Opinion
04 Civ. 9771 (LAK).
June 29, 2006
MEMORANDUM OPINION AND ORDER
I. Introduction
This is an action for professional malpractice and other torts brought against the auditors of an insolvent foreign conglomerate. In the instant dispute, plaintiff Dr. Enrico Bondi moves to compel defendants Deloitte Touche Tohmatsu ("DTT") and Deloitte Touche S.p.A. ("Deloitte Italy") to produce portions of certain documents that defendants argue are protected by the "self-evaluative" privilege.
For the reasons set forth below, plaintiff's motion is granted.
II. Facts
The facts giving rise to this action are set forth in the Opinion of the Honorable Lewis A. Kaplan, United States District Judge, In re Parmalat Sec. Litig., 377 F. Supp.2d 390, 395-401 (S.D.N.Y. 2005), familiarity with which is assumed. I set forth here only those facts relevant to the disposition of the pending motion.
Dr. Bondi is the Extraordinary Commissioner of Parmalat Finanziaria S.p.A., Parmalat S.p.A. and its affiliates (collectively "Parmalat") in Extraordinary Administration, an Italian procedure similar to bankruptcy. DTT is a Swiss verein with headquarters in New York and "the umbrella firm for the international accounting enterprise commonly known as `Deloitte.'" In re Parmalat Sec. Litig., supra, 377 F. Supp.2d at 396. Deloitte Italy is "a societá per azione, an Italian limited liability entity, and the Italian member firm of DTT." In re Parmalat Sec. Litig., supra, 377 F. Supp.2d at 396.
"Verein" means association, society, club or union. In re Parmalat Sec. Litig., supra, 377 F. Supp.2d at 396 n. 5,citing Cassel's German Dictionary 662 (1978).
Dr. Bondi brought an action in Illinois state court against DTT and Deloitte Italy, Parmalat's former auditors, alleging professional malpractice, fraud, negligent misrepresentation, theft and diversion of corporate assets, conversion, deepening insolvency and unlawful civil conspiracy. In re Parmalat Sec. Litig., supra, 377 F. Supp.2d at 395. Dr. Bondi also alleges that DTT and Deloitte Italy aided and abetted Parmalat's (1) fraud, (2) constructive fraud, (3) breach of fiduciary duty, and (4) fraudulent transfer. In re Parmalat Sec. Litig., supra, 377 F. Supp.2d at 395. The case was removed to the District Court for the Northern District of Illinois and transferred to this District by the Judicial Panel on Multidistrict Litigation. In re Parmalat Sec. Litig., 350 F. Supp.2d 1356, 1358 (J.P.M.L. 2004).
Plaintiff now seeks the production of documents, portions of which defendants assert are protected by the "self-evaluative" privilege. Specifically, plaintiff seeks to compel production of 154 of 843 documents listed in DTT's privilege log that DTT asserts are protected by a "self-evaluative" privilege (DTT's Revised Privilege Log and Cover Letter dated March 1, 2006, annexed as Ex. 1 to Mot. of Pl. Dr. Bondi to Compel Defs. Deloitte Touche S.p.A. and Deloitte Touche Tohmatsu to Produc. Docs. for Failure to Substantiate Claims of Privilege in Compliance with Fed.R.Civ.P. 26(b) (5) and S.D.N.Y. Civ. R. 26.2, at 195-224 (Docket Item 174)). In addition, Deloitte Italy asserts that practice reviews conducted in 2000 and 2003 are protected by the "self-evaluative" privilege (Deloitte Touche S.p.A.'s Opposition to Pl. Dr. Enrico Bondi's Mot. to Compel Produc. Of Docs. for Failure to Substantiate Claims of Privilege in Compliance with Fed.R.Civ.P. 26(b) (5) and S.D.N.Y. Civ. R. 26.2, at 1 (Docket Item 226)).
III. Analysis
A. Discovery of Privileged Material Under Rule 26(b) (1)
Rule 26(b) (1) of the Federal Rules of Civil Procedure states in relevant part, "[p]arties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party." Rule 501 of the Federal Rules of Evidence provides the choice-of-law rule that determines when federal or state privilege law applies. Rule 501 states in relevant part, "in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State or political subdivision thereof shall be determined in accordance with State law." Therefore, in federal question cases, courts must apply federal law when determining if material is privileged. Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 441 (S.D.N.Y. 1995), citing von Bulow v. von Bulow, 811 F.2d 136, 141 (2d Cir. 1987); see also Krach-Naden v. Sauk Vill., 97 C 1525 (JFH), 1999 WL 543190 at *2 (N.D. Ill. July 22, 1999). In diversity cases, however, courts must rely on state privilege law. G-I Holdings, Inc. v. Baron and Budd, 01 Civ. 0216 (RWS), 2005 WL 1653623 (S.D.N.Y. July 13, 2005); Morgan v. Union Pac. R.R., 182 F.R.D. 261, 263 (N.D. Ill. 1998).
Jurisdiction in this case is predicated on 28 U.S.C. § 1334(b) because the case is related to a federal bankruptcy action, In re Parmalat Sec. Litig., 322 B.R. 44, 49 (S.D.N.Y. 2005), resulting in a non-diversity case in which state law, nevertheless, supplies the rules of decision. Thus, in accordance with Rule 501, state privilege law applies. See In re Carmean, 153 B.R. 985, 990-91 (Bankr. S.D. Ohio 1993) (applying state privilege law to fraudulent conveyance action where jurisdiction was based on Section 1334); In re Tidewater Group, Inc., 65 B.R. 179, 181-82 (Bankr. N.D. Ga. 1986) (applying state privilege law to contract and tort claims where Section 1334 served as the jurisdictional basis); see also 23 Charles Alan Wright Kenneth W. Graham, Jr., Federal Practice and Procedure § 5434, at 860-61 (1980) (stating that as long as the privileged matter is in "a line of proof that culminates in an element of a state claim or defense, then state rules of privilege apply.").
This action was transferred to this District from the Northern District of Illinois. When an action is transferred, the transferee forum applies the substantive law that the transferor forum would have applied. In re Parmalat Sec. Litig., supra, 377 F. Supp.2d at 402 n. 78; see also Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir. 1993); In re Rezulin Prods. Liab. Litig., 210 F.R.D. 61, 69 (S.D.N.Y. 2002); In re Ski Train Fire in Kaprun, Aus. on Nov. 11, 2000, 230 F.Supp.2d 392, 399 (S.D.N.Y. 2002). Thus, because the Northern District of Illinois would have applied Illinois law, Illinois state law applies here, including Illinois choice-of-law rules. Ferens v. John Deere Co., 494 U.S. 516, 524-25 (1990); Fin. One Pub. Co. Ltd. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 333-34 (2d Cir. 2005); In re Parmalat Sec. Litig., 383 F. Supp.2d 587, 593 (S.D.N.Y. 2005).
B. Illinois Choice-of-Law Rule Concerning Self-Evaluative Privilege
Illinois has adopted Section 139(2) of the Restatement (Second) of Conflict of Laws with respect to matters of privilege. People v. Allen, 336 Ill. App.3d 457, 459, 784 N.E.2d 393, 394 (Ill.App.Ct. 2003); Sterling Fin. Mgmt. v. UBS Painewebber Inc., 336 Ill. App.3d 442, 453, 782 N.E.2d 895, 903-04 (Ill.App.Ct. 2002).
Section 139 states:
Evidence that is privileged under the local law of the state which has the most significant relationship with the communication but which is not privileged under the local law of the forum will be admitted unless there is some special reason why the forum policy favoring admission should not be given effect.
Therefore, even if the material at issue here is protected by the law of another jurisdiction having a more significant relationship with the relevant communications, the Illinois choice-of-law rule directs that the material is discoverable if no privilege exists under Illinois law and the forum has no special reason not to follow the Illinois policy favoring admission. As explained below, there is no special reason not to follow Illinois law favoring admission, and the parties have made no arguments regarding application of the Illinois choice-of-law rule.
C. Illinois State Law on "Self-Evaluative" Privilege
Defendants claim that documents sought by plaintiff are not discoverable under the "self-evaluative privilege. The "self-evaluative" privilege, also known as the "self-critical" or "self-analysis" privilege, protects documents containing potentially damaging self-evaluations. Morgan v. Union Pac. R.R., supra, 182 F.R.D. at 264. The privilege is based on the notion that disclosure of candid self-evaluative documents will thwart socially useful evaluations and investigations. Robbins v. Provena St. Joseph Med. Ctr., 03 C 1371 (JBZ), 2004 WL 502327 at *1 (N.D. Ill. Mar. 11, 2004).
Illinois has never recognized a general "self-evaluative" privilege. People v. Campobello, 348 Ill. App.3d 619, 636, 810 N.E.2d 307, 322 (Ill.App.Ct. 2004) (stating that Illinois does not recognize a "self-evaluative" privilege); See Goh v. CRE Acquisition, Inc., 02 C 4838 (JBM), 2004 WL 765238 at *1 (N.D. Ill. Apr. 6, 2004) (observing that Illinois has no "self-critical" analysis privilege); Sabratek Liquidating LLC v. KPMG LLP, 01 C 9582 (CPK), 2002 WL 31520993 at *3 (N.D. Ill. Nov. 13, 2002) (finding that no "self-evaluative" privilege exists under Illinois law).
Illinois does, however, have a limited "self-evaluative" privilege applicable to accountants. The Illinois Public Accounting Act ("IPAA") creates a privilege for self-evaluations conducted by accounting firms. 225 Ill. Comp. Stat. Ann. 450/30.3 (West 2006). Specifically, Section 450/30.3(a) provides that "[t]he proceedings, records, and work papers of a review committee shall be privileged and shall not be subject to discovery, subpoena, or other means of legal process or introduction into evidence in any civil action."
The IPAA, however, is directed only towards in-state firms registered in Illinois and doing business with an Illinois client. It provides no protection to accounting firms that are not registered in Illinois and not providing service to an Illinois client. Armour Int'l Co. v. Worldwide Cosmetics, Inc., 689 F.2d 134, 135-36 (7th Cir. 1982) (holding that the IPAA's "accountant-client" privilege does not apply to firms not registered or working in Illinois and not working with an Illinois client).
Here, neither defendant is subject to the accounting standards of Illinois. DTT is a Swiss entity based in New York and Deloitte Italy is an Italian firm. Furthermore, it does not appear that any of the relevant documents were generated by accountants registered in Illinois or that the work was being done for an Illinois client. Accordingly, because Illinois recognizes no general "self-evaluative" privilege and the IPAA does not apply to defendants, defendants cannot rely on the "self-evaluative" privilege to withhold the documents at issue here.
Because no "self-evaluative" privilege applies here, Plaintiff's assertion that "self-evaluative" privilege was waived by voluntary production to third-parties need not be addressed.
IV. Conclusion
For the foregoing reasons, plaintiff's motion to compel production of documents is granted. DTT and Deloitte Italy are directed to produce the documents in issue within ten days of the date of this order.