Articles Posted in Case Within A Case

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This case, William L. Gunlicks v. Mayer Brown LLP, 2014 IL App (1st) 130845-U, is far too important to be reported in an unpublished opinion. Sadly, the opinion is unpublished for reasons that are unfathomable. The compliant alleges that Mayer Brown breached the duty of care in representing the plaintiff after he had agreed to the entry of a cease-and-desist order.

Gunlicks was a client of Mayer Brown. He was accused by the Securities and Exchange Commission (SEC) of violating Section 17(a)(2) of the Securities Act of 1933. Gunlicks was the founder, CEO and director of Founding Partners Capital Management Company, an investment adviser. In 2007, the SEC and Gunlicks entered into a cease-and-desist order that required “Gunlicks to cease from violating Section 17(a)(2) of the [1933 Act]. According to the cease and desist order, the SEC found that Gunlicks violated Section 17(a)(2) when he ’caused Founding Partners to have Stable-Value pay an undisclosed fee to Stewards and had Equity Fund and Stable-Value engage in transactions that were not consistent with their offering memoranda including transactions with entities under common control with Founding Partners.'” Opinion at ¶ 8.

In 2009, the SEC commenced an onsite compliance examination of Founding Partners’ records to determine if Founding Partners was in compliance with the cease-and-desist order. Shortly thereafter, the SEC filed a complaint for injunctive relief against Founding Partners and Gunlicks. The complaint alleged numerous securities law violations by the Defendants. As might be expected, the litigation went poorly for Founding Partners and Gunlicks.

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I last discussed this problematic topic on June 30th. This unpublished decision, Godbold v. Karlin & Fleisher, LLC, 2014 IL App (1st) 131523-U, illustrates a malpractice trap contained in Illinois law.

Usually, the rule in Illinois is that you must wait to file your malpractice action until you lose the underlying lawsuit. However, you should not wait to sue while the underlying decision is on appeal. That is the unfortunate mistake that the lawyers made in the Godbold case.

Underlying Case – Plaintiff Missed the Statute of Limitations

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Illinois has two statutes that establish time limits for when you can sue for legal malpractice. The statute of limitations gives the plaintiff two years from the time the negligence was discovered. However, the statute of repose bars any claim unless the negligent act occurred within six years of the filing of the lawsuit.  This means that you have two years from the time you discovered the injury to file a lawsuit, unless the negligent act of the lawyer is more than six years old.

What happens when you believe that your lawyer’s advice caused you to be sued? The Illinois courts have held in several such cases that the plaintiff is not required to sue for malpractice immediately. Instead, the plaintiff can wait until the underlying litigation is resolved. One such case is Warnock v. Karm Winand and Patterson, 1-06-0341, 876 N.E.2d 8 (2007).  The plaintiffs hired the defendant law firm to handle a real estate closing. The closing was to occur in April 2000. Plaintiffs claimed that the buyer (Mr. and Mrs. Brown) defaulted and plaintiff attempted to retain the earnest money. On August 1, 2000, the Browns filed suit, claiming that that plaintiffs had no right under the contract to withhold the earnest money.

Question – were the plaintiffs required to file suit against their lawyer when they were sued?  Did plaintiffs malpractice claim arise on August 1, 2000? Or did the claim arise when the plaintiffs lost the underlying case?

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WEST BEND MUTUAL INSURANCE COMPANY v. RODDY, LEAHY, GUILL & ZIEMA, LTD., Dist. Court, ND Illinois 2014 – Google Scholar.

This is a legal malpractice case arising out of a defense of a workers compensation claim. West Bend alleged that the defense counsel retained to handle the workers compensation claim did not meet their professional duties because they conceded liability and failed to prepare an adequate defense, including failing to adequately depose the treating physician and failing to develop a causation defense.

Judge Guzman dismissed the complaint pursuant to Rule 12(b)(6) on the grounds that the record demonstrated that the lawyer defendants did not concede liability and failed to plead causation. The opinion explains:

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This is a legal malpractice case in which the plaintiff, after enormous effort, obtained a damages award of $2000 at trial. The Appellate Court affirmed the damage award.  Unfortunately, the Appellate Court issued an unpublished opinion, Hubertus Investment Group v. Smiegelski & Wator, P.C., 2014 IL App (1st) 131927-U. This case is an example of a case where there may have been negligence, but the damages were minimal.

On May 7, 2009, Hubertus entered into a contract to purchase 12 vacant properties in Chicago, Illinois, from Dragan Radojcic for the sum of $190,000. The closing was scheduled for June 1, 2009. Hubertus alleged that the lawyer defendants were negligent because they failed to secure water certificates from the City of Chicago and because they failed to obtain title to a lot at 4407 West Fulton in Chicago, Illinois. The Fulton lot was appraised at a value of $2000. The water certificate (when obtained) proves that the water bill of the City of Chicago has been paid.

Hubertus also alleged a breach of title commitment against Chicago Title. However, on January 23, 2013, CTIC “produced, executed and recorded quitclaim deeds encompassing 11 of the 12 properties; the remaining property at 4407 West Fulton had been sold for taxes.” The trial court ultimately granted summary judgment in favor of Chicago Title. The case proceeded to trial against the lawyer defendants.

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KELLEY & WITHERSPOON, LLP v. Hooper, Tex: Court of Appeals, 5th Dist. 2013 – Google Scholar.

When the claim is that a lawyer breached the duty of care and thereby lost a case, the plaintiff must prove a case within a case, that is, that but for the lawyer’s negligence the plaintiff would have won the underlying case.

The Hooper case is a routine legal malpractice case in which the lawyers allegedly failed to sue the correct defendant in an auto accident case. At trial the jury found the law firm negligent and awarded damages of $235,000.

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Goldfine v. BARACK, FERRAZZANO, KIRSCHBAUM AND PERLMAN, Ill: Appellate Court, 1st Dist., 6th Div. 2013 – Google Scholar.

The Illinois Appellate Court, First District, Sixth Division, has affirmed a judgment entered in favor of the plaintiff and against a defendant law firm. The allegation of negligence was that the law firm failed to preserve the plaintiffs’ claims under the Illinois Securities laws against Shearson Lehman. In short, the alleged error was the failure to timely file a claim for rescission against Shearson Lehman.

In a legal malpractice case, the court must always begin with an analysis of the underlying transaction or the underlying lawsuit. Here, the plaintiffs had a valid claim under the Illinois Securities Laws against Shearson Lehman. Under the Illinois Securities Law, the purchaser has six months from the time he learns of the right of rescission. The law firm failed to serve the notice of rescission and the Illinois courts rejected the plaintiffs’ claims as time-barred.

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Osborne v. Keeney, Ky: Supreme Court 2012 – Google Scholar.

This is a legal malpractice case in which the plaintiff alleged that her lawyer failed to file a lawsuit on time and missed the applicable statute of limitations.  The Kentucky Supreme Court upheld the claim and addressed other issues as well.  The court held that punitive damages are not recoverable against an attorney in a legal malpractice case.

The opinion reaffirms that the plaintiff in a legal malpractice case must prove a case within a case.  The court set forth the method for proving the case within a case requirement:

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Legal Malpractice Case From North Carolina

Royster v. McNamara, 723 SE 2d 122 – NC: Court of Appeals 2012 – Google Scholar.

This is a legal malpractice case arising out of a litigation matter.  The plaintiff, Royster, was a defendant in the underlying case, a fraud case.

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