Plaintiff in a Legal Malpractice Case Cannot Obtain Recovery That Would Make It Better off Than If It Had Been Successful in the Underlying Matter
Hilco Capital, LP (“Hilco”) entered into a junior secured credit facility to provide financing to Payless Cashways (“Payless”). It did so in reliance upon certifications Payless had given to another one of its financiers. However, Hilco was unaware that Payless was actually near insolvency. Before making any payments to Hilco, Payless filed a voluntary Chapter 11 petition. Hilco retained counsel to pursue claims against the officers of Payless, which was covered by three layers of insurance valued at $10 million each. Hilco ultimately executed a settlement agreement drafted by attorneys Terence Thum (“Thum”) and Lawrence Eagel in reliance upon their advice. Id. at ¶14-17. Subsequent to entry of judgment, one of Payless’ insurers refused to pay and won a declaratory action to that effect. Hilco then sued several defendants for legal malpractice. After multiple amended complaints and motions, only one count of Hilco’s third amended complaint against Thum and his law firm Bryan Cave, LLP remained. These defendants were ultimately granted summary judgment.
On appeal, Hilco first argued that the Trial Court should not have granted defendants’ motion to dismiss or limited its damages. The Appellate Court disagreed, explaining that the amount to which Hilco believed it was entitled was higher than what it would have actually recovered and that “a plaintiff who obtains recovery in a legal malpractice case can be in no better position by bringing suit against the attorney than if the underlying action against the third-party had been successful.” Id. at ¶60. Hilco next argued that the Court erred in striking allegations concerning the defendants’ failure to disclose conflicts of interest. Id. at ¶63. The Appellate Court disagreed there as well because the allegations in question had not been asserted until Hilco’s third amended complaint. That complaint had been filed five years after the applicable statute of limitations had expired and after discovery “had been closed for an extended period of time,” thereby denying sufficient notice to the defendants. Id. at ¶67. Hilco’s third grievance was that the Court should not have partially granted defendants’ motion for summary judgment and further limited its damages. Id. at ¶70. There too the Appellate Court disagreed. Per the Illinois Joint Tortfeasor Contribution Act, a good-faith settlement reduces the recovery of a nonsettling tortfeasor to the extent of the amount stated in the release or actually paid for it. n the underlying action, Hilco executed a settlement agreement with one of Payless’ insurers that capped its potential recovery as a percent of money recovered from one of the other insurers. Id. at ¶74. Consequently, the Appellate Court affirmed that damages should have been limited further. Finally, Hilco asserted that the Court erred in granting the defendants’ motion for summary judgment on its legal malpractice claim. The Appellate Court affirmed on that point as well. It explained that Hilco could not prove a causal link between the defendants’ actions and its damages. “It does not necessarily follow,” the Appellate Court clarified, “that defendants’ allegedly negligent advice… was the proximate cause of the loss…” Id. at ¶82.
(This is for informational purposes and is not legal advice.)