Kevin Driscoll (“Driscoll”), the court-appointed receiver of AlphaMetrix Group, LLC (“AMG”), sued AMG’s former lawyers Juris Kins and Davis McGrath, LLC for legal malpractice. The defendants moved to resolve the question of whether they were entitled to a set-off under Illinois’ Joint Tortfeasor Contribution Act (the “Act”), arguing that they could set-off up to $4 million due to a previous settlement agreement between Driscoll and former officers of AMG. The Northern District of Illinois held that the Act did not apply because of the prior settlement related to breach of contract and breach of fiduciary duty claims. It explained that, under the Act, “[w]hen a release or covenant not to sue […] is given in good faith to one or more persons liable in tort arising out of the same injury […] it reduces the recovery on any claim against the others to the extent of any amount stated in the release.” 740 Ill. Comp. Stat. 100/2(c). Moreover, under the economic loss doctrine, “[w]hen only economic loss is incurred, the plaintiff may only raise contract theories even if the defendant’s alleged conduct constituted a tort as well as a breach of contract.” Id. at 3. In this case, the Court found that “no matter how Defendants creatively reframe the Receiver’s allegations [against the former officers], the claims could not have been brought in tort.” Id. Consequently, the lawyers were not entitled to set-off the prior settlement of claims against the former officers.
(This is for informational purposes and is not legal advice.)
Breach of Contract May Be Plead in the Alternative to Legal Malpractice, but Punitive Damages are not an Option
Signal Financial Holdings LLC and Signal Funding LLC (together “Signal”) accused a former Signal executive, Farya Jafri (“Jafri”), of misappropriating trade secrets while separating from Signal and using them to compete against Signal. Signal sued Jafri as well as the law firm Sugar Felsenthal Grais & Helsinger LLP (“Sugar”) for allegedly aiding Jafri in this scheme. Sugar moved to dismiss the various counts against it. The United States District Court for the Northern District of Illinois granted the motion in part, and denied in part. It denied the motion with respect to legal malpractice, explaining that “Signal alleges two clear incidents where a conflict was present” and “plausibly demonstrates that the Firm’s conflict of interest caused Signal’s injuries.” Id. at 5. It also allowed a breach of contract claim to stand exclusively in the alternative to the count for legal malpractice as “a complaint against a lawyer for professional malpractice may be couched in either contract or tort and… recovery may be sought in the alternative.” Id. at 6. Conversely, the Northern District granted dismissal of the count for breach of fiduciary duty, which was duplicative since “Illinois law prohibits claiming legal malpractice and breach of fiduciary duty based on the same facts.” Id. Lastly, the Court struck all claims for punitive damages because under Illinois law, “in all cases whether in tort, contract, or otherwise, in which the plaintiff seeks damages by reason of legal… malpractice, no punitive, exemplary, vindictive or aggravated damages should be allowed.” Id. at 8, 735 ILCS 5/2-1115.
(This is for informational purposes and is not legal advice.)
By Shelby L. Drury
On October 15, 2015, the Illinois Supreme Court announced the adoption of various changes to the Illinois Rules of Professional Conduct that will take effect on January 1, 2016. The text of the changes can be found here. Link. The changes are summarized below.
According to a press release issued by the Court, several of the rule changes were “designed to bring attorney ethics rules up to date with advances in technology and developments in global legal practices.” (10/15/15 Press Release.) The Court also “approved changes to [Supreme Court] Rules 705 and 716 to address client needs and market demands in an increasingly borderless world.” (Id.)
The changes to the Rules of Professional Conduct that appear to be directed at advances in technology are summarized below:
• Rule 1.0: Terminology Sub-section (n) was changed to include “electronic communications” within the definition of the terms “writing” or “written”. The definition previously referenced email but that was expanded to electronic communications.
• The comments to Rule 1.0 regarding the term “Screened” were revised to make clear that if lawyers who are screened from a matter due to a conflict of interest are required to sign an undertaking to avoid contact with firm files related to the matter, the screen should include “information in electronic form” related to the matter.
• The Court revised the comments to Rule 1.1: Competence to provide that in order to maintain competence a lawyer must, among other things, keep abreast of “the benefits and risks associated with relevant technology.”
• The comments to Rule 1.4: Communication were changed to provide that “A lawyer should promptly respond to or acknowledge client communications.” This comment previously referred only to acknowledging “client telephone calls.”
• Rule 1.6: Confidentiality of Information added section (e) which provides that “A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.” This change “makes explicit the duty to safeguard confidential client information in an electronic age.” (See 10/15/15 Press Release.) The comments list a number of factors to be considered in determining whether the lawyer has made the required “reasonable efforts,” including “the cost of employing additional safeguards . . . and the extent to which the safeguards adversely affect the lawyer’s ability to represent clients (e.g., by making a device or important piece of software excessively difficult to use.).”
• Rule 4.4: Respect for Rights of Third Persons now makes clear that a lawyer’s duty to promptly notify the sender when he or she receives a document relating to the representation of the lawyer’s client that he or she knows was inadvertently sent also applies to “electronically stored information” (which, in some circumstances, includes metadata). The comments describe when electronically stored information is considered to have been “inadvertently sent.” The rule does not address whether the lawyer is required to return or delete inadvertently received information. The comments provide that “[w]here a lawyer is not required by applicable law to do so” that is a matter of “professional judgment ordinarily reserved to the lawyer.” The rule also does not address whether the inadvertent disclosure waives the privileged status of the information.
• The title and comments to Rule 5.3: Responsibilities Regarding Nonlawyer Assistance were amended and comments were added regarding the lawyer’s duties when using nonlawyers outside of the lawyer’s firm to assist in rendering legal services to a client, including document management services and Internet-based services to store client information.
• The comments to Rule 7.2: Advertising have been revised to address Internet advertising, among other things.
• Rule 7.3’s title has been changed from “Direct Contact With Prospective Clients” to “Solicitation of Clients” and the language of the rule and comments have been changed consistent with the new title. The comments also address permissible and impermissible solicitation by electronic means.
Other changes effective January 1, 2016:
• The Court added comments to Rule 1.1: Competence regarding a lawyer’s responsibility when retaining or contracting with lawyers outside of the lawyer’s firm on a matter.
• The Court amended Rule 1.2 Scope of Representation and Allocation of Authority Between Client and Lawyer, to provide an express exception to the Rule’s prohibition on a lawyer counseling or assisting a client to engage in criminal conduct. The addition of Section (d)(3) clarifies any uncertainty with respect to whether an Illinois lawyer may provide legal advice on the matters covered by the passage of the Illinois Compassionate Use of Medical Cannabis Pilot Program Act effective January 1, 2014, which legalized the use of marijuana in certain circumstances. The amended rule provides that “a lawyer may . . . counsel or assist a client in conduct expressly permitted by Illinois law that may violate or conflict with federal or other law, as long as the lawyer advises the client about that federal or other law and its potential consequences.” With respect to this change, the comments provide, among other things, that the amendment “is not restricted in its application to the marijuana law conflict. A lawyer should be especially careful about counseling or assisting a client in other contexts that may violate or conflict with federal, state, or local law.” (Link to Shelby Drury’s blog entry on this ‘proposed’ rule change.)
• Rule 1.6: Confidentiality of Information, was amended to add a seventh circumstance under which a lawyer may reveal information related to the representation of a client to the extent the lawyer “reasonably believes necessary.” Per the amendment, a lawyer may reveal such information “to detect and resolve conflicts of interest if the revealed information would not prejudice the client.” Comments were added explaining this change.
• The comments to Rule 1.17: Sale of Law Practice were amended to clarify that a lawyer must obtain client consent before providing a purchaser access to client information beyond that allowed by new rule 1.6(b)(7).
• The amendment clarifies some of the language in Rule 1.18: Duties to Prospective Clients. The amended language and additional comments clarify how a person becomes a prospective client and emphasizes that “[n]ot all persons who communicate information to a lawyer are prospective clients.”
• Rule 3.8: Special Responsibilities Of A Prosecutor was amended “to clearly state that prosecutors have an obligation to disclose evidence that creates a reasonable likelihood a convicted defendant did not commit the offense and to seek to remedy the conviction.” (See amended rule & 10/15/15 Press Release.)
• Rule 5.5: Unauthorized Practice of Law; Multijurisdictional Practice of Law, as amended, allows a lawyer admitted to practice and in good standing in a foreign jurisdiction to provide legal services through an office in Illinois if the legal services are provided to the lawyer’s employer or its organizational affiliates and do not require pro hac vice admission and the lawyer is otherwise authorized by federal or other law or rule to provide services in this jurisdiction. This part of the rule previously only applied to lawyers in other U.S. jurisdictions. The comments provide that a foreign lawyer must also satisfy the requirements of Illinois Supreme Court Rule 716 to be admitted as house counsel.
• There are minor changes to the comments of Rule 7.1: Communications Concerning A Lawyer’s Services and Rule 8.5: Disciplinary Authority; Choice of Law.
Other changes this year that have already taken effect:
• Rule 1.15: Safekeeping Property was amended effective July 2015 to instruct a lawyer how to handle unidentified funds in an IOLTA account. The rule defines “unidentified funds” as amounts “that cannot be documented as belonging to a client, a third person, or the lawyer or law firm.”