Attorney’s Violation of Ethical Rules in Disclosing Privileged Communications Is Irrelevant to the Communications’ Admissibility — Advice-of-Counsel Defense Waives Privilege Even If Defense Is Invalid

Am. Plastics Techs., Inc. v. Dymond Pharmcare Indus., Ltd., 2015 U.S. Dist. LEXIS 162716 (N.D. Ill. Dec. 4, 2015):

Plaintiffs/Counter-Defendants American Plastics Technologies, Inc. and Rao Murukurthy ("Murukurthy") (collectively [*4]  "Plaintiffs"), and Defendants/Counter-Plaintiffs Dymond Pharmcare Industries, Ltd. ("Dymond") and Obong Bassey Inuaeyen ("Bassey") (collectively "Defendants") were engaged in a lawsuit before this Court (filed by Plaintiffs) and a lawsuit in Nigeria (filed by Defendants) over a contract dispute. With the assistance of Magistrate Judge Sidney I. Schenkier, they reached and signed a global settlement agreement in August 2013. Under that agreement, Plaintiff was to pay funds into an escrow account held by the Clerk of the U.S. Court. Then the parties were to take the necessary steps to dismiss the lawsuits both here and in Nigeria with prejudice. Upon dismissal of the lawsuits, Defendants were permitted to make a motion to this Court for an order directing that the funds held in escrow be paid to them. (Doc. 111, at 5-11).

Remarkably, the parties still have not put this matter to rest. Shortly after the settlement agreement was signed, Defendants attempted to reopen the settlement negotiations, and Plaintiffs had to file a motion for an injunction to enforce the agreement. This Court granted Plaintiffs' motion, and on February 10, 2014, issued an Injunction Order to enforce the settlement [*5]  terms. According to Plaintiffs, Defendants still did not take the necessary steps to dismiss the Nigerian lawsuit, so they filed a motion on June 4, 2014 asking the Court to enter an order finding Defendants in civil contempt for failing to make reasonable and diligent efforts to comply with the Injunction Order. (Doc. 120). Plaintiffs also sought their fees and costs.

It took another five months before the Nigerian lawsuit was dismissed on November 10, 2014. Defendants deny that this was their fault and blame their former attorney, Plaintiffs and others for the delay. Since the parties could not reach an agreed resolution of Plaintiffs' request for fees and costs in connection with the contempt motion, the Court allowed briefing to proceed and held a hearing. (Doc. 185). In support of the motion, Plaintiffs relied in part on certain communications between Defendants and their former attorney, Ebere N. Ekechukwu. This led Defendants to file a Motion to Strike Privileged Exhibits (Doc. 173) that is also before the Court.

For the reasons discussed below, the motion of Defendants/Counter-Plaintiffs to strike privileged exhibits (Doc. 173) is denied. The motion of Plaintiffs/Counter-Defendants [*6]  for an order finding Defendants/Counter-Plaintiffs in civil contempt (Doc. 120) is granted in part and denied in part.

***

DISCUSSION

A. Defendants' Motion to Strike

1. Attorney-Client Privileged Communications and Their Disclosure

Before addressing Plaintiffs' contempt motion, the Court must address Defendants' motion to strike certain exhibits that Plaintiffs rely on for their motion. Defendants specifically seek to strike Plaintiffs' Exhibits 24, 25, 26, 28 and 29 (Docs. 224-27, 224-28, 224-29, 224-31 and 224-32) submitted for a hearing before this Court on January 27, 2015, which contain email communications between Ekechukwu [U.S. counsel] and Bassey. (Doc. 173). Defendants argue that these emails are protected by the attorney-client privilege, and that Ekechukwu publicly disclosed the emails without their consent. (Doc. 174, at 3-5).

Ekechukwu disclosed the emails during an ongoing dispute between her [*33]  and Defendants over her legal fees. As noted above, a week after this Court granted Ekechukwu's motion to withdraw as Defendants' counsel in the U.S. Case, she filed a petition for attorney's fees. (Doc. 227). The petition did not have any emails attached to it. Nevertheless, on August 7, 2014, Defendants filed a motion to strike the fee petition, arguing (in a publicly-filed brief) that Ekechukwu is not entitled to fees in part because "it was her former clients' reliance on her advice that caused the delay in the defendant/counter-plaintiff's ability to comply with this court's orders." (Doc. 229, at 11).

Defendants specifically argued that Ekechukwu erroneously advised Bassey that Dymond did not require counsel to represent it in the Nigeria Case at the April 11, 2014 hearing (which was eventually rescheduled to May 9, 2014). (Id. at 4-5). In their publicly-filed brief, Defendants quoted, and attached, emails Ekechukwu sent Bassey on April 10, 2014 stating "[y]ou do not have to hire a lawyer if you appear in court yourself" and "[a]pearing [sic] in Court tomorrow yourself will eliminate the issue of you hiring a new lawyer." (Id. at 27-28). Defendants also argued that Ekechukwu failed to bring the Nigeria Case and the [*34]  U.S. Case to a final determination, including by securing a release of the settlement funds held in escrow, which was a prerequisite to her receiving fees under their fee agreement. (Id. at 7-9). Finally, Defendants publicly filed a declaration from Bassey dated August 7, 2014 in support of their response to Plaintiffs' contempt motion, stating "My former U.S. counsel, Ms. Ebere Ekechukwu, instructed me repeatedly that I could appear on Dymond's behalf at the next [May 9, 2014] hearing instead of an attorney." (Doc. 139-1, Bassey Decl., ¶ 10).

Ekechukwu disputed Defendants' representations in her (publicly-filed) response brief to their motion to strike her fee petition, arguing that she advised Bassey to retain a lawyer to conclude the Nigeria Case and made efforts to help him do so. (Doc. 230, at 6-11). She attached but did not file under seal certain exhibits to her brief, namely, other emails between her and Bassey, including the emails Defendants now seek to strike. (Doc. 230, at 64-78). She argued that the emails Defendants disclosed show advice that she gave in early April, but she subsequently changed her advice and told Bassey to obtain an attorney for Dymond for the May 9, 2014 hearing [*35]  (and beyond), as reflected in the additional emails attached to her response. (Doc. 230, at 8-11). Ekechukwu further asserted that the emails show that it was not her advice which caused Bassey to refrain from retaining a lawyer for the Nigeria Case. Rather, she argued the emails show that "from the onset" Bassey "did not wish to spend additional money on a lawyer's fee on this case since doing so will be helping APT to get out of the case quickly." (Id. at 11). Thus, Ekechukwu disputed Defendants' accusation that she is at fault in not bringing the U.S. Case and Nigeria Case to a final determination since, she argued, Bassey "is the reason the money has not been paid out to the Defendants because he has failed to dismiss the cases." (Id. at 14).

2. Waiver Analysis

Plaintiffs do not contest that the attorney-client privilege applied to the emails [that Attorney] Ekechukwu disclosed, but argue that Defendants have waived the privilege over these emails. (Doc. 182). Plaintiffs first argue that Defendants waived the privilege regarding their communications with Ekechukwu as to whether Dymond needed to retain counsel in the Nigeria Case by voluntarily disclosing the emails containing some of her advice on that subject. ( [*36] Id. at 2-3). "Any voluntary disclosure by the holder of the attorney-client privilege is inconsistent with the attorney-client confidential relationship and thus waives the privilege." Powers v. Chicago Transit Auth., 890 F.2d 1355, 1359 (7th Cir. 1989) (citing United States v. Buljubasic, 808 F.2d 1260, 1268 (7th Cir. 1987); 8 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2016 (1971)). See also Center Partners, Ltd. v. Growth Head GP, LLC, 2012 IL 113107 ¶ 35 (2012) ("The basic, well-settled rule is that when a client discloses to a third-party a privileged communication, that particular communication is no longer privileged and is discoverable or admissible in litigation.").4

4   The parties do not address what law applies and both parties rely on cases applying Illinois law and the federal common law (with Plaintiffs citing cases applying law from other jurisdictions as well). Since the parties have not raised the choice-of-law issue or pointed to any conflict between Illinois and federal law on the matters at hand, the Court need not resolve this issue.

Defendants argue that they did not waive the privilege in their August 2014 filings because Plaintiffs' counsel already knew that Ekechukwu had told Bassey he could attend the May 9th hearing without counsel, so disclosing this "non-privileged" information again could not waive the related privileged communications. (Doc. 178, at 8-9). [*37]  In support, Defendants cite the April 23, 2013 email of Plaintiffs' Nigerian lawyer, Fasoranti, stating that "you [Ekechukwu] have insisted and you still insist that Mr. Bassey can represent himself." (Doc. 120-5, at 6). But this email only supports an inference that Ekechukwu allegedly made some representation to Plaintiffs' counsel about whether Bassey could represent himself. It does not show any disclosure of the advice Ekechukwu gave Bassey; that information was first disclosed by Defendants in their August 7, 2014 filings. By voluntarily disclosing their communications with Ekechukwu in order to attack her fee petition, Defendants waived the privilege for those communications.

The parties also dispute the scope of the privilege waiver occasioned by Defendants' disclosures. Plaintiffs argue that Defendants' waiver encompasses all of the challenged emails because the waiver extends to all "communications regarding [Defendants'] retention of counsel in Nigeria to appear in the Nigeria Court." (Doc. 182, at 3). Defendants argue that any waiver here is limited to only communications regarding whether Dymond required counsel at the May 9, 2014 hearing. (Doc. 178, at 9-10). Since Exhibits [*38]  24, 26 and portions of Exhibit 25 (Docs. 224-27, 224-29 and 224-28) contain privileged communications regarding whether Bassey should, could or would retain counsel for Dymond in the Nigerian Case for other hearings, Defendants argue the privilege is not waived for these communications. (Id.). In so arguing, Defendants implicitly concede that waiver does apply to the emails in Exhibits 28 and 29 (Docs. 224-31 and 224-32), and the only contested issue here is whether the waiver extends to the other emails in Exhibits 24, 26 and portions of 25.

Although Defendants only disclosed emails and information concerning Ekechukwu's advice for the May 9, 2014 hearing, they also argued that they relied on her advice and that she is therefore at fault for the consequences of that reliance. The attorney-client privilege is waived for an otherwise privileged communication when the litigant directly puts the attorney's advice at issue in the litigation. Grochocinski v. Mayer Brown Rowe & Maw LLP, 251 F.R.D. 316, 324 (N.D. Ill. 2008) (Illinois law). "The advice of counsel is placed in issue where the client asserts a claim or defense, and attempts to prove that claim or defense by disclosing or describing an attorney client communication." Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851, 863 (3d Cir. 1994) (federal common law); see also Dexia Credit Local v. Rogan, 231 F.R.D. 268 (N.D. Ill. 2004) (Illinois [*39]  law) (same).

Defendants here have done more than merely raise a defense. They have specifically described the advice given by their attorney and disclosed specific communications with that attorney in an attempt to (a) prove their lack of fault in any delay in complying with this Court's orders, (b) shift any blame to their attorney, and (c) dispute her right to fees. (See Doc. 139-1, Bassey Decl. in opposition to contempt motion, ¶ 10) ("My former U.S. counsel, Ms. Ebere Ekechukwu, instructed me repeatedly that I could appear on Dymond's behalf at the next [May 9, 2014] hearing instead of an attorney."). By doing so, they waived the privilege over not just the specific communications they have disclosed, but also on the broader topic of their reliance on Ekechukwu's advice regarding the retention of counsel in the Nigeria Case. The emails Ekechukwu disclosed related to that subject, and were used to dispute Defendants' affirmative allegations; namely, that Ekechukwu gave incompetent advice and they followed it. "When either party to the attorney-client relationship alleges a breach of duty by the other, the privilege is waived as to communications between the disputing parties." Fischel [*40]  & Kahn, Ltd. v. van Straaten Gallery, Inc., 301 Ill. App. 3d 336, 338-39, 703 N.E.2d 634, 636-37 (1st Dist. 1998), rev'd in part on other grounds, 189 Ill. 2d 579, 727 N.E.2d 240 (2000); see also Scheurer Hosp. v. Lancaster Pollard & Co., No. 12-CV-11536, 2012 WL 5471135, at *5 (E.D. Mich. Nov. 9, 2012) (Michigan and federal common law) (same). Defendants opened the door for Ekechukwu's disclosure of otherwise privileged communications to refute their allegations against her.

Defendants' arguments to the contrary are unavailing. On their advice of counsel defense they argue, without citing any precedent, that they have only waived the privilege if that defense is valid. (Doc. 178, at 9). They then refer the Court to cases undermining their own defense, holding that advice of counsel is not a valid defense to a charge of civil contempt. (Id.). Finally, they argue that if these cases are correct (they do not concede that they are), then their advice-of-counsel defense fails and they have not waived the privilege over their counsel's advice. (Id.). The Court does not find this unusual argument persuasive. Regardless of whether the Court finds the advice-of-counsel defense to be meritorious, Defendants raised that defense, disclosed privileged communications to opposing counsel in the process, and thereby waived the privilege.

Defendants also argue that Plaintiffs should be barred from using the emails in question because [*41]  Ekechukwu violated the Illinois Rules of Professional Ethics by broadly disclosing the emails. (Doc. 174, at 4). They cite in support an Illinois ethics opinion which states that "a lawyer should not use information that was disclosed as the result of deceitful or illegal conduct or breach of trust by an agent of the opposing party." (Id.) (citing ISBA Advisory Opinion on Professional Conduct, Opinion No. 98-04 (Jan. 1999) (hereinafter, "ISBA Opinion")). From this they argue that although an attorney may disclose privileged communications in a controversy between the attorney and client, the manner in which Ekechukwu did so here violated the ethical rules. (Doc. 178, at 2). Specifically, they argue that the ethics rules required Ekechukwu to limit her disclosure, through a protective order or other means, to "the tribunal or other persons having a need to know--which does not include Dymond's present opponent, APT." (Id.) (emphasis in original).

The Court takes no position on whether any counsel has committed ethical violations in this case, since this is immaterial to the admissibility of the emails at issue. See United States v. Williams, 698 F.3d 374, 382 (7th Cir. 2012) (even if a lawyer violated his ethical obligations by testifying to his [*42]  client's communications, "it would not follow that his testimony was inadmissible, unless otherwise barred by the Federal Rules of Evidence . . ."); see also ISBA Opinion ("[T]he determination of what particular circumstances might result in a waiver of the privilege is a question of the law of evidence beyond the scope of this" opinion). Defendants raise no valid arguments against the emails' admissibility.

For all of these reasons, the Court denies Defendants' motion to strike privileged documents (Doc. 173), and will allow Plaintiffs to rely on the emails in support of their motion for an order finding Defendants in contempt of the Injunction Order.

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