Economic Loss Doctrine Prevents Set-Off Under Illinois’ Joint Tortfeasor Contribution Act

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Kevin Driscoll (“Driscoll”), the court-appointed receiver of AlphaMetrix Group, LLC (“AMG”), sued AMG’s former lawyers Juris Kins and Davis McGrath, LLC for legal malpractice.  The defendants moved to resolve the question of whether they were entitled to a set-off under Illinois’ Joint Tortfeasor Contribution Act (the “Act”), arguing that they could set-off up to $4 million due to a previous settlement agreement between Driscoll and former officers of AMG.  The Northern District of Illinois held that the Act did not apply because of the prior settlement related to breach of contract and breach of fiduciary duty claims.   It explained that, under the Act, “[w]hen a release or covenant not to sue […] is given in good faith to one or more persons liable in tort arising out of the same injury […] it reduces the recovery on any claim against the others to the extent of any amount stated in the release.”  740 Ill. Comp. Stat. 100/2(c).  Moreover, under the economic loss doctrine, “[w]hen only economic loss is incurred, the plaintiff may only raise contract theories even if the defendant’s alleged conduct constituted a tort as well as a breach of contract.”  Id. at 3.  In this case, the Court found that “no matter how Defendants creatively reframe the Receiver’s allegations [against the former officers], the claims could not have been brought in tort.”  Id.  Consequently, the lawyers were not entitled to set-off the prior settlement of claims against the former officers.

Driscoll v. Kins, No. 16 C 9359, 2019 WL 4014089 (N.D. Ill. Aug. 26, 2019)

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

 

 

Plaintiffs Entitled to Substantial Deference in Choice of Forum

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Rebecca Kujawa (“Kujawa”) sued attorney John Hopkins (“Hopkins”) in the Circuit Court of Madison County, Illinois for legal malpractice in an underlying medical malpractice matter.  Hopkins moved to transfer the case to Effingham County for forum non conveniens.  Among other things, Hopkins asserted that the underlying medical malpractice occurred in Effingham county, that essential witnesses and records relevant to the underlying case were located there, and that jurors in that county had an interest in determining whether their local medical providers were negligent.  Kujawa countered that Hopkins resided in Madison County, that his alleged malpractice took place there, that the parties would be inconvenienced by having to travel to Effingham County, and that the people of Madison county had an interest in determining whether their local attorneys committed legal malpractice.

The motion was denied, and the Appellate Court of Illinois, Fifth District, affirmed.  It explained that a plaintiff’s choice of forum “is entitled to substantial deference and should rarely be disturbed,” although it is entitled to “somewhat less deference when the plaintiff chooses a forum other than his place of residence or the location where some part of the action arose.”  Id. at ¶ 18.  Beyond that, neither public nor private factors strongly favored transfer.  As to private factors, the Court noted that Hopkins had an office across the street from the Madison County courthouse and that no medical witness in the underlying matter had provided an affidavit attesting to the inconvenience of attending trial there.  Furthermore, Hopkins had not demonstrated that any records in Effingham county could not be easily transported or electronically transmitted to Madison County.  As for public factors, such as local interest in deciding local matters, the Court found no abuse of discretion.

Kujawa v. Hopkins, 2019 IL App (5th) 180568, appeal denied, 135 N.E.3d 566 (Ill. 2019)

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

 

Breach of Contract May Be Plead in the Alternative to Legal Malpractice, but Punitive Damages are not an Option

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Signal Financial Holdings LLC and Signal Funding LLC (together “Signal”) accused a former Signal executive, Farya Jafri (“Jafri”), of misappropriating trade secrets while separating from Signal and using them to compete against Signal.  Signal sued Jafri as well as the law firm Sugar Felsenthal Grais & Helsinger LLP (“Sugar”) for allegedly aiding Jafri in this scheme.  Sugar moved to dismiss the various counts against it.  The United States District Court for the Northern District of Illinois granted the motion in part, and denied in part.  It denied the motion with respect to legal malpractice, explaining that “Signal alleges two clear incidents where a conflict was present” and “plausibly demonstrates that the Firm’s conflict of interest caused Signal’s injuries.”  Id. at 5.  It also allowed a breach of contract claim to stand exclusively in the alternative to the count for legal malpractice as “a complaint against a lawyer for professional malpractice may be couched in either contract or tort and… recovery may be sought in the alternative.”  Id. at 6.  Conversely, the Northern District granted dismissal of the count for breach of fiduciary duty, which was duplicative since “Illinois law prohibits claiming legal malpractice and breach of fiduciary duty based on the same facts.”  Id.  Lastly, the Court struck all claims for punitive damages because under Illinois law, “in all cases whether in tort, contract, or otherwise, in which the plaintiff seeks damages by reason of legal… malpractice, no punitive, exemplary, vindictive or aggravated damages should be allowed.”  Id. at 8, 735 ILCS 5/2-1115.

Signal Fin. Holdings LLC v. Looking Glass Fin. LLC, No. 17 C 8816, 2019 WL 6467323 (N.D. Ill. Dec. 2, 2019)

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

Willful-and-Deliberate Standard Applies to Court-Appointed Receivers

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Nutmeg Group, LLC (“Nutmeg”) was the investment advisor and sole general partner for several investment funds.  Each fund was either an Illinois or Minnesota limited partnership.  In 2009, the SEC brought an enforcement action against Nutmeg and others for misappropriation of client assets and failure to maintain proper records.  The Northern District of Illinois appointed Leslie Weiss (“Weiss”) as receiver for Nutmeg.  Nutmeg’s former manager and limited partners from certain funds sued her and others for breach of fiduciary duties.  Weiss moved successfully to dismiss some claims, and then won summary judgment on the rest.

The Seventh Circuit affirmed, applying Illinois law.  It explained that because Illinois and Minnesota had both adopted the Uniform Limited Partnership Act and the plaintiffs had not identified any conflicts in those states’ interpretation thereof, “we would reach the same conclusions under Minnesota law.”  Id. at 1001.  However, the Seventh Circuit found no Illinois case addressing the standard of care applicable to a court-appointed receiver, and so had to discern what standard the Illinois Supreme Court would adopt if presented with the issue.  In so doing, the Court chose to apply the “willful and deliberate” standard.  It reasoned that, “if a receiver is burdened with having to defend against suits by litigants disappointed by his actions on the court’s behalf, his work for the court will be impeded.”  Id. at 1003.  This standard reflects “the reality that receivers are often appointed to take charge of entities with which they have had no prior involvement: imposing personal liability for mistakes in business judgment could discourage competent individuals from acting as receivers.”  Id. at 1003-1004.  Applying that standard, the Seventh Circuit held that “our ultimate conclusion—that no reasonable jury could find that Weiss engaged in a willful, deliberate, or even grossly negligent breach of a fiduciary duty—applies with equal force to the totality of the plaintiffs’ claims on appeal.”  Id. at 1007.  It highlighted at various points that, “the plaintiffs […] did not bring forth evidence to show that a jury could find that those decisions reflected a willful, deliberate, or grossly negligent breach of her fiduciary duties,” and that “a poor business decision falls well short of demonstrating either a willful and deliberate or even a grossly negligent breach.”  Id. at 1006.

Alonso v. Weiss, 932 F.3d 995 (7th Cir. 2019)

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

Tenancy by the Entirety not Exempt in Bankruptcy

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Laverne Williams (“Williams”) sued her former attorney Scott Jaffe (“Jaffe”) for legal malpractice.  She obtained a default judgment against him and recorded her judgment on a property that Jaffe and his wife owned as tenants by the entirety.   Jaffe then filed for chapter-seven bankruptcy, but his wife died before the proceedings were complete.  According to Illinois law, this converted Jaffe’s tenancy by the entirety to a fee-simple interest.  Jaffe insisted his property was exempt from the bankruptcy proceeding, as his interest had been a tenancy by the entirety when the bankruptcy commenced.  Williams responded that Jaffe’s property was not exempt even as a tenancy by the entirety because federal bankruptcy law “looks to state law to determine whether a tenancy property is exempt,” and Illinois “does not exempt contingent future interests” like Jaffe’s.  Id. at 605.  The District Court disagreed, and Williams appealed.

The Seventh Circuit disagreed with the District Court.  Illinois law, the Court explained, states that “judgment liens may attach to ‘real estate’ and defines ‘real estate’ broadly to include all lands, tenements, hereditaments, and all legal and equitable rights therein.”  Id. at 607.  Additionally, the Illinois legislature had “enumerated the precise interests tenants by the entirety enjoy individually, including the following contingent future interests:  (a) an interest as a tenant in common in the event of a divorce, (b) an interest as a joint tenant in the event that another homestead is established, and (c) a survivorship interest in the entire property in the event of the other tenant’s death.”  Id. at 605.  Therefore, the Seventh Circuit concluded that “contingent future interests” such as Jaffe’s “fall within the statute’s broad definition of ‘real estate,’” and so were subject to judgment liens.  Id. at 605.  Thus, the District Court’s decision was reversed and remanded.

In re: Jaffe, 932 F.3d 602 (7th Cir. 2019)

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

Conspiracy Requires Knowing the Co-Conspirators, Malpractice Requires Knowing the Underlying Outcome

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Natalja Vildziuniene (“Vildziuniene”) sued attorney Bradley Foreman (“Foreman”) for conspiracy to commit fraud and legal malpractice.  Specifically, she alleged that Foreman conspired to defraud her, breached the duty of care, and represented her in various court proceedings without her knowledge.  Foreman moved successfully to dismiss these counts and Vildziuniene appealed.  The Appellate Court of Illinois, First District, affirmed.  With respect to the conspiracy to commit fraud, it stated that Vildziuniene’s accusations were a “mere characterization of acts as a conspiracy.” Id. at ¶47.  Moreover, “there were no allegations that Foreman knew the other defendants, spoke with the other defendants, or knew anything about the allegedly fraudulent purpose behind these” supposedly fraudulent transactions.  Id. at ¶50.  Regarding the alleged malpractice, the Appellate Court noted that “there are no allegations as to what happened in any of the cases in that Foreman allegedly represented plaintiff” such as whether Vildziuniene even prevailed in those matters.  Id. at ¶54.  It was therefore impossible to ascertain whether she would have prevailed in the underlying actions but for Foreman’s negligence.

Vildziuniene v. Rieff, 2019 IL App (1st) 181324-U

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

Attorney’s Omissions or Inaction May Constitute Fraudulent Concealment

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Robert Brandolino (“Brandolino”) retained Douglas Schlak (“Schlak”) to assist him in a real estate sale.  Brandolino held a life estate in the property to be sold, while his three sons (the “Plaintiffs”) held remainder interests.  The Plaintiffs granted Schlak power of attorney so that he could represent them and their father in the transaction .  When the sale was concluded, Brandolino gave each son $100,000, which they believed was a gift for their help in facilitating the sale.  Thirteen years later, however, the Plaintiffs discovered previously unknown papers in Brandolino’s home explaining their true interest in the property.  These included several documents signed by Schlak on the Plaintiffs’ behalf without their knowledge or consent, tax and closing forms, and papers explaining that Brandolino’s supposed gift to the Plaintiffs was actually payment for their interest in the property.

The Plaintiffs sued Schlak for legal malpractice.  They alleged that Schlak never explained their interests to them or advised them to seek separate counsel given the possible conflict with Brandolino’s interests.  Rather Schlak purportedly induced them not to attend the closing, signed documents on their behalf without permission, failed to deliver various documents to them after the sale, and otherwise intentionally withheld material information.  Had they been properly counseled, the Plaintiffs insisted they would have demanded more money for their remainder interests.

Schlak moved to dismiss the Plaintiffs’ complaint as untimely, since it had been filed more than thirteen years after his alleged malpractice.  At hearing, the Court explained that “in Illinois, a statute of repose provides that legal malpractice claims ‘may not be commenced in any event more than 6 years after the date on which the act or omission occurred.’” Id. at 2, 735 ILCS 5/13-214.3(c).  However, the Court noted that fraudulent concealment tolls the statute of repose “until the plaintiff has had a reasonable opportunity to discover the malpractice.”  Id. at 3, 735 ILCS 5/13-215.  Here, the Plaintiffs argued that Schlak’s deliberate failure to provide them with material information relating to the property sale constituted fraudulent concealment, which tolled the statute of repose until they uncovered the fraud many years later.  Schlak countered that fraudulent concealment requires “affirmative actions, as opposed to mere silence.”  Id.  The Court conceded that Schlak’s position is generally correct, except where two parties maintain a special relationship like that of an attorney and client.  In this case, the Court held that discovery could reveal Schlak’s actions or lack thereof amounted to fraudulent concealment that prevented the Plaintiffs from discovering their claim.  Schlak’s motion to dismiss was therefore denied.

Brandolino v. Schlak, No. 19-CV-00102, 2019 WL 3287891 (N.D. Ill. July 22, 2019)

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