Res Judicata/Collateral Estoppel

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.)

 

 

 

Newman v. Crane, Heyman, Simon, Welch & Clar, 590 B.R. 457 (2018)

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The law firm Crane, Heyman, Simon, Welch & Clar (“Crane”) advised World Marketing as the company filed for bankruptcy.   The bankruptcy trustee later sued Crane for legal malpractice, alleging the firm had failed to advise World Marketing that it was subject to the Worker Adjustment and Retraining Notification Act.   As a result, World Marketing terminated over 300 employees without sufficient notice.   The former employees then sued World Marketing in a class action.

Crane moved to dismiss, asserting the trustee’s claim was barred by collateral estoppel and res judicata when the Court denied his objection to Crane’s final fee application.  Crane argued that resolution of the trustee’s objection also resolved the underlying question of malpractice.   The Court disagreed, noting that the trustee’s objection brought only “potential causes of action” against Crane in compliance with the rule that “if you don’t raise an issue with respect to malpractice at the time of a fee application, you may be precluded from bringing it later.”  Id. at 465.

With respect to collateral estoppel, the Court “explicitly declined to determine whether its ruling [on the trustee’s objection] precluded a later malpractice claim against any party.”  Id. at 463-464.  Thus, the issue of malpractice was not previously litigated or decided on the merits.   As for res judicata, the Court held that any claim for malpractice was “merely speculative” at the time of the trustee’s objection, since the Court had not yet resolved the employees’ class action against World Marketing.  Id. at 465.  Without any harm to World Marketing established, the malpractice claim could not have been brought as part of the objection, let alone ruled upon.

Newman v. Crane, Heyman, Simon, Welch & Clar, 590 B.R. 457 (2018)

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

Recent Illinois Case: Jahrling v. Estate of Cora

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This recent case upheld a finding by the bankruptcy court that, among other things, an attorney was negligent where he represented a client at a real estate closing who did not speak his language without an impartial interpreter.   The Court found that the attorney was precluded from disputing the existence of an attorney client relationship based on the doctrine of collateral estoppel.

Jahrling v. Estate of Cora, No. 14 C 8056, 2015 WL 2265795 (N.D. Ill. May 13, 2015).

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

Sarno v. Akkeron, 292 Ill. App. 3d 80, 684 N.E.2d 964 (1st Dist. 1997)

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Sarno v. Akkeron, 292 Ill. App. 3d 80, 684 N.E.2d 964 (1st Dist. 1997)

Purmal v. Robert N. Wadington & Assocs., 354 Ill. App. 3d 715, 820 N.E.2d 86 (1st Dist. 2004)

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Purmal v. Robert N. Wadington & Assocs., 354 Ill. App. 3d 715, 820 N.E.2d 86 (1st Dist. 2004)

Thomas v. Sklodowski, 303 Ill. App. 3d 1028, 709 N.E.2d 656, 237 Ill. Dec. 401 (1st Dist. 1999)

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Thomas v. Sklodowski, 303 Ill. App. 3d 1028, 709 N.E.2d 656, 237 Ill. Dec. 401 (1st Dist. 1999)

Mann v. Rowland, 342 Ill. App. 3d 827, 795 N.E.2d 924, 277 Ill. Dec. 256 (1st Dist. 2003)

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Mann v. Rowland, 342 Ill. App. 3d 827, 795 N.E.2d 924, 277 Ill. Dec. 256 (1st Dist. 2003)

Kasney v. Coonen & Roth, LTD., 385 Ill. App. 3d 879, 924 N.E.2d 1`103, 338 Ill. Dec. 577 (2d Dist. 2009)

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Kasney v. Coonen & Roth, LTD., 385 Ill. App. 3d 879, 924 N.E.2d 1`103, 338 Ill. Dec. 577 (2d Dist. 2009)

Todd v. Katz, 187 Ill. App. 3d 670, 543 N.E.2d 1066, 135 Ill. Dec. 498 (2d Dist. 1989)

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Todd v. Katz, 187 Ill. App. 3d 670, 543 N.E.2d 1066, 135 Ill. Dec. 498 (2d Dist. 1989)

Nagy v. Beckley, 218 Ill. App. 3d 875, 578 N.E.2d 1134 (1st Dist. 1991)

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Nagy v. Beckley, 218 Ill. App. 3d 875, 578 N.E.2d 1134 (1st Dist. 1991)