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.)

 

District Court Underscores the Importance of Suing the Correct Party in Action for Recovery of Distributional Interest

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In FW Associates LLC v. WM Associates LLC, 2019 WL 354953 (No. 18 C 5081) (N.D. Ill. Jan. 28, 2019), the United States District Court for the Northern District of Illinois held that a dissociated LLC member may not sue another member to recover his distributional share in a company, but that the appropriate party for such a suit is the LLC itself.  The court also dismissed the member’s conversion claim for his distributional interest because that interest was “intangible” and thus could not be converted.

This case arose out of a dispute between the owners of Smart Bar, a company that produces an automated cocktail dispenser known as the Smartender.  In 2012, William Metropulos and FW Associates, LLC (“FWA”) formed Smart Bar, USA, LLC and Smart Bar International, LLC (together, Smart Bar).  Before long, the parties began to experience friction in their relationship and, by 2013, found themselves in arbitration amid reciprocal claims of breach of the Smart Bar operating agreement and various acts of misconduct.  In April 2015, the arbitrator ordered Metropulos dissociated from Smart Bar and required him to pay several hundred thousand dollars in attorneys’ fees and expenses to FWA and Smart Bar.  The Circuit Court of Cook County confirmed the arbitrator’s award, and the Illinois Appellate Court affirmed.

Metropulos alleged that Smart Bar dissociated him on November 21, 2016.  This normally would mean that he was still entitled to receive distributions from the entities, but could no longer participate in management of them.  However, according to Metropulos, Smart Bar effectively extinguished his rights entirely by also purporting to take away his distributional interest in the company.  In addition, Metropulos had already transferred his interest in Smart Bar to WM Associates, a new entity Metropulos established after he was dissociated.

In 2018, FWA brought suit against Metropulos and WM (collectively “Defendants”), claiming that Metropulos had wrongfully transferred his interest in the Smart Bar entities to WM in an effort to avoid paying the arbitration judgment.  Defendants brought two counterclaims.  The first asserted that FWA had violated section 35-60 the Illinois Limited Liability Company Act (the “LLC Act”), by failing to buy out Metropulos’ distributional interest in Smart Bar upon his dissociation.  In addition, Defendants claimed that FWA had engaged in other conduct warranting their dissociation from the company.

FWA argued that Defendants’ counterclaims should be dismissed because FWA was not the proper party for Metropulos to sue to obtain recovery of his distributional interest. Instead, Defendants should have sued Smart Bar itself.  The court agreed, rejecting Defendants’ three arguments to the contrary.

First, Defendants claimed that section 15-20(a) of the LLC Act permitted a “member [of an LLC] to maintain an action against….another member” (emphasis added) to enforce its rights under the Act.  But the court pointed out that this provision no longer applied to Metropulos because he had ceased to be a member of Smart Bar upon his dissociation in 2016.  (See section 35-55(a)(1) of the LLC Act:  “Upon a member’s dissociation from the LLC, he ceases to be a member and is treated as a transferee.”)

Second, Defendants contended that, because they were seeking to dissolve Smart Bar due to FWA’s harmful or oppressive conduct, section 35-1(b) of the LLC Act gave the court power to provide relief other than dissolution, “including….a buyout of the applicant’s membership interest.”  Again, however, Defendants had to bring their claims against Smart Bar, not FWA, the member.  In fact, the court suggested that Smart Bar was a necessary party to Defendants’ action, because it had a present, substantial interest in the matter being litigated, which was its own potential dissolution.

Third, Defendants asserted that suing FWA was essentially the same as suing Smart Bar because FWA, as the purported 100% owner of the company, was Smart Bar’s “alter ego.” The court rejected this assertion because an “alter ego” exists between an owner and a company only if (1) there is a unity of interest and ownership that is so strong that the separate personalities of the corporation and the owner “no longer exist,” or (2) treating the company and owner as separate entities would promote injustice or inequity.  However, defendants failed to allege such circumstances.

In their second counterclaim, Defendants sought to have FWA dissociated from Smart Bar based upon various acts of oppressive or illegal conduct FWA allegedly perpetrated upon Metropulos, including attempting to take away his distributional interest in Smart Bar and moving the company’s headquarters to Nevada without legal authority to do so. Defendants asked the court to find that WM Associates was the owner of Metropulos’s distributional interest in Smart Bar or, alternatively, to award defendants damages for FWA’s conversion of that interest.

The court denied Defendants’ request to have WM declared the owner of Metropulos’s distributional interest, reiterating that FWA was not the proper entity to sue for such relief.  With regard to conversion, the court held that Illinois law does not recognize conversion claims based upon “intangible rights.”  Here, the distributional share allegedly converted by FWA was merely an intangible right of future payment, rather than a tangible or intangible thing that could be converted.  Accordingly, Defendants’ claim for conversion had to be dismissed as well.

FW Associates LLC v. WM Associates LLC makes it clear that any former LLC member seeking to recover his or her distributional interest must name the LLC itself as a party, not a fellow member and that a conversion claim may not be used a vehicle for recovery.

Counsel Cannot Claim Judicial Error if Client is not Properly Informed of His Rights

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Iurii Rypninskyi (“Rypninskyi “) and Joseph Hope (“Hope”) were involved in a vehicular accident.  Hope sued Rypninskyi for negligence in Illinois state court.  American Inter-Fidelity Exchange (“AIFE”), the insurer for the owner of the truck Rypninskyi was driving, agreed to defend Rypninskyi and retained the law firm Cassiday Schade to do so.  Throughout the discovery phase and the subsequent trial, Cassiday Schade had repeated trouble contacting Rypninskyi and ensuring his presence.  Rypninskyi did not even appear at trial to testify.  Id. at 1.  The trial court sanctioned him for this by ordering in limine that he could not introduce a report prepared by the trooper who had responded to the accident or Hope’s statements to the trooper.  When the trial court found that Rypninskyi, through Cassiday Schade, violated that order, it entered a default judgement against him as to liability.  Id.  The jury then returned a $400,000 verdict for Hope, but Cassiday Schade did not file an appeal.  Rypninskyi sued Cassiday Schade for legal malpractice, arguing that their failures had caused him not to appear at trial and suffer the judgment against him.

Cassiday Schade moved for summary judgment, invoking the “judicial error” doctrine.  Id. at 2.  They asserted that the trial court had erred in defaulting Rypninskyi as to liability, and that its error was an intervening cause “that severed the causal connection between its alleged malpractice and Rypninskyi’s injury.”  Id.   The Court rejected this argument, pointing out that “had Rypninskyi known about the judgment, he would have asked Cassiday Schade to appeal it.”  Id. at 1.  This indicated that Cassiday Schade had not kept Rypninskyi apprised of the progress of his case.  Having failed to inform Rypninskyi that there was a judgment against him that warranted reconsideration, the Court found that “Cassiday Schade was responsible for failing to appeal.”  Id. at 2.  It explained that “where an allegedly negligent attorney elects not to appeal a judgment that the attorney contends resulted from a judicial error, the attorney may not invoke judicial error as a defense to the client’s malpractice claim.”  Id.

Am. Inter-Fid. Exch. v. Hope, No. 17 C 7934, 2019 WL 4189657 (N.D. Ill. Sept. 4, 2019)

(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.)

No Malpractice Causation if Client Can Remedy Attorney’s Misconduct

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In 2001, Multiut Corporation (“Multiut”) sued Mariam Draiman (“Draiman”), her husband, and five corporations that they owned or controlled.  Count V of the complaint was directed against all defendants except Draiman.  Attorney Glenn Seiden and his firm, Glenn Seiden & Associates, P.C. (together “Seiden”) initially represented each defendant.  The circuit court found in Multiut’s favor on Count V and awarded attorneys’ fees and costs thereunder against “defendants” without excluding Draiman.  Id. at ¶5.  Multiut then filed a petition for attorneys’ fees and costs in February, 2003, to which Seiden responded.  At no point did Seiden argue that Draiman was not subject to the petition, since Count V was not directed at her.  The circuit court issued an order drafted by Multiut’s counsel awarding attorneys’ fees “against defendants.”  Id. at ¶7.  Two weeks later, Seiden filed a motion to clarify, but again failed to raise the issue.  Seiden then filed a notice of appeal “on behalf of all defendants” in August, 2003, and withdrew its representation shortly thereafter.  Id. at ¶8.

Before briefing for the appeal was complete, the First District issued an order sua sponte saying Draiman was “not liable as to [the attorney fee] portion of the judgment” because she “was not named as a defendant below in the count that resulted” in the fee award.   Id. at ¶9.  Draiman’s new appellate counsel then withdrew, at which point she filed her brief pro se.  In it, she failed to argue that the court should reverse the award of attorneys’ fees against her because Count V was not directed at her.  Rather, she asserted inaccurately that the court should reverse all judgments against her because the judgment under Count V “had been reversed.”  Id.  When the First Circuit affirmed the circuit court’s judgment, it found that Draiman’s omission constituted a waiver of any right to contest the fees.

Draiman then sued Seiden for malpractice in March, 2006 for its repeated failure to argue that she could not be liable under Count V and for failure to preserve the issue for appeal.  After multiple cycles of judgment, appeal, and remand, Seiden filed for summary judgment in September, 2017, arguing that the March, 2003 notice of appeal divested the circuit court of jurisdiction, meaning Seiden was not the proximate cause of Draiman’s damages.  Although Draiman disagreed with Seiden’s conclusion, both parties acknowledged that this jurisdictional matter was a legal question to be ruled upon by a judge.  However, the circuit court disagreed, and ordered that the issue be put to a jury.  When the jury found in Seiden’s favor, Draiman filed a motion for a judgment notwithstanding the verdict or a new trial.  The motion was denied, which resulted in the present appeal.

The First District affirmed, readily agreeing with both parties that the question of jurisdiction “should not have been submitted to a jury.”  Id. at ¶40.   As to Seiden proximately causing Draiman’s damages, the court stated that “where a claim or defense is alleged to have been compromised by… an attorney, but the claim or defense is still viable when the attorney is discharged, the attorney is not the proximate cause of any resulting loss.”  Id. at ¶41.  Thus whether the court retained jurisdiction was potentially dispositive, “because if Seiden is correct… then, as a matter of law, he could not have been the proximate cause of Draiman’s adverse ruling.”  Id. at ¶40.  To that point, the First District cited Illinois Supreme Court Rule 304(a):

“If multiple parties or multiple claims for relief are involved in an action, an appeal may be taken from a final judgment as to one or more but fewer than all of the parties or claims only if the trial court has made an express written finding that there is no just reason for delaying either enforcement or appeal or both. *** In the absence of such a finding, any judgment that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties is not enforceable or appealable and is subject to revision at any time before the entry of a judgment adjudicating all the claims, rights, and liabilities of all the parties.”

It added that “upon filing a notice of appeal, the circuit court is divested of jurisdiction… and the jurisdiction of the appellate court attaches instanter.”  Id. at ¶46.  In this case, the circuit court’s February, 2003 order stated that there was no just cause for delay in enforcement or appeal of its ruling with respect to Count V, and Seiden filed a notice of appeal on Draiman’s behalf.  Thus, “to the extent that the circuit court’s award of attorneys’ fees… included Draiman, such an order was void as the circuit court no longer had the jurisdiction to enter such an award against her.  And because a void judgment may be attacked collaterally at any time, the defense was still viable when Seiden withdrew from the case.  Accordingly, Seiden cannot, as a matter of law, have been the proximate cause of Draiman’s loss.”  Id. at ¶47.

Fox v. Seiden, 2019 IL App (1st) 180598-U, appeal pending (Sep Term 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 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.)

Dismissal of Duplicative Matters: Breaches of Contract and Fee Petitions

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Clarice G. Schmidt (“Schmidt”) filed a breach-of-contract claim against attorneys Audrey L. Gaynor and Richard D. Felice and the law firm Audrey L. Gaynor & Associates, P.C. (the “Defendants”).  She accused them of overbilling for their services during her ongoing divorce.  The Defendants moved to dismiss the breach-of-contract claim as duplicative under 735 ILCS 5/2-619(a)(3), since they had already filed fee petitions in Schmidt’s divorce case in order to address the legitimacy of their bills.  The trial court granted the motion and Schmidt appealed.

The Second District affirmed. Dismissal of a redundant matter under section 2-619(a)(3) requires two issues pending “between the same parties for the same cause.”  Id. at ¶9. The parties here were plainly identical. As for the causes of action, they are considered the same if they arise “out of the same transaction or occurrence” such that there is a “substantial similarity.”  Id.  The court noted that substantial similarity did not require “the legal theory, issues, burden of proof or relief sought” to be materially identical.

Here, the only allegations set forth in Schmidt’s breach-of-contract complaint were that the Defendants breached their attorney-client agreements by charging excessive fees. The Second District therefore concluded that the matters were the same, surmising that Schmidt “merely seeks to have a separate court perform another analysis as to the reasonableness and necessity of those same fees.”  Id. ¶12.  Schmidt asserted that her breach-of-contract claim was actually a legal-malpractice claim, but this argument was rejected.  “We are at a loss,” the court declared, “as to how plaintiff’s breach-of-contract suit transformed into one for legal malpractice, when she did not allege any of the elements of legal malpractice.”  Id. at ¶14.  Moreover, Schmidt tacitly acknowledged that she could obtain disgorgement in the divorce/fee-petition litigation because she included her breach-of-contract complaint as an affirmative matter therein.

Schmidt v. Gaynor, 2019 IL App (2d) 180426

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