The Illinois Supreme Court has ruled the McCormick Foundation does not have to disclose its communications with attorneys, regarding the sale of the Tribune Company, to its former insurance broker, who wants the material to fight a suit by the McCormick Foundation over the Foundation's claims the broker wrongly set up a policy that did not cover the Foundation against suits stemming from the Tribune's bankruptcy.
The Nov. 21 opinion was penned by Justice Robert Thomas, with concurrence from Justices Thomas Kilbride, Rita Garman, Mary Jane Theis, Lloyd Karmeier and P. Scott Neville Jr., as well as Chief Justice Anne Burke.
The ruling reversed decisions by the Illinois Second District Appellate Court in Elgin and DuPage County Circuit Judge Kenneth Popejoy.
Arthur J. Gallagher Risk Management was insurance broker for the McCormick Foundation and the Cantigny Foundation, both of which were established in accordance with the will of Col. Robert R. McCormick, publisher of the Chicago Tribune, who died in 1955. The Foundations were the second-largest stockholders of the Tribune Company.
In 2010, Gallagher recommended the Foundations buy a policy from Chartis Insurance that was cheaper than their existing policy with Federal Insurance, but which Gallagher said offered the same coverage, court papers said. The Foundations chose Federal.
In 2011, the Foundations were sued by Tribune shareholders, who alleged the Foundations’ directors, officers and controlling shareholders engineered the Tribune’s 2007 leveraged buyout through fraud, which led to the company’s bankruptcy.
The Foundations said they then learned their Chartis policy did not cover transactions involving securities, but the former policy with Federal would have provided coverage. As a result, the Foundations had to foot their own legal bills in the suits. The Foundations next sued Gallagher in DuPage County — the Cantigny Foundation is based in the suburban county — for breach of contract and professional negligence.
Gallagher alleged the Foundations acted fraudulently in the Tribune buyout and so no policy would have furnished coverage. To prove its allegation, Gallagher wanted to see communications between the Foundations and their attorneys regarding the Tribune’s buyout and bankruptcy. The Foundations refused, citing attorney-client privilege.
Gallagher argued the “common-interest exception” should prevail. Gallagher explained it may have to pay the underlying claims against the Foundations and their defense costs, so Gallagher is aligned with the Foundations in fighting the suits against the Foundations. Gallagher and the Foundations may not have used the same attorneys, but they had a “special relationship,” so it was as if they had retained the same counsel, Gallagher contended.
As a consequence, Gallagher claimed it is entitled to the communications between the Foundations and their attorneys.
The circuit and appellate courts agreed with Gallagher’s reasoning. The state high court did not.
“To apply the doctrine here would be at odds with the purpose of the attorney-client privilege to promote full and frank consultation between a client and legal advisor without fear of compelled disclosure. It seems to us that Gallagher’s and the Foundations’ interests were always adverse, and there was not a commonality of interest,” Justice Thomas wrote.
Thomas further found: “We cannot see how the communication by the Foundations with their defense counsel is of a kind reasonably calculated to protect or further any kind of common interest between the parties in this case in defeating or settling the claims against the Foundations.”
Thomas noted the Foundations had no reason to believe their attorneys would “share any confidences with Gallagher.”
The case was sent back to DuPage County court for further proceedings.
The Foundations have been represented by Shook, Hardy & Bacon, of Chicago.
Gallagher has been represented by the Chicago firms of Richard J. Prendergast Ltd. and Ellis Legal P.C.