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Illinois Appellate Court Reinstates Legal Malpractice Case And Rejects Attorney Judgmental Immunity Argument

The case is captioned Nelson v. Quarles and Brady, LLP, 1-12-3122, Illinois Appellate Court, First District. This is probably the most important legal malpractice case decided in Illinois in 2013. The opinion is thoughtful and scholarly.

The underlying case

The underlying dispute was a contract dispute between two business partners, Kenneth Nelson and Richard Curia. The facts are exceedingly complicated and revolve around two written agreements and an oral agreement.

In 1988, Nelson was the owner of all of the capital stock of two companies; the Ken Nelson AutoPlaza and Ken Nelson AutoMall.

In 1989, Nelson and Curia entered into a stock purchase agreement and a written modification of that agreement in 1993. There was also a 2004 oral agreement between the two men.

The 1989 Agreement gave Curia the right to purchase 1000 shares of AutoPlaza and 144 shares of AutoMall. The purchase price was to be $100,000 and the closing was to occur by February 15, 1989. The 1989 Agreement also provided Curia with three additional and successive options to purchase the remaining shares of both companies. Curia was to provide written notice before exercising the options. Further confusing matters, Curia never paid the $100,000 and the closing did not take place. Instead, at some point, Curia paid Nelson $200,000.

In 1993, the two men executed an amendment to the 1989 Agreement. The amendment stated that there had been a mutual mistake in the 1989 Agreement as to the method of computing the market value of the capital stock. Under the 1993 Agreement, Curia increased his ownership of AutoPlaza to 47.7% and AutoMall to 43.3%.

In 2004, Nelson and Curia began discussing an additional agreement under which Curia would pay Nelson $4.2 million for the remainder of Nelson’s shares in the two corporations. However, Curia refused to tender the $4.2 million and instead sent a Notice of Exercise of Option informing Nelson that he was exercising the second option provided in the 1989 stock purchase agreement. If successful, Curia would be able to purchase the remaining stock in the dealerships for far less than $4.2 million.

In 2005, Nelson retained Quarles and Brady to represent him in his dispute with Curia. Quarles and Brady filed a declaratory judgment action on Nelson’s behalf against Curia. Curia brought suit against Nelson and alleged that he was entitled to specific performance of the 1989 agreement to force Nelson to sell his shares in the dealerships.

On February 6, 2006, the district court entered partial summary judgment in Curia’s favor that Curia was allowed to exercise the options in the 1989 agreement. On June 27, 2007, the district court entered an additional summary judgment order requiring Nelson to sell his remaining shares in the dealerships to Curia. Quarles and Brady did not recommend that Nelson post an appeal bond, which would have prevented enforcement of the judgment.

Nelson then retained a new lawyer and filed an appeal to the Seventh Circuit. In November 2009, the Seventh Circuit, on its own motion, held that the agreement was ambiguous and reversed the entry of summary judgment.

However, while the appeal was pending, Curia secured loans with the assets of the dealerships. Nelson had no practical means of undoing the sale of his shares to Curia. Nelson then settled the litigation with Curia and sued Quarles and Brady for legal malpractice.

Nelson alleged that Quarles and Brady was negligent in that it failed to assert a meritorious cause of action against the former business partner, Richard Curia. Further, Nelson alleged that Quarles and Brady failed to assert meritorious defenses to Curia’s claims against Nelson.

The court dismissed the legal malpractice complaint on the ground that the complaint did not state a claim. The plaintiff then moved to reconsider and attached the affidavit of Edward Joyce, a well-known commercial litigator, to the complaint. Joyce stated that there was a meritorious cause of action but that the law firm failed to assert that cause of action in the litigation. Presumably, Joyce’s affidavit also stated that Nelson had a defense to the lawsuit brought by Curia.

The trial court rejected the motion to reconsider and held that the defendant’s actions were not negligence, but, rather a “mere error of judgment.”

The Appellate Court Reverses the Trial Court

The Appellate Court, in a thoughtful opinion, which discusses the judgmental immunity doctrine at great length, reversed. The court held that the errors alleged went beyond an error of judgment and were instead allegations of a breach of the standard of care. “Also, plaintiff’s allegations go beyond mere errors of judgment by defendant. Plaintiff has alleged sufficient facts, which we must take as true at this point, tending to show that defendant’s conduct in the underlying lawsuit fell below the standard of care and that this negligence was the proximate cause of plaintiff’s damages.” ¶52. Further, the court notes that the record did not contain any evidence that Quarles and Brady considered other strategies in the litigation and exercised judgment to reject those strategies. “Defendant’s argument that its conduct involved, at most, a mere error of judgment presupposes that an actual ‘decision’ was made on its part, which is not reflected in the record at this stage.” ¶53.

The court then discusses the history of the so-called judgmental immunity exception and how the Illinois courts have dealt with it in the past. While Illinois courts have not used the term “judgmental immunity” they have distinguished between the failure “to exercise a reasonable degree of care and skill” and “mere errors of judgment.” ¶31. The court then quotes the leading law review article which explained that: “the [judgmental immunity] rule dictates that attorneys do not breach their duties to clients, as a matter of law, when they make informed, good-faith tactical decisions.” ¶31 (quoting J. Mark Cooney, Benching the Monday-Morning Quarterback: The “Attorney Judgment” Defense to Legal Malpractice Claims, 52 Wayne L. Rev. 1051, 1052 (2006). The Appellate Court sums up the judgmental immunity cases as “applying to an attorney’s decision in two situations: (1) where the law is unsettled; or (2) the decision is tactical.” ¶35.

This opinion is important because it discusses the contours of the judgmental immunity doctrine in great detail. This doctrine is often raised as a defense to legal malpractice, even where there is no evidence that the lawyer actually made a tactical decision. Nelson correctly puts the burden of proving judgmental immunity on the lawyer and makes clear that the plaintiff need not negate judgmental immunity in its pleading.

There was a second issue in the appeal that the court did not reach. Nelson attached to his motion to reconsider (filed in the trial court) the affidavit of Edward Joyce, who stated that the defendant law firm breached the standard of care. The Appellate Court does not decide whether or not it was proper to attach the affidavit. Instead, the Appellate Court decided that the complaint, by itself, was sufficient to state a claim.

Edward X. Clinton, Jr.

www.clintonlaw.net