Keywords: CPA, certified public accountants, Section 27, privilege
The Illinois Supreme Court has issued a decision of great import to all individuals and businesses that provide confidential information to their certified public accountants (CPAs). The Court has resolved the previously open question of whether the CPA or the client who provided confidential information to the CPA holds the privilege under Section 27 of the Illinois Public Accounting Act. Section 27 states: "A licensed or registered CPA shall not be required by any court to divulge information or evidence which has been obtained by him in his confidential capacity as a licensed or registered CPA. This Section shall not apply to any investigation or hearing undertaken pursuant to this Act."
In issuing its unanimous opinion in Brunton v. Kruger, 2015 IL 117663, the Supreme Court clarified that the privilege contained in Section 27 belongs to the CPA, not the client, and that only the CPA may assert or waive the privilege. The Court applied a textual reading to the provision and held that there were no exceptions to the plain language of the statute. Such a plain reading meant that the common-law testamentary exception may not be used to defeat the accountant's privilege and that the prohibition on a court compelling production of documents applied only to the accountant and not to the client.
The underlying dispute in Brunton concerned a will contest between two adult children challenging the validity of their deceased parents' will. At issue before the Supreme Court was the propriety of a third-party accounting firm's partial withholding, in response to the parties' subpoenas, of estate-planning and tax documents previously provided to the firm by the parents, who were clients of the firm. In complying with some of the subpoenas but not others, the accounting firm had invoked the privilege under Section 27.
The Court first determined that the accounting firm's estate-planning activities fell within the scope of Section 8.05 of the Public Accounting Act's definition of accountancy activities. Then, to discern the state legislature's intent, the Court analyzed the plain language of Section 27, focusing particularly on the words "shall not be required by any court." The Court determined that "Section 27 does not state that the client shall not be required by any court to divulge his information; it states that the accountant shall not be required to do so." Given this plain language, the Court concluded, Section 27 "unambiguously confers its privilege on the accountant." The Court bolstered this conclusion with its observation that the accountant privilege of Section 27 is codified in the Public Accounting Act, not in the legislatively created body of evidentiary privileges for other professions contained in Article VIII of the Illinois Code of Civil Procedure. This context, the Court determined, suggests a legislative scheme under which "the accountant privilege was not intended to function purely as an evidentiary rule, but also as an attribute of the accounting profession."
The Supreme Court concluded that the privilege under Section 27 belongs to the accountant, who may assert or (as the accounting firm did here) waive the privilege through voluntary disclosure of privileged information. But the Court nonetheless advised that if a client of a CPA is still living, the privilege does not bar the client from voluntarily producing the information if it is in the client's possession. The Court further advised that if a client of a CPA is involved in litigation and the information is otherwise discoverable, a court may order the client to disclose information in the client's possession. If, however, the client is deceased and the accountant invokes the privilege, the information may not be available, even if it may be highly relevant to the litigation (such as in a will contest). Similarly, the Court advised, a court cannot preclude the accountant from asserting the privilege.
The Court determined that the Illinois common-law testamentary exception that applies to the attorney-client privilege is inapplicable to the accountant's privilege under Section 27. (The common-law testamentary exception makes admissible certain communications between an attorney and a deceased client in a will contest among children of the decedent challenging the will's distribution scheme.) The Court reasoned that the accountant's privilege under Section 27 is a statutory privilege whereas the attorney-client privilege is a common-law doctrine and the testamentary exception is also a common-law rule. The Court declined to read any additional exceptions into Section 27 beyond the single exception already present in that statute's plain language. Finally, the Court determined that the accounting firm had waived the privilege in this case by making some of the voluntary disclosures that it had made.
The Illinois decision, while significant, is not likely to have an effect outside of Illinois because it is based upon the particular language of the Illinois statute. The decision can, however, affect litigation in matters outside of Illinois when the work at issue is done in Illinois or significantly relates to Illinois work.
Furthermore, the decision leaves several questions unanswered. For example, under Illinois law, a CPA is required to preserve the secrets and confidences of its client as a matter of ethics. If that is the rule, does a CPA have an obligation to raise the privilege when a client wishes it to do so? Likewise, given the fact that by giving material to a client an accountant can be undercutting privilege objections, is there an obligation to limit the material that is forwarded by the accountant to the client? Finally, should accountants in Illinois adopt rules governing when voluntary disclosures are made so that there is not an inadvertent waiver when a disclosure is made? And if a disclosure is made, should an agreement be made with interested parties stipulating that there is no broader waiver? These and other questions remain after the Court's decision.
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Originally published April 2, 2015
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