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CLO’s Wage Arbitration Did Not Bar Employer’s Malpractice Suit Under Res Judicata

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Richard Fisher (“Fisher”) was the Chief Legal Officer for UFT Commercial Finance, LLC (“UFT”).  UFT’s CEO was Joanne Marlowe (“Marlowe”) (together with UFT, “the Plaintiffs”).  As CLO, Fisher allegedly advised the Plaintiffs they did not need directors and officers insurance (“D&O Insurance”) and that such insurance would not protect Marlowe from personal liability should the company lose a wage claim or something similar.  Fisher also drafted employment agreements for UFT, some of which included supplements with accrual and deferment provisions.  He also drafted and executed his own agreement.  During Fisher’s third year as CLO, Marlowe told Fisher his employment would not be extended and Fisher resigned. Fisher then initiated arbitration proceedings against UFT and Marlowe for wages owed.  The arbitrator found the Plaintiffs jointly and severally liable to Fisher, with UFT individually liable for an additional sum.  In response, the Plaintiffs sued Fisher for professional negligence in that he, among other things, failed to fully and properly advise them of the legal consequences of the employment agreements and arbitration clauses, failed to advise them of the conflict of interest he had in executing his own agreement, and wrongly discouraged their purchase of D&O insurance.  Fisher moved for dismissal and sanctions.

Fisher first argued that the earlier arbitration award barred the Plaintiffs’ action under res judicata.  The Court disagreed, explaining that the arbitration concerned whether Fisher was entitled to wages while the instant case concerned whether Fisher was negligent in giving, or failing to give, legal advice.  The court also did not agree that the majority of the Plaintiffs’ claims were time-barred by the two-year statute of limitations for legal malpractice since the Plaintiffs “could not have reasonably known that they were injured until they lost the arbitration.”  Id. at 5.  Nevertheless, allegations of negligence related to Fisher’s employment agreement were still barred by the six-year statute of repose for legal malpractice because UFT and Marlowe filed suit more than six years after it was executed.  The Court also held that Fisher did not owe a duty to Marlowe since “[a]n attorney for an organization owes a duty to the organization, and not its individual shareholders, officers, or directors” unless that individual is an intended third-party beneficiary.  Id. at 6.  Moreover, the Court agreed that the Plaintiffs failed to establish proximate causation as to their use of supplemental employment agreements, not acquiring D&O Insurance, and not retaining independent counsel. Regarding employment agreements, the Court held that the Plaintiffs failed to allege damages from the agreements with employees other than Fisher himself.  However, the Court denied Fisher’s motion for sanctions.  It explained that it did “not believe that the claims brought by Plaintiffs are wholly baseless or frivolous” or that “this suit was brought for the sole purpose of harassing and embarrassing Fisher.”  Id. at 8.

UFT Commercial Fin., LLC v. Fisher, No. 19 C 7669; 2020 WL 2513097 (N.D. Ill. May 15, 2020)

(This is for informational purposes and is not legal advice.)

 

 

 

Defendant May File Untimely Counterclaim if Plaintiff’s Claim Arose Before Counterclaim Was Barred

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Paul Abramson (“Abramson”) had hired attorney Alisa Levin of Levin Law, Ltd. (together “Levin”) in October, 2015, but terminated Levin after a dispute arose over the amounts billed.  In March, 2017, Abramson published a scathing review on Levin Law’s Yelp profile.  Levin published a response and sued Abramson for defamation and false light invasion of privacy.  Abramson then counterclaimed for legal malpractice, breach of fiduciary duty, and defamation. Levin moved to dismiss Abramson’s counterclaims.  Id. at 1.

Levin argued that Abramson’s counterclaims were time-barred and failed to state a claim. The Court disagreed as to timeliness, citing  735 ILCS 5/13-207, which “specifically states that the defendant in a lawsuit is permitted to bring a counterclaim that would otherwise be barred by the statute of limitations” provided the plaintiff’s claim arose “before the cause of action brought as a counterclaim was barred.”  Id. at 4.  With respect to Abramson’s claims for legal malpractice and breach of fiduciary duty, the Court held that even if their accrual had begun in December, 2015 when Levin’s representation of Abramson ended, the two-year statute of limitations for claims arising out of the provision of legal services would not have ended until December, 2017.  However, Levin’s claims arose when the Yelp review went up in March, 2017 and so were timely.  Id. at 5.  The court reached the same conclusion as to Abramson’s defamation claim.  Id. at 4.

Though not time-barred, the Court did conclude that Abramson had failed to state claims for legal malpractice and breach of fiduciary duty.  Specifically, Abramson’s claim for legal malpractice did “not explain how he lost the case or why Levin’s actions caused him to lose” nor did it explain how he “would have prevailed on the underlying claim in the absence of [Levin’s] missteps.”  Id. at 12.  His claim for breach of fiduciary duty likewise “fail[ed] to plausibly allege that this breach proximately caused any injury.”  Id. at 13.

Levin v. Abramson, No. 18-cv-1723, 2020 WL 2494649 (N.D. Ill. May 13, 2020)

(This is for informational purposes and is not legal advice.)

Failure to Return Clients’ Documents Covered by Two-Year Statute of Limitations

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The law firm Deer, Stone & Maya (“DSM”) represented Carlos Rocha and Arize 11, Inc. (together “Plaintiffs”) in various matters related to their business with FedEx.  Id. at ¶13. Plaintiffs sued DSM for conversion, among other things, claiming that DSM failed to return certain legal files to them.  Id. at ¶79.  DSM moved to dismiss this claim as untimely, and the motion was granted.

On appeal, DSM maintained that the conversion claim was governed by the two-year statute of limitations for acts or omissions in performance of professional legal services. Id. at ¶82.  The appellate court agreed, citing various allegations in the complaint such as when the plaintiffs “made repeated demands of DSM for the sale agreement and other documents […] and neither Deer nor Stone complied.”  Id.  Moreover, the plaintiffs’ brief described the conversion count as “aris[ing] solely from the DSM Defendants’ assumption of unauthorized control and dominion over undisbursed amounts deposited in DSM’s client trust account for Plaintiffs and Plaintiffs’ legal files and other documents never returned on account of DSM’s unsubstantiated claim for fees.”  Id., (emphasis added by court).

As for whether the statute of limitations had passed, the court noted that the allegations in the plaintiffs’ conversion count were similar to the allegations in a termination letter Rocha sent to Jeffrey Deer of DSM in May, 2012.  Id. at ¶85.  Thus, “the statute of limitations period against the DSM defendants commenced at the latest in May 2012, when Rocha sent the termination letter.”  Id.  Plaintiffs countered that the statute of limitations should have tolled in this matter due to their need for discovery, but they cited no case law supporting this assertion.  Id. at ¶86.  Consequently, the argument was forfeited.

Rocha v. FedEx Corp., 2020 IL App (1st) 190041

(This is for informational purposes and is not legal advice.)

 

Jury Instruction Is Harmless Error Unless Plaintiff Shows Verdict Is Unsustainable On All Other Defenses Presented

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Whirlpool Corporation (“Whirlpool”) requested an opinion from attorney William Rucker (“Rucker”) on whether certain products it imported would be subject to new duties imposed by the U.S. Department of Commerce.  Rucker responded that he believed the products were not subject to these duties and so Whirlpool continued to import them.  However, a shipment of the product was later tagged as subject to the new duties, forcing Whirlpool to pay duty deposits of 407% of their value.  Id. at ¶7.  Whirlpool retained new counsel and sued Rucker and his firm, Faegre Drinker Biddle & Reath LLP (together with Rucker, “the Defendants”), for legal malpractice.  The jury returned a verdict in favor of the Defendants.

Whirlpool appealed, arguing that the Trial Court made multiple errors, including giving a jury instruction on the “informed judgment” defense.  Id. at ¶49.  The Appellate Court affirmed.  With respect to the “informed judgment” defense, it explained that “[u]nder the two-issue rule, where the jury returns a general verdict, multiple claims or defenses were presented to the jury, and the challenging party did not request a special interrogatory that would test the basis of the jury’s verdict, the verdict will be upheld so long as there was sufficient evidence to support any one of the presented claims or defenses.”  Id. at ¶51.  In such a situation, the Appellate Court continued, “unless plaintiff can show that the jury’s verdict cannot be sustained on any of the other defenses presented to the jury, we must conclude that any error in giving the informed judgment defense instruction was harmless.”  Id.  Here, no special interrogatories were given to the jury that would reveal the basis of the verdict and Whirlpool made no arguments that the jury’s verdict could not be sustained on the other defenses presented.  Id. at ¶61.  As for the other errors alleged by Whirlpool, the Appellate Court held that it “need not address these issues” because “even if plaintiff is correct… they would not have affected the outcome of the trial because the jury’s verdict can be sustained on the unrelated grounds of general negligence, causation, and plaintiff’s contributory negligence.”  Id. at ¶66.

Whirlpool Corporation v. Faegre Drinker Biddle & Reath LLP & William Randolph Rucker, 2020 IL App (1st) 191042-U

(This is for informational purposes and is not legal advice.)

Attorney May Testify as Expert on Standard of Care, Not on Legal Conclusions that Determine Outcome of the Case

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Clay Cox (“Cox”), successor trustee for a coop formed to build and operate an ethanol facility, sued attorneys Michael Evans and Nancy Schell and their law firm, Froehling, Weber, Evans & Schell, LLP, (together “Defendants”) for legal malpractice. Defendants designated attorney Walker Filbert (“Filbert”) as their expert witness concerning whether Defendants “met the standard of practice for attorneys practicing law in central Illinois and that their conduct did not proximately cause any injury to the Coop.” Id. at 6. Cox moved to bar Filbert’s testimony, memorandum in support, and Defendants’ response. The motion was granted in part and denied in part.

In ruling on Cox’s motion, the Court applied the Daubert analysis, which requires evaluation of “(1) the proffered expert’s qualifications; (2) the reliability of the expert’s methodology; and (3) the relevance of the expert’s testimony.” Id. at 7, see Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). With respect to Filbert’s qualifications, Cox argued that his “experience as a lawyer in central Illinois and a CEO of an ethanol company” did not qualify him to give testimony in this matter because he had “no experience with professional responsibility and legal malpractice.” Id. at 9. The Court disagreed, explaining that as “a practicing attorney, Filbert would have been required to understand the rules of professional conduct governing his practice of law and to follow those rules. Those obligations encompassed the dispute at issue here—ascertaining the standard of care for an attorney.” Id. at 10. As to Filbert’s methodology, Cox claimed his report was devoid of any proposed methodology and rested “entirely on his alleged expertise as a lawyer, drawing conclusions without any analysis.” Id. The Court sided with Defendants again, holding that Filbert’s opinions “were informed by his legal experience and his knowledge of practicing law in central Illinois” and that his “report and proposed testimony sufficiently link the facts he relies upon with his conclusions so as to be reliable.” Id. at 11. The Court also held that Filbert’s testimony was relevant, as the “touchstone of admissibility under Rule 702 is helpfulness to the jury” and “the lay juror is unlikely to have a strong understanding of the business considerations surrounding the purchase or sale of commercial property” as in this case. Id.

Cox did find success in arguing that some aspects of Filbert’s report “invade[d] the province of the jury and are based upon unsupported assumptions.” Id. Specifically, Cox objected to Filbert’s conclusion that Defendants’ alleged acts or omissions did not proximately cause the damages claimed. The Court agreed that this was an impermissible conclusion, explaining that expert testimony “as to legal conclusions that will determine the outcome of the case is inadmissible.” Id. at 12. It clarified that “while Filbert may not offer an opinion in front of the jury as to proximate cause, he may opine, consistent with his deposition testimony, that market forces and the state of the ethanol industry following the transaction affected the viability of the grain handling facility and the prospects of obtaining financing.” Id.

Cox v. Evans, No. 18-CV-1105-JES-JEH, 2020 WL 2093371 (C.D. Ill. May 1, 2020)

(This is for informational purposes and not legal advice.)

Illinois Legal Malpractice and Defense of Lawyers Blog — Novack and Macey LLP

 

Missing Out on a Possible Jury Instruction is Insufficient to Allege Causation

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Attorney Brian LaFlamme (“LaFlamme”) represented Durwyn Talley (“Talley”), an inmate with the Illinois Department of Corrections, in a civil rights action related to the conditions Talley endured at a correctional center.  Talley sued LaFlamme and the partners of his law firm for legal malpractice in that LaFlamme failed to seek discovery related to one of Talley’s most important grievances.  LaFlamme moved to dismiss for failure to state a claim.

In his motion, LaFlamme argued that Talley did not sufficiently allege causation.  The Court explained that a “plaintiff must set forth a plausible statement not only that a breach of duty occurred but that the breach caused the plaintiff to lose a valid claim or defense in the underlying action and that, absent that loss, the underlying claim would have been successful.”  Id. at 3.  Talley asserted that had LaFlamme tried to obtain “needed discovery on all issues… a negative inference jury instruction as to those issues, would’ve been given against them on those claims.”  Id.  However, this alone was not enough to properly allege that the requested discovery would have led to Talley’s success at trial. Moreover, the record showed that the most recent scheduling order required discovery to be complete more than a month before LaFlamme entered his appearance. Talley also admitted in his complaint that “he repeatedly sought discovery on all claims… before LaFlamme was appointed” to represent him.  Id. at 3.  Consequently, LaFlamme’s motion to dismiss was granted.

Talley v.  LaFlamme, No. 3:19-CV-01359-NJR, 2020 WL 2308258 (S.D. Ill. May 8, 2020)

(This is for informational purposes and is not legal advice.)

Defendant May Not Sue His Public Defender for Legal Malpractice in a Civil Rights Suit

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Louis Reed (“Reed”), an inmate of the Illinois Department of Corrections, sued state’s attorney Dora Mann (“Mann”), his public defender Judy Steele (“Steele”), Susan and Don Wall (the “Walls”), and Judge Ronald Slemer (“Judge Slemer”) under 42 U.S.C. § 1983 for alleged deprivation of his constitutional rights during his sentencing hearing.  Reed asserted that the Walls wrote a letter containing false statements to Judge Slemer, who presided over the hearing.  Mann allegedly placed the letter into Reed’s file as a victim impact statement despite knowing the Walls were not victims, and Steele permitted this without alerting Reed until five minutes before his hearing.  Judge Slemer then allowed the letter to be read at the hearing. Reed asserts this caused him to be sentenced more severely, and sought monetary damages.

The United States District Court for the Southern District of Illinois dismissed with prejudice, explaining that “none of these individuals […] can be sued for damages pursuant to Section 1983.”   Id. at 1.   With respect to Steele, the court explained that “the law is clear that a party may not sue his attorney for legal malpractice in a civil rights suit, and this principle holds true even if that attorney was court-appointed and employed by the state.”  Id.   As for Judge Slemer and Mann, the court stated that judges are protected by absolute judicial immunity when being sued solely for a judicial act and that a prosecutor is immune from a civil suit for damages under Section 1983 for simply initiating prosecution and presenting the State’s case.  The Walls were likewise improper defendants because Reed did not indicate that they were acting under the color of law when they wrote their letter.  Even if that could be proven, any alleged slander or defamation “are not actionable under Section 1983.”  Id.

Reed v. Wall, No. 19-cv-01190-NJR, 2020 WL 2129962 (S.D. Ill. May 5, 2020).

(This is for informational purposes and is not legal advice.)

 

The Attorney Litigation Privilege in Action

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Randy Brown (“Brown”) sued his former attorney, Elizabeth Bacon (“Bacon”), for malpractice.  During that litigation, Bacon’s counsel, Thomas McGarry (“McGarry”), sent allegedly defamatory letters to Brown’s attorneys, including Ed Clinton (“Clinton”). Brown then sued McGarry and his firm for defamation.  The trial court dismissed, holding that McGarry’s statements were protected by the litigation privilege.  The appellate court affirmed.  It explained that the attorney litigation privilege applies to publications (1) made in a judicial proceeding, (2) that have some connection or logical relation to the action, (3) that are made to achieve the objectives of the litigation, and (4) that involve only litigants or other participants authorized by law.

To the first element, Brown argued that the communications were not made in a judicial proceeding because Clinton no longer represented him when he received them.  The appellate court disagreed, stating “the only requirement is that the communication pertain to proposed or pending litigations.”  Id. at ¶30.  Here, the communications in question “clearly pertained to an ongoing judicial proceeding.”  Id. at ¶31.  Brown lost on the second point as well because the letters in question “both relate[d] directly to the merits” of the malpractice litigation.  Id. at ¶38.  As for the third factor, the appellate court held that McGarry’s communication was made to achieve the objectives of the litigation by “resolv[ing] the Malpractice Litigation favorably for his client without a potentially expensive and time-consuming appeal” and “apparently sought to secure Clinton’s cooperation in confirming that plaintiff made statements in open court that were refuted” by Bacon.  Id. at ¶32.  As to the last element, Brown asserted that McGarry’s communications with Clinton went to an e-mail account Clinton allegedly shared with nine other people.  However, a representative from Clinton’s e-mail provider confirmed that usernames are unique and that it does not permit the sharing of master accounts. “At most,” the Court concluded, “a third party might have gained unauthorized access to Clinton’s email account […] but, even if true, it would not defeat the litigation privilege.” Id. at ¶42.

Randy M. Brown v. Thomas P. McGarry & Hinshaw & Culbertson, LLP 2020 IL App (1st) 190427-U

(This is for informational purposes and is not legal advice.)

Related Litigation Did Not Forestall Suit for Legal Malpractice

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Joseph Mizrachi (“Mizrachi”) retained attorney Lawrence Ordower (“Ordower”) to represent him in connection with his plan to invest in an LLC. Mizrachi intended the transaction to give himself, Ordower, and Seymour Holtzman (“Holtzman”) equal ownership interests in the LLC. After the transaction, however, Mizrachi alleged that Ordower and Holtzman converted his ownership share for their own use. Mizrachi sued Ordower and his law firm for legal malpractice and breach of fiduciary duty.  Id. at 1.

At the time, lawsuits involving the same underlying transaction were pending in Florida and California as well. Ordower moved to stay Mizrachi’s lawsuit.  He explained that Mizrachi’s entitlement to damages for legal malpractice depended upon the outcome of one or both of the other two lawsuits and that Illinois law did not permit recovery for legal malpractice or breach of fiduciary duty without damages.  Id. at 2.  Mizrachi responded that he had already been injured when he paid $1.3 million for rights he did not receive.  He added that Ordower was not even a party to the Florida case, and that the Florida case had been stalled by the inaction of another party. The motion was denied.

Ordower later renewed his motion to stay.  His arguments were “largely the same as before,” except that he had become a party to the Florida matter and that it had progressed.  Id.  The Court rejected this distinction.  As previously, “no case cited by Ordower holds or suggests that a client must prosecute a separate lawsuit against the lawyer or others before he can sue the lawyer for malpractice—let alone for breach of fiduciary duty.”  Id. at 4.  In addition, the Court considered ten factors as to whether exceptional circumstances warranted abstention.  One of two factors favoring abstention was that “the Florida case […] could resolve the parties’ claims to the Brentwood LLC interests—though it might not definitively resolve everything […].”  Id. at 5.  However, eight factors weighed against abstention including that Ordower did not become a party to the Florida case until over a year after Mizrachi filed the present action and that the Florida case had languished for so long.  The motion was therefore denied.  Ordower later renewed his motion to stay.  His arguments were “largely the same as before,” except that he had become a party to the Florida matter and that it had progressed.  Id. The Court rejected this distinction.  As previously, “no case cited by Ordower holds or suggests that a client must prosecute a separate lawsuit against the lawyer or others before he can sue the lawyer for malpractice—let alone for breach of fiduciary duty.”  Id. at 4.  In addition, the Court considered ten factors as to whether exceptional circumstances warranted abstention. One of two factors favoring abstention was that “the Florida case […] could resolve the parties’ claims to the Brentwood LLC interests—though it might not definitively resolve everything […].”  Id. at 5. However, eight factors weighed against abstention including that Ordower did not become a party to the Florida case until over a year after Mizrachi filed the present action and that the Florida case had languished for so long.  The motion was therefore denied.

Mizrachi v. Ordower, No. 17 C 8036, 2020 WL 1914646 (N.D. Ill. Apr. 19, 2020)

(This is for informational purposes and is not legal advice.)

 

A Plaintiff not Prosecuted or Threatened with Prosecution Lacks Standing to Contest the Prosecution or Nonprosecution of Another

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Attorney Louis Fasullo (“Fasullo”) was arrested and Assistant Public Defender Rojelio Garza (“Garza”) was assigned to represent him.  Fasullo complained to the Attorney Registration and Disciplinary Commission (“ARDC”) that Garza was not communicating with him.  The ARDC investigated Fasullo’s complaint, but concluded that it “would be unable to show […] that Mr. Garza neglected [Fasullo’s] defense or that he failed to communicate with [Fasullo] in a reasonable manner.”  Id. at ¶11.  Nevertheless, Fasullo was late to a hearing, which resulted in him being jailed for 18 days.  Among other things, Fasullo blamed his tardiness on “failure of his public defender to adequately and timely communicate the court date to him.”  Id. at ¶10.  Fasullo filed a pro se action for a declaratory judgment against the ARDC for its failure to discipline Garza.  Id.  The ARDC moved successfully to dismiss for lack of standing and failure to state a claim.

On appeal, Fasullo argued that the circuit court erred because “the judge did not declare Rights just, and fair, and denied [Fasullo] the cause of action which recovery might be had” and “did not allow discovery, and dismissed the complaint […].”  Id. at ¶19.  The Appellate Court of Illinois, First District, responded that “Fasullo misunderstood the purpose of a declaratory judgment and wanted the trial court to tell him what cause of action he might have, as opposed to arguing one himself.”  Id. at ¶30.

The court also quoted the Supreme Court of the United States, which said “a private citizen lacks a judicially cognizable interest in the prosecution or nonprosecution of another…[and therefore] lacks standing to contest the policies of the prosecuting authority when he himself is neither prosecuted nor threatened with prosecution.”  Id. at ¶26, (citation omitted).  Here, Fasullo’s brief contained facts “that may have been relevant to a timely claim for legal malpractice or ineffective assistance of counsel, but these are not the claims Fasullo made.”  Id. at ¶27. The court concluded that “the sole authority to impose disciplinary sanctions on attorneys is with the supreme court, and the appropriate forum to investigate the conduct of an attorney and conduct hearings is the Attorney Registration and Disciplinary Commission.”  Id. at ¶28, (citation omitted).

Fasullo v. Attorney Registration and Disciplinary Commission, 2020 IL App (1st) 190670-U

(This is for informational purposes and is not legal advice.)