Statute of Limitations/Repose

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.)

 

 

 

Defendant May File Untimely Counterclaim if Plaintiff’s Claim Arose Before Counterclaim Was Barred

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Paul Abramson (“Abramson”) had hired attorney Alisa Levin of Levin Law, Ltd. (together “Levin”) in October, 2015, but terminated Levin after a dispute arose over the amounts billed.  In March, 2017, Abramson published a scathing review on Levin Law’s Yelp profile.  Levin published a response and sued Abramson for defamation and false light invasion of privacy.  Abramson then counterclaimed for legal malpractice, breach of fiduciary duty, and defamation. Levin moved to dismiss Abramson’s counterclaims.  Id. at 1.

Levin argued that Abramson’s counterclaims were time-barred and failed to state a claim. The Court disagreed as to timeliness, citing  735 ILCS 5/13-207, which “specifically states that the defendant in a lawsuit is permitted to bring a counterclaim that would otherwise be barred by the statute of limitations” provided the plaintiff’s claim arose “before the cause of action brought as a counterclaim was barred.”  Id. at 4.  With respect to Abramson’s claims for legal malpractice and breach of fiduciary duty, the Court held that even if their accrual had begun in December, 2015 when Levin’s representation of Abramson ended, the two-year statute of limitations for claims arising out of the provision of legal services would not have ended until December, 2017.  However, Levin’s claims arose when the Yelp review went up in March, 2017 and so were timely.  Id. at 5.  The court reached the same conclusion as to Abramson’s defamation claim.  Id. at 4.

Though not time-barred, the Court did conclude that Abramson had failed to state claims for legal malpractice and breach of fiduciary duty.  Specifically, Abramson’s claim for legal malpractice did “not explain how he lost the case or why Levin’s actions caused him to lose” nor did it explain how he “would have prevailed on the underlying claim in the absence of [Levin’s] missteps.”  Id. at 12.  His claim for breach of fiduciary duty likewise “fail[ed] to plausibly allege that this breach proximately caused any injury.”  Id. at 13.

Levin v. Abramson, No. 18-cv-1723, 2020 WL 2494649 (N.D. Ill. May 13, 2020)

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

Failure to Return Clients’ Documents Covered by Two-Year Statute of Limitations

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The law firm Deer, Stone & Maya (“DSM”) represented Carlos Rocha and Arize 11, Inc. (together “Plaintiffs”) in various matters related to their business with FedEx.  Id. at ¶13. Plaintiffs sued DSM for conversion, among other things, claiming that DSM failed to return certain legal files to them.  Id. at ¶79.  DSM moved to dismiss this claim as untimely, and the motion was granted.

On appeal, DSM maintained that the conversion claim was governed by the two-year statute of limitations for acts or omissions in performance of professional legal services. Id. at ¶82.  The appellate court agreed, citing various allegations in the complaint such as when the plaintiffs “made repeated demands of DSM for the sale agreement and other documents […] and neither Deer nor Stone complied.”  Id.  Moreover, the plaintiffs’ brief described the conversion count as “aris[ing] solely from the DSM Defendants’ assumption of unauthorized control and dominion over undisbursed amounts deposited in DSM’s client trust account for Plaintiffs and Plaintiffs’ legal files and other documents never returned on account of DSM’s unsubstantiated claim for fees.”  Id., (emphasis added by court).

As for whether the statute of limitations had passed, the court noted that the allegations in the plaintiffs’ conversion count were similar to the allegations in a termination letter Rocha sent to Jeffrey Deer of DSM in May, 2012.  Id. at ¶85.  Thus, “the statute of limitations period against the DSM defendants commenced at the latest in May 2012, when Rocha sent the termination letter.”  Id.  Plaintiffs countered that the statute of limitations should have tolled in this matter due to their need for discovery, but they cited no case law supporting this assertion.  Id. at ¶86.  Consequently, the argument was forfeited.

Rocha v. FedEx Corp., 2020 IL App (1st) 190041

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

 

Attorney Aiding and Abetting and Assignment of Malpractice Claims

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Rabbi Stanley Kroll (“Kroll”) had a thirty-year employment contract with his Synagogue. The contract included a deferred compensation plan (the “Plan”) to fund Kroll’s retirement.  The Synagogue was allowed to amend the Plan unilaterally, but not in any way that divested credits to the account or rights to which Kroll would be entitled if the Plan were terminated before an amendment took effect.  Id. at 1.  The Synagogue asked Kroll to retire six years early. Kroll agreed, but on his last day, a Synagogue officer told him that a tax issue had arisen, promising it would be resolved.  Kroll found out later that the issue had not been resolved, thereby subjecting his deferred compensation to heavy taxes and penalties.  Moreover, the Synagogue did not have sufficient funds to pay Kroll, and had amended the Plan to eliminate benefits to which Kroll would otherwise be entitled. Kroll sued the Synagogue, which settled and assigned to him all causes of action related to the Plan that it might have against the law firm it used to amend it: Cozen O’Connor (“Cozen”). Kroll then sued Cozen on multiple counts, but Cozen moved to dismiss. The motion was granted in part and denied in part.

To begin, the Court noted that legal malpractice claims may not be assigned in Illinois except under three exceptions.  However, none of these exceptions applied. It explained that “Kroll is a stranger to [the Synagogue] and Cozen’s attorney-client relationship and was owed no duty by Cozen.”  Id. at 4.  The Court also granted dismissal of Kroll’s aiding and abetting breach of fiduciary duty claim.  It said that no fiduciary duty existed between Kroll and the Synagogue, so Cozen could not have aided a breach of that duty. Id. at 7.  The Court dismissed Kroll’s fraudulent concealment claim as well, since Kroll did not allege facts sufficient to explain how a Cozen attorney used his position of superiority and legal knowledge to take advantage of Kroll’s trust and confidence in him, “especially given that [the attorney] represented the opposing party.”  Id. at 8, emphasis in original.

Conversely, the Court rejected Cozen’s argument that Kroll’s claims were barred by Illinois’ two-year statute of limitations for claims arising out of an attorney’s performance of professional services.  Here, it held that Kroll had demonstrated possible equitable tolling or estoppel when he asserted that a Synagogue officer misled him about resolving the tax issue and that a Cozen attorney misrepresented the enforceability of the Plan’s amendment.  Id. at 5.  Kroll’s claim that Cozen aided and abetted the Synagogue’s fraud was allowed to stand as well.  The Court, quoting an Illinois case, saw “no reason to impose a per se bar that prevents imposing liability upon attorneys who knowingly and substantially assist their clients in causing another party’s injury.”  Id. at 6. Here, the Court agreed that Kroll had pleaded facts sufficient to assert the Synagogue’s fraud and Cozen’s assistance therein.

Rabbi Stanley Kroll, Plaintiff, v. Cozen O’Connor, 2020 WL 919005

(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.)

Knowledge of Injury Governs a Statute of Limitations, not Knowledge of a Claim

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Jeffrey Mandalis (“Mandalis”) sued his former attorneys, David Wentzel and Scott Blake (the “Defendants”), claiming they negligently and fraudulently misrepresented the terms of a settlement agreement in a dispute between several members of Mandalis’ family concerning ownership of certain assets.  He also alleged that the Defendants failed to disclose their potentially conflicting representation of his aunt in the same matter, and that they did not inform him when they mediated the family dispute.  Further, allegedly without Mandalis’ knowledge, Blake initialed a settlement term sheet that included all of Mandalis’ rights and claims.  When Mandalis confronted the Defendants, they supposedly misrepresented the nature of the settlement, saying some of his relatives had agreed to settle only as to their interests, and that he would receive his share of the assets later.

Subsequent mediations were inconclusive, so the Defendants asked Mandalis to agree to a binding mediation- arbitration on October 13, 2013.  On October 24, 2013, the Defendants finally informed Mandalis that he should seek separate counsel.  Mandalis did so within three days, but alleged that the Defendants continued to mislead him as to his interest in the family assets until eight days before the November 27, 2013 closing date.  Despite all, Mandalis attended the closing and signed the closing documents for fear that that further dispute would diminish his share of the assets.  He filed his initial complaint in December 2015.  The Defendants moved to dismiss his suit as untimely per the two-year statute of limitations and for failure to allege sufficient facts to support his causes of action.  The trial court granted the motion.  Mandalis moved to reconsider, and appealed when his motion was denied.

The First District affirmed, stating that statutes of limitations do “not require that the injured party have actual knowledge of the alleged malpractice.”  Id. at ¶ 43.  Rather, “knowledge that an injury has been wrongfully caused does not mean knowledge of a specific defendant’s negligent conduct or knowledge of the existence of a cause of action.”  Id.  The First District highlighted that “there can be no doubt that the plaintiff actually knew of his injury in March 2013, such that the filing of his complaint against the defendants in December 2015, was barred by the two-year statute of limitations.”  Id. at ¶ 47.  It clarified that Mandalis “was not only in possession of sufficient information about his injury to be placed on inquiry to determine whether actionable conduct was involved, but in fact had actual knowledge of both the injury and the cause of that injury in March 2013.”  Id.   Nevertheless, it went on, “[i]f the plaintiff did not actually know of his injury after the March mediation settlement, in the very least, he certainly should have known of it after the entry of the October 13, 2013, binding arbitration award enforcing that settlement.”  Id. at ¶ 48.  Mandalis countered that, even if he was injured in October 2013, the Defendants tolled the statute of limitations by fraudulently concealing their misconduct.  In particular, he claimed the Defendants reassured him that his stated goals remained viable.  The First District rejected this argument too.  “Contrary to the plaintiff’s position,” it explained, “he nowhere alleged that the defendants failed to disclose any material facts to him.”  Id. at ¶ 56.  It also pointed out that “the plaintiff admitted that he subsequently participated in the binding arbitration knowing full well that the arbitration award would enforce the terms of that term sheet.”  Id.

Mandalis v. Wentzel, 2019 IL App (1st) 180455-U, opinion corrected and superseded, 2019 IL App (1st) 18-0455-U

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

 

Clients Need Not Seek a Second Opinion on their Attorney’s Strategy

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Attorney William Kohn (“Kohn”) represented Dr. Veerasikku Bommiasamy (“Bommiasamy”) in an employment matter.  Two of the defendants in that matter moved for summary judgment on various counts of the complaint, but Kohn missed the deadline to file Bommiasamy’s response.  The circuit court granted Kohn an extension.  The next day, Kohn filed a motion for leave to respond instanter and to reset the briefing and hearing dates.  The motion was denied, and summary judgment was granted after oral arguments in March, 2013.  Kohn appealed, and sought multiple extensions of time to file the record on appeal.  He then sought two extensions to file his brief, but then failed to file it at all.  Consequently, Bommiasamy’s appeal was dismissed for want of prosecution in December, 2014.

Bommiasamy sued Kohn for breach of contract and professional negligence in February, 2017.  Kohn, after receiving another extension, moved to dismiss.  He argued that since the underlying case had been dismissed four years earlier, Bommiasamy’s complaint against him was barred by Illinois’ two-year statute of limitations for legal malpractice claims.  735 ILCS 5/13-214.3(b).  Kohn’s motion was granted, and Bommiasamy appealed.

The First District reversed, holding that “the actions of Mr. Kohn in personally appealing the circuit court’s decision, seeking numerous extensions, and failing to file an appellate brief culminating in a dismissal of the appeal, estop any reliance by Mr. Kohn on the date that the circuit court entered the summary judgment order as the start of the limitations period.”  Id. at ¶28.  “To rule otherwise” it explained, “would force a client in Dr. Bommiasamy’s position to seek a second opinion regarding the legal strategy of the underlying case, which is unreasonable.”  Id.  Kohn argued in the alternative that Bommiasamy’s complaint was still untimely because it was filed more than two years after the appellate court affirmed dismissal of the underlying case.  The First District disagreed on this point as well.  It held that, per the discovery rule, “Bommiasamy’s affidavit contains sufficient facts to raise a factual question on whether the late discovery of the appellate court’s ruling tolled the statute of limitations.”  Id. at ¶32.  Among these facts were that “Kohn did not communicate the progress of the appeal, the failure to file a brief, or the dismissal of the case.”  Id.

Bommiasamy v. Kohn, 2019 IL App (1st) 172445-U – First District, First Division

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

Firing One Attorney and Seeking Counsel from Another Strongly Suggests a Client is Aware of His Injuries

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William Moser (“Moser”) retained Joseph Phelps of Rinella & Rinella, LTD (the “Defendants”) to represent him in the dissolution of his marriage.  He executed a settlement agreement on October 26, 2006.   On May 3, 2016, Moser sued the Defendants for legal malpractice.  He alleged that the Defendants lied to him in order to make him sign the settlement agreement.  Moser testified at his deposition a year later that he felt “in August of 2013 that they had ignored issues in the case” and “basically misrepresented… what was going on.”   Id. at ¶10.  Further questioning established that Moser knew of the Defendants’ alleged malpractice by February, 2014 and that the latest harm he suffered occurred in March, 2014 when he was forced to pay his ex-wife’s attorney’s fees.

The Defendants moved for summary judgment, asserting Moser’s claims were time-barred by Illinois’ two-year statute of limitations for legal malpractice actions.  735 ILCS 5/13-214.3(b).  Their motion cited specific portions of Moser’s testimony wherein he “admitted to being fully aware of each of defendants’ alleged acts of negligence and resulting damages more than two years’ prior to the filing of his complaint” and an August, 2013 e-mail he had sent firing them “for cause.”  Id. at ¶¶11-12.  Moser countered that the issue was one for a jury, but the Court granted the motion given Moser’s explicit admissions in the record.

The First District affirmed, explaining that “the limitations period commences when the plaintiff is injured, rather than when the plaintiff realizes the consequences of the injury or the full extent of her injuries.”  Id. at ¶26.  Moser countered that the Defendants had fraudulently concealed their actions with reassurances that they were doing everything correctly, thereby delaying Moser’s discovery and pursuit of his claim and tolling the statute of limitations.  But Moser had not presented any specific material misrepresenta-tions or omissions by the Defendants, and the First District found it “hard to imagine how plaintiff could have been lulled by defendants into not filing a claim when plaintiff was already in touch with another law firm when he fired defendants” in August, 2013.  Id. at ¶43.

Moser v. Phelps, 2019 IL App (1st) 180852-U

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

Injury Starts the Limitations Period, Not Malpractice

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Mansour Nasrabadi (“Nasrabadi”) hired attorney Taher Kameli (“Kameli”) to represent him throughout the EB 5 visa process; a program by which a foreign national may obtain permanent U.S. residency upon investing at least $500,000 in a qualifying enterprise.  Kameli advised Nasrabadi that investing in the Aurora Fund (the “Fund”), which Kameli owned, would satisfy EB 5 requirements.  He explained that the Fund would lend the money to another entity for the construction of an assisted living facility and that Nasrabadi would have a first priority security interest in the facility’s assets and real estate.  Nasrabadi agreed, signed a conflict waiver, and gave $500,000 to the Fund by a transaction in which Kameli also represented him.

Nasrabadi later sued for malpractice and breach of fiduciary duty, alleging that Kameli never acquired the promised security interest for his money and that Kameli failed to inform Nasrabadi that his conflicts were unwaivable.  Rather, Nasrabadi claimed that Kameli kept his money for personal use and secured a separate first priority mortgage loan to finance the facility.  Thus, when the bank holding Kameli’s and the Fund’s first priority loan foreclosed, it had priority over Nasrabadi’s interest.

Kameli moved to dismiss Nasrabadi’s claim for malpractice for being duplicative and untimely.  On the matter of duplicity, Kameli cited the rule that “when a breach of fiduciary duty claim is based on the same operative facts as a legal malpractice claim, and results in the same injury, the later claim should be dismissed.”  Id. at 3.  The Court did not hold that such a rule applied here as it was “not clear at this point in the proceedings whether Kameli’s alleged failure to secure priority for the Fund’s loan to the Facility… can be said to be within the scope of his representation of Nasrabadi.”  Id. at 3.

Regarding timeliness, Kameli’s arguments failed as well.  There, he asserted that Nasrabadi’s claims were based on the engagement letter signed eight years ago, well outside Illinois’ two-year statute of limitations and six-year statute of repose for legal malpractice.  735 ILCS 5/13-214.3(b); 735 ILCS 5/13-214.3(c).  The Court disagreed, stating that “the injury in a legal malpractice action is not the attorney’s negligent act itself” but “the loss for which a client may seek monetary damages.”  Id. at 4.  However, the alleged injury in this case was the loss of Nasrabadi’s investment, not the signing of the engagement letter.  Nasrabadi did not plead facts establishing precisely when that loss took place, but a complaint “does not have to anticipate” the affirmative defense of timeliness.  Id.  “As long as the Court can imagine a scenario in which the claim is timely,” the Court explained, “it is improper to dismiss it on the pleadings.”  Id.

Nasrabadi v. Kameli , No. 18 C 8514, 2019 WL 2173791 (N.D. Ill. May 20, 2019)

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

 

Firing One Attorney and Seeking Counsel from Another Strongly Suggests a Client is Aware of His Injuries

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William Moser (“Moser”) retained Joseph Phelps of Rinella & Rinella, LTD (the “Defendants”) to represent him in the dissolution of his marriage.  He executed a settlement agreement on October 26, 2006.  On May 3, 2016, Moser sued the Defendants for legal malpractice.  He alleged that the Defendants lied to him in order to make him sign the settlement agreement.  Moser testified at his deposition a year later that he felt “in August of 2013 that they had ignored issues in the case” and “basically misrepresented… what was going on.”  Id. at ¶10.  Further questioning established that Moser knew of the Defendants’ alleged malpractice by February, 2014 and that the latest harm he suffered occurred in March, 2014 when he was forced to pay his ex-wife’s attorney’s fees.

The Defendants moved for summary judgment, asserting Moser’s claims were time-barred by Illinois’ two-year statute of limitations for legal malpractice actions.  735 ILCS 5/13-214.3(b).  Their motion cited specific portions of Moser’s testimony wherein he “admitted to being fully aware of each of defendants’ alleged acts of negligence and resulting damages more than two years’ prior to the filing of his complaint” and an August, 2013 e-mail he had sent firing them “for cause.”  Id. at ¶¶11-12.  Moser countered that the issue was one for a jury, but the Court granted the motion given Moser’s explicit admissions in the record.

The First District affirmed, explaining that “the limitations period commences when the plaintiff is injured, rather than when the plaintiff realizes the consequences of the injury or the full extent of her injuries.”  Id. at ¶26.  Moser countered that the Defendants had fraudulently concealed their actions with reassurances that they were doing everything correctly, thereby delaying Moser’s discovery and pursuit of his claim and tolling the statute of limitations.  But Moser had not presented any specific material misrepresentations or omissions by the Defendants, and the First District found it “hard to imagine how plaintiff could have been lulled by defendants into not filing a claim when plaintiff was already in touch with another law firm when he fired defendants” in August, 2013. Id. at ¶43.

Moser v. Phelps, 2019 IL App (1st) 180852-U

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