v.
Illinois Gaming Board
2020 IL App (1st) 190710-U Nos. 1-19-0710 Order filed January 23, 2020 Fourth Division
NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1). ______________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ______________________________________________________________________________ BMM NORTH AMERICA, INC. D/B/A BMM ) Appeal from the TESTLABS, ) Circuit Court of ) Cook County Plaintiff-Appellee, ) ) v. ) ) No. 17 L 2587 THE ILLINOIS GAMING BOARD and GAMING ) LABORATORIES INTERNATIONAL, LLC, ) ) Defendants ) ) Honorable (Gaming Laboratories International, LLC, Defendant- ) Celia G. Gamrath, Intervenor and Appellant). ) Judge presiding.
JUSTICE BURKE delivered the judgment of the court. Presiding Justice Gordon and Justice Lampkin concurred in the judgment. ORDER ¶1 Held: We affirm the circuit’s court discovery order directing Gaming Laboratories International, LLC, to produce certain e-mails where the communications were not protected by the attorney-client privilege. However, because we find Gaming Laboratories International, LLC, challenged the discovery order on a good-faith Nos. 1-19-0710 basis with sound legal arguments, we vacate the court’s friendly civil contempt order that assessed a monetary penalty. ¶2 This appeal comes to us pursuant to Illinois Supreme Court Rule 304(b)(5) (eff. Mar. 8, 2016) from Gaming Laboratories International, LLC (GLI), appealing the circuit court’s order finding it in civil contempt for refusing to comply with a discovery order to produce certain e- mails that it had withheld as privileged attorney-client communications. Because we agree with the circuit court that the e-mails were not protected by the attorney-client privilege, we affirm the court’s discovery order. But because GLI challenged the discovery order on a good-faith basis with sound legal arguments, we vacate the court’s civil contempt order. ¶3 I. BACKGROUND ¶4 A. Independent Testing Laboratories ¶5 Under the Video Gaming Act (Gaming Act), every gaming machine in Illinois is required to be certified as conforming to certain technical requirements before that machine is offered for play. 230 ILCS 40/15 (West 2018). The same is true for gaming machines under the Riverboat Gambling Act (Gambling Act). 1 230 ILCS 10/5 (2018); 86 Ill. Adm. Code 3000.270 (2003). In July 2009, when the Gaming Act became effective, and through July 2013, the law provided that the Illinois Gaming Board (Board), the agency in charge of regulating gambling in Illinois, “may utilize the services of an independent outside testing laboratory” to perform the required certification. 230 ILCS 40/15 (West 2008); 230 ILCS 40/15 (West 2012). Similarly, in that time period, the Gambling Act’s regulations provided that the administrator of the Board “may employ the services of an independent certification laboratory to evaluate the [gaming] device.” 86 Ill.
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Adm. Code 3000.270 (2003). In other words, both laws allowed the Board to utilize the services
of an independent certification company or instead certify the machines itself. Instead of doing the certification itself, the Board relied on an independent testing laboratory with which the State has
contracted. Because of the required certification, video gaming manufacturers had to utilize the services of the approved laboratory before their products could be offered for play.
¶6 However, in August 2013, the legislature amended the Gaming Act and provided that the Board “may utilize the services of one or more independent outside testing laboratories that have been accredited by a national accreditation body and that, in the judgment of the Board, are qualified to perform” the required certification of gaming machines. (Emphasis added.) See Pub.
Act 98-582, § 10 (eff. Aug. 27, 2013) (amending 230 ILCS 40/15). Public Act 98-582 also
amended the Gambling Act, which thereafter provided that, in order to test “all mechanical, electromechanical, or electronic table games, slot machines, slot accounting systems, and other electronic gaming equipment, *** the Board may utilize the services of one or more independent
outside testing laboratories that have been accredited by a national accreditation body and that, in the judgment of the Board, are qualified to perform such examinations.” (Emphasis added.) See
Pub. Act 98-582, § 3 (eff. Aug. 27, 2013) (adding 230 ILCS 10/5(a)(7.5)).
¶7 As a result of Public Act 98-582, from August 2013 until June 2019, the Gaming Act and Gambling Act allowed, but did not require, the Board to approve multiple testing laboratories to certify gaming machines and equipment. Despite this legislative allowance, the Board had only contracted with one testing laboratory: GLI, who had been working with the State in some capacity for approximately 25 years. The effect of the Board’s contract with only one testing laboratory was that all gaming manufacturers operating in Illinois had to utilize the services of GLI. BMM
North America, Inc. d/b/a BMM Testlabs (BMM) is also a company that provides independent
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¶8 B. Requests for Proposals
¶9 In July 2016, the most recent contracts GLI had signed with the Board to be its sole testing
laboratory under the Gaming Act and Gambling Act were nearing the end of their terms. As such, the Board was preparing to issue requests for proposals (RFPs) to award testing contracts under
both laws. On July 20, 2016, the Board held an open meeting, where representatives of BMM and GLI presented about their testing capabilities. In BMM’s presentation, it focused heavily on explaining why Illinois needed to move away from single-source certification. Meanwhile, GLI focused on its relationship with the Board and noted that, merely because Illinois could utilize multiple laboratories, this did not mean improvements in the gaming environment would necessarily follow. In concluding the meeting, Don Tracy, the chairman of the Board, invited both parties to submit additional written information.
¶ 10 Following the open meeting, one member of the Board, Thomas Dunn, expressed concern to Tracy that staff from the Board were already leaning toward single-source certification. [2] In early
August 2016, Ed Winkofsky and Martha Sabol, attorneys at the law firm Greenberg Traurig and registered lobbyists for GLI, were working with Eric Buske, a new associate general counsel in the Illinois Governor’s office and Mark Ostrowski, the Board’s administrator, on scheduling a time for GLI to have an educational meeting with the Governor’s office, staff from the Board and 190713
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possibly even members of the Board. According to Ostrowski’s deposition, BMM had been in communication with the Governor’s office and members of the Board over the past months and GLI wanted the same opportunity.
¶ 11 By mid-August, staff from the Board had written draft RFPs to award the testing contracts.
Around this time, Ostrowski and Tracy were in communication about GLI’s proposed educational
session with members of the Board. Tracy was concerned with the legality of such a meeting and skeptical that GLI wanted the meeting solely for educational purposes. Tracy brought his concerns to Dunn, who did not like the optics of the meeting and noted “[t]his whole thing is being driven by those who don’t want two entities.” Dunn added that this aversion to multiple testing
laboratories “kind of makes you ask why” given that the costs for certification are borne by the gaming manufacturers not taxpayers. Tracy relayed his concerns about the meeting to Ostrowski and posited that the meeting might violate “the prohibition against Board member ex parte meetings on pending issues.” In Tracy’s deposition, he stated it seemed “obvious” that a meeting with Board members would be “related to the RFPs,” though he admitted not knowing exactly why GLI had requested the meeting.
¶ 12 After Tracy raised concerns, Ostrowski discussed the possible meeting with Agostino
Lorenzini, the Board’s general counsel, and James Pellum, the Board’s deputy general counsel.
All three agreed that there was no issue with the meeting because GLI was the Board’s current testing laboratory and the RFPs had not been issued yet. Lorenzini, in fact, noted in one e-mail that the Illinois Procurement Code (Procurement Code) (30 ILCS 500/1-1 et seq. (West 2018)) did not bar such a meeting if a report was made to the procurement policy board. Afterward, Ostrowski e- mailed Tracy and attempted to quell his concerns about the legality of the meeting.
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¶ 13 Ultimately, on August 23, 2016, a meeting occurred and in attendance were: Buske from
the Governor’s office; Lorenzini, Pellum, Ostrowski and Robert Burke, the licensing coordinator, from the Board; Chad Kornett and Rich LaBrocca, GLI’s director of technical compliance and senior director of engineering, respectively; and Winkofsky, Sabol, Emily Mattison and Adam
Braun, all attorneys at the law firm Greenberg Traurig on behalf of GLI. No members of the Board attended the meeting, and no staff members from the Board who would ultimately score the bids to the RFPs attended.
¶ 14 In depositions, Ostrowski and Lorenzini both believed the meeting lasted a mere 10
minutes, though Pellum believed it lasted approximately an hour. Each staff member from the Board who gave a deposition could not recall any specifics of the meeting, except that generally
GLI discussed the purpose of a testing laboratory. However, all staff members denied that the RFPs were discussed, with many positing that, had such a topic been discussed, they would have
remembered the discussion. No one from the Board remembered reporting the meeting to the procurement office. According to the various deposition testimony, the August 23 meeting was the only one that occurred during August 2016 involving anyone from the Board. During
Ostrowski’s deposition, he acknowledged reviewing prior to his deposition an e-mail from
Winkofsky containing a “draft outline” for a “possible August 31st meeting with Board members and staff.” In that e-mail, Winkofsky suggested that GLI’s representatives would discuss its
“specific testing processes,” a “[s]ummary of assistance provided in the development of the [video gaming terminal] program, including the RFP for central communication system, implementation
of the [video gaming terminal] central system, and ongoing testing, certification, and implementation of the G2S protocol for the central system” and “[c]ompare cost of testing in Illinois to jurisdictions with multiple labs.” However, beyond Ostrowski’s review for his
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¶ 15 On September 27, 2016, the Board issued two RFPs to award contracts under the testing provisions of the Gaming Act and Gambling Act. Both RFPs indicated that the Board may issue one three-year contract or multiple three-year contracts with laboratories. Each RFP included a ranking system that awarded points based on different factors, including a laboratory’s experience and qualifications in the gaming industry, its understanding of the testing required, and its financial
stability. According to the RFPs, a score of 900 was required to even be considered for the contracts. BMM, GLI and a third company submitted proposals.
¶ 16 On January 17, 2017, Pellum sent memorandums to members of the Board regarding the RFPs, asserting that only BMM and GLI were substantively considered as the third company was unable to comply with the Procurement Code’s registration requirements. Pellum stated that, based on an evaluation of GLI and BMM, only GLI had scored above 900 points. Pellum added that he submitted this information to the procurement office, who was notified that “this item has been
included in the January 25, 2017 Closed Session Board Meeting Agenda and the announcement of the Award will become public at the January 26, 2017 Open Session Board Meeting.” On January
20, 2017, the Board posted a notice for both RFPs, indicating its intent to award both contracts to
GLI, pending the full approval of the Board, which came the following week.
¶ 17 C. The Early Stages of Litigation
¶ 18 In February 2017, after unsuccessfully bidding for the contracts and believing that improprieties occurred in the procurement process, BMM filed a formal protest with the State’s chief procurement officer. Later in the month, BMM also filed a complaint against the Board raising multiple counts, including one for administrative review, alleging that the Board’s decision
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GLI throughout the procurement process. BMM also filed a motion for a temporary restraining
order to enjoin the Board from executing the contracts with GLI. The circuit court granted the motion and eventually enjoined the execution of the contracts until further order of the court. Over
the next year, the parties filed various motions, and the circuit court allowed GLI to intervene in the lawsuit. The Board also filed the administrative record.
¶ 19 In February 2018, BMM filed a motion to amend the administrative record and for discovery sanctions, asserting that, nearly a year into the litigation and right before it was to take
a corporate representative deposition of GLI under Supreme Court Rule 206(a)(1) (eff. Oct. [1], 2019), the Board “produced documents” related to the August 23, 2016, meeting that had been
“previously undisclosed.” These documents included the various e-mails sent to and from staff
and members of the Board discussed earlier. BMM alleged that the meeting was for purposes of discussing the RFPs that were the subject of the instant litigation and the attendees from the Board
“controlled every aspect of the bidding process,” including “drafting the RFPs,” “grading the responsive bids” and “awarding the contract[s] to GLI.” In light of the meeting, BMM requested
that the circuit court disqualify GLI as a bidder, amend the administrative record to reflect the occurrence of the meeting and allow discovery on the meeting.
¶ 20 In the Board’s response, its attorney stated that he had only learned of the August 23, 2016, meeting right before BMM was scheduled to take the corporate representative deposition of GLI.
Once he learned of the meeting, he contacted the Board to ask for all documents related to the meeting and immediately produced them once received. As to the substance of BMM’s motion, the Board argued that the meeting was lawful because GLI only wanted to educate Buske, of the Governor’s office, about GLI’s services. According to the Board, at no time during the meeting
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did anyone discuss the RFPs, no members attended the meeting and no one from GLI assisted in reviewing, drafting or preparing the RFPs. The Board supported these assertions with an affidavit from Burke, its licensing coordinator. Furthermore, the Board acknowledged the e-mail from
Winkofsky to Ostrowski about a possible August 31st meeting, but asserted the agenda concerned
a different meeting proposed by Winkofsky that never occurred. The Board contended that the administrative record did not need to be amended and sanctions were unwarranted.
¶ 21 In May 2018, the circuit court granted BMM’s motion to amend the administrative record, finding that the e-mails produced by the Board were newly discovered evidence relevant to the BMM’s claims about favoritism in the procurement process. The court asserted that the Board’s members must be aware of this information “so that they can put it in context when they’re evaluating these proposals.” The court ordered expedited discovery on the meeting and the parties to confer and submit a proposed remand order to the Board for reconsideration of the awards.
¶ 22 On July 3, 2018, in connection with the circuit court’s order for expedited discovery, GLI produced a privilege log that contained 19 e-mails and 1 attachment being privileged as attorney- client communications. Only 14 of those communications (13 e-mails and the 1 attachment)
pertained to the August 23, 2016, meeting. Included in these e-mails from GLI were: Kornett, GLI’s director of technical compliance; LaBrocca, GLI’s senior director of engineering; Kevin Mullally, GLI’s vice president of government relations and general counsel; James Maida, GLI’s president; and Christine Gallo, GLI’s vice president of quality assurance. Included in these e-mails from Greenberg Traurig, who represented GLI, were: Sabol, Winkofsky and Braun, all three attorneys and registered lobbyists, as well as Mattison, an attorney but not a registered lobbyist.
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¶ 23 One category of communications included three e-mails and one attachment sent among
Kornett, LaBrocca and Mullally in mid-August 2016. 3 A second category included two early
August 2016 e-mails sent between Sabol and Mullally, which also had copied Kornett, LaBrocca, Winkofsky, Braun, Mattison, Maida and Gallo. A third category included one e-mail sent among
Sabol, Winkofsky and Mullally in mid-August 2016. A fourth category included seven e-mails sent among Sabol, Winkofsky, Braun, Mattison, Mullally and Maida in late July and early August
2016. In one of those e-mails, Amber Davis, a paralegal and assistant of Winkofsky, was blindcopied. In the privilege log, GLI contended that the e-mails, including the attachment, were privileged as attorney-client communications because they contained discussions about legal strategy and advice related to the August 23, 2016, educational session with the Governor’s office and a potential August 31, 2016, educational session with the Board.
¶ 24 Later in July 2018, the circuit court entered a remand order requiring the Board to reconsider its award of the two contracts to GLI based on the newly discovered evidence related to the August 23, 2016, meeting. This evidence included not only the various e-mail communications but also related depositions. The court also ordered the Board to consider making an adverse inference that the procurement process was “tainted” by its staff’s alleged bias.
¶ 25 Meanwhile, after the prior testing contracts with GLI expired, the Board extended them
because the circuit court’s temporary restraining order prevented the Board from executing the new contracts with GLI. Eventually, the procurement office informed the Board that it could not extend the contracts anymore, so the Board executed emergency contracts with GLI. In September
2018, on remand from the circuit court, the Board voted unanimously to affirm its prior decision