Denial of Motion to Disqualify Counsel Doesn’t Bar Later Legal Malpractice Suit- No Issue Preclusion (IL ND)

Eckert v. Levin, et al., 2015 WL 859530 (N.D.Ill. 2015), a case I featured earlier this week, gives some useful guidance on when collateral estoppel or “issue preclusion” bars a second lawsuit between two parties after a judgment entered against one of them in an earlier case.

The case’s tortured history included the plaintiff getting hit with a $1 million dollar judgment in 2012 as part of  a state court lawsuit after he breached a 2010 written settlement agreement orchestrated by the defendants – the lawyers who represented plaintiff’s opponent in the state court case.

In the state court case, the plaintiff moved to disqualify the lawyer defendant and later, to vacate the $1 million judgment.  Both motions were denied.

In the 2014 Federal suit, the defendants (the individual lawyer and his Firm) moved to dismiss the plaintiff’s legal malpractice claim.  They argued that the state court’s denial of the plaintiff’s motion to disqualify defendants as counsel was a tacit ruling that the defendants didn’t commit malpractice.  Defendants contended that the plaintiff was collaterally estopped from bringing a legal malpractice claim in the 2014 Federal case since he lost his earlier state court motion to disqualify defendants as counsel for the plaintiff’s opponent.

The court disagreed and denied the motion to dismiss.  It held that issue preclusion didn’t apply since a motion to disqualify involves different issues than a legal malpractice claim.

Issue Preclusion, Legal Malpractice, and Motions to Disqualify

Issue preclusion applies if (1) the issues decided in the before and after cases are identical; (2) there was a final judgment on the merits in the first case; (3) the party against whom estoppel is asserted was a party or in privity with a party to the first case; prior and (4) a decision on the issue must have been necessary for the judgment in the first case.

Collateral estoppel also requires the person to be bound must have actually litigated the issue in the first suit.  Like res judicata, the rationale for the issue preclusion rule is to bring lawsuits to an end at some point and avoid relitigation of the same issues ad nauseum.

In Illinois, to prevail on a legal malpractice suit, a plaintiff must show: (1) an attorney-client relationship giving rise to a duty on the attorney’s part; (2) a negligent act or omission by the attorney amounting to a breach of that duty; (3) proximate cause establishing that but for the attorney’s negligence, the plaintiff would have prevailed in the underlying action; and (4) actual damages.

A motion to disqualify counsel has different elements than a malpractice claim.  A disqualification motions require a two-step analysis: the court must consider (1) whether an ethical violation has occurred, and (2) if disqualification is the appropriate remedy.  The main rules of professional conduct that usually underlie motions to disqualify are Rules 1.7, 1.9 (conflict of interests to current and former clients) and 3.7 (lawyer-as-witness rule).

The court held that since the elements of a legal malpractice claim and a motion to disqualify don’t overlap, plaintiff’s legal malpractice wasn’t barred by the earlier motion to disqualify denial.

Non-Reliance Clause in Settlement Agreement

The court also rejected the defendants’ argument that the 2010 settlement agreement’s non-reliance clause (which provided that plaintiff wasn’t relying on any representations in connection with signing the agreement) defeated the legal malpractice case.  The reason was mainly chronological: the plaintiff’s central legal malpractice allegations stemmed from the attorney defendant’s conduct that occurred after the 2010 settlement agreement.  As a result, the non-reliance clause couldn’t apply to events occurring after the agreement was signed.

Afterwords:

– Issue preclusion doesn’t apply where two claims have different pleading and proof elements;

– a motion to disqualify an attorney for unethical conduct differs from the key allegations needed to sustain a legal malpractice suit;

– a non-reliance clause in a settlement agreement won’t apply to conduct occurring after the agreement is signed.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.