equivalent of an employee. In other instances, use of that test has resulted in the privilege being
upheld. See, e.g., Evenflo, 2012 WL 1957302, at *5. Adopting the functional equivalent test
would blur the line between privilege and waiver, complicating the decision about whether to

disclose privileged information to a third party.

It would not be productive to increase the level of uncertainty about whether a
communication with a third party —- such as BSP’s advisory board here — would waive the
privilege. Nor do we see the need to do employ a functional equivalent test when a corporation
such as BSP could create a formal board of directors to fulfill what Mr. Rachmiel describes as
the “central” function of deciding whether to pursue litigation, and vest that board with the

authority to make that decision and not merely offer non-binding advice.

Second, we are concerned that over time, the application of the functional equivalent test
could expand the scope of the privilege by eroding the circumstances in which it can be waived.
The Asia Pulp court adopted the multi-factor test in an effort to address that concern: “[i]f the
functional equivalent doctrine were extended to every situation where a financial consultant
worked exhaustively to guide a company through a restructuring deal, the exception would
swallow the basic rule.” 232 F.R.D. at 114. However, even the most well-structured test may
falter in the application. We are doubtful that the Seventh Circuit would endorse this test, which
has the potential to expand the privilege dramatically and thus would run contrary to the Seventh
Circuit’s frequent admonition that the scope of the privilege must be carefully circumscribed.

See, e.g., In re Grand Jury Proceedings, 220 F.3d at 571.

We therefore will not adopt that test in deciding BSP’s motion. As a result, the cases that

BSP cites for the proposition that we should equate BSP’s advisory board with a formal board of


the parties are linked by a common interest. Beneficial, 205 F.R.D. at 215. However, for that
exception to waiver to apply, BSP would have to show that it had a common interest with the
advisory board that “relate[s] to a litigation interest, and not merely a common business interest.”

Id. at 216. BSP’s submissions establish precisely the contrary. BSP went to the advisory board

to get its business advice.

Third, BSP argues that the advisory board understood the communications it received
were made in confidence and treated them as such (PI.’s Mot. at 6-7). We accept that
representation, but find that it does not alter our conclusion. Confidentiality alone is not
sufficient to establish the privilege or to avoid waiving it by disclosure to a third party. We also
must consider, among other things, to whom the disclosure was made. For example, if Mr.
Rachmiel disclosed privileged BSP information to a respected third-party who had been giving a
business lecture at a seminar on the wisdom vel non of pursuing patent litigation, all of the
assurances of confidentiality in the world would not avert a waiver. Likewise, if a disclosure is
made (as here) to persons outside the scope of the privilege, a promise of confidentiality is not an

elixir that cures the ill of waiver.

Fourth, BSP argues that we should consider in the calculus that the privileged
information that BSP communicated to the advisory board was limited to that which was
necessary to facilitate its role of providing business and financial advice (Pl.’s Mot. at 7-8). We
disagree that this consideration averts the waiver we have found. But, we do find that this
consideration is relevant to the extent of the waiver. The circumstances of the disclosure show
that BSP did not disclose privileged information to its advisory board with the intent to waive the
privilege, or to use that privileged information affirmatively against Motio. That fact, along with

the limited nature of the disclosure, shows that the waiver should extend only to the four emails

8


A.

BSP argues that sharing the privileged information with the advisory board did not waive
the privilege any more than would sharing privileged information with a duly constituted board
of directors (P1.’s Mot. at 5-6). This at bottom is an argument that, for purposes of the attorney-
client privilege, the advisory board should be treated as the functional equivalent of a formal
board of directors. However, BSP ignores that this “functional equivalent” test has never been
adopted by the Seventh Circuit, and has been treated skeptically by trial courts in this district.
See, e.g., LG Electronics U.S.A., Inc. v. Whirlpool Corp., 661 F. Supp. 2d 958, 963 (N.D. Ill.
2009) (collecting cases). We likewise doubt the wisdom of adopting the functional equivalent

test in this case for two reasons.

First, application of the test would increase the uncertainty on the important question of
when disclosure to non-employees who comprise an advisory board would waive the privilege.
The cases that endorse the functional equivalent test apply a multi-factor analysis to determine
whether that test has been met: (1) “whether the consultant had primary responsibility for a key
corporate job,” (2) “whether there was a continuous and close working relationship between the
consultant and the company’s principals on matters critical to the company’s position in
litigation,” and (3) “whether the consultant is likely to possess information possessed by no one
else at the company.” LG Electronics, 661 F.3d at 963 (quoting Export-Import Bank v. Asia
Pulp & Paper Co., 232 F.R.D. 103, 113 (S.D.N.Y. 2005)). But, adoption of a test does not
foreordain the results that test will yield when applied to concrete cases. The functional
equivalent test as applied by courts requires the proponent to make “a detailed factual showing.”
AH. v. Evenflo Co., Inc., No. 10-cv-02435, 2012 WL 1957302, at *4 (D. Colo. May 31, 2012).
We note that in Asia Pulp, the court rejected the claim that a consultant was the functional

4


directors are inapposite. Those cases either turn on the acceptance of the functional equivalent
theory that we do not endorse, Evenflo, 2012 WL 1957302, at *4 (a diversity case applying
Colorado law of privilege, in which the court stated that the Colorado Supreme Court had
favorably cited the functional equivalent test), or address the question of waiver where privileged
information was presented to a formal board which possessed actual decision making authority
and exercised that authority by making a decision. Sandholm v. Dixon Pub. Sch. Dist. No. 170,

No. 09 C 50119, 2010 U.S. Dist. LEXIS 101081, at *1 (N.D. Ill. Sept. 24, 2010).

That said, we note that even if we were to apply the functional equivalent test as
formulated in Asia Pulp, we would find that BSP waived the privilege when it disclosed
privileged information to its “advisory board.” BSP’s submissions show that there was a
“continuous and close working relationship” with the “advisory board,” which is a portion of the
second factor of the Asia Pulp test. But, BSP’s submissions fail to show that that working
relationship was on matters “critical to the company’s position in litigation.” Asia Pulp, 232
F.R.D. at 113. To the contrary, BSP’s submissions show that the advice it received from the

advisory board was for business and financial matters, and not litigation.

Moreover, BSP falls far short of showing that the advisory board meets the other two
factors of the Asia Pulp test. Unlike a real board of directors, the advisory board had no decision
making authority or “primary responsibility for a key corporate job.” Asia Pulp, 232 F.R.D. at
113. Moreover, BSP has not offered any evidence that the advisory board possessed information
that no one else at BSP would possess. Jd. The four persons who comprised that advisory board
were simply people whose opinions Mr. Rachmiel valued and trusted, akin to a “kitchen cabinet”

of trusted friends and associates to whom many presidents over the years have resorted for


provided to the advisory board and that a broader subject matter waiver should not apply. See
Fed. R. Evid. 502 (a). We note that Motio seeks only production of these four emails and has not
asserted that there has been a subject matter waiver, but we nonetheless make this point to give

the parties direction and to avoid further motion practice.
CONCLUSION

For the foregoing reasons, we deny plaintiff's motion for protective order (doc. # 108).
By July 23, 2013, plaintiff shall produce to defendant the withheld documents labeled as

Privilege Log Entries Nos. 619, 630, 709 and 710.

ENTER:

rhe

SIDNEY I. SCHENKIER
United States Magistrate Judge

DATED: July 9, 2013


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
BSP SOFTWARE, LLC, )
Plaintiff, }
vs. } No. 12C2100
MOTIO, INC. , } Magistrate Judge Sidney I. Schenkier
Defendant. ;

MEMORANDUM OPINION AND ORDER

In an order dated June 12, 2013 (doc. # 94), the Court, after in camera review, held that
an email chain identified as Privilege Log Entry No. 712 was not privileged and thus must be
produced to defendant, but that four other email chains that had been withheld — Privilege Log
Entries Nos. 619, 630, 709 and 710 (which is an exact duplicate of Entry No. 709) — were
privileged in the origin. In the motion now before the Court, BSP seeks a ruling that it did not
waive the privilege by disclosing the protected material in the four email chains to individuals
who made up what BSP refers to as its “advisory board” (doc. # 108). For the reasons that

follow, we deny the motion.

The motion and supporting declarations establish that at the time of the emails in
question, BSP did not have a formal board of directors. Rather, BSP (through an officer of the
company, Andrew Rachmiel) assembled a group of four persons to act as an advisory board.
(Rachmiel Decl. 12). The four persons were selected based on their “long-standing relationships

and years of familiarity” with BSP — one of them, for example, was Mr. Rachmiel’s boss and


advice. Even under the functional equivalent test, BSP’s advisory board would not fall within

the scope of the privilege.
B.

BSP’s other arguments in support of its position that the privilege has not been waived

fare no better. We address them briefly.

First, BSP argues that a communication does not lose its status as privileged if it is
conveyed to another “who shares responsibility for the subject matter underlying the
consultation” (PI.’s Mot. at 4, quoting Kodish v. Oakbrook Terrace Fire Prot. Dist., 235 F.R.D.
447, 453 (N.D. Ill. 2006). That statement, while true as a general proposition, has no footing
here. BSP has offered no evidence that the advisory board” shared responsibility with Mr.
Rachmiel or others in charge at BSP for deciding whether to commence litigation against Motio.
To the contrary, as BSP concedes (P1’s Mot. at 2), the advisory board had no binding authority
over Mr. Rachmiel. The “advisory board,” true to its name, gave its advice; but it was Mr.

Rachmiel and others at BSP who were responsible for making the decisions.

Second, BSP argues that the privilege has not been waived because BSP management and
the advisory board members had a mutual understanding about the purpose of the advisory board
and “commonality of interest” (Pl.’s Mot. at 5-6). We fail to see how a “common
understanding” about the function of the advisory board averts a waiver, where the structure and
the function of the advisory board are — as we have explained — insufficient to bring it within the
scope of the privilege. And, if the unelaborated reference to “commonality of interest” is an
attempt to invoke the common interest doctrine, BSP has fallen woefully short of showing that

doctrine applies here. To be sure, disclosure to a third party does not waive the privilege where


mentor during previous employment (/d. 14). Mr. Rachmiel says there was no need for a written
agreement delineating the functions of the advisory board because, in light of the relationships he
had with the four individuals, a “handshake agreement was stronger than anything that could
have been reduced to writing” (/d. 14). One of the individuals is an attorney (Graham Decl. 1
1), but BSP does not assert that this individual was providing legal advice in any of the particular
email chains at issue, or that the advisory board provided legal advice more generally.’ To the
contrary, BSP asserts that the mission of the board was to “impart business and financial advice”
(Rachmiel Decl. {| 3). BSP’s submissions show that the members of the advisory board
understood their communications with BSP to be confidential, and treated them in that manner

(P1.’s Mot. at 2-3).

While BSP states that the four persons were “retained” to serve this informal function
(Rachmiel Decl. 1 2), BSP does not assert that these individuals were employed by the company
or paid for their services. Moreover, while BSP says that these individuals assisted Mr.
Rachmiel in “chart[ing] the course that took BSP from a startup to an industry leader, BSP
concedes that these individuals possessed “no binding authority over Mr. Rachmiel and the other

owners of BSP” (PI.’s Mot. at 2).

Turning to the emails in question, BSP states that it disclosed certain privileged
information from BSP’s counsel to the advisory board in order to get its “business and financial
advice . . . in determining whether to file suit against Motio” (Pl.’s Mot. at 3). Mr. Rachmiel

says that this advice was “central to BSP’s pre-litigation decision-making” about whether “to

'BSP has disclosed that the attorney on the advisory board (Douglas Graham) worked for the law firm with
which I was a partner before becoming a judge, and worked with me on various matters while we were at the firm
together (PI.’s Mot. at 1 n.1). No one asserts that this professional relationship that existed before I joined the Court
on October 30, 1998 creates any conflict.

2


pursue litigation or continue to allow BSP’s biggest competitor to abuse its intellectual property”

(P1.’s Mot. at 3 and Rachmiel Decl. 117).
Il.

The attorney-client privilege serves a central purpose in our system of justice, by
fostering “full and frank communication between attorneys and their clients and thereby
promot[ing] broader public interests in the observance of law and administration of justice.”
Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). But the benefit of the privilege is not
cost free. As the Seventh Circuit has observed, “[w]hen the privilege shelters important
knowledge, accuracy declines. Litigants may use secrecy to cover up machinations, to get
around the law instead of complying with it. Secrecy is useful to the extent it facilitates the
candor necessary to obtain legal advice. The privilege extends no further.” Jn re Feldberg, 862
F.2d 622, 627 Cine Cir. 1988). Thus, because “the privilege is in derogation of the search for the
truth . . ., [it] must be strictly confined.” In re Grand Jury Proceedings, 220 F.3d 568, 571 qa"

Cir. 2000).

One of the limitations on the exercise of the privilege is the recognition that it may be
waived. As we have observed in the past, “[p]erhaps the most common instance of waiver is
where an otherwise privileged communication is disclosed to a third party outside the scope of
the privilege.” Beneficial Franchise Co. v. Bank One, N.A., 205 F.R.D. 212, 215 (N.D. Ill.
2001). In this case, Motio contends that BSP waived the privilege in the attorney-client
communications by sharing them with the members of the advisory board. BSP has raised a
number of arguments in support of its position that there has been no waiver. We have

considered those arguments, and find them unavailing.