Category: Lawyers Malpractice Digest

For now, professional liability insurer’s coverage suit allowed despite insured’s protest that it would prejudice its malpractice suit defense

March 17th, 2014 — 2:06pm

by Christopher Graham and Joseph Kelly


You’re the D&O, professional liability, or other insurer with a duty-to-defend policy. Your insured is sued in tort. You defend under a reservation of rights. But you don’t believe there’s coverage. And you don’t want to have to continue paying for a defense. So you sue for a declaration of no coverage.

You’re the insured. You’ve been sued by a party claiming injury. Now your insurer sues you. So you have two suits to address and you’re not too happy. You’re also concerned your insurer’s suit will prejudice your defense in the tort suit. You believe insurer’s suit will address issues material to your liability in the tort suit. So you argue it should be stayed. You also claim it would be bad faith for insurer to pursue a coverage suit prejudicial to your tort suit defense.

Insurer argues its suit won’t prejudice your tort suit defense and that delaying resolution of coverage would require funding a defense that isn’t covered. What’s a court to do?

Well, one court, in Federal Ins. Co. v. Holmes Weddle & Barcott P.C., et al, Case No. C13-0926JLR (W.D. Wa. Nov. 14, 2013), deferred deciding on a stay until a legal malpractice insurer and insured law firm briefed three coverage issues. As explained: “It may be that all that is needed to decide this coverage action is to apply settled contract and insurance law to a set of admitted and undisputed facts.” This court wasn’t convinced law firm’s malpractice defense would be prejudiced by addressing those three issues.

Insurer already had moved for a summary judgment. And so “the court [could] simply examine that motion to determine whether it is possible to resolve this case without causing prejudice to [the firm].” Insurer’s motion “raise[d] several arguments that could potentially resolve the question of coverage without requiring the court to find facts of consequence to the malpractice action.”

The malpractice case was about how the firm handled a pre-policy period tort suit. Insurer argued the malpractice claim during the policy period and a motion for discovery sanctions in the tort suit were “Related Claims.” In discovery for the tort suit, firm produced an incomplete claim file. After client lost at trial, the court sanctioned firm and client, finding each “‘recklessly certified’ that the claim file was complete when in fact it was not.” Client’s claim against firm in part alleged malpractice by failing to produce the entire claim file. Resolving the “Related Claims” issue wouldn’t prejudice firm’s defense in the malpractice case because it “would require the court to examine only the proximity of the relationship between the post-trial [pre-policy period] sanctions motion and [client’s policy period] legal malpractice claim.” And “[t]his inquiry does not implicate questions of causation [in the malpractice suit], it only requires the court to compare two claims to determine whether they are ‘related’ as a matter of contract and insurance law.”

Insurer also relied on prior knowledge and application exclusions. Insurer’s argument “would require the court to examine only whether [firm] knew about facts prior to January 2012 that ‘might reasonably be expected to give rise to a claim.'” Relying on Carolina Casualty Ins. Co. v. Ott, No. C09-5540 RJB (W.D. Wa. Mar. 26, 2010), the court in a similar vein concluded “[t]his limited inquiry would not prejudice [firm] in the legal malpractice action.”

So it would allow insurer’s summary judgment motion to proceed on those issues and on whether the firm must reimburse insurer for defense fees. But the court left the door open for firm to object again.

If the firm believed insurer’s arguments may prejudice its defense, it would need “to point out in a very specific manner if and where it believes resolution of these issues will require findings that would cause prejudice to its defense in the malpractice action”

“[Firm] may file a cross motion for summary judgment if it wishes, but the court will expect [it] to safeguard its own interests by raising only issues and arguments that will not cause prejudice in the malpractice action.”

The court will resolve the case by summary judgment only if it wouldn’t prejudice firm’s defense. Otherwise it would stay the case. Insurer meanwhile would continue to defend firm under a reservation of rights. Firm also agreed to indemnify insurer for defense expenses, if there was no coverage.

The court appears to have struck a fair balance between insurer and firm’s interests. Stay tuned because we may see more from this court about issues important to D&O and professional liability insurers.

Tags: Washington, professional liability, legal malpractice, management liability, D&O, duty to defend, declaratory action, stay, related claims, prior knowledge, application exclusion, prejudice

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After brief hiatus, New York rejoins the majority: insurer may rely on exclusion to avoid indemnity even after breach of duty to defend

March 3rd, 2014 — 2:40pm

by Christopher Graham and Joseph Kelly

New York

May a liability insurer use an exclusion to avoid an indemnity obligation if it breaches a duty to defend?

As we discussed here, New York’s highest court last year initially said no. But when asked to reconsider, a majority of the court said yes. See K2 Investment Group, LLC, et al v. American Guarantee & Liability Ins. Co., 2014 NY Slip Op 01102 (Feb. 18, 2014).

There has been much commentary about K2 in the blogosphere. There is after all a lot of New York insurance business. The original decision also adopted a minority position. And it departed from long-standing New York precedent.

And it was that long-standing precedent, Servidone Construction Corp. v. Security Ins. Co. of Hartford, 64 N.Y.2d 419 (1985), which lead the majority to change its decision. As it explained:

Plaintiffs have not presented any indication that the Servidone rule has proved unworkable, or caused significant injustice or hardship, since it was adopted in 1985. When our Court decides a question of insurance law, insurers and insureds alike should ordinarily be entitled to assume that the decision will remain unchanged unless or until the Legislature decides otherwise. In other words, the rule of stare decisis, while it is not inexorable, is strong enough to govern this case.

The majority also noted cases from Hawaii and Massachusetts following Servidone and that a “federal district judge, writing in 1999, said that ‘the majority of jurisdictions which have considered the question’ follow the Servidone rule.” *See Flannery v Allstate Ins. Co*., 49 F. Supp. 2d 1223, 1227 (D. Col. 1999); *compare Employers Ins. of Wausau v Ehlco Liquidating Trust*, 186 Ill. 2d 127, 150-154 (1999) and Missionaries of Co. of Mary, Inc. v Aetna Cas. and Sur. Co., 155 Conn. 104, 112-114 (1967)(noted as minority view cases).

That Servidone involved a settlement rather than a judgment was deemed a distinction without a difference. And contrary to what the dissent argued, the original K2 decision couldn’t be reconciled with Servidone because both cases addressed whether an insurer could raise an exclusion despite breaching a defense duty.

The dissent argued that under Servidone, an insurer in breach of a duty to defend may avoid an indemnity obligation based on “non-coverage,” but not an exclusion. It explained:

Noncoverage involves the situation where an insurance policy does not contemplate coverage at its inception. For example, a homeowner’s policy would not provide malpractice liability coverage. Exclusions, in contrast, involve claims that fall within the ambit of the policy’s coverage parameters but are excepted by a particular contractual exclusion provision. Hence, a homeowner’s policy might contain an exclusion for certain types of water damage to the house.

The dissent argued “‘[u]nder those circumstances [(namely, non-coverage)], the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed.'” [citations omitted]. An exclusion differs because it’s a way to avoid coverage that otherwise exists, so says the dissent.

The dissent also argued that Illinois, Massachusetts, and Colorado decisions cited by the majority applied the rule that an insurer breaching a duty to defend may raise a defense of non-coverage, but not an exclusion. *See also Alabama Hosp. Assn. Trust v Mutual Assur. Socy. of Alabama*, 538 So 2d 1209, 1216 (Ala. 1989)(cited by the dissent for the same rule).

None of this persuaded the majority.

Although not cited as a basis for the majority decision, plaintiffs were lenders who sued an entity and its owners to collect on a $2.85 million debt. But then also alleged one of the owner borrowers was their lawyer for the loan and committed malpractice by failing to record a mortgage securing the debt. After his insurer refused to defend, the lawyer allowed a default judgment against him exceeding the $2 million policy limit, though plaintiffs had demanded only $450,000 to settle. Then following the default, the lawyer assigned his rights against the insurer to the plaintiff lenders, who sued the insurer to collect. The lawyer apparently wouldn’t have to pay. And the default was only on the malpractice claim, not on the claim against the lawyer/owner/borrower to collect the $2.85 million debt.

With the majority decision, the insurer will be permitted to prove at trial that the judgment was really about lawyer’s as borrower/business owner, rather than as plaintiff lenders’ supposed lawyer. The insurer may now rely on: (1) a “status exclusion” for a “Claim based upon or arising out of, in whole or in part . . . D. the Insured’s capacity or status as: 1. an officer, director, partner, trustee, shareholder, manager or employee of a business enterprise . . . ;” and a “business pursuits” exclusion for a “Claim based upon or arising out of, in whole or in part . . . E. the alleged acts or omissions by any Insured . . . for any business enterprise . . . in which any Insured has a Controlling Interest.”

The dissent also was troubled that if the insurer defended the insured lawyer it could have addressed the status issues in the underling malpractice suit. It explained:

If, as the majority asserts, [lawyer’s] liability for professional negligence may have partially arisen from his actions as both an attorney and a manager of [a business] — and was therefore precluded under the “insured’s status” or “business enterprise” exclusion clauses — [insurer] should have fully participated in the underlying action and attempted to establish the basis for the exclusion. I believe that these issues should have been resolved in the original action rather than being delayed for years. The majority’s decision to authorize additional litigation and fact finding will prolong final resolution of this matter even further.

But this argument didn’t sway the majority either, particularly given Servidone.

Although now resolved in New York courts, we may see legislative attempts to change the rule and expect the debate isn’t over elsewhere. See our blog discussion here about Columbia Casualty Company v. Hiar Holdings, LLC, No. SC93026 (Mo. Aug. 13, 2013)(failure to defend foreclosed insurer’s coverage defense and opened up limits).

Tags: New York, duty to defend

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Legal malpractice claim alleging wrongful acts before and after retro date falls within professional liability policy’s prior acts exclusion

March 2nd, 2014 — 4:19pm

by Christopher Graham and Joseph Kelly


Claims-made insurers limit risk by insuring only those claims alleging wrongful acts after a certain date. Their means for limiting risk often is a prior acts exclusion. The date often is before, rather than at policy inception and thus is known as a retroactive date.

But what if a Claim alleges wrongful acts before and after the retroactive date? Insurers also typically limit their risk to claims alleging wrongful acts unrelated to wrongful acts before the retroactive date. They typically wish to avoid insuring a Claim having anything to do with the pre-existing wrongful acts, even if it also alleges new wrongful acts.

But when are pre- and post-retro date wrongful acts related? Insurers address the issue through varying policy wording. But regardless of the wording, it’s a frequently litigated issue.

And so it was in American Guarantee & Liability Ins. Co. v. The Abram Law Group, et al, Case No. 13-13134 (11th Cir. Feb. 14, 2014). In that case, developer and bank sued lawyers alleging in count one malpractice in a January 26, 2006 closing for acquiring vacant land, with bank financing. That January date was before the May 1, 2006 retroactive date in the lawyers’ professional liability policy.

But developer and bank in a second count in the same suit alleged lawyers and title company committed fraud and conspiracy in an April 23, 2007 closing for a loan for developing the vacant land into a subdivision. The second closing thus was after the May 1, 2006 retroactive date.

In the first closing, the lawyers allegedly failed to identify exceptions to “good title.” So developer acquired land with unexpected title exceptions; and bank’s mortgage was subject to those exceptions. After the first closing, developer identified the exceptions. But the lawyers through the April 2007 closing allegedly covered up their earlier malpractice and made it appear that the exceptions weren’t an issue. They did so to avoid liability to developer and so title insurer wouldn’t have to cover the title exceptions. The lawyers also were title insurer’s agents and faced liability to title insurer for any mistakes. Developer and bank’s fraud and conspiracy allegations thus were based on the lawyers’ alleged post-retro date cover up of their pre-retro date mistakes.

The defendant title insurer meanwhile cross-claimed against the lawyers to indemnify it for any judgment for developer and bank involving the January 2006 loan and for negligence in failing to identity title exceptions. So the cross-claim only alleged wrongful acts before the May 1, 2006 retroactive date.

As is typical, this insurer used a prior acts exclusion to limit risk for claims alleging wrongful acts before the May 1, 2006 retroactive date. It also limited risk for claims alleging wrongful acts after the retroactive date, where the Claims nevertheless were based on wrongful acts before the retroactive date.

This is the wording insurer used: “This policy specifically excludes coverage for Damages and Claim Expenses because of Claims brought against any Insured based on any act or omission or any Related Act or Omission that occurred or is alleged to have occurred prior to 5/01/06.”

The insurer defined “Related Act or Omission” as “an act or omission that forms the basis for two or more claims, where a series of continuous, repeated, interrelated or causally connected acts or omissions give rise to one or more claims….”

In the prior acts exclusion, the phrase “that occurred or is alleged to have occurred prior to 5/01/06” modified the phrase “Claim brought against any Insured based on any act or omission or any Related Act or Omission.” It would have made more sense for the exclusion to read: “This policy specifically excludes coverage for Damages and Claim Expenses because of Claims brought against any Insured based on any act or omission that occurred or is alleged to have occurred prior to 5/01/06 or any Related Act or Omission that occurred or is alleged to have occurred on or after 5/01/06.” (Emphasis added).

But the Appeals Court didn’t address that issue and it made no difference in the result at least because the evidence was that the Claims, even those involving post-retro date wrongful acts, otherwise were based on an act or omission that occurred or was alleged to have occurred before the May 1, 2006 retro-date.

According to the Appeals Court: “Though [lawyers] contend Count Two alleging fraud in the underlying lawsuit relates only to the April 23, 2007, Development Loan closing and thus is covered under the policy, the acts and omissions giving rise to the malpractice claim from the January 26, 2006, Acquisition Loan closing also undergird the fraud claim regarding the Development Loan.”

“The alleged negligence involved in the Acquisition Loan closing is the necessary predicate to the fraudulent scheme to extinguish the 2006 lender’s title insurance policy and fraudulent insertion of additional exceptions to the 2007 title insurance policy. Further, the [other] claims . . . all flow from [lawyers’] alleged failure to disclose the restrictions and easements in the January 26, 2006, closing.”

So: “The district court did not err in determining the acts and omissions surrounding the Acquisition Loan closing form the basis of the claims regarding the fraud alleged during the Development Loan closing . . . .”

The Appeals Court also stated that the district court did not err “in finding the other acts or omissions surrounding the [post-retro date] Development Loan closing were interrelated to or causally connected to the acts or omissions at the [pre-retro date] Acquisition closing. Cf. Cont’l Cas. Co. v. Wendt, 205 F.3d 1258, 1262-63 (11th Cir. 2000) (applying plain meaning of the term “related” to a dispute over insurance coverage).” But with the way the prior acts exclusion was worded it’s hard to understand why that would make a difference. The act and omission and “Related Act or Omission” addressed by the prior acts exclusion were all described as before the retro-date. The exclusion thus didn’t explicitly address the relationship of pre- and post-retro date wrongful acts. That made no difference here. But it might in another case. So an insurer with a prior acts exclusion like this would be well-advised to revise it.

Tags: Georgia, professional liability, prior acts exclusion, interrelated or related wrongful acts

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Iowa legal malpractice plaintiffs permitted to sue for emotional distress damages

November 12th, 2013 — 10:15pm

by Christopher Graham and Joseph Kelly


Iowa recently joined Illinois as one of the states permitting legal malpractice plaintiffs to recover emotional distress damages in limited circumstances. See Miranda v. Said, 836 N.W.2d 8 (Iowa 2013).

Klever Miranda and Nancy Compoverde — husband and wife — retained attorney Michael Said and his law firm to help them with immigration issues. Klever and Nancy were attempting to stay in the U.S. Their son, Cesar Miranda, married a U.S. citizen, and Said advised them that they could obtain permanent resident status and eventually citizenship if they first returned to their native Ecuador. Klever and Nancy followed Said’s advice and returned to Ecuador. But Said was wrong, and Klever and Nancy were barred from returning to the U.S. and their kids for 10 years.

Klever and Nancy sued Said for legal malpractice and sought emotional distress damages. Said successfully moved for a directed verdict arguing that Klever and Nancy weren’t entitled to emotional distress damages. Klever and Nancy won a $12,500 judgment for negligence but appealed the court’s directed verdict on emotional distress damages. The appeals court reversed and remanded the case for a new trial on emotional distress damages. Said appealed to the Iowa Supreme Court.

The Iowa Supreme Court affirmed. The court noted that Iowa law doesn’t generally allow emotional distress damages unless there’s physical injury or proof of intentional conduct; but there are exceptions when emotional distress was “foreseeable” and a “particularly likely result.” Here, the Klever and Nancy were permitted to seek emotional distress damages because Said knew that Klever and Nancy’s reaction to being separated from their kids would be very emotional and a particularly likely result.

Tags: Iowa, legal malpractice, emotional distress

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Mississippi Supreme Court orders new trial on proximate cause and damages after $103 million legal malpractice verdict

November 12th, 2013 — 10:14pm

by Christopher Graham and Joseph Kelly


The Mississippi Supreme Court recently reversed a $103 million legal malpractice verdict against Baker & McKenzie, LLP and Baker attorney Joel Held and remanded for a new trial on proximate cause and damages. See Baker & McKenzie, LLP, et al v. Evans, et al, Case No. 2011-CA-01110-SCT (Oct. 17, 2013)

Lavon Evans and his companies obtained a verdict against Baker & McKenzie and Held in 2010 for, collectively, $103 million.

The Mississippi Supreme Court affirmed the firm and Held’s liability for conflict of interest and breach of fiduciary duty but reversed the verdict and remanding for a new trial on proximate cause and damages because of faulty jury instructions.

Tags: Mississippi, legal malpractice, conflict of interest, proximate cause

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Dismissal of legal malpractice claim because of law firm’s “judgmental immunity” reversed

November 7th, 2013 — 9:43pm


by Christopher Graham and Joseph Kelly

Nelson v. Quarles and Brady, LLP, 2013 IL App (1st) 123122 (Sept. 30, 2013).

Ken Nelson was the majority shareholder in two corporations – Ken Nelson AutoPlaza, Inc. (“AutoPlaza”) and Ken Nelson AutoMall, Inc. (“AutoMall”).

In 1989, Nelson entered into a stock purchase agreement with his business partner, Richard Curia, under which Curia had successive purchase options. If each option was exercised, Curia would purchase all of Nelson’s shares. Curia failed to exercise the first option, but did pay Nelson $200,000 for 25% of the AutoPlaza and AutoMall’s shares.

In 1993, Nelson and Curia entered into a “Modification Agreement” which provided that the parties made a mutual mistake in determining the companies’ shares fair market value and in determining the option payments. Under the “Modification Agreement”, Curia’s percentage share ownership increased to 47.7% for AutoPlaza and 43.3% for AutoMall, without Curia making any additional payments.

Nelson alleges that in 2004: (1) he and Curia had an oral agreement under which Nelson would sell all his stock in both companies to Curia for $4.2 million; (2) Curia didn’t perform under the agreement; and (3) Curia instead tried to exercise the final purchase option under the 1989 agreement — essentially trying to procure all of Nelson’s shares for much less than $4.2 million.

Nelson retained Quarles & Brady and sued Curia in federal court seeking a declaration that the 1989 purchase option was unenforceable because of the parties subsequent agreements. Curia sought a declaration for specific performance regarding the 1989 purchase option.

Curia won a partial summary judgment that Nelson was required to comply with the 1989 purchase option and sell his shares. Nelson moved for a stay while the appeal was pending, but the motion for a stay was denied. Nelson sold the shares under the order. The 7th Circuit ultimately reversed the trial court on appeal, but not before Curia had encumbered much of the companies’ assets and taken out loans. Nelson subsequently settled with Curia, but was not able to regain majority ownership of the companies.

Nelson sued Quarles & Brady for legal malpractice, alleging, in pertinent part, that the firm’s “negligent and careless conduct included but is not limited to the complete failure to assert a meritorious cause of action against Curia on [plaintiff’s] behalf and the complete failure to assert meritorious defenses to Curia’s alleged causes of action.”

Quarles & Brady successfully moved to dismiss two amended complaints filed by Nelson for failure to state a cause of action. Nelson filed a third amended complaint which, unlike the previously dismissed complaints, included an affidavit from a legal malpractice expert that stated, in pertinent part, that Quarles & Brady’s actions were professional negligence, not a mere error in judgment. Quarles & Brady successfully moved to dismiss the third amended complaint just the same.

On appeal, Nelson argues that the legal expert’s affidavit created a question of fact that precludes dismissal.

The court began its analysis by stating that under Illinois law, “It is clear that an attorney is liable to his client only when he fails to exercise a reasonable degree of care and skill; he is not liable for mere errors of judgment” and that “attorneys do not breach their duty to clients, as a matter of law, when they make informed, good-faith tactical decisions.”

Nelson argued that the affidavit created a question of fact that precluded dismissal. Quarles & Brady argued that the affidavit contained legal conclusions and shouldn’t be considered.

The court ultimately avoided the issue of “judgmental immunity”, holding, in pertinent part, that Nelson alleged sufficient facts to state a viable claim for legal malpractice.

Tags: Illinois, legal malpractice, judgmental immunity

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Equitable estoppel argument fails to save time-barred legal malpractice claim

November 7th, 2013 — 9:42pm


by Christopher Graham and Joseph Kelly

Area Wide 79th & Western LLC, et al v. Keldermans, et al, 2013 IL App (1st) 122968-U (Sept. 3, 2013).

Faysal Mohamed, formed Area Wide 79th & Western LLC to develop a parcel of land in the City of Chicago for commercial development – namely, a Walgreens store and a TCF Bank. The development plan required Walgreens and TCF to grant each other cross-easements for parking, ingress and egress.

Area Wide retained attorney Francis Keldermans and his firm, Holland & Knight, LLP to handle the development. Keldermans allegedly failed to include a provision in a lease between Area Wide and Walgreens requiring Walgreens to grant the necessary easements to TCF and the lease was signed by the time the mistake was discovered. Walgreens balked at Keldermans’ and Mohamed’s subsequent requests that it grant the easements anyways.

On May 9, 2008, TCF backed out of a sales agreement with Area Wide when it learned about the easements wouldn’t be granted. Area Wide had mortgaged the entire property and by 2010 the bank foreclosed.

On April 10, 2012, Area Wide and Mohamed sued Keldermans and Holland & Knight for legal malpractice for failure to include the easement grants in the Walgreens lease. Keldermans and the firm successfully moved to dismiss based on Illinois’ two-year statute of limitations for legal malpractice. Area Wide and Mohamed appealed.

On appeal, Area Wide and Mohamed conceded that their cause of action accrued in 2008 and they didn’t argue the statute of limitations should have been tolled by the discovery rule.

Instead, Area Wide and Mohamed argue that the statute of limitations shouldn’t apply because of equitable estoppel.

Under Illinois law:

  • “A party whose conduct has caused another to delay filing suit until after the limitations period has run may be estopped from asserting the statute of limitations as a bar to the action. To prevail on this theory, the party asserting estoppel must establish that [it] reasonably relied upon the other party’s conduct or representations in forebearing suit.”; and

  • A plaintiff must show “(1) defendant has made some misrepresentation or concealment of a material fact; (2) defendant had knowledge, either actual or implied, that the representations were untrue at the time they were made; (3) plaintiff was unaware of the untruth of the representations both at the time they were made and the time they were acted upon; (4) defendant either intended or expected his representations or conduct to be acted upon; (5) plaintiff did in fact rely upon or act upon the representations or conduct; and (6) plaintiff has acted on the basis of representations or conduct such that he would be prejudiced if defendant is not estopped.”

Here, Area Wide and Mohamed also argued that Keldermans and the firm assured them they could successfully negotiate with Walgreens and that they were lulled into a false sense of security by such assurances. The 1st District rejected this argument as well because Area Wide and Mohamed knew of the lease mistake at the time of such assurances. The court stated “[e]stoppel cannot apply in this situation because plaintiffs were fully aware of their injury within the statute of limitations period…” The court further noted that “[i]n order for estoppel to apply, defendants must have known that their representation were untrue. [citation omitted]. Yet there is no indication anywhere in the complaint or affidavits that defendants were negotiating with Walgreens in bad faith merely as a delaying tactic, or that they knew all along that it would be impossible to obtain the [easements].”

Area Wide and Mohamed also argued Keldermans and the firm breached a fiduciary duty owed to them by failing to alert them that they had a cause of action against TCF. The 1st District rejected this argument because: (1) there was no supporting case law cited; and (2) plaintiffs appeared to equate equitable estoppel with fraudulent concealment, but didn’t plead fraudulent concealment.

The 1st District, thus, held that equitable estoppel did not bar Keldermans and the firm from asserting the statute of limitations as a successful defense.

Tags: Illinois, legal malpractice, statute of limitations, equitable estoppel

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Illinois two-year legal malpractice statute of limitations applied to non-client’s aiding and abetting breach of fiduciary duty claim

November 1st, 2013 — 9:05pm


by Christopher Graham and Joseph Kelly

800 South Wells Commercial, LLC v. Horwood Marcus & Berk Chartered, 2013 IL App (1st) 123660 (Sept. 25, 2013)

In 1997, 800 South Wells Commercial, LLC (“800 South Wells”) sold a building complex, including apartments, commercial space, an underground parking garage, a parking lot, and a marina, to a developer. Sometime thereafter, 800 South Wells became owner of long-term leasehold interests in commercial space in the complex and the parking garage. 800 South Wells later mortgaged its leasehold interest.

In 2006, the complex went into foreclosure. During the foreclosure process, 800 South Wells agreed not to contest the foreclosure if it was given an option to acquire the parking garage at cost. 800 South Wells estimated that it would net a $3.5 million profit if it exercised the option and sold the parking spaces. But the manager and vice president of 800 South Wells – namely, Nicholas Gouletas and John Cadden — learned that much of that profit would have to go its creditors.

Gouletas and Cadden subsequently consulted with attorney Kenneth Bosworth who advised them to create a new entity to acquire the parking garage. Gouletas and Cadden did so and purchased the garage.

800 South Wells subsequently sued Gouletas and Cadden for breach of fiduciary duty and sued Bosworth’s firm for aiding and abetting a breach of fiduciary duty.

Defendant law firm moved to dismiss arguing that Illinois professional services statute of limitations barred the aiding and abetting claim.

735 ILCS 5/13-214.3(b) provides that a claim based on tort, contract, or otherwise “against an attorney arising out of an act or omission in the performance of professional services” must be commenced within two years from the time the party bringing the action knew or reasonably should have known of the injury for which damages are being sought.”

800 South Wells argued the above statute of limitations was limited to claims brought by a client against its attorney. Here, there was no attorney-client relationship between 800 South Wells and defendant law firm.

The court held the two-year statute of limitations in section 13-214.3(b) was not limited to claims by a client against its attorney. The court stated, in pertinent part:

“As there is no language in the statute restricting its application to legal malpractice claims or claims brought by an attorney’s client, the plain language of the statute directs that the two-year limitation applies to all claims against an attorney arising out of acts or omissions in the performance of professional services, and not just legal malpractice claims or claims brought against an attorney by a client. Had the legislature intended to restrict the applicability of the statute of limitations to malpractice claims, it could have explicitly done so in the text of the statute as it did when it prohibited the recovery of punitive damages in legal malpractice cases (735 ILCS 5/2-115 (West 2010)), but chose not to do in this instance.”

Tags: Illinois, legal malpractice, statute of limitations, aiding and abetting breach of fiduciary duty

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Pro se legal malpractice claim dismissed for lack of affidavit of merit

October 30th, 2013 — 7:52pm

New Jersey

by Christopher Graham and Joseph Kelly

D’Agostino v. Drazin & Warshaw, P.C., Case No. A-1460-11T3 (Superior Court of N.J. Sep. 13, 2013)

Plaintiff filed a pro se legal malpractice complaint against his former lawyer. Plaintiff failed to produce an affidavit of merit under N.J.S.A. 2A:53A-27 which requires a plaintiff who alleges professional negligence to provide an expert’s affidavit stating the action has merit. Defendant attorney successfully moved to dismiss because of the lack of an affidavit of merit. Plaintiff appealed and the appellate court affirmed.

The appellate court noted that “our Court has held that an affidavit of merit is not required in those cases where, under the common knowledge doctrine, expert testimony would not be required to establish a deviation from the standard of care” and that “[t]he common knowledge doctrine applies ‘where “jurors” common knowledge as lay persons is sufficient to enable them, using ordinary understanding and experience, to determine a defendant’s negligence without a benefit of the specialized knowledge of experts.'”

Here, plaintiffs’ allegations of malpractice were so non-specific that it wasn’t clear that the common knowledge doctrine applied; and it didn’t matter that the Judge was the fact-finder rather than a jury.

Tags: New Jersey, legal malpractice, affidavit of merit

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Client’s conviction vacated for ineffective assistance of counsel, but legal malpractice claim dismissed because client didn’t prove actual innocence

October 30th, 2013 — 4:39pm


by Christopher Graham and Joseph Kelly

Fink v. Banks, 2013 IL App (1st) 122177 (Sep. 11, 2013)

Banks, an Illinois lawyer, represented Fink in an intentional homicide case in Wisconsin with the assistance of local counsel. Fink was convicted and and sentenced to 10 years in prison with 6 years probation.

Fink’s conviction was later vacated for ineffective assistance of counsel (Banks). A new trial was ordered and Finks was convicted of a lesser charge — second degree recklessly endangering safety — and he received a stayed sentence of five years plus three years probation.

Finks sued Banks for legal malpractice in Illinois. Banks successfully moved to dismiss the complaint arguing that Finks’ second conviction prevents him from establishing his actual innocence, which is a condition precedent to a criminal legal malpractice claim in Illinois.

The court noted that under Illinois law “a criminal defendant must establish his or her actual innocence before being able to recover for the criminal attorney’s alleged malpractice.”

Fink argued the State of Wisconsin’s decision to only charge him with a lesser offense proves his actual innocence on the intentional homicide charge. The court rejected this argument stating that actual innocence means “total vindication” or “exoneration.”

Here, Fink didn’t plead or prove he was actually innocent of the charge for which he was originally convicted. Fink argued his conviction should be reversed because of ineffective assistance of counsel — not because of actual innocence.

The court concluded “Fink’s failure to prove he is actually innocent of attempted first degree intentional homicide or any lesser included offenses dooms his legal malpractice claim.

Tags: Illinois, legal malpractice, ineffective assistance of counsel, actual innocence

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