Borgwarner, Inc. v. Kuhlman Electric Corporation

2014 IL App (1st) 131824
FIRST DIVISION
DECEMBER 8, 2014
No. 1-13-1824
BORGWARNER, INC., and KUHLMAN CORPORATION, ) Appeal from the
) Circuit Court of
Plaintiffs and Counterdefendants-Appellees, ) Cook County.
)
v. ) No. 10 L 8893
)
KUHLMAN ELECTRIC CORPORATION and KEC )
ACQUISITION CORPORATION, ) Honorable
) Sanjay T. Tailor,
Defendants and Counterplaintiffs-Appellants. ) Judge Presiding.
JUSTICE CUNNINGHAM delivered the judgment of the court with opinion.
Presiding Justice Delort and Justice Harris concurred in the judgment and opinion.
OPINION
¶1 This appeal arises from the February 21, 2013 order entered by the circuit court of Cook
County, which denied a motion for protective order filed by defendants Kuhlman Electric
Corporation (KEC) and KEC Acquisition Corporation (KAC) to protect from disclosure certain
allegedly privileged documents requested by plaintiffs BorgWarner, Inc. (BorgWarner), and
Kuhlman Corporation (Kuhlman) and granted BorgWarner and Kuhlman's motion to compel
KEC and KAC to produce these documents, in a dispute arising out of an indemnification
agreement for toxic tort liability. This appeal also arises from the circuit court's May 2, 2013
order finding KEC and KAC in direct civil contempt for refusing to comply with the court's
February 21, 2013 order to produce the documents. On appeal, KEC and KAC argue that the
circuit court erred in denying their motion for a protective order and requiring them to provide
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BorgWarner and Kuhlman with the privileged documents. For the following reasons, we affirm
in part and vacate in part the judgment of the circuit court of Cook County.
¶2 BACKGROUND
¶3 This case involves a complex procedural background and only the most pertinent facts
are set forth in this opinion. For the past 50 years, KEC has owned and operated a
manufacturing site in Crystal Springs, Mississippi (the Crystal Springs site). In March 1999,
BorgWarner purchased Kuhlman and all of its subsidiaries, including KEC, which represented to
BorgWarner at that time that there was no contamination on its property.
¶4 Shortly thereafter, pursuant to an August 30, 1999 "Agreement and Plan of Merger" (the
merger agreement), KAC purchased KEC from BorgWarner and the sale transaction closed on
October 5, 1999. In the merger agreement, KEC represented that it was in compliance with
environmental laws and that it had no "material liability" at the Crystal Springs site. Pursuant to
the merger agreement, BorgWarner and Kuhlman agreed to indemnify KEC and KAC for certain
preclosing environmental liabilities and to pay reasonable fees and costs in connection with those
matters. KEC and KAC in turn agreed to indemnify BorgWarner and Kuhlman for any damages,
penalties, fines and liabilities as a result of "any breach of or other default under any covenant of
[KEC] contained in this agreement." The merger agreement provided that the parties' obligations
would be governed by Illinois law.
¶5 On April 19, 2000, KEC and KAC sent a letter to BorgWarner and Kuhlman stating that
KEC had "become aware of facts that may give rise to claims for indemnification" based on the
discovery of polychlorinated biphenyl (PCB) contamination in the soil at the Crystal Springs site.
The April 19, 2000 letter was the first time that either KEC or KAC had given BorgWarner or
Kuhlman any indication of potential contamination at the Crystal Springs site. KEC and KAC
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represented to BorgWarner and Kuhlman that they had no prior knowledge of any environmental
contamination at the Crystal Spring site. Beginning in 2001, as a result of the PCB
contamination, thousands of toxic tort lawsuits were filed against KEC, BorgWarner and
Kuhlman, seeking compensation for personal injury and property damage that were allegedly
caused by the PCB contamination at the Crystal Springs site (the underlying tort actions).
Pursuant to their duty to indemnify under the 1999 merger agreement, BorgWarner and Kuhlman
retained the law firm of Seyfarth Shaw to jointly defend them and KEC in the underlying
Mississippi tort actions. Based on KEC and KAC's representations that they had no prior
knowledge of the contaminants at the Crystal Springs site, and subject to a reservation of rights,
BorgWarner and Kuhlman spent millions of dollars defending against the underlying tort actions,
as well as conducting clean-up and remediation activities at contaminated properties in
Mississippi. During defense of the underlying tort actions, KEC and KAC continued to assert
the position that they had no prior knowledge of the contamination.
¶6 In February 2004, in response to a subpoena issued in the underlying tort cases, KEC's
environmental counsel, Dickinson Wright PLLC (Dickinson Wright), revealed that it possessed
an environmental report which, as a result of environmental testing performed in 1988,
documented the presence of contamination at the Crystal Springs site (the Stalwart Report). As a
result of the conflict of interest created by the Stalwart Report, Seyfarth Shaw ultimately
withdrew as lead joint counsel for BorgWarner, Kuhlman, and KEC in the underlying
Mississippi tort actions, and the parties retained separate counsel while continuing to jointly
defend in the underlying tort actions. In July 2004, BorgWarner and Kuhlman entered into a
"Joint Defense and Confidentiality Agreement" (JDCA) with KEC and KAC, in order to outline
the parties' common interest relating to the underlying Mississippi tort actions and to reduce to
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writing the basis for the necessary exchange of privileged information in furtherance of their
common interest in the underlying tort actions. The 2004 JDCA stated that the parties agreed to
be bound by the JDCA as it related to all litigation brought by third parties against them alleging
personal injury and property damage associated with contamination at the Crystal Springs site, as
well as any claims by BorgWarner, Kuhlman, KEC or KAC against insurers relating to the
underlying tort actions.
¶7 In 2006, BorgWarner filed a separate lawsuit in the circuit court of Cook County against
KEC's former attorney, Dickinson Wright, alleging fraud and legal malpractice (the Dickinson
Wright lawsuit). See BorgWarner, Inc. v. Dickinson Wright PLLC, No. 06 L 4663 (Cir. Ct.
Cook Co.). In the Dickinson Wright lawsuit, BorgWarner claimed that Dickinson Wright, with
whom it had an attorney-client relationship, knew of the PCB contamination at the Crystal
Springs site as early as 1988 but concealed the information from BorgWarner. In May 2008,
Dickinson Wright filed a third-party complaint against KEC, and KEC sought defense and
indemnification for the Dickinson Wright lawsuit from BorgWarner and Kuhlman. During the
course of discovery in the Dickinson Wright litigation, BorgWarner sought to compel disclosure
of certain KEC documents over which KEC asserted attorney-client privilege. The Dickinson
Wright court ruled that certain information sought by BorgWarner was protected from disclosure
by KEC's privilege. In 2009, the Dickinson Wright lawsuit was dismissed pursuant to a
settlement agreement.
¶8 On August 3, 2010, BorgWarner and Kuhlman filed a five-count complaint against KEC
and KAC in the instant case. Each count related to an indemnification dispute under the 1999
merger agreement and concerned the environmental contamination at the Crystal Springs site. In
count I, BorgWarner and Kuhlman sought damages for KEC and KAC's alleged breach of the
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merger agreement and for a declaration that they have no obligation to defend or indemnify KEC
and KAC under the merger agreement for or against any expenses and liabilities incurred by
KEC in the underlying tort cases. BorgWarner and Kuhlman further sought damages for KEC
and KAC's breach of their duties to provide full access to all environmental information and to
fully cooperate with BorgWarner and Kuhlman under the merger agreement. In counts II to IV,
BorgWarner and Kuhlman sought declaratory relief regarding the scope of the indemnification
provisions in the merger agreement. BorgWarner and Kuhlman alleged that they had no duty to
defend or indemnify KEC and KAC against claims in the underlying tort actions relating to KEC
and KAC's intentional misconduct, willful and wanton acts or omissions, or gross negligence,
nor had a duty to defend or indemnify claims brought against KEC and KAC for punitive
damages and asbestos exposure. BorgWarner and Kuhlman also alleged that they had no duty to
defend or indemnify KEC for claims brought against KEC in the Dickinson Wright litigation. In
count V, BorgWarner and Kuhlman sought a declaration that they were not required to defend or
indemnify KEC and KAC for expenses or liabilities incurred relating to additional groundwater
plume contamination caused by solvents leaked off-site from the Crystal Springs site. They
claimed that such indemnity and defense exceeded the "quantum and geographical boundaries"
of the contamination that existed on the October 1999 closing date of the sale transaction by
which KAC purchased KEC from BorgWarner.
¶9 In response, KEC and KAC asserted multiple affirmative defenses and counterclaims
against BorgWarner and Kuhlman. In the affirmative defenses, KEC argued that it worked with
BorgWarner for years to jointly defend against several thousands of underlying Mississippi tort
actions and to lessen the liability exposure of both BorgWarner and KEC to those claims. KEC
and KAC claimed that they allowed BorgWarner access to KEC's facility, records, employees,
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and counsel for the investigation and defense of those claims. They further argued that under a
separate cooperation agreement signed by the parties in 2005, BorgWarner released any claim
for recoupment of amounts already spent in the underlying tort actions. KEC also asserted that it
complied with all of the court's discovery orders in the Dickinson Wright litigation and that the
circuit court which presided over the Dickinson Wright litigation had exclusive jurisdiction to
resolve disputes relating to those matters. In their counterclaims, KEC and KAC alleged that
BorgWarner breached the 1999 merger agreement by refusing to indemnify them for the Crystal
Springs contamination claims. They also contended that BorgWarner breached the 2004 JDCA.
Further, the counterclaims alleged that BorgWarner and Kuhlman, at the time they still owned
KEC, falsely represented to KAC that there was no environmental contamination at the Crystal
Springs site and that they would fully protect and indemnify KEC and KAC if contamination
was present. KEC and KAC also alleged that BorgWarner and Kuhlman acted in bad faith to
increase KEC and KAC's liability exposure, and asserted claims for fraud, conversion, and
disclosure of confidential or privileged information. KEC and KAC also sought a declaration
that the 1999 merger agreement required BorgWarner and Kuhlman to indemnify them for all
present and future claims regarding pre-closing environmental conditions; that BorgWarner and
Kuhlman had waived any and all claims to recoup costs; that BorgWarner and Kuhlman must
indemnify them for any settlement payments made; and that BorgWarner and Kuhlman must
indemnify them in the underlying tort actions.
¶ 10 During discovery in the instant case, BorgWarner and Kuhlman requested production of
all documents regarding the environmental contamination and the underlying tort actions. In
response, KEC and KAC refused to produce certain categories of relevant documents that they
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claimed were protected by the attorney-client privilege and the work-product doctrine. As a
result, BorgWarner and Kuhlman moved to compel KEC and KAC to produce the documents.
¶ 11 On June 18, 2012, KEC and KAC filed a motion for a protective order to prevent
BorgWarner and Kuhlman from obtaining documents relating to the underlying tort actions on
the grounds of attorney-client privilege and the work-product doctrine—including
communications that KEC and KAC had with their legal representatives at the law firms of
Dickinson Wright, Seyfarth Shaw and Jenner & Block LLP (Jenner & Block) relating to the
underlying Mississippi tort actions or the Crystal Springs site; the mental impressions,
conclusions, opinions and/or legal theories of KEC and KAC with their counsel at law firm
Latham & Watkins regarding the underlying tort actions; communications between KEC, KAC,
BorgWarner, Kuhlman, Seyfarth Shaw, and Dickinson Wright; documents relating to the
settlement of any claims in the underlying Mississippi tort actions; and materials withheld by
Dickinson Wright. KEC and KAC also sought to be relieved of the obligation to produce a
"privilege log" on the bases of prejudice and undue burden.
¶ 12 On August 27, 2012, the circuit court ordered KEC and KAC to produce all non-
privileged documents identified in BorgWarner and Kuhlman's requests for documents, and
ordered KEC and KAC to prepare a "privilege log identifying the categories of documents they
are withholding from production to [BorgWarner and Kuhlman]."
¶ 13 On September 25, 2012, KEC and KAC produced a privilege log, which identified 28
categories of approximately 40,000 documents relating to the underlying tort actions and
environmental matters.
¶ 14 On February 21, 2013, the circuit court entered an order denying in part KEC and KAC's
motion for a protective order by finding that documents relating to the underlying environmental
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matters in 22 out of the 28 categories listed on the privilege log must be produced to BorgWarner
and Kuhlman. In making its ruling, the circuit court set forth three independent bases to require
production of the 22 categories of privileged documents: (1) KEC and KAC's duty to cooperate
under the merger agreement; (2) the parties' common interest in the underlying matters; and (3)
KEC and KAC's waiver of privilege by putting the privileged materials at issue in their
affirmative defenses and counterclaims against BorgWarner and Kuhlman. The circuit court
determined that any privileged communications between KEC and KAC with their counsel
"generated in preparation for the defense and prosecution of the indemnity claims, including the
present indemnity dispute," were the only materials protected from disclosure.
¶ 15 On March 21, 2013, KEC and KAC filed a partial motion for reconsideration, which the
circuit court denied on April 11, 2013.
¶ 16 On April 16, 2013, after KEC and KAC refused to produce the documents as required by
the court's February 21, 2013 order, BorgWarner and Kuhlman filed a petition for adjudication
of direct civil contempt (petition for direct civil contempt) against them.
¶ 17 On May 2, 2013, the circuit court found KEC and KAC in direct civil contempt of court
for their noncompliance of the court's February 21, 2013 order to produce the documents, found
that they were "acting in good faith for purposes of seeking an appeal under Supreme Court Rule
304(b)," and imposed a monetary penalty of $100. See In re Marriage of Levinson, 2013 IL App
(1st) 121696, ¶ 56 ("exposing oneself" to a finding of contempt is an appropriate method of
testing the validity of a court order by making the order appealable) (internal quotation marks
omitted.). On May 31, 2013, KEC and KAC filed a timely notice of appeal.
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¶ 18 ANALYSIS
¶ 19 This court has jurisdiction over this appeal pursuant to Supreme Court Rule 304(b)(5),
which makes appealable, without the necessity of a special finding by the court, orders "finding a
person or entity in contempt of court which imposes a monetary or other penalty." Ill. S. Ct. R.
304(b)(5) (eff. Feb. 26, 2010).
¶ 20 We determine on appeal whether the circuit court erred in denying KEC and KAC's
motion for a protective order and in requiring them to provide BorgWarner and Kuhlman with
documents in 22 of the 28 categories in KEC and KAC's privilege log. We review this issue de
novo. See Janousek v. Slotky, 2012 IL App (1st) 113432, ¶ 13 (although discovery orders are
generally reviewed for an abuse of discretion, a trial court's determination as to whether a
privilege exists is reviewed de novo).
¶ 21 In its February 21, 2013 order, the circuit court set forth three independent bases to
require KEC and KAC to produce documents from 22 out of 28 categories of the privilege log:
(1) KEC and KAC's duty to cooperate under the merger agreement; (2) the parties' common
interest in the underlying matters; and (3) KEC and KAC's waiver of privilege by putting the
privileged materials at issue in their affirmative defenses and counterclaims against BorgWarner
and Kuhlman. We may affirm the circuit court's ruling on any one of the three grounds, or on
any other basis in the record, regardless of whether the circuit court relied upon that basis or
whether the circuit court's reasoning was correct. See Alpha School Bus Co. v. Wagner, 391 Ill.
App. 3d 722, 734 (2009).
¶ 22 KEC and KAC argue that the information sought by BorgWarner and Kuhlman was
protected from disclosure by the attorney-client privilege and the work-product doctrine. KEC
and KAC contend that the parties' contractual agreements did not grant BorgWarner and
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Kuhlman access to their privileged information; that the circuit court in the Dickinson Wright
litigation and in an underlying Mississippi action denied BorgWarner and Kuhlman access to the
same privileged information; and that the public policy concerns regarding the prevention of
collusion between the plaintiffs in the underlying actions, and KEC and KAC, were not present
to compel disclosure.
¶ 23 BorgWarner and Kuhlman counter that the circuit court properly ordered disclosure of
the documents in 22 of the 28 categories in KEC and KAC's privilege log. They argue that
language in the parties' 1999 merger agreement required KEC and KAC to produce these
documents; that our supreme court's decision in Waste Management, Inc. v. International
Surplus Lines Insurance Co., 144 Ill. 2d 178 (1991), required disclosure of the documents; that
interlocutory rulings by the circuit court in the Dickinson Wright lawsuit and in an underlying
Mississippi action did not control the outcome in the instant case; and that no public policy
concerns destroyed KEC and KAC's duty to cooperate under the merger agreement.
¶ 24 Illinois Supreme Court Rule 201(b)(2) govern both the attorney-client privilege and
work-product doctrine: "[a]ll matters that are privileged against disclosure on the trial, including
privileged communications between a party or his agent and the attorney for the party, are
privileged against disclosure through any discovery procedure. Material prepared by or for a
party in preparation for trial is subject to discovery only if it does not contain or disclose the
theories, mental impressions, or litigation plans of the party's attorney." Ill. S. Ct. R. 201(b)(2)
(eff. Jan. 1, 2013). Our supreme court has defined the attorney-client privilege as "where legal
advice of any kind is sought from a professional legal advisor in his capacity as such, the
communications relating to that purpose, made in confidence by the client, are protected from
disclosure by himself or the legal advisor, except the protection be waived." Fischel & Kahn,
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Ltd. v. Van Straaten Gallery, Inc., 189 Ill. 2d 579, 584 (2000). The purpose of the attorney-
client privilege is to encourage clients to engage in full and frank discussion with their attorneys
without fear of being compelled to disclose that information. Id. at 584-85. The attorney-client
privilege recognizes that sound legal advice or advocacy serves public ends and that such advice
or advocacy depends upon the lawyer being fully informed by the client. Id. at 585. The work-
product doctrine "provides a broader protection than the attorney-client privilege and is designed
to protect the right of an attorney to throughly [sic] prepare his case and to preclude a less
diligent adversary attorney from taking undue advantage of the former's efforts." Id. at 591.
¶ 25 Our supreme court's decision in Waste Management, Inc. governs our analysis in the case
at bar. In Waste Management, Inc., the insureds, which owned and operated hazardous waste
materials disposal sites, purchased insurance from two insurance companies. Waste
Management Inc., 144 Ill. 2d at 185. The insurance policies provided indemnity to insureds for
defense costs arising out of any environmental claims filed against them by third parties, subject
to certain exclusions and conditions, including the insureds' "duty to cooperate." Id. The "duty
to cooperate" was memorialized in a "cooperation clause," which imposed upon the insureds "the
duty to assist insurers in the conduct of suits and in enforcing any right to contribution or
indemnity against persons potentially liable to insureds." Id. at 192. Further, the policies
provided that the insurers were entitled "to conduct any claim, in the name of insureds, for
indemnity or damages." Id. The insureds defended and settled a lawsuit alleging migration of
toxic waste from the insureds' waste disposal sites. Id. at 186. The insureds later sought
indemnification from the insurers for settlement and defense costs in the amount of $3 million.
Id. The insurers denied coverage, claiming that the insureds had breached the cooperation clause
by failing to disclose that the insureds had previously filed and settled a negligent design and
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construction claim against the prior owner of the property for $1.5 million. Id. Both the insureds
and the insurers then filed declaratory judgment actions seeking a determination of their rights
and liabilities under the policies. Id. During discovery, the insurers requested production of the
insureds' counsel's files in the underlying environmental litigation. Id. at 187. The insureds
withheld some of the requested information, asserting attorney-client and work-product
privileges. Id. The trial court ordered production of the files relating to the underlying toxic tort
case, but denied production of the files relating to the negligent design case against the prior
owner of the property. Id. The insureds refused to comply with the order, and the trial court
held one of the insureds' attorneys in contempt of court and fined him $100. Id. The appellate
court held that the insurers were entitled to all of the requested documents. Id. On appeal, our
supreme court held that the attorney-client privilege and the work-product doctrine were not
applicable to bar disclosure of the files. Id. at 201. The Waste Management, Inc. court offered
two reasons in finding that the attorney-client privilege did not apply. Id. at 191. First, the court
concluded that the plain language of the insurance policies' "cooperation clause" created
"contractual obligations" requiring the insureds to disclose to the insurers "any communications
they had with defense counsel representing them on a claim for which insurers had the ultimate
duty to satisfy." Id. at 192. The court stated that the clause imposed a "broad duty of
cooperation and is without limitation or qualification." Id. Accordingly, our supreme court
concluded that a "fair reading" of the insurance policies rendered any expectation of attorney-
client privilege unreasonable. Id. at 192-93. Second, our supreme court found the attorney-
client privilege inapplicable in light of the "common interest" doctrine, which provides that
"when an attorney acts for two different parties who each have a common interest,
communications by either party to the attorney are not necessarily privileged in a subsequent
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controversy between the two parties." Id. at 193. The court noted that typically, the "common
interest" doctrine applies where an attorney has provided joint or simultaneous representation of
the parties. Id. at 194. However, the court also found the doctrine applicable where the attorney,
although neither retained by nor was in direct communication with the insurer, acts for the
mutual benefit of both the insured and the insurer. Id. The court concluded that "[i]n a limited
sense," the insureds' attorney represented the insurers in the underlying environmental litigation
because the insurers were ultimately liable if the plaintiffs in the underlying action received a
favorable verdict or settlement. Id. at 194-95. Because both the insurers and insureds had a
"common interest" in either defeating or settling the underlying environmental litigation, the
attorney-client privilege was inapplicable. Id. Likewise, the Waste Management, Inc. court
concluded that the case did not "fit within the parameters" of the work-product doctrine. Id. at
197. The court noted that in the typical case, the sought-after material is generated in preparation
of trial against an adversary who may seek disclosure of his opponent's work product. Id. at 196.
However, the materials requested in Waste Management, Inc. were prepared for the mutual
benefit of the insureds and the insurers against a third-party adversary. Id. at 198-99. In other
words, because the requested materials were not prepared in anticipation of the declaratory
judgment action in which the discovery was sought, the work-product doctrine was inapplicable.
Id. The court rejected the insureds' claim that the information requested by the insurers "may be
gleaned from objective facts, contained outside the contents of defense counsel's files." Id. at
199. The court pointed out that "what [the] insurers seek to discover is *** the mental
impressions and case assessment of defense counsel" and that there is "no source, outside the
files, where this information might be obtained." Id. The court added that, even if the work-
product doctrine applied, the sought-after materials would still be subject to disclosure pursuant
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to the "at issue" exception to the doctrine, which permits discovery of work product where the
sought-after material is either the basis of the lawsuit or the defense thereof. Id. at 199-200. The
court held that where, in the underlying environmental litigation, an attorney represents the
common interests of two or more clients whose relationship later becomes adverse, and, in a
subsequent action, the work product of the attorney is at issue, the work-product doctrine is not
available to bar discovery by one of the original parties. Id. at 200. In rejecting the application
of the attorney-client and work-product privileges, the Waste Management, Inc. court further
noted that Illinois has a strong public policy favoring complete disclosure in litigation, such that
courts should be mindful that the privilege is not without conditions and "it is the privilege, not
the duty to disclose, that is the exception." Id. at 190. Therefore, the court noted, the privilege
"ought to be strictly confined within its narrowest possible limits." Id.
¶ 26 Applying the principles of Waste Management, Inc. to the case at bar, we find that neither
the attorney-client privilege nor the work-product doctrine barred discovery of the requested
documents. Like the insureds in Waste Management, Inc., KEC in the instant case owned and
operated a manufacturing site on the Crystal Springs site. Pursuant to the 1999 merger
agreement, similar to the insurance policies in Waste Management, Inc., BorgWarner and
Kuhlman agreed to indemnify KEC and KAC for liabilities arising out of environmental claims
filed by third-parties concerning the Crystal Springs site—subject to certain limitations to the
right to indemnification, including KEC and KAC's duty to cooperate with BorgWarner and
Kuhlman in connection with these matters. Specifically, section 11.5(e) of the 1999 merger
agreement provides in pertinent part the following: "[KAC] will (i) notify [Kuhlman] and
[BorgWarner] promptly after becoming aware of facts which may give rise to a claim by [KAC]
in connection with any liability for [p]re-closing [e]nvironmental [m]atters relating to the
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[f]acilities of [KEC] located in *** Crystal Springs, Mississippi *** and (ii) cooperate with
[Kuhlman] and [BorgWarner] in connection with such matters." Like the insureds in Waste
Management, Inc., KEC and KAC sought indemnification from BorgWarner and Kuhlman for
millions of dollars in defense and settlement costs that incurred in the underlying tort actions.
Like Waste Management, Inc., BorgWarner and Kuhlman filed the instant lawsuit against KEC
and KAC seeking a determination of their rights and liabilities under the merger agreement.
During discovery, BorgWarner and Kuhlman requested documents and information from KEC
and KAC that were relevant to the defense of the underlying tort actions for which KEC and
KAC demanded indemnification. However, KEC and KAC refused to provide the documents.
We find that, based on the holding of Waste Management, Inc., the plain language of the 1999
merger agreement's "cooperation clause" created obligations requiring KEC and KAC to disclose
to BorgWarner and Kuhlman relevant information and documents relating to the defense and
settlement of the underlying tort actions, which BorgWarner and Kuhlman had the ultimate duty
to satisfy. Similar to the "cooperation clause" in the Waste Management, Inc. insurance policies,
KEC and KAC's duty to cooperate, as outlined in section 11.5(e) of the merger agreement, is
broad and without limitation or qualification. Thus, we find that any expectation of attorney-
client privilege was unreasonable. Likewise, because the requested materials were not prepared
in anticipation of the instant lawsuit in which the discovery was sought, but rather in defense of
the underlying tort actions against third-party adversaries, we find that the work-product doctrine
was inapplicable.
¶ 27 Nonetheless, KEC and KAC argue against disclosure of the requested documents by
claiming that the 1999 merger agreement did not grant BorgWarner and Kuhlman access to their
privileged information. They contend that nothing in the provisions of section 11 of the merger
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agreement gave BorgWarner and Kuhlman a "clear, express contractual right to pierce the
privilege and obtain KEC's attorney-client and work-product information." Pointing to section
11.4 of the merger agreement specifically, which is entitled "Third-Party Claims," KEC and
KAC note that it did not impose on KEC and KAC any obligations—not even the duty to
cooperate—but only conferred on KEC and KAC "the unfettered ability to defend against and
settle [t]hird-[p]arty [c]laims if [BorgWarner and Kuhlman] fail to timely provide a satisfactory
indemnity agreement [in writing], while still preserving KEC and KAC's right to receive
indemnity from BorgWarner and Kuhlman." We reject this argument. To construe section 11.4
of the merger agreement as KEC and KAC suggest ignores the provisions under section 11.5
setting forth limitations to KEC and KAC's right to indemnification—limitations such as KEC
and KAC's duty to cooperate. See Paluch v. United Parcel Service, Inc., 2014 IL App (1st)
130621, ¶ 13 (when interpreting a contract, the court must read the entire contract in context and
construe it as a whole, viewing each provision in light of the other ones instead of focusing on
one clause or provision in isolation). As discussed, section 11.5(e), which is broad and without
limitation or qualification, imposed upon KEC and KAC an obligation to cooperate—that is, to
disclose to BorgWarner and Kuhlman relevant information relating to the defense and settlement
of the underlying tort actions for which KEC and KAC demand indemnification. KEC and KAC
neither challenged in the circuit court nor argue before this court that section 11.5(e) does not
address their duty of cooperation on the underlying claims for which they seek indemnity.
¶ 28 KEC and KAC further dispute that section 11.5(e) of the merger agreement imposed a
broad duty to cooperate by arguing that other provisions in the merger agreement, such as section
7.4(b), use the words "fully cooperate" in another context involving the submission of documents
to taxing and governmental authorities. Thus, KEC and KAC surmise, because the parties chose
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the more limited phrase "cooperate" rather than "fully cooperate" in section 11.5(e), this showed
that the parties did not intend for privileged information to be disclosed. We reject this
contention. As the circuit court correctly noted, "there is no perceptible difference between a
duty to 'cooperate' and a duty to 'fully cooperate' or provide 'full cooperation,' nor do [KEC and
KAC] cite any case [law] to support the distinction they draw." We agree with the circuit court's
assessment and reiterate that, similar to the cooperation clause in Waste Management, Inc., the
cooperation clause in the merger agreement here is without limitation or qualification. KEC and
KAC further argue that, even if the cooperation clause under section 11.5(e) required disclosure
of privileged information under certain circumstances, no disclosure was required in the present
dispute because the clause did not require them to cooperate with BorgWarner and Kuhlman in
connection with the Dickinson Wright litigation. We do not see how this in any way advances
KEC and KAC's arguments against disclosure. The subject of the requested materials in the
instant indemnification dispute pertained to the defense of the underlying tort actions and not the
Dickinson Wright litigation.
¶ 29 KEC and KAC also argue that the 2004 JDCA, which was executed five years after the
1999 merger agreement, expressly barred disclosure of the privileged information that
BorgWarner and Kuhlman now seek. In support of their argument, KEC and KAC specifically
reference paragraphs 3 and 4 of the 2004 JDCA, which they assert show that they were not and
could not be required to disclose the privileged information. KEC and KAC argue that, because
BorgWarner and Kuhlman agreed, under the 2004 JDCA, that they could not require KEC or
KAC to disclose "the very privileged information [BorgWarner and Kuhlman] now wrongly seek
here," BorgWarner and Kuhlman's attempt to renege on their own "contractual promises" should
be rejected. We disagree with KEC and KAC's misguided interpretation of the 2004 JDCA.
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¶ 30 We find that the 2004 JDCA did not abrogate KEC and KAC's duty to cooperate under
section 11.5(e) of the merger agreement. The 2004 JDCA was executed by BorgWarner,
Kuhlman, KEC, and KAC in order to outline the parties' common interest relating to the
underlying Mississippi tort actions and to reduce to writing the basis for the necessary exchange
of privileged information in furtherance of their common interest in the underlying tort actions.
The preamble of the 2004 JDCA states that the parties agreed to be bound by the JDCA as it
related to all litigation brought by third parties against them alleging personal injury and property
damage associated with contamination at the Crystal Springs site, as well as any claims by
BorgWarner, Kuhlman, KEC or KAC against insurers relating to the underlying tort actions.
Paragraph 3 of the 2004 JDCA provides in relevant part that "all [p]rivileged [i]formation or
business or technical information disclosed by the parties shall be deemed confidential"; that any
privileged information "exchanged or communicated between [BorgWarner and Kuhlman] or
their counsel and KEC [and KAC] or their counsel in connection with the [underlying tort
actions] shall be deemed subject to this [a]greement"; and that "nothing in this [a]greement shall
require the [p]arties or their counsel to share any such [p]rivilege[d] [i]nformation." (Emphases
added.) Paragraph 4 of the 2004 JDCA provides in relevant part that "[i]n order to protect the
privileged and/or protected status of the [p]rivilged [i]nformation that will be exchanged pursuant
to this [a]greement, the [p]arties and their respective counsel agree that they will not share, make
available, disclose or communicate in any way any such [p]rivileged [i]nformation to any person
or entity not a [p]arty without the consent of the disclosing [p]arty"; that [p]rivileged
[i]nformation shall be used solely for the purpose of this [underlying tort litigation]"; and that
disclosure of any privileged information "in violation of this [a]greement will cause the [p]arties
to suffer irreparable harm for which there is not adequate legal remedy." (Emphases added.) We
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find that nothing in the 2004 JDCA modified or conflicted with KEC and KAC's duty to
cooperate under section 11.5(e) of the merger agreement. Rather, it is clear that by using the
terms "nothing in this [a]greement," the parties were addressing their obligations under the 2004
JDCA only. (Emphasis added.) Based on our examination of the plain language of these
provisions in the 2004 JDCA, we find that the parties agreed that all privileged information that
had already been disclosed or exchanged, or would be exchanged, between the parties shall be
confidential, and that such information is prohibited from disclosure to a third party without the
consent of the disclosing party. Because the terms of the 2004 JDCA did not abrogate KEC and
KAC's preexisting duty to cooperate under section 11.5(e) of the merger agreement, and
concerns regarding disclosure of privileged materials to third parties were not present here, we
find that KEC and KAC were not entitled to relief on this basis. Further, we reject KEC and
KAC's argument that the circuit court "incorrectly found the JDCA to be ambiguous." The
circuit court made no such finding. Rather, it simply stated in the hypothetical that even if the
JDCA was ambiguous, the evidence did not warrant a different conclusion.
¶ 31 Nor do we find persuasive KEC and KAC's assertion that BorgWarner and Kuhlman
were prohibited from gaining access to the privileged information under a separate agreement
executed by the parties in 2005—the 2005 cooperation agreement. The 2005 cooperation
agreement was entered into by the parties "in the interest of efficiency, coordination and joint
defense, *** for BorgWarner [and Kuhlman] to attempt to negotiate settlements (on an
individual and/or global basis) that resolve the [p]arties' total liability in connection with claims
brought and which may in the future be brought for damages allegedly arising from alleged PCB
(and/or other) contamination at or originating from KEC's Crystal Springs *** facility." KEC
and KAC point to various provisions in the 2005 cooperation in arguing that it did not require
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them to disclose privileged information to BorgWarner and Kuhlman and that it was governed by
the terms of the 2004 JDCA. This argument does not advance KEC and KAC's position in any
way. Paragraph 5 of the 2005 cooperation agreement specifies that "[t]his [a]greement shall not
serve to modify, limit or enlarge any of the [p]arties' rights or obligations as set forth in the
[m]erger [a]greement." We have already determined that, pursuant to the holding in Waste
Management, Inc., section 11.5(e) in the 1999 merger agreement required KEC and KAC to
disclose the requested documents and that the 2004 JDCA did not modify KEC and KAC's duty
to cooperate under the merger agreement. Thus, the 2005 cooperation agreement, which did not
modify, limit, or enlarge the parties' rights or obligations in the 1999 merger agreement or in the
2004 JDCA, did not extinguish KEC and KAC's duty to cooperate with BorgWarner and
Kuhlman.
¶ 32 KEC and KAC further challenge the circuit court's order compelling disclosure of the
requested information by arguing that two other courts—the circuit court in the Dickinson
Wright litigation and in an underlying Mississippi action—had denied BorgWarner and Kuhlman
access to the same privileged information. We find this argument to be forfeited, where KEC
and KAC, in violation of Illinois Supreme Court Rule 341(h)(7) (eff. July 1, 2008), cite no legal
authority to support their argument that this court is bound by the discovery rulings of circuit
courts in other lawsuits and jurisdictions. See Sekerez v. Rush University Medical Center, 2011
IL App (1st) 090889, ¶¶ 80-82 (failure to cite legal authority in violation of Rule 341(h)(7)
results in forfeiture of the issue). Thus, we need not address this argument any further.
¶ 33 KEC and KAC also argue against disclosure of the requested materials, by noting that the
policy concerns underlying our supreme court's Waste Management, Inc. decision—such as the
prevention of collusion between the insured and the injured party—were not present in the case
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at bar. They contend that "extending" Waste Management, Inc.'s holding to include "standard
indemnity clauses" such as the ones at issue here would be "problematic and dangerous," and
they cite Hartz Construction Co. v. Village of Western Springs, 2012 IL App (1st) 103108, for
support. To the extent that KEC and KAC suggest that the holding of Waste Management, Inc.
only applies to cases involving insurance companies, rather than other types of indemnitors such
as BorgWarner and Kuhlman, we reject this contention. This court in Hartz Construction Co.
has already rejected such a limitation. Hartz Construction Co., 2012 IL App (1st) 103108, ¶ 30
(parties do not have to match the classic profile of an insurer and insured for the concepts in
Waste Management, Inc. to apply). Further, we find Hartz Construction Co. to be inapposite,
where, there, the indemnity contract did not contain any express language mandating a duty of
cooperation. By contrast, the 1999 merger agreement here contains an express duty to cooperate,
similar to the cooperation clause in Waste Management, Inc. As discussed, we find the holding
in Waste Management, Inc. to be dispositive. Thus, we find that KEC and KAC are not entitled
to relief on this basis.
¶ 34 In light of our determination that the attorney-client privilege and the work-product
doctrine were inapplicable to bar production of the requested materials, we need not address the
circuit court's other independent bases (the "common interest" doctrine and the "at issue" waiver)
for compelling disclosure. Also, it bears noting that, as the circuit court correctly found in its
February 21, 2013 order, any privileged communications and materials "generated in preparation
for the defense and prosecution of the indemnity claims, including the present indemnity
dispute," are protected from disclosure. (Emphasis added.) See Waste Management, Inc., 144
Ill. 2d at 200-01 (holding that the protections under the attorney-client privilege and work-
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product doctrine are nonetheless "available to bar disclosure of any communications or materials
generated in preparation for the present declaratory judgment action").
¶ 35 Accordingly, we hold that the circuit court properly ordered disclosure of the documents
relating to the underlying environmental matters in 22 out of the 28 categories identified in KEC
and KAC's privilege log (categories 1 through 3, 5 through 8, 11 through 21, 24, and 26 through
28). KEC and KAC posit that regardless of the outcome of this appeal, we should vacate the
circuit court's May 2, 2013 order of contempt and the accompanying fine against them because
they acted in good faith in seeking review of the February 21, 2013 order concerning the
privileges in question. We agree with the circuit court's assessment that KEC and KAC were
"acting in good faith for purposes of seeking an appeal under Supreme Court Rule 304(b)."
Thus, although we affirm the circuit court's February 21, 2013 ruling, we find it appropriate to
vacate the finding of contempt and the $100 fine. See Allianz Insurance Co. v. Guidant Corp.,
373 Ill. App. 3d 652, 677 (2007) ("[w]here a party's refusal to comply with a trial court's order
constitutes a good-faith effort to secure an interpretation of the privileges in question, it is
appropriate to vacate a contempt citation on appeal").
¶ 36 For the foregoing reasons, we affirm the circuit court's February 21, 2013 order
compelling KEC and KAC to disclose the requested materials to BorgWarner and Kuhlman, but
vacate the circuit court's May 2, 2013 order of contempt and imposition of fine against KEC and
KAC.
¶ 37 Affirmed in part; vacated in part.
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