Illinois Official Reports 

Appellate Court

Robert R. McCormick Foundation v. Arthur J. Gallagher Risk Management Services, Inc., 

2018 IL App (2d) 170939

Appellate Court 

Caption

THE ROBERT R. McCORMICK FOUNDATION and THE 

CANTIGNY FOUNDATION, Plaintiffs-Appellants, v. ARTHUR J. 

GALLAGHER RISK MANAGEMENT SERVICES, INC.,

Defendant-Appellee.

District & No. Second District

Docket Nos. 2-17-0939, 2-17-0940 cons.

Filed July 20, 2018

Decision Under 

Review

Appeal from the Circuit Court of Du Page County, No. 13-L-481; the 

Hon. Kenneth L. Popejoy, Judge, presiding.

Judgment No. 2-17-0939, Affirmed as modified; contempt order vacated; cause 

remanded. 

No. 2-17-0940, Affirmed and remanded with directions.

Counsel on

Appeal

John R. McCambridge, David E. Schoenfeld, and Matthew C. Wolfe, 

of Shook, Hardy & Bacon L.L.P., of Chicago, for appellants.

John C. Ellis, of Ellis Legal P.C., and Richard J. Prendergast and 

Michael T. Layden, of Richard J. Prendergast, Ltd., both of Chicago, 

for appellee.
- 2 - 

Panel JUSTICE HUTCHINSON delivered the judgment of the court, with 

opinion.

Justices Zenoff and Birkett concurred in the judgment and opinion.

 OPINION 

¶ 1 These consolidated interlocutory appeals are a sequel to an appeal we decided over two 

years ago, Robert R. McCormick Foundation v. Arthur J. Gallagher Risk Management 

Services, Inc., 2016 IL App (2d) 150303 (Foundations I). In these appeals, however, we 

consider the scope of attorney-client privilege and whether the trial court should have granted a 

renewed request for a stay. 

¶ 2 Plaintiffs, the Robert R. McCormick Foundation and the Cantigny Foundation (the 

Foundations) sued their former insurance broker, Arthur J. Gallagher Risk Management 

Services, Inc. (Gallagher). The Foundations were formerly the second largest shareholder 

group in the Tribune Company (Tribune), a large multimedia corporation. The Foundations 

sold their preferred stock for some $2 billion during a leveraged buyout (LBO) of the company 

in 2007. Less than one year after the transaction, Tribune filed for bankruptcy protection. The 

buyout itself, as we noted in Foundations I, left many Tribune creditors “holding the 

proverbial bag.” Id. ¶ 3. 

¶ 3 After the LBO, in 2009, the Foundations hired Gallagher to procure for them directors’ and 

officers’ (D&O) liability insurance. Gallagher obtained $25 million in D&O coverage for the 

Foundations through (what was essentially) a single policy with Chubb Insurance (Chubb). 

The Foundations allege that in 2010 Gallagher advised that they could obtain the same 

coverage—“apples-to-apples”—at a reduced premium with (what was essentially) a $25 

million policy from Chartis Insurance (Chartis). The Foundations purchased the Chartis policy 

and let the Chubb policy lapse. 

¶ 4 Soon after Tribune exited bankruptcy in 2011 (see In re Tribune Co., 464 B.R. 126 (Bankr. 

D. Del. 2011)), aggrieved shareholders filed a number of federal suits across the country 

against more than 5000 defendants; the suits were eventually consolidated in the Southern 

District of New York. See In re Tribune Co. Fraudulent Conveyance Litigation, 831 F. Supp. 

2d 1371 (J.P.M.L. 2011). The Foundations were named as defendants in three of the suits 

(which remain ongoing, as we discuss below). These suits generally allege that the 

Foundations—through their directors and officers, and acting in concert with other 

“controlling shareholders”—orchestrated the LBO through actual and constructive fraud. 

Accordingly, the suits seek to unwind the LBO and to claw back creditors’ funds. 

¶ 5 Relevant here, when the Foundations tendered the suits (the LBO litigation) to Chartis 

under their D&O policy, Chartis denied coverage under a policy exclusion for claims “in any 

way relating to any purchase or sale of securities.” The Foundations, asserting that Chubb 

would have defended and indemnified them under their former policy, sued Gallagher for 

breach of contract and professional negligence resulting in a loss of coverage. On Gallagher’s 

motion for summary judgment, the trial court determined that an exclusion in the Chubb 

policy, too, would have barred coverage for the LBO litigation. In Foundations I, we held that 

the Chubb exclusion in question did not necessarily bar coverage, and we reversed the court’s 
- 3 - 

judgment. On remand, Gallagher tendered several affirmative defenses and the parties 

proceeded with discovery. 

¶ 6 During discovery, Gallagher subpoenaed the Foundations and their legal counsel for, 

among other things, the following: 

“1. Any reports or opinion letters prepared for *** the Foundations *** relating to 

the Tribune Co. or the LBO. 

2. Any and all communications related to the Foundations’ Director[s’] and 

Officers[’] insurance policy or coverage.

 3. Any and all communications with the Foundations related to the Tribune 

Bankruptcy. 

 4. Any and all communications with the Foundations related to the LBO 

Litigation.”

The Foundations indicated that there were documents and electronic communications 

responsive to Gallagher’s request (filing a roughly 40-page privilege log (see Ill. S. Ct. R. 

201(n) (eff. July 1, 2014))) but refused to tender them, citing attorney-client privilege. The 

Foundations then asked the court to quash the subpoenas or, in the alternative, “stay or phase” 

the case until the completion of the LBO litigation. Gallagher, in turn, sought an order to 

compel production and opposed the Foundations’ stay request.

¶ 7 After a hearing, the trial court denied the Foundations’ request for a stay and ordered the 

Foundations to tender the requested materials. Specifically, the court noted that by suing 

Gallagher the Foundations had aligned Gallagher’s interest with their own in the underlying 

litigation—that is, that Gallagher “may bear the ultimate burden of payment of the underlying 

claims and defense costs.” Accordingly, under an exception to the attorney-client privilege, 

which was set forth by our supreme court in Waste Management, Inc. v. International Surplus 

Lines Insurance Co., 144 Ill. 2d 178, 190 (1991), the court found that the Foundations must 

tender the requested materials. The court also stated, however, that it would be willing to 

consider a protective order limiting Gallagher’s use of any disclosure. As to the Foundations’ 

request for a stay, the court noted that it had denied a similar request in April 2014, and it once 

again declined to issue a stay. 

¶ 8 The Foundations appealed the trial court’s denial of the stay (No. 2-17-0940). The 

Foundations also sought to test the trial court’s discovery ruling and, in a separate order, were 

held in “friendly contempt,” which they also appeal (No. 2-17-0939). We have jurisdiction 

over both matters (Ill. S. Ct. R. 304(b)(5) (eff. Mar. 8, 2016); R. 307(a)(1) (eff. Nov. 1, 2017)), 

which we have consolidated at the parties’ request. Now, with some modifications, we affirm 

the judgment of the trial court. 

¶ 9 We turn first to the trial court’s contempt finding, under which we review the propriety of 

the underlying discovery order. See Norskog v. Pfiel, 197 Ill. 2d 60, 69 (2001). The 

attorney-client privilege, of course, protects the confidences communicated between attorney 

and client. But that privilege, as with so many legal concepts, is not without its exceptions. 

Indeed, Illinois has “a strong policy of encouraging disclosure,” and thus “the privilege, not the 

duty to disclose, *** is the exception.” Waste Management, 144 Ill. 2d at 190. Accordingly, 

our task is to construe the privilege “within its narrowest possible limits.” Id. We review 

de novo questions concerning the application of and exceptions to the privilege. Center 

Partners, Ltd. v. Growth Head GP, LLC, 2012 IL 113107, ¶ 65. 
- 4 - 

¶ 10 In Waste Management, 144 Ill. 2d 178, our supreme court discussed two exceptions to the 

attorney-client privilege. The first exception relied on a “cooperation clause” in an insurance 

contract in that case. Id. at 192. Here, the parties agree that there was no cooperation clause in 

the Foundations’ brokerage contract with Gallagher, so the first Waste Management exception 

is irrelevant. See, e.g., Western States Insurance Co. v. O’Hara, 357 Ill. App. 3d 509, 516 

(2005). 

¶ 11 The second Waste Management exception, however, does apply. Finding this exception 

“equally compelling,” our supreme court held that, under the common-interest doctrine, the 

attorney-client privilege did not bar discovery of communications or documents, created in 

defense of two previously settled lawsuits, in a subsequent coverage dispute regarding one of 

those suits. See Waste Management, 144 Ill. 2d at 193. Such materials are, in essence, deemed 

to have been prepared for the benefit of both parties, as the suit has joined their interests. See 

id. As our supreme court explained, the common-interest doctrine has its roots in the 

dual-representation doctrine—i.e., where one lawyer represents two joined parties, such as two 

criminal codefendants—which is a historical exception to the attorney-client privilege. See id. 

at 193-94. However, the court made clear that this exception to the attorney-client privilege 

“may properly be applied where the attorney, though neither retained by nor in direct 

communication with the insurer, acts for the mutual benefit of both [parties]”; this is true 

regardless of whether the parties retained the same lawyer or even had joined interests at the 

time of the communication. Id. at 194. As the court recognized, this situation is, of course, 

likely to arise in coverage litigation between insurers and insureds, but it is by no means 

limited to that context. Id. at 193. Instead, the exception depends not on the nature of the 

parties but on the “commonality of interests” between them, or who might be “ultimately liable 

for payment if the plaintiffs in the underlying action received either a favorable verdict or 

settlement.” Id. at 194-95. 

¶ 12 The common-interest exception also has its limits. For example, while it might be said that 

the parties have a common interest in defeating the underlying litigation, and thus are entitled 

to discovery concerning that litigation, the same cannot be said for coverage matters. On the 

question of coverage, the parties are diametrically opposed, and so the common-interest 

rationale does not apply to attorney-client communications concerning coverage. Id. at 200-01; 

see also id. at 209 (“[w]hile the parties are now adverse concerning the issue of coverage, no 

such adversity exists as to the underlying litigation”).

¶ 13 Here, the Foundations’ core argument is that the Waste Management common-interest 

doctrine should not apply to this broker-malpractice lawsuit. In support of that argument, the 

Foundations recite our observation that other jurisdictions have criticized Waste Management. 

See generally Allianz Insurance Co. v. Guidant Corp., 373 Ill. App. 3d 652, 664-66 (2007) 

(collecting cases). Accordingly, the Foundations urge us to apply Waste Management 

“cautiously” and not to “expand” its holding to discovery in broker-malpractice litigation. 

¶ 14 While it is true that this court and others have been critical of Waste Management (see id.), 

we acknowledge today that our criticism might have been unfair and ultimately unwarranted. 

While not every jurisdiction adheres to the precise contours of a rule like the one set forth in 

Waste Management, every federal circuit and 46 states recognize at least some form of the 

common-interest exception to the attorney-client privilege in discovery. See generally Nell 

Neary, Last Man Standing: Kansas’s Failure to Recognize the Common Interest Doctrine, 65 

U. Kan. L. Rev. 795 (2017) (collecting cases, statutes, and court rules; arguing that Kansas’s 
- 5 - 

failure to recognize the doctrine harms its interests); see also United States v. McPartlin, 595 

F.2d 1321, 1336 (7th Cir. 1979). Some jurisdictions even recognize a more expansive variation 

of the doctrine, one that applies not just to litigants in pending suits but also to potential 

litigants. See Selby v. O’Dea, 2017 IL App (1st) 151572, ¶ 39 (citing In re LTV Securities 

Litigation, 89 F.R.D. 595 (N.D. Tex. 1981)). And, as noted, the doctrine is not limited to the 

context of the insured-insurer relationship. In fact, the doctrine arises just as often in the 

contexts of patent law, mergers and acquisitions, and antitrust litigation (see id.; see also 

Neary, supra, at 797-98; 1 Edna Selan Epstein, The Attorney-Client Privilege and the Work 

Product Doctrine 277 (5th ed. 2007))—areas of the law that have little to do with insurance 

coverage. It appears that our criticism in Allianz might be attributable to a simple problem of 

nomenclature; as one scholar points out, courts use some two dozen different terms to refer to 

essentially the same thing: the common-interest doctrine. See George S. Mahaffey Jr., Taking 

Aim at the Hydra: Why the “Allied-Party Doctrine” Should Not Apply in Qui Tam Cases When 

the Government Declines to Intervene, 23 Rev. Litig. 629 (2004). In short, our criticism of 

Waste Management focused narrowly on that decision and failed to recognize that the concepts 

underlying that decision have received near-universal acceptance. Accordingly, our criticism 

of Waste Management should not be considered persuasive. 

¶ 15 Turning back to the matter at hand, we reject the Foundations’ argument that Waste 

Management does not apply to this case. Illinois courts have recognized that, although the 

dispute in Waste Management arose from an insured-insurer relationship, “parties do not have 

to match the classic profile of an insurer and insured for the concepts in Waste Management, 

Inc. to apply.” BorgWarner, Inc. v. Kuhlman Electric Corp., 2014 IL App (1st) 131824, ¶ 33 

(citing Hartz Construction Co. v. Village of Western Springs, 2012 IL App (1st) 103108, ¶ 30). 

We also reject the Foundations’ argument that they have no mutual interest with Gallagher in 

the LBO litigation. This case involves a professional negligence suit against an insurance 

broker for the alleged loss of $25 million in defense and indemnity coverage under a D&O 

policy. As we said in Foundations I, Gallagher “stands in the insurer’s shoes for the purpose of

this malpractice action” precisely because the Foundations sued Gallagher for (the alleged loss 

of) coverage. See Foundations I, 2016 IL App (2d) 150303, ¶ 6 (and cases cited therein); see 

also Skaperdas v. Country Casualty Insurance Co., 2015 IL 117021, ¶ 35 (discussing duty 

insurance broker owes to insured). In short, by suing Gallagher, the Foundations have given 

Gallagher a stake in the LBO litigation. Were Gallagher an insurance company, the 

Foundations could not deny it discovery on the ground of the attorney-client privilege per 

Waste Management. And, if the Foundations are successful in this suit, that is what Gallagher 

would be in a sense: a de facto insurer, liable to the Foundations for both the Foundations’ 

liability to the LBO plaintiffs and the Foundations’ defense costs in the LBO litigation. 

Accordingly, because Gallagher might be “ultimately liable” in the LBO litigation (see Waste 

Management, 144 Ill. 2d at 193), we find that a commonality of interests exists between the 

Foundations and Gallagher. 

¶ 16 We also reject the Foundations’ argument that Gallagher’s interests are somehow lessened 

by the fact that the Foundations might have already spent some $25 million in defense of the 

LBO litigation, which is now entering its eighth year. The mere fact that the Foundations might 

have already spent money they hope to assign to Gallagher as costs does not extinguish 

Gallagher’s right to examine what it is being asked to pay for. We note that, in Waste 

Management, our supreme court held that there were common interests in an ongoing coverage 
- 6 - 

dispute over already settled lawsuits (see id.), and there is no real difference between that 

scenario and this one. 

¶ 17 The parties have argued Waste Management’s application as an all-or-nothing question. 

However, although we find that it does apply, we must apply it fairly. As we noted, the 

common-interest exception applies only to those matters on which the parties might share 

liability, such as the LBO litigation, and not to those matters on which the parties are opposed, 

such as coverage. See Selby, 2017 IL App (1st) 151572, ¶ 26. Accordingly, we vacate the 

portion of the trial court’s discovery order compelling the Foundations to tender information 

on the issue of coverage; in all other respects, the discovery order is affirmed. As we modify 

the discovery order and find that the Foundations’ challenge to the order was undertaken in 

good faith, we vacate the trial court’s contempt finding. See BorgWarner, 2014 IL App (1st) 

131824, ¶ 35. On remand, the trial court may consider entering protective orders concerning 

the information shared between the parties, subject to the court’s discretion. See generally 

Selby, 2017 IL App (1st) 151572, ¶ 115.

¶ 18 We note that, at oral argument, the Foundations expressed great concern that a federal 

court—particularly the court overseeing the LBO litigation in New York—might view the 

common-interest exception differently and that a protective order might not prevent the LBO 

plaintiffs from obtaining through Gallagher the discovery the Foundations share with 

Gallagher. Those fears, however, are entirely baseless. First, Illinois and the Second Circuit, 

where the LBO litigation is being heard, have consistently applied the common-interest 

exception in similar fashion (compare Waste Management, 144 Ill. 2d 178, with Schaeffler v. 

United States, 806 F.3d 34, 40 (2d Cir. 2015) (citing United States v. Schwimmer, 892 F.2d 237 

(2d Cir. 1989))), so this would hardly be a question of first impression for a district court in that 

circuit. But more importantly, even if it were, we are satisfied that anything the Foundations 

disclose to Gallagher as a result of the trial court’s order could not be obtained through 

Gallagher. Were Gallagher subpoenaed by the LBO plaintiffs, principles of comity would 

compel the federal court to defer to the trial court’s previously issued protective order, unless 

modified. See, e.g., Donovan v. Lewnowski, 221 F.R.D. 587, 588 (S.D. Fla. 2004) (citing 

Tucker v. Ohtsu Tire & Rubber Co., 191 F.R.D. 495, 499-500 (D. Md. 2000)). Moreover, 

because disclosure here would be made pursuant to state law, the Foundations would not waive 

any claim of privilege in a federal proceeding. See Fed. R. Evid. 502(c)(2). Thus, while the 

Foundations’ disclosure “cannot be privileged from [the party] who may bear the ultimate 

burden of payment,” the disclosure is apt to retain its “privileged status as to party opponents in 

the underlying litigation.” Waste Management, 144 Ill. 2d at 209. 

¶ 19 We turn then, finally, to the issue of the stay. A trial court’s decision to grant or deny a stay 

will not be overturned absent an abuse of discretion. See State Farm Fire & Casualty Co. v. 

John, 2017 IL App (2d) 170193, ¶ 18 (citing Allianz Insurance Co. v. Guidant Corp., 355 Ill. 

App. 3d 721, 730 (2005)). In support of their argument that a stay should be granted, the 

Foundations invoke the rule set forth in Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 

(1976). Under the Peppers doctrine, a court considering a declaratory judgment action—such 

as coverage litigation—should generally stay that action to refrain from deciding issues of 

ultimate fact that might bind the parties in the underlying litigation. State Farm, 2017 IL App 

(2d) 170193, ¶ 23. As we recently explained: 

“The classic scenario [under Peppers] is where an insured is sued and the allegations of 

the complaint potentially fall within the scope of the insurance policy, thus triggering 
- 7 - 

the insurer’s duty to defend, but the insurer denies coverage based on an 

intentional-injury exclusion in the policy. Courts have explained that, in such 

circumstances, the issue of the insured’s intent should be litigated in the underlying tort 

action, not the declaratory judgment action. [Citations.]” Id.

¶ 20 We note that there is some irony to the Foundations’ invocation of the Peppers doctrine, in 

that the Foundations wish for Gallagher to be treated as an insurer when it comes to issuing a 

stay under Peppers but not when it comes to sharing information pursuant to the 

common-interest doctrine under Waste Management. In any event, with respect to the stay, the 

Foundations allege that a stay is warranted because there are “overlapping issues” in the LBO 

litigation and this malpractice litigation and that, thus, a finding on an affirmative-defense 

issue here could prejudice the Foundations there. We agree with the Foundations that what 

they knew of the LBO and when they knew it are likely to be critical factors in both suits. 

¶ 21 Like the trial court, we are mindful that the LBO litigation, eight years in, is still in the 

pleading stages and appears unlikely to be resolved any time soon. See Deutsche Bank Trust 

Co. Americas v. Robert R. McCormick Foundation, 584 U.S. ___, ___, 138 S. Ct. 1162, 1163 

(2018) (statement of Kennedy, J., and Thomas, J., respecting the petition for certiorari); see 

also In re Tribune Co. Fraudulent Conveyance Litigation, No. 11-md-2296 (RJS), 2017 WL 

82391 (S.D.N.Y. Jan. 6, 2017). The issuance of a stay requires careful evaluation. For one 

thing, the current status of the LBO litigation counsels in favor of a stay here, particularly since 

liability has not yet been determined there. See State Farm, 2017 IL App (2d) 170193, 

¶¶ 23-30. By the same token, as the trial court noted, Gallagher must not be prejudiced by the 

loss of evidence in this proceeding, especially as the LBO litigation might not be resolved for 

years to come. 

¶ 22 It is not clear, however, that this litigation must be stayed at this time to avoid prejudicing 

the Foundations in the LBO litigation. That could change. But for now, discovery could move 

forward and this case could be resolved on grounds that do not implicate the factual matters in 

the LBO litigation. We believe that the trial court on remand will be in the best position to 

allow the parties to proceed with discovery and then to stay this litigation if necessary and if 

the LBO litigation has not yet concluded. 

¶ 23 For these reasons, the trial court’s discovery order is affirmed as modified and the 

contempt order is vacated. The court’s judgment denying a stay is affirmed without prejudice, 

pending discovery, dispositive motions, and the status of the LBO litigation. 

¶ 24 No. 2-17-0939, Affirmed as modified; contempt order vacated; cause remanded. 

¶ 25 No. 2-17-0940, Affirmed and remanded with directions.