Two First District cases – one published, the other not – decided some eight days apart in April 2015, provide good capsule summaries of the pleading and proof elements of a legal malpractice claim in Illinois, the nature and reach of the attorney-client relationship (“A-C Relationship”) and the universe of possible damages that a plaintiff can recover in legal malpractice suits.
The plaintiff in Tuckaway Development, LLC v. Schain, Burney, Ross & Citron, Ltd., 2015 IL App (1st) 140621-U asked for over $1M but was awarded just over $1,000 in a case involving a late-recorded mortgage in connection with a related real estate deal. Meriturn Partners, LLC v. Banner and Witcoff, Ltd.’s plaintiff (2015 IL App (1st) 131883) fared much better. There, a jury awarded the private equity firm plaintiff a cool $6M in a case involving an intellectual property lawyer’s misguided advice concerning patents owned by a waste disposal company the plaintiff planned to invest in.
Here are some key legal malpractice points distilled from the two cases:
1/ To win a legal malpractice suit, a plaintiff must prove the existence of an A-C Relationship;
2/ An A-C Relationship requires both the attorney and client to consent to the relationship’s formation;
3/ That consent (to the formation of an A-C Relationship) can be express (by words) or implied (by conduct);
4/ A client can’t unilaterally create an A-C Relationship and his subjective belief that such a relationship exists isn’t enough to bind the attorney;
5/ Where an attorney knows a person is relying on his services or advice, an A-C Relationship exists;
6/ In some cases, third-party non-clients can establish that an attorney owes contractual duties to them (the third parties);
7/ An attorney’s obligations can extend to third-party non-clients where they are intended beneficiaries of the attorneys’ services;
8/ The measure of damages in an attorney malpractice suit are those damages that would put plaintiff in a position he would have been in had the attorney not been negligent;
9/ Legal malpractice damages present a question for a jury and that damage assessment is entitled to great deference;
10/ Absent evidence that the jury failed to follow the law, considered erroneous evidence or that the verdict was the result of passion or prejudice, an appeals court can’t negate the verdict.
Tuckaway, ¶¶ 28-30; Meriturn, ¶¶ 10, 18.
In Meriturn, the court ruled that the IP lawyer’s duties extended to third party investors even though he never signed a contract with them. The key evidence supporting the finding included testimony and e-mails that showed that the lawyer knew that outside investors were relying on his patent opinions and also illustrated some direct communications between the lawyer and the (non-client) third party investors.
The lawyer’s failure to limit the scope of his representation to the plaintiff investment firm made it easy for the court to find the lawyer’s fiduciary duties extended beyond his immediate client, the plaintiff.
The court also upheld the jury’s $6M damage verdict in Meriturn against the plaintiff’s claim that it was too low (the plaintiff sought over $23M,) While the plaintiff sought lost profits (profits lost as a result of the investment going bad due to the bad patent advice), those damages were foreclosed by the “new business” rule.
Since the plaintiff’s investment in the waste disposal company was a new venture for both the plaintiff and the company, any claimed lost profits were purely speculative and couldn’t be recovered.
Tuckaway’s paltry damages sum awarded to the plaintiff was also supported by the evidence. There, the lawyer defendant offered uncontested expert testimony that the property that was subject of the late mortgage recording was worth next to nothing since it was already encumbered by a prior mortgage.
As a result, the jury’s damage amount – some 800 times less than was claimed by the plaintiff – was supported by the evidence.
1/ An attorney who doesn’t clearly define and limit the scope of his representation can find himself owing duties to third party “strangers” to his attorney-client agreement;
2/ A jury is given wide latitude in fashioning damage awards. Unless there is obvious error or where it’s clear they considered improper evidence, their damage assessment will be sustained.