Tag: collateral estoppel

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.

Collateral Estoppel, Law Of the Case and Section 2-1401 Petitions: Illinois Basics

1600 Museum Park, LLC v. Williams, 2012 WL 6955718, chronicles an aborted condominium purchase and its ensuing litigation.  A condo owner and two purchasers signed a contract (Contract) and an approx. $25K promissory note in connection with a condo sale.  But only one of the buyers signed the contract and note.  The deal fell through and the defendants sent a written termination notice to the plaintiff.

Plaintiff sued to confess judgment against both defendants and the trial court entered judgment against both defendants jointly and severally for over $30K.  Defendants appealed. 

The First District affirmed the money judgment against the defendant that signed the contract and note but reversed as to the buyer that didn’t sign either document. 

Collateral Estoppel and Law of the Case Doctrines

The Appellate Court found that the trial court erred in its application of collateral estoppel. 

Collateral estoppel is designed to prevent the relitigation of issues that have already been resolved in earlier actions and specifically contemplates two separate, and consecutive cases.  ¶¶ 13-14. 

Collateral estoppel applies where (1) there is a final, valid judgment on the merits in a prior suit; (2) the issue in the prior suit is identical to the issue in the current case; and (3) the party against whom estoppel is asserted was a party to, or in privity with a party to the prior lawsuit.  ¶ 15. 

The Court held that since there was no prior lawsuit – there is only one case involved – collateral estoppel didn’t apply.  In addition, the Court found that the  ex parte confession of judgment entered against defendants was, by its nature, not a final judgment on the merits.  Id., ¶ 17. 

The First District also rejected plaintiff’s law-of-the-case (“LOC”) argument. 

LOC “bars relitigation of an issue previously decided in the same case.”  The rule applies where an appellate court decides an issue of law and then remands the case to the trial court and is designed to prevent a second appeals court from contradicting the first appellate court on an issue of law. 

The Court found that since this case did not involve a prior appellate ruling and there was no remand to a trial court, the law-of-the-case rule didn’t apply.  

Section 2-1401 Petitions

Code Section 2-1401 petition (735 ILCS 5/2-1401), which governs motions to vacate a judgment older than 30 days.  ¶ 20.

A Section 2-1401 petition establishes (1) a meritorious defense; (2) due diligence in discovering the defense; and (3) due diligence in bringing the petition. (¶¶ 19-20)

Promissory Note Liability and Contract Cancellation

The purchasers argued that since only one of them signed the Note, it wasn’t enforceable on either of them.  The First District disagreed and held the Note’s text didn’t require both purchasers’ signatures for the Note’s enforceability. ¶¶ 23-24. 

The defendants other argument was that since they cancelled the Contract, the Note was also necessarily cancelled.  The Court dismissed this noting that the Contract gave defendants only seven days to terminate the contract.  Since the defendants’ sent their termination letter more than four months after the Contract was signed, the termination was untimely.  As a result, the Contract was never cancelled and the Note was enforceable (but only as to the signing defendant).  (¶¶ 26-27).   

Take-aways:

– Real estate contract termination deadlines will be enforced as written;

– Collateral estoppel and law-of-the-case are construed narrowly and only apply where there are at least two separate, successive cases (for collateral estoppel) or where there is an appeals court decision on a legal issue and subsequent remand to a trial court (for law-of-the-case);

– A promissory note will be enforced to the letter and the court will not engraft conditions onto a clearly drafted note.