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Damage

Pleading Dismissal Affirmed, But Plaintiff Given Leave To Try Again

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The First District affirmed the dismissal of a legal malpractice case for failure to plead damage, but reversed the “with prejudice” nature of the dismissal in order to allow plaintiffs to amend their complaint to allege damages caused by alleged malpractice.

The defendant in this legal malpractice litigation drafted and amended trust documents.   Ambiguities in the documents led to litigation over the meaning of the documents.  The trial court dismissed the legal malpractice claim  because the plaintiffs had failed to plead that the lawyer’s negligence caused their damage.   In the Appellate Court, the plaintiffs argued that the defendant’s negligent drafting led them to incur attorney fees litigating the meaning of the documents he drafted.   The appellate court noted that plaintiffs had not pleaded that, if the documents had been properly drafted, they would have incurred lower litigation fees in the trust litigation.  Therefore, it  affirmed the dismissal.   The court, however, held that plaintiffs should be allowed to amend their complaint to make such an allegation.

Iihan Uskup and Timur Uskup v. Joseph C. Johnson, 2020 IL App (1st) 200300

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

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

Facts, facts, everywhere facts. Factual issues preclude summary judgment.

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Joseph Mizrachi (“Mizrachi”) sued attorney Lawrence Ordower (“Ordower”) and Ordower’s law firm for legal malpractice and breach of fiduciary duty. The defendants moved for summary judgment and Mizrachi also moved for summary judgment.

This case involves a very complicated fact pattern in which Ordower and Mizrachi disagreed over whether Ordower represented Mizrachi. The court examined virtually every element of a legal malpractice claim and held that there were issues of fact involving: whether Ordower and Mizrachi had an attorney client relationship; whether Ordower breached any duty to Mizrachi; whether Ordower caused Mizrachi’s alleged damages; and whether Mizrachi had suffered individual damages or whether entities he was associated with had been damaged. The court did conclude that Mizrachi could not recover punitive damages because Illinois law forecloses such claims in malpractice claims and Mizrachi’s breach of fiduciary duty claim also involved alleged legal malpractice.

Mizrachi v. Lawrence Ordower and Ordower & Ordower, P.C., 2020 WL 4607231 (N.D. IL August 11, 2020)

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

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

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

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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.

Hillco Capital, LP v. Bryan Cave, LLP et al., 2020 IL App (1st) 180174-U

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

Law Firm Can Be Held Responsible for Malpractice Against an Insolvent Party

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World Marketing, LLC, World Marketing Atlanta, LLC, and World Marketing Dallas, LLC (together “World Marketing”) retained the law firm Crane, Heyman, Simon, Welch & Clar (“Crane”) and filed petitions for bankruptcy. A putative class of former World Marketing employees sued World Marketing for failure to serve timely notice of plant closings or mass layoffs. The matter was eventually settled and the liquidating trustee for the World Marketing Liquidating Trust (“Trustee”) sued Crane for failing to advise World Marketing of its obligations.

Crane moved for summary judgment, arguing that that only World Marketing’s creditors, not the Trustee, had suffered any actual damages. Crane explained that its alleged failure to advise World Marketing had no practical effect, as World Marketing was going out of business and the claim against it merely “added another unpayable liability onto [its] mountain of unpayable debts.” Id. at 2. Moreover, Crane insisted that in a legal malpractice action based on an attorney’s failure to properly prosecute a claim, “the plaintiff must plead and prove the existence of a solvent defendant in the underlying claim.” Id. at 1. The Court disagreed, explaining that Illinois courts distinguish between legal malpractice claims involving attorneys hired to prosecute rather than defend a claim. In the latter situation, an unpaid judgment constitutes proof of actual damages in a legal malpractice action. Thus, “an insolvent estate can be damaged by a judgment against it,” and the “very fact of entry of judgment constitutes damage and harm sufficient to permit recovery.” Id. at 3.

Crane also asserted that public policy supports its position because the Trustee and its law firm defended against the former employees’ claim in bad faith, which the Trustee denies. Even if that were true, the Court responded, the law provides other remedies in lieu holding that law firms may commit malpractice against insolvent defendants with impunity. Crane’s motion was therefore denied.

Newman as Tr. of World Mktg. Tr. v. Crane, Heyman, Simon, Welch, & Clar, 2020 WL 3250742 (N.D. Ill. June 16, 2020)

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

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

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.)

 

 

 

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.)

 

Legal Fees as a Measure of Damages

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Maria Freda (“Freda”) sued her attorney, Michael Canulli (“Canulli”), in connection with his representation of her during her divorce.  Canulli’s professional liability insurer, the Illinois State Bar Association Mutual Insurance Company (“ISBA Mutual”), initially agreed to defend him.  However, Freda amended her complaint to allege that “‘as a direct and proximate result’ of Canulli’s (1) professional negligence and (2) breach of contract, she had been damaged ‘in an amount in excess of $100,000 in that she has incurred attorney’s fees and costs for useless and unnecessary legal proceedings initiated by *** Canulli.’”  Id. at ¶24.  Per Canulli’s policy from ISBA Mutual, a plaintiff must seek damages against the insured in order to trigger a duty to defend, and legal fees are explicitly excluded from the policy’s definition of damages.  Id. at ¶23.  Consequently, ISBA Mutual filed a declaratory judgment action seeking a finding that it was not obligated to defend Canulli.  The circuit court found in ISBA Mutual’s favor.

On appeal, the Appellate Court of Illinois, First District, held that Freda’s damages were not fees.  It explained that Freda’s damages were “not a consequence of Canulli’s fees but a consequence of his alleged failure to handle [Freda’s] divorce proceedings expeditiously and appropriately—i.e., his negligence and breach of contract in representing her.”  Id. at ¶30, emphasis in original.  In other words, “Freda’s complaint stem[med] from the allegedly negligent way Canulli represented her in the divorce, and it is that negligent representation that caused her to expend more money than necessary.”  Id.

Illinois State Bar Ass’n Mut. Ins. Co. v. Canulli, 2020 IL App (1st) 190142

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

Nothing Is Not a Plan: District Court Holds Doing Nothing Does Not Involve Judgment, Strategy, or Tactics

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Michael Cadena retained attorney Helen Ogar to represent him in a child custody dispute.  Cadena won custody of his minor son, and was encouraged by the Department of Children and Family Services to relocate for the child’s safety.  Cadena e-mailed Ogar repeatedly asking if there were any legal barriers to him moving to another state with his son.  Ogar did not respond substantively.  After Cadena moved to Massachusetts, he was arrested and jailed.  He also lost custody of his son.  Cadena, now a citizen of Massachusetts, sued Ogar and her law firm in federal court based upon diversity jurisdiction.

The defendants moved to dismiss, arguing that the domestic relations exception to federal diversity jurisdiction barred Cadena’s lawsuit from federal court.  The court denied the motion, explaining that Cadena was “suing his lawyer for malpractice pursuant to lack of advice on whether or not he could cross state lines… an independent civil action.”  Id.  at 2.

Ogar and her firm also moved to dismiss for failure to state a claim.  They alleged that Cadena did not explain how counsel’s deficient performance did not involve an exercise of judgment, strategy, or trial tactics as required in Person v. Behnke, 242 Ill. App. 3d 933, 940 (4th Dist. 1993), which required such an allegation in a legal malpractice action arising out of allegedly deficient advice in a child custody case.  The court disagreed, and held that while Cadena “failed to expressly plead” that the alleged malpractice did not involve judgment,  his assertion that the defendants did “nothing” implicitly pleaded as much.  Id.  Ogar did find success in arguing that Cadena was not entitled to damages for emotional distress or loss of normal life.  There, the court held that “legal malpractice is not sufficient basis to support damages for emotional distress,” even in custody cases.  Id. at 3.  Regarding loss of normal life, the court held that such damages “belong almost universally to the realm of personal injury cases.”  Id.

Cadena v. Ogar, No. 19-CV-01092, 2019 WL 3325787 (C.D. Ill. July 24, 2019)

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

Atkins v. Robbins, Salomon & Patt, Ltd. , 2018 IL App (1st) 161961

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The First District reversed a directed finding in favor of a malpractice defendant.   The trial court had found that a professional corporation paid all of its “income” as salaries and therefore had no “profit.” As a result, it could not prove it was damaged by malpractice that allegedly caused it to lose income.   The Appellate Court reversed and allowed the corporation to prove its shareholder’s lost income as a method of proving damage to the corporation.

Atkins v. Robbins, Salomon & Patt, Ltd. , 2018 IL App (1st) 161961

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

Killian v. Minchella, 2017 IL App (1st) 163429-U, appeal denied, 98 N.E.3d 65 (Ill. 2018)

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In this unpublished opinion, the First District affirmed the dismissal of a legal malpractice case. The court examined whether unpaid judgments constituted damages to the plaintiff. Although the court noted that an unpaid judgment could damage a malpractice plaintiff, it held that the malpractice complaint failed to state a claim because it failed to allege that the plaintiffs had paid or would have to pay a judgment in excess of what they would have paid in the absence of negligence.

The court also affirmed on statute of limitations grounds. It held that the entry of a non-final summary judgment order put the plaintiff on notice of the alleged malpractice. Thus, the statute began to run at that time. The court rejected the argument that the statute of limitations did not run until the summary judgment became final and appealable.

Killian v. Minchella, 2017 IL App (1st) 163429-U, appeal denied, 98 N.E.3d 65 (Ill. 2018)

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