Two Federal Court Decisions in Three Days Misapply the General Choice of Laws Rules in Diversity Cases: Part III

March 27, 2024

The last two Privilege Points have addressed some federal courts’ inexplicable application in diversity cases of their host states’ substantive privilege law rather than their host states’ choice of law rules. Some states still follow the Restatement (First) of Conflict of Laws, which can also lead to odd results — applying its host state’s privilege law to communications between residents of another state about matters centered in that other state that were privileged where and when they took place.

Although lawyers should welcome the application of the Restatement (Second) of Conflict of Laws because it logically applies the law of the state which has “the most significant relationship” to the documents and the communications at issue, at least one major state occasionally finds a way to essentially ignore that wise approach. The Restatement (Second) §139(2) indicates that the forum state can still admit evidence that would be privileged under the “significant relationship” standard “unless there is some special reason why the forum policy favoring admission should not be given special effect.” See also id. cmt. d. For years, Illinois federal courts have pointed to this exception in applying Illinois’s narrow corporate-context “control group” privilege standard. That distinct minority view contrasts sharply with the much more broadly adopted Upjohn privilege standard, which can protect a corporate lawyer’s communications with anyone in the corporate hierarchy who has facts the lawyer needs.

This Illinois end-run around the Restatement (Second)’s “significant relationship” standard can have the devastating effect of allowing discovery and admissibility of sensitive intra-corporate communications that were privileged when and where they took place. Any corporation that might be sued in Illinois should remember this risk — although there is not much they can do about it.