Illinois Appellate Court Declines to Extend Crime-Fraud Exception To Defamation Claims

In MacDonald v. Wagenmaker, 2024 IL App (1st) 230089, the Illinois Appellate Court declined to extend the crime-fraud exception to the attorney-client privilege to alleged defamatory conduct by attorneys, finding that doing so would compromise both the attorney-client privilege and the crime-fraud exception.

Background

In 2019, James MacDonald was removed as senior pastor of Harvest Bible Chapel (HBC), an Evangelical Christian megachurch. MacDonald initiated arbitration against the church, claiming wrongful termination and improper denial of employee benefits. While that arbitration was pending, the church engaged forensic accountants and attorneys to assess the church’s corporate structure and finances and to investigate MacDonald’s transactions at the church. The firm provided its findings to the church, which then posted the findings publicly on its website and read aloud a statement summarizing the findings to its congregation. MacDonald sued the church’s attorney, law firm, and accounting firm for, among other things, defamation, alleging that their findings (provided in writing to the church) included false and defamatory statements that were intended to ruin his reputation in the church and Evangelical Christian communities.

In discovery, MacDonald requested communications among the defendant law firm, the defendant accounting firm, and the law firm that represented the church in the arbitration. The law firms declined to produce certain communications, asserting that they were protected by the attorney-client privilege. MacDonald then moved to compel, invoking the crime-fraud exception to the attorney-client privilege.

The Crime-Fraud Exception

The crime-fraud exception is a “major exception to the attorney-client privilege” that arises from the rationale that a lawyer should not provide advice for the purpose of assisting in committing a crime or fraud. This exception defeats the attorney-client privilege for communications made in preparation for or after the commencement of the criminal or fraudulent activity. We previously wrote about a federal court’s decision applying the crime-fraud exception to otherwise-privileged communications involving Donald Trump’s attempts to overturn the 2020 presidential election.

Key to the crime-fraud analysis is the client’s intent in obtaining the attorney’s services. “Good faith consultation” with an attorney about the legality of a potential action does not trigger the crime-fraud exception, but if the client knew or should have known that their intended conduct was illegal, the exception applies.

To establish the crime-fraud exception, the party challenging the privilege must make a threshold evidentiary showing that a “prudent person” would have a reasonable basis to suspect (1) the attempted or actual perpetration of a crime or fraud and (2) that the requested communications were in furtherance of that crime or fraud. This requires demonstrating a logical link between the privileged communications and the proposed crime or fraud.

The Court’s Decision

In his motion to compel, MacDonald argued that the crime-fraud exception defeats the attorney-client privilege when the otherwise-privileged communications were made in furtherance of an intentional tort or conspiracy, and that the law firms had conspired with the church and the accounting firm to destroy his reputation by defaming him. The law firms argued in response that Illinois had not extended the crime-fraud exception to conspiracy or tort claims other than fraud, and that MacDonald had provided no evidence to support his assertions.

The trial court ruled that Illinois law did not preclude extension of the crime-fraud exception to conspiracy or defamation, and that MacDonald’s complaint provided substantial evidence that the church “knew or strongly suspected that it was about to commit a tort” and had “enlisted the help of its lawyers to commit that tort.”

The Illinois Appellate Court reversed the trial court’s decision, holding that traditional defamation claims are dissimilar to fraud for at least two reasons. First, those making defamatory statements typically do not intend to induce the subjects of the statements to act. Second, those who have been defamed typically do not rely on the truth of the statements. In contrast, common-law fraud requires that the defendant knowingly make a false statement with the intent that the plaintiff act in reliance on that statement. Further, MacDonald did not present evidence showing that the church sought advice from its attorneys with the intent to defame him. “Extending the crime-fraud exception” to defamation claims like MacDonald’s, the Appellate Court reasoned, “would risk deterring clients from seeking legal advice, chilling lawyers from giving advice, and eroding the attorney-client privilege’s protection of legitimate communications.”

Even so, the court left the door open for parties to successfully invoke the crime-fraud exception “where alleged conduct, although neither criminal nor fraudulent, is fundamentally inconsistent with the basic premises of the adversary system or deemed a fraud on the court.”