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Statute of Repose Dooms Long-Running Legal Malpractice Claim

This legal malpractice claim is a spin-off from other long running litigation filed by Prospect Development LLC against the City of Prospect Heights arising out of a real estate deal that went sour.  The defendant attorney in the legal malpractice action was Robert Kreger. Kreger was the general counsel of Prospect Heights until 2004.

The Underlying Case

The facts of the dispute are set forth in the Appellate Court’s 2012 opinion in the case captioned  Prospect Development LLC v. Village of Prospect Heights, 2012 IL App 103759-U. According to the Appellate Court, Prospect Development, which was owned by John G. Wilson, sought to develop an arena in Prospect Heights. The project was never completed. In 2004, the Village of Prospect Heights terminated the project. Prospect Development sued for breach of contract. The trial court found that Prospect Development had substantially performed the contract with the Village. However, the trial court also found that Prospect Development had unclean hands because it had secretly made loans to Robert Kreger, the general counsel of the Village. The trial court held that the secret loans constituted unclean hands and that the unclean hands barred Prospect Heights from seeking relief against the Village. Kreger had been a partner of a large law firm, Schiff Hardin and had acted as the general counsel for the Village of Prospect Heights. Opinion ¶ 2.

In its Amended Complaint, Prospect Development sought specific performance of its contract with the Village. The Village raised the defense of unclean hands and alleged that Prospect Development had given Kreger loans totaling $150,000 and had given him stock in a company owned by John G. Wilson. Opinion at ¶ 4.

At trial, the court held that Prospect Development had substantially performed the contract but was barred from recovering for specific performance by the doctrine of unclean hands. The Appellate Court explained that: “The trial judge ruled that Prospect Development established most of the elements of its equitable claim for specific performance but was entitled to no relief because Wilson engaged in “bad faith” and “clear misconduct” when he failed to disclose the secret financial relationship he had with Kreger and thus, Prospect Development had come to court with unclean hands.”

The Illinois Appellate Court affirmed the decision.

The Legal Malpractice Case

In 2012, Prospect Development filed a legal malpractice complaint against Kreger and Schiff Hardin. Prospect alleged that Kreger had acted as its lawyer and had approved the loan transactions. Kreger breached the duty of care because he had advised that the loan transactions were appropriate.

The long delay in filing the claim triggered the defense of the statute of repose. Under the statute of repose a claim cannot be filed against an attorney more than six years after the alleged negligent act by the attorney. There are few exceptions to the statute of respose. One exception is the doctrine of fraudulent concealment, whereby the plaintiff claims that the defendant concealed facts from him so he was not aware that he had a claim for legal malpractice until the so-called breach of duty was revealed to him.

The Appellate court summarized the history of the case as follows:

In the previous lawsuit, the plaintiffs were successful in proving their claim for breach of contract but were denied recovery based on the doctrine of unclean hands. The court in the breach of contract action found plaintiffs’ undisclosed loans to defendant attorney barred recovery on the breach of contract action. Plaintiffs then instituted this action against defendant attorney and his former firm for legal malpractice.

¶ 2 In their complaint, plaintiffs alleged each time a loan was made from 1997-2001, they inquired as to the propriety of the loans and whether they should be disclosed. Plaintiffs alleged each time they inquired, defendant attorney gave them negligent advice. Plaintiffs further alleged that the malpractice was concealed from them until the adverse ruling was handed down in the prior case. After motion practice, the circuit court dismissed plaintiffs’ complaint after finding that in denying recovery in other case, the previous court made a factual determination that in January 2005 the plaintiffs had knowledge the loan advice they last received in October 2001 may not have been proper. The court ruled such a determination barred relitigation of the issue in this case. Because over two years remained before the statute of repose ran when plaintiffs obtained this knowledge in 2005, the circuit court found the suit barred by plaintiffs’ failure to file within this period. Plaintiffs timely appealed the dismissal.

The Plaintiffs argued that the statute of repose should not apply because Kreger concealed his wrongful actions from them. Plaintiffs claimed that the fraudulent concealment exception to the statute of limitations applied and that the statute of repose began to run when, in 2010, they lost a key ruling in the underlying case against Prospect Heights.

Both the trial court and the appellate court rejected the argument on the ground that the plaintiffs should have known in 2005 that the loans were inappropriate and that they had a claim against Kreger.  The Appellate Court explained:

Plaintiffs, in January 2005, knew that loans may be inappropriate and may generate a conflict. At this point, plaintiffs were aware that the legal advice they last received may not be accurate and were required to investigate further. Plaintiffs had over two years from January 2005 to file this action within the period of repose, which certainly qualifies as ample time. See, e.g., Butler v. Mayer, Brown & Platt, 301 Ill. App. 3d 919, 926 (1998) (“We have held that as little as six months remaining in a statute of limitations period is `ample time’ for a plaintiff to bring suit.”) (citing Smith, 164 Ill. App. 3d at 863); Turner, 294 Ill. App. 3d at 28 (eight months considered ample time to bring suit); Sabath v. Mansfield, 60 Ill. App. 3d 1008, 1015 (1978) (same);Rajcan, 347 Ill. App. 3d at 409 (being put on inquiry regarding legal malpractice claim one year before expiration of repose period would constitute reasonable time to bring suit as a matter of law). Because they did not file suit during the remaining time, we find the action barred.

¶ 40 Accordingly, we affirm the circuit court’s finding that plaintiffs’ cause of action against defendants for legal malpractice is barred by the six-year statute of repose.

While the procedural history of this case is exceedingly complex, the lesson is that a plaintiff has a duty to investigate the lawyer’s actions when there is a warning sign or bad event. Here, the court found that the plaintiffs had a duty to investigate the alleged malpractice in 2005 when it became clear that the loans to Kreger represented a conflict of interest.

In my experience, it is very difficult to succeed on a claim that the lawyer fraudulently concealed the wrongful act when there is a substantial delay before the lawsuit is filed. Here, there was litigation in 2005 about some of the loans, so plaintiffs should not have waited until 2012 to bring the lawsuit. While a plaintiff usually should wait until the underlying litigation has reached judgment, sometimes a plaintiff should bring the lawsuit sooner.

Edward X. Clinton, Jr.

Source: PROSPECT DEVELOPMENT, LLC v. Kreger, Ill: Appellate Court, 1st Dist., 1st Div. 2016 – Google Scholar

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