Illinois Appeals Court Reinterprets Aspects of Accountant-Client Privilege

The Illinois accountant-client privilege is contained in section 27 of the Illinois Public Accounting Act, which 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.

225 Ill. Comp. Stat. 450/27.

A line of federal cases interpreting the statute ruled that the Illinois accountant-client privilege is held by the accountant. United States v. Balistrieri, 403 F.2d 472 (7th Cir. 1968), vacated on other grounds sub nom. Balistrieri v. United States, 395 U.S. 710 (1969); W. Emp’rs Ins. Co. v. Merit Ins. Co., 492 F. Supp. 53 (N.D. Ill. 1979); FDIC v. Mercantile Nat’l Bank, 84 F.R.D. 345, 349 (N.D. Ill. 1979); Dorfman v. Rombs, 218 F. Supp. 905 (N.D. III. 1963). Note that the privilege does not apply in federal cases heard under federal question jurisdiction, irrespective of who holds the privilege. Baylor v. Mading-Dugan Drug Co., 57 F.R.D. 509, 512 (N.D. Ill. 1972). The federal courts reasoned that the plain language of the statute shows that the Illinois legislature intended to create the privilege for the benefit of the accountant—and thus only the accountant may invoke the privilege—because section 27 mentions only the accountant’s power to resist attempts to obtain information and does not purport to limit this exemption by reference to clients.

The federal decisions were acknowledged, if not explicitly endorsed, by the Appellate Court of Illinois in FMC Corp. v. Liberty Mutual Insurance Co., 236 Ill. App. 3d 355, 357 n.1, 603 N.E.2d 716 (Ill. App. Ct. 1992), and have long been regarded as authoritative on the issue. Brunton, however, rejected the federal courts’ interpretation as “simplistic.” According to Brunton, section 27 was enacted to encourage clients to make full disclosures to their accountants, a goal that is best served if the client holds the privilege. In reaching its decision, the court noted that state courts in Indiana and Tennessee reached the same conclusion in interpreting accountant-client privilege statutes that contain similar language. But Brunton’s brief discussion of these cases glosses over significant differences between the Illinois statute and the foreign statutes. For example, the Indiana statute, much like the Illinois statute, states that

[a] certified public accountant or a public accountant or an accounting practitioner, or any employee, shall not be required to disclose or divulge information of which he may have become possessed, relative to and in connection with any professional service as a certified public accountant or a public accountant or accounting practitioner.

Ernst & Ernst v. Underwriters Nat’l Assurance Co., 381 N.E.2d 897, 899 (Ind. Ct. App. 1978) (quoting Ind. Code § 25-2-1-23 (1971), since repealed and restated as Id. § 25-2.1-14-1 to 5).

The statute goes on to state, however, that

nothing herein shall be construed as prohibiting a certified public accountant or a public accountant from disclosing any data required to be disclosed by the standards of the profession in rendering an opinion on the presentation of financial statements, or in making disclosure where said financial statements, or the professional services of the accountant pertaining thereto are contested.

Id. (quoting Ind. Code § 25-2-1-23) (emphasis added).

The Court of Appeals of Indiana held that “[b]y using the phrase ‘nothing herein shall be construed as prohibiting a certified public accountant . . . from disclosing’ in the proviso portion of Section 23, the General Assembly has clearly indicated that it intended a privilege personal to the client.” As the court noted, “the person to whom a privilege belongs always has the right to voluntarily disclose privileged information.” The Illinois statute does not contain such qualifying language; thus, the Indiana court’s reasoning is not applicable in Illinois.

Likewise, the Tennessee statute states that “[c]ertified public accountants and public accountants practicing in this state shall not divulge nor shall they in any manner be required to divulge any information which may have been communicated to them or obtained by them by reason of the confidential nature of their employment.” Fed. Ins. Co. v. Arthur Andersen & Co., 816 S.W.2d 328, 329 (Tenn. 1991) (emphasis added) (quoting Tenn. Code Ann. § 62-1-116). Again, the language of the statute creates an obligation on the part of the accountant not to divulge information rather than an unqualified exemption that allows the accountant to refuse to divulge information.

While the Indiana and Tennessee courts, like the Brunton court, both considered policy considerations in favor of placing the privilege with the client, they did so only after first establishing that such an interpretation was consistent with the plain language of the statute. This manner of statutory interpretation is not available here because the plain language of the Illinois accountant-client privilege statute is not susceptible to an interpretation under which the client holds the privilege. As the Illinois Supreme Court has made clear, “[t]he language of the statute remains the best indication of this [legislative] intent, and we must give the statutory terms their ordinary meaning. Where the language of a statute is clear, we may not read into it exceptions that the legislature did not express.” Harrisonville Tel. Co. v. Ill. Commerce Comm’n, 212 Ill. 2d 237, 251, 817 N.E.2d 479 (Ill. 2004) (citations omitted). The statute states only that accountants “shall not be required” to divulge information or evidence. Any interpretation under which the client is found to hold the privilege must impermissibly read into the statute a qualifier that the legislature did not express.

Brunton’s reinterpretation brings the accountant-client privilege in line with the attorney-client privilege, which is also held by the client. See Adler v. Greenfield, 2013 Ill. App. 121066 ¶¶ 65–69, 990 N.E.2d 1219 (Ill. App. Ct. 2013) (actions by attorney after client’s death did not waive privilege because privilege was held by client and actions were not taken as part of representation of client). It should be noted, however, that—as with attorneys—accountants still have an obligation to assert the privilege on their clients’ behalf, and disclosure of privileged information by an accountant in the course of representing a client waives the privilege. See, e.g., FMC Corp., 236 Ill. App. 3d at 359–60. It is likely that even inadvertent disclosures made under these circumstances waive the privilege.

Until the Supreme Court of Illinois rules on this issue, accountants and attorneys who advise them should be aware of the uncertainty under Illinois law concerning whether the accountant or the client holds the privilege.

Keywords: litigation, professional services liability, accountant client privilege, holder of privilege, Illinois privilege

Dana S. Douglas is a partner and Thomas P. Evans is an associate of Mayer Brown LLP in Chicago, Illinois.

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