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Legal Malpractice Case Against Mayer Brown Dismissed For Failure to Allege Causation

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case, William L. Gunlicks v. Mayer Brown LLP, 2014 IL App (1st) 130845-U, is far too important to be reported in an unpublished opinion. Sadly, the opinion is unpublished for reasons that are unfathomable.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.

In March 2010, the district court entered a judgment of permanent injunction and other relief against Gunlicks and Founding Partners.

In November 2010, Gunlicks sued Mayer Brown for legal malpractice. He alleged that Mayer Brown failed to ensure that he was in “complaince with all state and federal laws and regulations inclusive of all SEC rules and regulations.” After three amended complaints, the circuit court dismissed the complaint with prejudice and the Appellate Court affirmed. The central flaw of the complaint was its failure to allege proximate causation. In particular, the circuit court “found that Gunlicks had failed to plead ‘sufficient facts that identify what Mayer Brown should have done differently that would have prevented the SEC action against him.” Opinion at ¶ 38. Further, Gunlicks failed to identify any facts showing that but for an error by Mayer Brown, he would have prevailed in the 2009 enforcement action.

Every legal malpractice plaintiff must allege but/for causation – but for the lawyer’s error, plaintiff would have prevailed in the underlying case or obtained a better settlement. Here, plaintiff was unable to identify what Mayer Brown could have done that would have prevented the 2009 enforcement action.

Given the quality of the opinion, it is a shame that it was not published.

Edward X. Clinton, Jr.

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