Illinois Supreme Court Holds Accountant is Holder of Privilege, No Testamentary Exception

3997723224_8c9acd37af_o(1)Late in the March term, the Illinois Supreme Court handed down its opinion in Brunton v. Kruger, an opinion with potentially significant implications for Illinois accountants. Brunton posed three related questions about the statutory accountant’s privilege (225 ILCS 450/27): who holds it – the accountant or the client; is there an exception for will contests; and how can it be waived? Our detailed summary of the facts and lower court holdings in Brunton is here. Our report on the oral argument is here.

Brunton began when an elderly couple consulted an accounting firm for assistance in estate planning. Ultimately, trust documents and two “pour-over” wills were produced. The underlying action is a will contest brought by the couple’s daughter, who is not a beneficiary of the trusts, against one of their sons, who serves as trustee, and the other son. Both the daughter and the two Estates issued subpoenas to the accountants, seeking production of their file. The accountant provided the information to the Estates, but refused to provide it to the daughter, invoking the accountant’s privilege. The circuit court initially agreed that the estate planning documents were privileged. The daughter then issued deposition subpoenas, again seeking the estate planning documents. The accountants moved to quash the subpoena, but this time, the court held that the privilege had been waived by producing the materials to the Estates.

The Appellate Court affirmed on different grounds, holding that the client, not the accountant, is the holder of the privilege, and the privilege is subject to the same testamentary exception as applies to the attorney-client privilege, making the estate planning documents producible in the will contest.

In an opinion by Chief Justice Garman, the Supreme Court affirmed the Appellate Court, but on substantially different grounds. The court began with the daughter’s argument that the privilege is limited to acts of the accountant in his or her confidential capacity as a licensed or registered CPA. (225 ILCS 450/8.05(a).) The court disagreed, noting that the plain language of the statute provides that accountancy activities “includ[e]” the enumerated acts, such as auditing financial statements – language which suggests that the list is not exhaustive.

The Court then turned to the question of who held the privilege. The defendant argued that it had been settled for many years that the accountant holds the privilege, but the Supreme Court disagreed, finding that the issue was one of first impression. The Court concluded that because Section 27 states that the accountant “shall not be required by any court” to divulge privileged information, the statute unambiguously confers the privilege on the accountant rather than the client. Nevertheless, the Court made it clear that if the client is still living, the client retains the right to voluntarily produce information which would be subject to the privilege in the accountant’s hands.

The Court next turned to the issue of whether the privilege is subject to a testamentary exception. The Court began by noting that the language of the statute itself includes only one exception, for investigations undertaken pursuant to the CPA Act. The Court acknowledged the argument urged by the Estates (and accepted by the Appellate Court) that the search for truth justifies a testamentary exception, but ultimately concluded that carving out such an exception was a job for the legislature, since the privilege was statutory in nature.

The Court finally turned to the question of how the privilege can be waived, and whether the accountants had waived it by producing the materials to the Estates. But first, the Court made an important point about the nature of appellate preservation.

The accountant argued before the Supreme Court that disclosure to the Estates didn’t constitute waiver because the Estates had a common interest with the accountant. The daughter argued that the accountant had forfeited the argument by not raising it at the Circuit Court. The Supreme Court disagreed, pointing out that the accountant had disputed waiver at every stop in the litigation. Not making that argument in terms of common interest didn’t matter: “We require parties to preserve issues or claims for appeal; we do not require them to limit their arguments here to the same arguments that were made below.”

The problem with the accountants’ argument, the Court wrote, was that they misinterpreted the nature of the common interest doctrine. The common interest doctrine wasn’t intended to protect the privilege or defeat a claim of waiver; rather, it was intended to defeat a claim of privilege where the parties on both sides of a lawsuit had a common interest in the materials. Therefore, the doctrine actually favored disclosure to the daughter in these circumstances, since both sides had the same interest in the contents of the accountants’ papers.

Ultimately, the issue was simple, the Court concluded. The accountant had produced the documents to one side in the litigation and was declining to produce to the other side with the same interest. True, the accountant had produced in response to a subpoena, but the accountant “does not assert that the disclosure was involuntary,” according to the Court. Therefore, the initial disclosure waived the privilege, and the documents were properly ordered produced.

Image courtesy of Flickr by Jane.