Actions were filed by John Doe entities that were initially described as limited liability companies, one organized in Delaware and the other in the Cayman Islands, that operated investment funds through their principal places of business in the Caymans.  At some point, an attorney named Wieber from Winston & Strawn enrolled as counsel of record and identified the two John Doe companies as two Bermuda corporations, Ritchie Risk-Linked Strategies and Ritchie Risk-Linked Trading.

Defendants filed a motion to pierce the attorney-client privilege based upon the crime-fraud exception and the lack of privilege for defunct entities. They argued that the crime-fraud exception applied because plaintiffs had submitted conflicting sworn statements about their identities, which remained a mystery, and had made other allegedly false statements, revealing alleged fraud and possibly perjury. The trial court denied plaintiffs’ requests to have it view the documents in camera, and ordered plaintiffs to produce responsive documents by a date certain.

Plaintiffs filed a motion to reconsider. They asked that the trial court review the privileged communications, which amounted to only about 70 unique e-mail chains, in camera. They asserted that the communications showed that any errors in the process of obtaining the TRO were inadvertent rather than malicious. Plaintiffs alternatively requested that the trial court hold them in ‘friendly’ civil contempt, issue a fine of $100, and stay all proceedings pending the appeal from the contempt finding.

The trial court granted the motion to reconsider in part, vacating its prior ruling requiring plaintiffs to turn over the privileged documents, and granting plaintiffs’ request for an in camera review.

At a subsequent status hearing, the trial court stated that it did not have a definitive answer as to whether the attorney-client privilege survived the demise of a corporation. Although the trial court did not find Illinois law on this subject, under Federal Law, which the trial court found to be persuasive, the privilege did not survive dissolution, absent a compelling reason. Therefore, there was no need to review the documents in camera. Rather, plaintiffs would have the burden of demonstrating a compelling reason at the upcoming evidentiary hearing.

At the conclusion of the evidentiary hearing, the trial court ruled as follows: “I have stated several times that this issue of whether the attorney/client privilege survives the demise of a corporation is a case of first impression in the State of Illinois courts. But I will remind you that there was another basis on which I ordered the production of documents from the corporation, and that was the crime-fraud exception. I made a finding for the purpose of this motion that there had been a fraud perpetrated upon the court. As you will recall, on January 30th of 2018, I believe it was Mr. Sabo went to a judge, an unnamed judge in St. Clair County, and in what I consider to be an extremely unusual maneuver gave certain papers to the judge without filing them. And when the judge made some reference to Peter Huizenga, Mr. Sabo took his papers and left. The next day he went to Madison County with the same papers and obtained an ex parte temporary restraining order. Among those papers was an affidavit which still bore the heading of the St. Clair County court signed by the late Michael Cilento in which he alleged – or affirmed, rather, that John Doe Corporation 1 was a corporation organized as a limited liability company in the Cayman Islands with its principal place of business there in the Cayman Islands. He also averred in his affidavit that John Doe Corporation 2 was a limited liability company organized under the laws of the state of Delaware with its principal place of business in the Cayman Islands. The Court will take judicial notice that the Cayman Islands are not a part of Bermuda. Here we have two corporations identified as Bermuda corporations who purport to be the corporations, who are John Doe 1 and John Doe 2. I found for the purpose of this motion that that was a fraud upon the court. Now, there may have been some switching back and forth of who the Plaintiff was going to be, which may ultimately lead to a finding that there was not a fraud upon the court. But I made that finding for the purpose of this motion. The second issue was the one that I originally referred to, whether the attorney/client privilege survives the demise of the corporation. I believe that the reasoning in the cases that I cited to you at our last court appearance is persuasive. The Federal District cases are not precedential, but they are instructive; and, indeed, I believe that they are persuasive. I gave you the opportunity to have this hearing so that you could tell me, convince me, that there was some compelling reason why the attorney/client privilege should persist. With all due respect to Mr. Moes, the only information he has about these two Plaintiff corporations are from people with whom he spoke and documents which he reviewed. That makes his testimony legally incompetent. I said that with all due respect. However, anyone walking in off the street could listen to what somebody else told them and review any documents and make the same determination. That’s not due diligence. That’s hearsay. I have not heard any reason, let alone a good reason or a compelling reason, why the attorney/client privilege of the two Bermuda corporate entities should persist after their demise. I am going to order that the documents be provided to defendants within 48 hours.”

However, the documents were not provided. At the contempt hearing, Wieber stated that he was acting on his clients’ instructions. He stated that, as a result, he expected that the trial court would enter a contempt order, which he would then appeal. He stated that he was taking this action “not to flaunt” the trial court’s authority but rather to undertake an appeal being made in good faith. He argued that it was per se good faith to appeal an issue of first impression, and asked that the trial court hold him in “friendly” contempt. He stated that he had consulted with colleagues about this issue and was trying to carry out his clients’ instructions and ethical obligations.

The trial court, however, was not persuaded: “You are correct that you are playing the hand that you were dealt. Unfortunately, you were dealt the hand of now representing a defunct corporation. I cannot, given the history of this case, make a finding that this involves good faith whatsoever. The record is replete with references to the myriad of litigation that has gone on between what I will call the Ritchie entities and the Huizenga entities, not only in Cook County, in the appellate court; in the U.S. Supreme Court; in Delaware courts; in St. Clair County, Illinois; in Madison County, Illinois; and now in Du Page County, Illinois. I can’t set that aside.

Somebody is directing this litigation. Obviously, somebody has directed you to refuse to comply with the order that was entered. I cannot find that that was done in good faith. I have the utmost respect for you as a practitioner. I think you are extremely intelligent. I think you are more than competent. I think you are outstanding in your advocacy; however, you are playing the hand that was dealt. I find that the failure and refusal to comply with a valid order of court is willful and contumacious.” The trial court noted that if he knew who the actual client was, that is who would be sanctioned; but since the only person before him was Mr. Wieber, it was Mr. Wieber who was being sanctioned $1,000 a day.

The Court of Appeals affirmed the trial court on the privilege issue: “In this case, appellants admit that plaintiffs have been dissolved and have no officers, directors, or employees, with this lawsuit comprising their only remaining function. Appellants assert that plaintiffs’ status as parties in the suit requires that they be allowed to assert the attorney-client privilege…. Pursuing claims is a natural part of the windup process. However, as discussed above, a corporation must have a legal successor or management that can assert the privilege for it to apply.  The trial court highlighted this issue when it stated that the evidentiary hearing would cover the identity of the plaintiff and the authority of whoever the plaintiff is determined to actually be to assert the privilege. Wieber stated that SEZC was asserting the privilege for plaintiffs, and the trial court replied that it wanted a live body in the courtroom who can tell me that he or she represents the plaintiff in this case, has actual knowledge of who is asserting the privilege and by what authority. At the hearing, plaintiffs did not produce someone from SEZC as the individual with the authority to assert the privilege, nor did they enter admissible evidence showing that plaintiffs took action to have SEZC be able to assert the privilege for them. Instead, plaintiffs brought in Moes. The trial court ruled that Moes’s testimony was hearsay because his knowledge was derived solely from reviewing documents and speaking to individuals; this ruling was not an abuse of discretion. Significantly, Moes was not part of plaintiffs’ management, nor was there any evidence that he had any other authority to assert the privilege on plaintiffs’ behalf. Plaintiffs therefore failed to show their practical ability to assert the attorney privilege. The cases cited by plaintiffs are distinguishable because, as defendants point out, they rely upon inapplicable statutes from the states in which the dissolved entities were formed. Similarly, section 12.80 of the Business Corporation Act is not at issue here, so we need not address if and how it would have affected our analysis of the attorney-client privilege. We additionally note that cases cited by appellants support our determination that a dissolved corporation must have someone with the authority to assert the attorney-client privilege. Based on our determination that plaintiffs cannot assert the attorney-client privilege because they are dissolved entities and failed to show that they have a manager or other representative with the authority to assert the privilege on their behalf, we do not review the trial court’s ruling that the crime-fraud exception to the attorney-client privilege also applied.”

On the Contempt Order, however, the Court of Appeals reversed: “We understand the trial court’s frustration with the slow progression of discovery in this case and the concerns surrounding plaintiffs’ identities. However, the circumstances that led the trial court to determine that the crime-fraud exception applied predate Wieber’s involvement in the case, and, even then, the trial court granted plaintiffs’ motion to reconsider in part regarding its application of that exception. Additionally, whether the attorney-client privilege survives a corporation’s dissolution is a question of first impression in Illinois. We agree with appellants that Wieber acted in a professional and respectful manner in asking for a ‘friendly’ contempt finding to secure review of this issue and of the application of the crime-fraud exception. The record also shows that Wieber extensively researched the issues and discussed the repercussions of contempt with colleagues before declining to turn over the requested documents. A person may expose themselves to a contempt finding as an appropriate method to test the validity of a court order, and refusing to comply with a court’s order may constitute a good faith effort to have a reviewing court interpret an issue without direct precedent. When an attorney’s noncompliance with a discovery order is based on a good faith effort to secure an interpretation of an issue to serve his or her client and the court, a civil contempt finding should not stand. We believe that this is such a situation, so we vacate the contempt finding and the associated fine.”

The Court noted, at the same time, that Plaintiffs are still subject to significant sanctions in the underlying proceeding.

 

John Doe Corp. v. Huizenga Managers Fund, No.2-20-0513, 2021 WL 3615955 (Ill. App. 2nd Dist. Aug. 16, 2021).