CHICAGO — A state appeals panel determined lawyers have no ability to keep from a court the identity of third parties paying legal bills for a client contesting attempts to uncover assets as part of an effort to enforce a judgment.
Michael Margules, Edward Amaral and Mosholou, Inc., registered a 2017 California Superior Court judgment of $1.675 million against John Beckstedt and When 2 Trade Group LLC in Cook County and filed citations to discover assets. When they didn’t like the response to the citations, they issued a third-party citation to discover assets against Richard Steck, the lawyer for Beckstedt and When 2 Trade, specifically seeking to discover who was paying for Steck’s services.
Steck said a third party had asked him to represent the debtors, and declined to reveal that party’s identity, citing both attorney-client privilege and the Illinois Rules of Professional Conduct. Margules, Amaral and Mosholu then asked Cook County Judge Michael Otto to force Steck to name the third party. Otto granted that motion and held Steck in contempt. He levied a fine of $25 per day until Steck complied with the ruling. Steck moved to reconsider, prompting Otto to stay the contempt order pending his anticipated appeal to the First District Illinois Appellate Court.
Illinois Appellate Justice Michael Hyman
| Illinoiscourts.gov
Justice Michael Hyman wrote the panel’s opinion on the appeal, filed June 4. Justices Terrence Lavin and Aurelia Pucinski concurred.
The panel cited Steck’s testimony about his services, during which he said “I was asked — asked to represent both Beckstedt and When 2 Trade by a third party, and I would say that I would [sic] I have received from that third party is intangibles, not any money, property, or any other tangible consideration. … I was told not to reveal his identity. It was given to me in confidence and in addition, he is a client of mine and, therefore, I believe that the attorney-client privilege would have to be waived in order for me to answer that question.”
During oral arguments, the panel noted, Steck repeatedly said the client’s identity isn’t subject to discovery because it’s irrelevant to the direct matter of the citation hearings. But during appeal, the panel said, Steck focused solely on attorney-client privilege and confidentiality rules.
“Generally, the privilege does not protect a client’s identity,” Hyman wrote, unless the revelation would substantially prejudice a client or if protection is a matter of public interest. “Steck’s argument suffers at the outset because he has misapprehended his burden.”
While allowing for Steck’s position a plaintiff has the burden of showing someone possesses the information they want forcibly released, he said in this case the plaintiffs are hampered in meeting that bar by being shielded from the client’s identity.
“Steck’s assertion of privilege as to his client’s identity has cut off the litigation before questions about plaintiffs’ evidentiary basis could even be asked,” Hyman wrote. “Steck inserted the issue of attorney-client privilege into this case, and as the proponent of the privilege, he must show its application.”
The panel said the plaintiffs have only one reason to know the identity of whomever is compensating Steck for representing the debtors, even if he is only receiving goodwill in terms of the other work for which the client pays — to determine whether that party has access to the debtors’ assets. Further, the panel found “it is at least conceivable” there is a financial relationship between the debtors and the third party.
Hyman further wrote Steck didn’t sufficiently argue revealing his client’s identity would cause substantial prejudice or negatively affect public interest, writing “Steck, as the party who bears the burden of establishing the privilege, must rely on facts and not his imagination.” The panel said “Steck’s lack of any factual support” defeated his intent to use either protection.
After also finding the Illinois Rules of Professional Conduct allow courts to compel disclosure, the panel remanded the issue for further proceedings.