4, LLC, SCDC, LLC, WENTWOOD CAPITAL ADVISORS, LP, Defendants.

          MEMORANDUM OPINION AND ORDER

          Jeffrey Cole United States Magistrate Judge.

         INTRODUCTION

         As this case proves, exaggerated and improper claims of attorney-client privilege continue to impermissibly affect discovery specifically and the adversarial process generally. See the discussion in Motorola Sols., Inc. v. Hytera Commc'ns Corp., 2018 WL 1804350, at *1 (N.D. Ill. 2018). Unfortunately, such claims are too often indiscriminately applied to "documents that do not truly qualify for protection." Towne Place Condo. Ass'n v. Philadelphia Indem. Ins. Co., 284 F.Supp.3d 889 (N.D. Ill. 2018). See also Dietz & Watson, Inc. v. Liberty Mut. Ins. Co., 2015 WL 2069280, at *6 (E.D. Pa. 2015); Falin v. Condo. Ass'n of La Mer Estates, Inc., 2012 WL 760831, at *1 (S.D. Fla. 2012); Employer's Reinsurance Corp. v. Clarendon Nat. Ins. Co., 213 F.R.D. 422, 430 (D. Kan. 2003). See Motorola Solutions, Inc. v. Hytera Corp., 2018 WL 1281393 (N.D. Ill. 2018). [Dkt. #128]. Often, the excessive and improper claims are later abandoned when a party is challenged and is required to properly support the claims. But that is too little too late, when viewed from the deterrent purposes of sanctions.

         ARGUMENT

         A.

         The defendants, after a couple of, to say the least, missteps, Urban 8 Fox Lake Corp., supra, 2019 WL 6208107, have finally submitted a collection of fifty-eight documents, along with the required privilege log, and asked that the court conduct an in camera review of those documents to determine whether defendants' claims that they are protected from discovery by the work product doctrine, the attorney-client privilege, or both, are valid. Plaintiffs have lodged challenges to the defendant withholding a number of documents on a handful of grounds. [Dkt. # 129, at 6-8]. As those are the only ones at issue, they will be the only ones reviewed and assessed. See Exhibits Nos. 5, 6, 7, 8, 11, 12, 13, 14, 15, 16, 17, 18, 19, 21, 22, 23, 24, 25, 27, 28, 30, 31, 34, 35, 37, 38, 39, 42, 43, 44, 45, 48, 49, 50, 51, 52, 53, 54, 57, 60. After reconsideration of defendants' previous submissions, and review of the present group of documents along with the current version of the defendants' privilege log, the defendants' motion is denied in full. All of the foregoing challenged documents must be produced.

         We begin with the undisputed aphorism that the attorney-client privilege is one of the oldest and most widely recognized privileges of confidential communication. Swidler & Berlin v. United States, 524 U.S. 399, 403 (1998). It is intended to "encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Not all communications between the attorney and the client are privileged; "the privilege is in derogation of the search for the truth and, therefore, must be strictly confined." In re Grand Jury Proceedings, 220 F.3d 568, 571 (7th Cir.2000). The privilege adheres "only if [the communications] constitute legal advice, or tend directly or indirectly to reveal the substance of a client confidence." United States v. Defazio, 899 F.2d 626, 635 (7th Cir.1990). The attorney-client privilege only shields communications that were intended to be confidential, so communications made to an attorney in the presence of a third party or made with the intent that they will be disclosed to a third party are not privileged. United States v. Evans, 113 F.3d 1457, 1462 (7th Cir.1997); United States v. White, 950 F.2d 426, 430 (7th Cir.1991). The Seventh Circuit has articulated the following test for determining whether the attorney-client privilege attaches to a communication:

(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived.

Evans, 113 F.3d at 1461 (quoting 8 John Henry Wigmore, Evidence in Trials at Common *217 Law § 2292 (1961)).

         The work product doctrine is broader than the attorney-client privilege and protects from discovery "documents and tangible things that are prepared in anticipation of litigation." Fed.R.Civ.P. 26(b)(3)(A); United States v. Nobles, 422 U.S. 225, 238 (1975). The work product doctrine shields "material prepared by agents for the attorney as well as those prepared by the attorney himself." Nobles, 422 U.S. at 238-39. "The mere fact that litigation does eventually ensue does not, by itself, cloak materials . . . with the work product privilege; the privilege is not that broad." Binks Mfg. Co. v. National Presto Indus., Inc., 709 F.2d 1109, 1118 (7th Cir. 1983); Logan v. Commercial Union Ins. Co., 96 F.3d 971, 976 (7th Cir. 1996). To identify work product, courts are directed to determine "whether in light of the factual context the document can fairly be said to have been prepared or obtained because of the prospect of litigation." Logan, 96 F.3d 971, 976-77 (quoting Binks, 709 F.2d at 1119) (internal quotation marks omitted). Materials created in the ordinary course of business which may have the incidental effect of being helpful in litigation are not privileged under the work product doctrine. Fed.R.Civ.P. 26(b)(3) (1970 Committee Notes); RBS Citizens, N.A. v. Husain, 291 F.R.D. 209, 217-18 (N.D. Ill. 2013); Heriot v. Byrne, 257 F.R.D. 645, 663 (N.D.Ill.2009).

         This next bit is important, especially given what we are dealing with, and have been dealing with, in this case. See the discussion in Urban 8 Fox Corporation, 2019 WL 6208107 (N.D.Ill. 2019). It cannot be stressed enough that there is no presumption in favor of finding a document to be immune from discovery under either the attorney-client privilege or the work product doctrine. Both evidentiary privileges operate in derogation of the search for the truth and run counter to the public's right to every person's evidence. Swidler & Berlin v. United States, 524 U.S. 399, 411 (1998); United States v. Nixon, 418 U.S. 683, 709 (1974); United States v. BDO Seidman, LLP, 492 F.3d 806, 815 (7th Cir. 2007); In re Grand Jury Proceedings (Thullen), 220 F.3d 568, 571 (7th Cir. 2000). Accordingly, courts have always construed the privilege narrowly, Swidler & Berlin, 524 U.S, at 411, "unless to do so will serve a public good transcending the normally predominant principle of utilizing all rational means for ascertaining truth." Shaffer, 662 F.3d at 446. The party hoping to withhold evidence from the proceedings - and, to degrees that vary from case to case, thwart the fact-finders' efforts at uncovering the truth - necessarily has the burden of establishing the applicability of the privilege it asserts on a document-by-document basis. Blanket claims of privilege are impermissible in all contexts. Shaffer v. Am. Med. Ass'n, 662 F.3d 439, 446 (7th Cir. 2011); Logan, 96 F.3d at 977; Binks Mfg., 709 F.2d at 1119. The defendants have certainly fallen short of that here.

         B.

         "[T]he first step in the resolution of any legal problem is ascertaining the factual background and sifting through the facts with an eye to the legally relevant." Upjohn, 499 U.S. at 390-91. Unfortunately, neither the defendants' "Resubmission of Defendants' Privilege Log" [Dkt. # 127] nor their previous try, the "chart" meant to accompany their "Motion for a Protective Order" [Dkt. ## 76, 83], provide much in the way of context for the five dozen or so documents now deposited with the court after the defendants' initial noncompliance. This is surprising, because in the Order of November 13th allowing defendants a chance to "fix" their previous inadequate - and late - privilege log, defendants were directed to comply with RBS Citizens, N.A. v. Husain, 291 F.R.D. 209 (N.D. Ill. 2013). [Dkt. # 120, at 10]. There, the court distilled a template for privilege logs from the cases in this district:

Courts in this district have required that a privilege log identify for each separate document the following information: the date, the author and all recipients, along with their capacities, the subject matter of the document, the purpose for its production and a specific explanation of why the document is privileged. This information must be sufficiently detailed to allow the court to determine whether the party asserting the privilege has discharged its burden of establishing the applicability of the privilege.

291 F.R.D. at 218. Defendants have seemingly ignored that part of the previous Order as well as the applicable case law mentioned in that Order. Defendants' log provides no dates, only sporadically identifies author and capacity, and generally mentions only Mr. Brandstetter - defendants' in-house counsel- as recipient despite most documents having multiple recipients.

         Plaintiff understandably argues that these deficiencies constitute a waiver as to the claims of protection for all the documents. Plaintiff has a point. Plaintiffs are supposed to be able to "assess the claim" of privilege based on the defendants" privilege log, Fed. R. Civ.P. 26(b)(5)(A)(ii), but without any dates for when documents were created, that's virtually impossible. Especially given that the defendants completely bollixed their first attempt; if a blanket waiver of the privilege should ever be found based on an inadequate or late privilege log, it ought to be found in this case.

         But, given the hoary nature of these evidentiary privileges, courts have been hesitant to find such sweeping waivers, however poorly a privilege log has been put together. See, e.g., Sandra T.E. v. S. Berwyn Sch. Dist, 100, 600 F.3d 612, 623 (7th Cir. 2010); Belcastro v. United Airlines, Inc., 2019 WL 1651709, at *5 (N.D. Ill. Apr. 17, 2019)(collecting cases); Monco v. Zoltek Corp., 317 F.Supp.3d 995, 1000 (N.D. Ill. 2018)(collecting cases). And, although one won't usually see an effort as deficient as what we have here, especially after two tries, the court won't go so far as to find a global waiver here. After sifting through the hundreds of pages of documents the court is able to, for the most part, piece the necessary information together. But, of course, the point is that doing so is the advocate's job, not the court's, Dal Pozzo v. Basic Mach. Co., 463 F.3d 609, 613 (7th Cir. 2006). Moreover, all of it - the lateness of the first privilege log, the inadequacies of the first privilege log, the inadequacies of the second privilege log, and the ridiculous claims of privilege the first time around, see Appendix - all necessarily go into the calculus of our in camera review.

         Importantly, so does defense counsel's disturbing concession that there was no final review of the documents submitted for in camera inspection the first time around. Defendants' attorneys tell the court that they had an outside vendor and staff put together the final submission, and that their assurances were all counsel needed before dumping the mess on the court. [Diet. #130, at 3-4].[1] Such a claim is unacceptable and contrary to the minimal standards required of counsel advancing claims of attorney-client privilege, such a claim is deeply troubling and, if true, contrary to the minimal standards required of counsel seeking to advance a claim of attorney-client privilege. Thus, the defendants don't fare well at all, and plaintiffs ought not be too disappointed that the court doesn't accept their invitation to find a global waiver as the defendants' efforts, or lack thereof, get the plaintiffs to the same place in the end.[2]

         In the main, the documents the defendants have submitted appear to pertain to the parties' negotiations regarding the exercise of the Purchase Options and the parties' competing valuations of the properties. These documents appeared to have been created from 2015 through 2017. Obviously, the plaintiffs, seeking to exercise the options, are arguing for lower evaluations than the defendants. While all of the documents seemingly focus on property valuation, a block of them are directed to what defendants felt were overcharges by their property management companies. These overcharges somehow entered into the valuations. None of this is explained by the defendants or placed in the context of the current litigation, [Dkt. # 76, at 8-10; # 124, at 2-3].

         In any event, disputes about valuation and overcharges are common and are part of the ordinary course of business. They don't necessarily end up in court, The question becomes whether the financial disagreement during negotiation means that the documents, which were prepared as a part of and to assist in those negotiations, were truly prepared in anticipation of litigation. Or, whether gathering financial information to go back and forth on a purchase price is work in a legal or a business capacity. Importantly, the attorney involved in these exchanges, often no more than peripherally, is in-house counsel. As such, the defendants are "treading in an area of privilege law that is generally recognized to be 'especially difficult,' namely, distinguishing in-house counsels' legal advice from their business advice." Am. Nat. Bank & Tr. Co. of Chicago v. Equitable Life Assur. Soc. of U.S., 406 F.3d 867, 879 (7th Cir. 2005); see also Smith v. Bd. of Education of City of Chicago, 2019 WL 2525890, at *2 (N.D. Ill. June 19, 2019)(". . . courts presume that where in-house counsel is involved, "the attorney's input is more likely business rather than legal in nature."); Parneros v. Barnes & Noble, Inc., 2019 WL 4891213, at *4 (S.D.N.Y, Oct. 4, 2019)(". . . given that privilege obstructs the truth-finding process and its scope is limited to that which is necessary to achieve its purpose ...the need to apply it cautiously and narrowly is heightened in the case of corporate staff counsel, lest the mere participation of an attorney be used to seal off disclosure."); In re Cty. of Erie, 473 F.3d 413, 421 (2nd Cir. 2007)("... in-house attorneys are more likely to mix legal and business functions."); Neuberger Berman Real Estate Income Fund, Inc. v. Lola Brown Trust No. 1B, 230 F.R.D. 398, 411 n. 20 (D.Md.2005) ("While courts state that they do not intend to weaken the privilege [by imposing a "higher burden on in-house counsel to 'clearly demonstrate'" that counsel was giving legal advice], they are mindful that corporate clients could attempt to hide mountains of otherwise discoverable information behind a veil of secrecy by using in-house legal departments as conduits of otherwise unprivileged information.").

         While the distinction is not easy to draw, generally speaking, "legal advice, as contrasted with business advice, 'involves the interpretation and application of legal principles to guide future conduct or to assess past conduct'" and "[w]here business and legal advice are intertwined, the legal advice must predominate for the communication to be protected." BankDirect Capital Fin., LLC v. Capital Premium Fin., Inc., 326 F.R.D. 176, 181 (N.D. Ill. 2018)(collecting cases). In the main, it must be said that review of the documents at issue here show that financial considerations - how to value properties to get the best financial result in the purchase options - tends toward financial advice and activity and away from legal. That these documents, even those prepared personally by in-house counsel Mr. Brandstetter, are business documents and not legal ones is underscored by the fact that, in many instances, Mr. Brandstetter, attorney for defendants, is ...


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