The broad concept of at-issue privilege waiver is best illustrated by the advice-of-counsel waiver doctrine which, as its moniker signals, arises when a party claims that he relied on his lawyer’s advice before engaging in certain conduct.  The doctrine invokes the sword-and-shield imagery by precluding a party from using privileged legal advice as a sword to defend his adversary’s claim and simultaneously as a shield to prevent that adversary from assessing the legal advice’s validity.

Legal Advice of CounselCourts call this waiver, recognizing that the lawyer’s legal advice is privileged in the first instance, but the client chose to waive that privilege by raising the legal advice as a defense.  The question arises, however, which lawyers’ advice comes under the waiver’s scope. The court’s decision in Symbria, Inc. v. Callen, No. 20 C 4084, 2023 U.S. Dist. LEXIS 203978 (N.D. Ill. Oct. 11, 2023), available here, shows how courts differ on the scope and reveals that lawyers should be cautious before asserting an advice-of-counsel defense.  Let’s discuss it.

A Sale and Competition

United Methodist Homes and Services (UMHS) and other owners sold their interest in several healthcare entities associated with Illinois-based Symbria, Inc. through a Stock Purchase Agreement (SPA).  The SPA contained non-competition and non-solicitation provisions preventing UMHS from engaging in competing healthcare activities, taking Symbria clients, and soliciting Symbria employees.  John Callen, a former president of a Symbria entity, had an employment agreement with the entity that contained similar anti-competition and anti-solicitation clauses.

A few years after the sale, UMHS and Callen established healthcare entities, generally known as MedRehab, that Symbria claims violates their respective restrictive covenants.  The parties argued over the scope of those restrictive covenants, with UMHS filing a declaratory-judgment action in an Illinois state court and Symbria bringing a host of breach-of-contract, trade-secrets, and business-tort claims in an Illinois federal court.

Advice of Counsel and Discovery Dispute

UMHS and Callen received legal advice regarding the scope of the restrictive covenants at various stages of the sale and post-sale litigation.  First, they received legal advice from Deal Counsel during the SPA negotiations.  Second, they received legal advice on the covenants’ scope from Startup Counsel when UMHS and Callen formed the MedRehab entities.  And third, they received legal advice from their post-sale Litigation Counsel.

In their answer to the claims presented in the federal-court lawsuit, UMHS and Callen expressly invoked the legal advice of their Deal Counsel as an affirmative defense, stating in part as follows:

The court recognized that “the issue defendants’ affirmative defense has injected into this case is whether they acted in good faith reliance on advice of counsel when they took equity positions in the MedRehab entities.”

UMHS knew that its advice-of-counsel defense waived the privilege over its communications with Deal Counsel and produced “hundreds of pages of communications and documents relating to opinions provided to UMHS” by Deal Counsel.  But Symbria wanted more—it claimed that UMHS’s “at issue waiver of the attorney–client privilege extends beyond their communications” with Deal Counsel “to their communications any lawyers about the restrictive covenants in the SPA.”

The issue before the court, then, was the scope of the advice-of-counsel waiver.  Did it extend to advice received from UMHS’s Startup Counsel? To its Litigation Counsel?

Choice of Law

To decide this scope-of-waiver issue, the court first had to decide which privilege law to apply—federal or state.  The court correctly noted that, under FRE 501, state privilege law governs civil cases regarding a defense for which state law supplies the rule of decision.  And here, Symbria’s claim for breach of the restrictive covenants arose under Illinois law, so Illinois privilege law applied.

Scope of Waiver

The choice-of-law decision proved somewhat pivotal to the parties’ arguments.  Symbria cited a federal-law decision for the proposition that the advice-of-counsel waiver extends beyond the lawyers’ opinions that a defendant discloses.  By relying on legal advice, that decision held, the defendant opens the door and “must produce not only other communications and opinions of the same attorney, but also privileged information from other counsel involving the same subject.”

But federal law and Illinois privilege law differed on this scope, and with Illinois privilege law governing, the federal decision was not controlling.  Illinois privilege law, the court found, “demonstrated a protective approach to the attorney–client privilege and work product doctrine” and did not extend advice-of-counsel waiver to subsequently retained counsel.

Ruling

Applying Illinois’ protective approach, the court held that UMHS’s advice-of-counsel defense waived the privilege over its communications with Deal Counsel, as UMHS conceded, but also over its communications with Startup Counsel.  The waiver did not, however, extend to UMHS’s Litigation Counsel.

The important consideration for the court was one of timing—at what point in time did UMHS rely and act upon legal advice. Thus, the court found—