VC Management, LLC v. ReliaStar Life Insurance Company
Filing
71
MEMORANDUM Opinion and Order Signed by the Honorable Young B. Kim on 4/20/2015. (ma,)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
VC MANAGEMENT, LLC,
Plaintiff,
v.
RELIASTAR LIFE INSURANCE
COMPANY,
Defendant.
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No. 14 CV 1385
Magistrate Judge Young B. Kim
April 20, 2015
MEMORANDUM OPINION and ORDER
Plaintiff VC Management, LLC (“VCM”) is suing Defendant ReliaStar Life
Insurance Company (“ReliaStar”) for breach of contract and is seeking $3 million in
life insurance proceeds plus interest.
(R. 1-2, Compl. at 5.)
During written
discovery, ReliaStar withheld 23 emails1 as responsive documents to a request on
the basis that they are protected under the attorney-client privilege. VCM moves to
compel the production of these emails. (R. 52, Pl.’s Mot.) For the following reasons,
the motion is denied:
Background
On December 15, 2010, VCM (then doing business as Vestor Capital Partners
LLC) purchased and ReliaStar issued a life insurance policy insuring the life of one
of its officers (“Insured”) with a death benefit of $5 million. (R. 1-2, Compl. at 2-3.)
During the pendency of VCM’s motion, ReliaStar identified three additional
emails over which it claims privilege but which were inadvertently omitted from its
privilege log. These three emails are within the original date range of ReliaStar’s
previous privilege log.
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On November 27, 2012, VCM submitted a written request to reduce the death
benefit amount from $5 million to $2 million. (R. 1-2, Compl. at 3.) The following
month, on December 16, 2012, the Insured passed away. (Id.)
VCM alleges, among other theories, that because as of December 16, 2012,
“no officer of ReliaStar” executed any amendment, endorsement, or other documents
effectuating the reduction, the death benefit remained at $5 million when the
Insured passed away. ReliaStar takes the opposing view that the reduction became
effective prior to December 16, 2012. As such, the resolution of this matter comes
down to the issue whether the reduction of the death benefit from $5 million to $2
million became effective prior to the Insured’s death.
On February 6, 2015, VCM deposed ReliaStar pursuant to Federal Rule of
Civil Procedure 30(b)(6), and ReliaStar produced Cheryl Kusick as its designee.
(R. 60, Def.’s Resp. at 2-3.) Prior to the deposition and during written discovery,
ReliaStar withheld 23 emails that had been exchanged between Kusick and
ReliaStar’s in-house counsel, asserting the attorney-client privilege and describing
these emails in a privilege log. (See R. 52-3, Pl.’s Mot. Ex. A, Privilege Log.) VCM
questioned Kusick about ReliaStar’s signature policies and about these subject
emails.
Soon after the Rule 30(b)(6) deposition, VCM moved to compel the
production of the withheld emails, arguing that they do not constitute attorneyclient communications because they reflect only business advice and not legal
advice and that even if they were privileged communications, Kusick’s deposition
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testimony resulted in a waiver of the privilege. This court conducted an in camera
review of the subject emails. (R. 61, March 24, 2015 Ord.)
Analysis
ReliaStar maintains that VCM is not entitled to discover the subject emails
because they are privileged attorney-client communications. Pursuant to Federal
Rule of Evidence 501, “state law governs privilege regarding a claim or defense for
which state law supplies the rule of decision.” Because this action is a diversity
action arising out of a contractual dispute in which Illinois law supplies the rules of
decision, the court must apply Illinois law to determine whether the attorney-client
privilege applies to the subject emails. See Fed. R. Evid. 501; Allendale Mut. Ins.
Co. v. Bull Data Sys., 152 F.R.D. 132, 139 (N.D. Ill. 1993). Under Illinois law,
“[w]here legal advice of any kind is sought from a lawyer in his or her capacity as a
lawyer, the communications relating to that purpose, made in confidence by the
client, are protected from disclosure by the client or lawyer, unless the protection is
waived.” Center Partners, Ltd. v. Growth Head GP, 2012 IL 113107, ¶ 30 (citing
Fischel & Kahn, Ltd. v. van Straaten Gallery, 727 N.E.2d 240, 243 (Ill. 2000)). But
“Illinois [also] adheres ‘to a strong policy of encouraging disclosure, with an eye
toward ascertaining that truth which is essential to the proper disposition of a
lawsuit.’” Center Partners, 2012 IL 113107, ¶ 32 (quoting Waste Mgmt., Inc. v. Int’l
Surplus Lines Ins. Co., 579 N.E.2d 322, 327 (Ill. 1991)).
Having examined the subject emails in camera, the court is satisfied that
they constitute privileged communications seeking and rendering legal advice.
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Accordingly, these emails are protected by the attorney-client privilege. See Dexia
Credit Local v. Rogan, 231 F.R.D. 268, 272 (N.D. Ill. 2004) (applying Illinois law).
Therefore, the court focuses its attention on the question whether ReliaStar waived
its privilege.
A.
Subject Matter Waiver
Despite the important public policy goals served by the attorney-client
privilege, there are myriad ways in which the privilege can be waived. As a general
rule, “the attorney-client privilege is considered waived by the client when the client
voluntarily testifies to the privileged matter.” Center Partners, 2012 IL 113107,
¶ 35. Both Illinois courts and federal courts place the burden to establish privilege
on the party asserting its existence.
Compare United States v. Nat’l Assoc. of
Realtors, 242 F.R.D. 491, 494 (N.D. Ill. 2007) (“The burden of showing that the
privilege was not waived . . . is on the party asserting the privilege.”) with Cox v.
Yellow Cab Co., 337 N.E.2d 15, 17 (Ill. 1975) (“One who claims to be exempt by
reason of privilege from the general rule which compels all persons to disclose the
truth has the burden of showing the facts which give rise to the privilege.”).
VCM first argues that Kusick’s deposition testimony amounted to a subject
matter waiver of the attorney-client privilege.
Reflecting the principle that
disclosure is inconsistent with privilege, client testimony about the privileged
contents of a communication falls within the ambit of the doctrine of subject matter
waiver. Center Partners, 2012 IL 113107, ¶ 37.
In its application of this doctrine,
“Illinois has long recognized . . . that when a client voluntarily testifies and waives
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the privilege, such waiver ‘extends no further than the subject matter concerning
which testimony had been given by the client.’”
Id. at ¶ 38 (quoting People v.
Gerold, 107 N.E. 165, 178 (Ill. 1914) (emphasis omitted)). By extending a client’s
waiver to an entire subject, the doctrine of subject matter waiver serves the
important purpose of “prevent[ing] partial or selective disclosure of favorable
material while sequestering the unfavorable.” Center Partners, 2012 IL 113107,
¶ 39.
“[W]hen a party’s conduct reaches a certain point of disclosure fairness
requires that the privilege should cease whether the party intended that result or
not.” Id. at ¶ 40 (quoting Sylgab Steel & Wire Corp. v. Imoco-Gateway Corp., 62
F.R.D. 454, 457 (N.D. Ill. 1974)).
In analyzing the subject matter waiver issue, the court must first determine
whether Kusick disclosed any privileged information during her deposition
testimony. VCM identifies the following passages as evidence that Kusick waived
the attorney-client privilege:
Q.
Okay. In connection with your anticipated testimony relating to
the reason why ReliaStar required a signature stamp on certain forms,
are you going to rely upon any information that was communicated to
you in any of [the emails for which ReliaStar claims privilege]?
A.
I – it’s part – the communication in those emails are part of
what I know about our business practices in regards to the endorsing
of service forms.
(R. 52-10, Pl.’s Mot. Ex. H, Kusick Dep. at 52:22-53:4.)
Q.
And you cannot identify any person affiliated with ING or
ReliaStar who provided you information about this subject matter
other than the information you received from in-house counsel?
Ms. Doolin: Objection –
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By Mr. Friedman
Q.
Is that true?
Ms. Doolin: I’m sorry, objection to form, asked and answered,
mischaracterizes the witness’s prior testimony.
The Witness: I, in my course of being employed for – for –with
ReliaStar or its affiliates, I cannot – I’ve not seeked [sic] a specific form
or asked. But I am – I do think that just as general administrative
historical practices, I have become aware that our life insurance
policies are stamped with an officer signature and our service forms
are. And my working assumption is that because these are contractual
documents.
(Id. at 71:13-72:6.)
According to VCM, this exchange demonstrates that Kusick
waived any privilege attaching to ReliaStar’s discussions about signature policies
with its attorneys. ReliaStar defends its privilege and asserts that there has been
no subject matter waiver because “none of [Kusick’s] testimony revealed any
privileged communications.” (R. 60, Def.’s Br. at 12.)
The court agrees with ReliaStar that Kusick did not disclose any privileged
information.
Also, the indicia of selective disclosure are not apparent in the
deposition excerpts VCM cites. To the contrary, the passages show that Kusick
relies on her work experience as a separate source of knowledge on the subject topic.
Other exchanges in the portion of Kusick’s deposition submitted to the court (and
not highlighted by VCM) similarly describe Kusick’s knowledge as primarily
grounded in her experience rather than her communications with an in-house
counsel:
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Q.
And what is the source of your knowledge as to the reason that
ReliaStar required an officer signature on the – on the policy service
request?
A.
From my experience in administering life insurance policies and
in discussions with our in-house legal counsel.
…
Q.
I understand you have some experience and your view on why
this requirement was placed on the processors. I understand that. But
in connection with –with information that I would call corporate
information, information that was provided to you by any person
affiliated with ReliaStar, is it your testimony that the only source of
information of that sort is the information you obtained from
ReliaStar’s counsel?
Ms. Doolin: Objection; form, mischaracterizes the witness’s testimony.
A.
I used to process forms for an affiliate of ING. And at the time, I
learned the process that we endorsed certain forms.
(Id. at 69:18-70.)
VCM claims that because Kusick “relied heavily on these privileged E-mails”
during her deposition testimony, they are discoverable. (R. 62, Pl.’s Reply at 4-5 (“It
follows that when a Rule 30(b)(6) witness testifies on behalf of a corporation based
upon information obtained from another corporate source (even an otherwise
privileged source), that the adverse party is entitled to discovery of the source
material.”).) VCM argues that Kusick “did not and could not deactivate the portion
of her brain containing information related to the officer signature requirement[.]”
(R. 62, Pl.’s Reply at 3.) By VCM’s reckoning, clients would initiate subject matter
waivers each and every time they recalled information, privileged or not, that was
discussed in a privileged communication with an attorney, even if other sources
supplied the exact same knowledge. VCM does not supply any authority for this
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principle, and its bare assertion is unpersuasive.
Kusick has not revealed any
privileged information, and certainly has not done so in such a way that would give
ReliaStar any unfair advantage in this litigation. The analysis on this issue might
be different if Kusick’s exclusive source of knowledge about the signature policies at
ReliaStar were the privileged emails and if she had testified about the content of
those emails.
But because Kusick testified based on her work experience and
without disclosing the substance of the privileged emails, there was no subject
matter waiver.
B.
At-Issue Waiver
VCM also argues that there has been an “at-issue” waiver vitiating the
attorney-client privilege.
Under Illinois law, if the holder of the attorney-client
privilege puts the contents of privileged communications “at issue” in litigation, the
privilege is lost. Shapo v. Tires ‘N Tracks, Inc., 782 N.E.2d 813, 819 (Ill. App. Ct.
2002). But here, VCM fails to explain how the doctrine of at-issue waiver applies to
the current dispute and fails to develop its “at issue” waiver argument. “[A]ny
arguments that are unsupported or underdeveloped are deemed waived.” System
Dev. Integration, LLC v. Computer Scis. Corp., 739 F. Supp. 2d 1063, 1083 (N.D. Ill.
2010) (citations omitted). Ordinarily, the doctrine of at-issue waiver is implicated in
disputes between a client and an attorney, especially in scenarios involving claims
of legal malpractice or the nonpayment of attorney fees.
See id. (citing In re
Marriage of Bielawski, 764 N.E.2d 1254, 1263 (Ill. App. Ct. 2002)). In its opposition
to VCM’s motion, ReliaStar argues that the mere questioning of a Rule 30(b)(6)
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designee about the contents of documents listed on a privilege log does not implicate
the doctrine of at-issue waiver. The court agrees.
C.
Privilege Log
Finally, VCM argues that because, in its opinion, ReliaStar’s privilege log “is
wholly deficient, the claim of privilege with respect to each of the 23 documents in
such log should be overruled.” (R. 52, Pl.’s Mot. ¶ 41.) Rule 26(b)(5) provides that
when a party claims privilege to withhold information that otherwise is
discoverable,
it
is
required
to
“describe
the
nature
of
the
documents,
communications, or tangible things not produced or disclosed — and do so in a
matter that, without revealing information itself privileged or protected, will enable
other parties to assess the claim.” A minimum level of specificity is required to
allow the court “to determine whether the discovery opponent has discharged its
burden of establishing the requirements expounded upon in the foregoing
discussion.” Allendale Mut. Ins. Co. v. Bull Data Sys., 145 F.R.D. 84, 88 (N.D. Ill.
1992).
In its accounting of privileged documents, ReliaStar catalogued the date,
time, document type, sender (with job title), recipient(s) (with job title), subject
matter of the communication (usually some variant of “request for legal advice”),
and type of privilege claimed. (See R. 52-3, Pl.’s Mot. Ex. A, Privilege Log.) VCM
takes issues with ReliaStar’s privilege log and argues that it is so vague that it fails
the requirements of Rule 26(b)(5). (R. 52, Pl.’s Mot. ¶ 36.) In response, ReliaStar
points out that “at no time during either [of the two conversations between counsel
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for VCM and ReliaStar] did counsel for [VCM] raise any issue about the adequacy of
the privilege log[.]” (R. 60-6, Def.’s Br., Ex. F, Doolin Aff. at ¶ 9.) VCM in its reply
does not dispute ReliaStar’s claim that the specificity of the privilege log was never
discussed during the parties’ attempts to resolve their differences. Notably, VCM
did not raise the inadequacy of the privilege log until after the close of written
discovery and only after Kusick’s deposition. Because Local Rule 37.2 requires that
prior to filing a discovery motion, the parties are required to certify that they made
good faith attempts to resolve their differences and because VCM failed to do so, its
argument fails.
To be clear, the court conducted an in camera review of the
withheld emails to address VCM’s suspicion that the withheld communications
were about seeking and rendering business advice, not because the court found the
privilege log lacking in specificity.
Conclusion
For the foregoing reasons, VCM’s motion to compel is denied.
ENTER:
____________________________________
Young B. Kim
United States Magistrate Judge
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