Bailey v. Meister Brau, Inc.

55 F.R.D. 211, 16 Fed. R. Serv. 2d 572, 1972 U.S. Dist. LEXIS 13732
CourtDistrict Court, N.D. Illinois
DecidedMay 16, 1972
DocketNos. 69 C 1938, 71 C 114
StatusPublished
Cited by33 cases

This text of 55 F.R.D. 211 (Bailey v. Meister Brau, Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bailey v. Meister Brau, Inc., 55 F.R.D. 211, 16 Fed. R. Serv. 2d 572, 1972 U.S. Dist. LEXIS 13732 (N.D. Ill. 1972).

Opinion

MEMORANDUM OPINION

McLAREN, District Judge.

This federal securities law suit arises out-of Meister Brau, Inc.’s purchase of the James H. Black Company from the estate of James H. Black, Sr. Plaintiff, a former chief operating officer and director of the Black Company, alleges that defendants Meister Brau, the Black family, and the executors of the Black estate conspired to breach his contract right to purchase the company.

Pursuant to Rule 37(a), Fed.R.Civ.P., plaintiff has moved for an order compelling defendants Cappadocia and Foster to answer certain questions which they refused to answer at their oral depositions.

Defendant Cappadocia, a Meister Brau senior vice president, was installed as president and chairman of the board of the Black Company by the majority vote of defendants Continental, Bank, as executor, and Mrs. Harre on May 16, 1969. Meister Brau purchased the assets of the Black Company and the stock held by the estate and Mrs. Harre on June 6, 1969.

On advice of counsel, defendant Cappadocia refused to answer plaintiff's questions regarding the substance of his conversations between May 16 and June 6, 1969 with Meister Brau’s counsel regarding Meister Brau business. Cappadocia testified that the business discussed was the acquisition of the Black Company.

Defendants’ objection to the questions concerning the content of those discussions is based on the attorney-client privilege. Their position is that Cappadocia’s conversations with Meister Brau’s counsel are privileged because he was serving an an officer of that company. Defendants correctly state that the corporate attorney-client privilege has been recognized in Illinois, Day v. Illinois Power Co., 50 Ill.App.2d 52, 199 N.E.2d 802, 804 (1964), and is now applied by the federal courts sitting in Illinois. Radiant Burners, Inc. v. American Gas Association, 320 F.2d 314, 322 (7th Cir.), cert. denied, 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1963).

There are no reported opinions dealing with the attorney-client privilege in the context presented by Cappadocia’s dual fiduciary capacity. However, Professor Wigmore admonished:

“Nevertheless, the privilege remains an exception to the general duty to disclose. Its benefits are all indirect and speculative; its obstruction is plain and concrete. . . . It is worth preserving for the sake of general policy, but it is nonetheless an obstacle to the investigation of the truth. It ought to be strictly confined within the narrowest possible limits consistent with the logic of its principle.” 8 J. Wigmore, Evidence § 2291, at 554 (McNaugbton rev. ed. 1961).

This approach is followed in this circuit. Radiant Burners, Inc., 320 F.2d at 323.

[213]*213Plaintiff urges several theories as to why the privilege should not apply in this situation, and defendants have responded by distinguishing plaintiff’s cases or noting that no authority supports his propositions. Apparently, no court has dealt with this precise fact situation before. However, applying basic principles, it appears that the privilege should not be upheld in these circumstances.

Plaintiff relies on Gouraud v. Edison Gower Bell Telephone Co. of Europe, Ltd., 57 L.T.Ch. 498, 59 L.T. 813 (1888), and Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), cert. denied, 401 U.S. 974, 91 S.Ct. 1191, 28 L.Ed.2d 323 (1971), which followed it. In both of these cases it was held that the attorney-client privilege did not bar a shareholder-plaintiff in a derivative suit from discovering the communications between his corporation and its counsel. Although these cases do not directly support plaintiff, Garner is useful because it sets up an approach to problems involving the privilege that seems applicable here. The Garner court, 430 F.2d at 1100, set out Wigmore’s four conditions for the recognition of any privilege:

“(1) The communications must originate in a confidence that they will not be disclosed.
(2) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties.
(3) The relation must be one which in the opinion of the community ought to be sedulously fostered.
(4) The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation.” 8 J. Wig-more, Evidence § 2285, at 527 (McNaughton rev. ed. 1961).

That court balanced the possible injury to management and non-party shareholders against the benefits to be obtained by the shareholders who brought the suit and concluded that the policy in favor of disclosure should prevail. In reaching this decision, the court found analogies to two traditional exceptions to be persuasive. The first concerns communications made by a client to his attorney during or before the commission of a crime or fraud. The court recognized that the exception was particularly applicable where the persons communicating with counsel, management, have an obligation to the party seeking discovery, the shareholder, to act lawfully and without fraud. 430 F.2d at 1103. The second exception, which the Garner court found instructive, operates where the same attorney has acted for two or more persons having a common interest who later become involved in a controversy. In this connection, plaintiff cites Tugwell v. Hopper, 50 Eng.Rep. 616, 10 Beav. 348 (Rolls Ct.1847), and Monier v. Chamberlain, 35 Ill.2d 351, 221 N.E.2d 410 (1966). In Tugwell, it was held that the privilege did not apply where the same attorney was trustee for two separate parties. In Monier, it was held that the statements of a policyholder to his insurer are not protected by' the privilege when the insurer is also an agent of a potentially adverse party. Although defendants correctly point out that the facts of this case differ from those in Tugwell and Monier because here the client, not the attorney, had an alleged conflict of interest, this line of cases tends to support plaintiff’s contention.

Although Garner dealt with a situation where the communications were with counsel for the corporation of which the plaintiffs were shareholders, the court specifically noted that it did not consider it determinative whether the attorney consulted was retained by the corporation or by management on its own account. 430 F.2d at 1102 n. 18. The important consideration was that management’s duties gave the shareholders a sufficient interest in knowing its [214]*214legal communications to outweigh the interests served by confidentiality. That interest is even stronger where an executive’s communications have been with counsel for a party whose interests are potentially adverse to those of the executive’s shareholders, as here.

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Bluebook (online)
55 F.R.D. 211, 16 Fed. R. Serv. 2d 572, 1972 U.S. Dist. LEXIS 13732, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bailey-v-meister-brau-inc-ilnd-1972.