Accountants: You’re Privileged Too

The accountant-client privilege doesn’t seem to get as much attention as the other more commonly used privilege defenses such as attorney-client or doctor-patient.   However, a case out of the Illinois Supreme Court earlier this year is giving the other “a/c privilege” a lot of press.   While not all states recognize this privilege, the ones that do generally find that the client is the holder of the privilege and requires the client’s consent to disclose any information exchanged between the accountant and client.  Illinois, however, has decided to take a slightly different approach.

Brunton v. Kruger, involved a will contest brought by Sister against Brother, in his capacity as trustee of the trusts established by their late parents and as personal representative of their estates.  The parents of Sister and Brother had consulted with accounting firm Firm prior to their death, as part of the estate planning process.  After Sister initiated the lawsuit against Brother, both parties issued subpoenas to Firm.  However, Firm only provided the information to Brother since he was the personal representative of the estate.   Sister then filed a motion to compel compliance with her subpoena.

Firm relied upon a section of the Illinois Public Accounting Act which stated that “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].”  The circuit court ordered Firm to produce only the tax documents, finding that the estate planning documents were privileged under the Act.  At a subsequent hearing on a motion to quash, the circuit court again ruled that the estate planning documents were privileged, but found that the Firm had waived the privilege by providing the documents to Brother.

On appeal, the Illinois Supreme Court found that the Act unambiguously confers the privilege on the accountant.   Therefore, it held that the accountant-client privilege created by the Act is held by the accountant and may be asserted or waived by the accountant.   Therefore, it found that Firm waived the privilege by disclosing information to Brother.  Firm could not later claim privilege to avoid disclosure of the same information to Sister.

Importantly, the Court noted that in cases where the client is still living, unlike the present suit, the privilege does not bar the client from voluntarily producing the information.  Furthermore, a court could order the client who is in possession of the information to disclose it because a client cannot rely on a privilege that belongs to the accountant to protect documents in his or her possession.

The Brunton decision may create more questions than answers in the foreseeable future.  For example, an accountant’s ethical duty to maintain its client’s confidences may be in conflict with the privilege rule espoused by the court.  When faced with a situation such as Brunton, which rule takes priority and can the accountant face professional disciplinary action for disclosing confidential information without the client’s consent? Additionally, by making the accountant the holder of the privilege, it could hinder the full disclosure of information by the clients.  Stay tuned as we keep an eye on how these issues play out.