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.)

Lurie v. Wolin , 2017 IL App (1st) 161571

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In this unusual case, the First District addressed a situation where it had previously reversed an order of dismissal and found that a complaint stated a claim for legal malpractice. The plaintiffs, an escrow company and its principals, sued their first attorney for legal malpractice related to advice given over how to address embezzlement of company funds by the CFO. The trial court dismissed the original malpractice complaint without prejudice with leave to file an amended complaint by a date certain. Plaintiffs did not file an amended complaint by that date, and the court dismissed the complaint with prejudice. Subsequently, the plaintiffs’ malpractice attorney (their second attorney overall) filed a motion to reconsider the order dismissing the complaint and included an amended complaint that purported to have a file stamp before the court’s original deadline. In their response to the motion to reconsider, defendants attached certified copies of the official docket sheets for the case showing that neither the amended complaint nor the motion for reconsideration had been timely filed.

The trial court noted the inconsistency in the court records and documents submitted by the plaintiffs’ malpractice attorney, but concluded that it could not believe that plaintiffs’ malpractice attorney “would attempt to do anything not consistent with the court rules.” Accordingly, the court granted the motion to reconsider and set aside the earlier order dismissing the case with prejudice. Defendants then filed a motion to dismiss the amended complaint on substantive grounds, which the court granted with prejudice. Plaintiffs appealed and the First District reversed the dismissal. In the course of these events, Plaintiffs also hired new counsel (their third attorney overall).

Plaintiffs original malpractice counsel (their second attorney overall) was later disbarred for misconduct that included submitting a falsified email notice of filing in the Northern District of Illinois.

On remand, the trial court held an evidentiary hearing to determine whether plaintiffs’ malpractice attorney had falsified the time stamps on the amended complaint and motion to reconsider. Defendants also argued that the trial court lost jurisdiction over the case when plaintiffs failed to file a timely motion to reconsider. Plaintiffs argued that the court’s previous ruling on the jurisdictional issue (granting the motion to reconsider and setting aside the dismissal order) became the law of the case following the First District’s reversal of the trial’s court’s order dismissing the case. The trial court ultimately held that the law of the case did not bar reconsideration of this issue because of a “significant change in circumstances” – the malpractice attorney was found guilty of falsifying court documents and lying to judges. The trial court concluded that it lost jurisdiction to take any action after plaintiffs missed the deadline for filing their motion to reconsider, vacated all orders entered after that date, and dismissed the case with prejudice.

On the second appeal, the First District held that its prior order finding that the complaint stated a claim for legal malpractice had become the law of the case, even with respect to the jurisdictional issue. Nonetheless, the Court held that the law of the case doctrine was not a limitation on its power to revisit an issue where the facts had changed or where the initial decision was “clearly erroneous and would work a manifest injustice.” Indeed, the Court found that a court may depart from the law of the case in numerous circumstances, including to remedy a fraud on the court. Thus, because plaintiffs’ malpractice attorney had perpetrated a fraud on the court, the Court exercised its discretion to consider the jurisdictional issue and affirmed the dismissal of the case.

This case is very interesting in its own right, but it raises another interesting question. What would the Lurie plaintiffs need to do to win a legal malpractice claim against the malpractice attorney who falsified documents? A number of “double malpractice” cases address the situation where a lawyer retained to prosecute a complaint against another lawyer is accused of malpractice. See, e.g., McKnight v. Dean, 270 F.3d 513 (7th Cir. 2001); Rodi v. Horstman, 2015 IL App (1st) 142787. In these cases (and others), the courts make clear that the traditional elements of a malpractice case must be proved as to both underlying cases. For example, in McKnight v. Dean, the 7th Circuit affirmed summary judgment on a legal malpractice claim. There, the plaintiff sued his attorney in a lawsuit against his former employer. He ultimately settled this malpractice suit for $765,000, but later claimed that the attorney who represented him in the malpractice suit himself committed malpractice in the advice he gave about the settlement. The plaintiff then sued that attorney for malpractice. The court granted summary judgment and the 7th Circuit affirmed, finding that the plaintiff failed to show that, had it not been for the attorney’s alleged negligence related to the settlement, the plaintiff could have expected to obtain more than $765,000 in his original lawsuit. 270 F.3d at 520. In Rodi v. Horstman, the First District affirmed summary judgment and held that because the first malpractice case was bared by the statute of limitations, the second lawyer’s failure to file a timely notice of appeal from its dismissal did not cause any loss. 2015 IL App (1st) 142787, ¶ 40. A district court case from D.C. put the requirement into words with which legal malpractice lawyers are familiar when it stated that in a double malpractice case, the court must consider the “case within the case within the case.” Edelberg v. Roberts, No. Civ. A. 04-1992 (JDB), 2005 WL 1006000, at *4 (D.D.C. April 29, 2005).

Turning back to the Lurie case with this guidance, it seems that to win a malpractice case against the disbarred malpractice attorney, the plaintiffs would not only need to show that he breached the standard of care (which seems somewhat obvious), but also that they would have been successful in that malpractice action (and, by extension, in the underlying matter) had their first attorney not committed malpractice.

Lurie v. Wolin, 2017 IL App (1st) 161571

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

Collins v. Reynard, 154 Ill. 2d 48, 607 N.E.2d 1185 (1992)

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Collins v. Reynard, 154 Ill. 2d 48, 607 N.E.2d 1185 (1992) (legal malpractice is exception to Moorman doctrine)