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Civil Litigation FLASHPOINTS May 2022

Loren M. Lee, Katten Muchin Rosenman LLP, Chicago
312-902-5232| E-mail Loren Lee

Illinois Supreme Court Clarifies Injury Necessary To Trigger Statute of Limitations on Legal Malpractice Claim

In Suburban Real Estate Services, Inc. v. Carlson, 2022 IL 126935, the Illinois Supreme Court clarified the injury necessary to trigger the two-year statute of limitations on a legal malpractice claim. Specifically, the court ruled that merely hiring new counsel and incurring legal fees alone is insufficient to trigger the limitations period when it is unclear whether a plaintiff will suffer a pecuniary loss, separate and apart from paying legal fees, caused by his or her original attorney’s actions. In other words, a legal malpractice cause of action cannot succeed without a demonstration of monetary loss by the plaintiff.

Facts of the Case and Procedural Background

In February 2006, Bryan Barus, the owner of Suburban Real Estate Services, Inc., a commercial real estate management company, (collectively “the plaintiffs”) formed a new company with ROC, Inc., a real estate investment company owned by Michael Siurek. Suburban and ROC each owned a 50-percent interest in this new venture, aptly named ROC/Suburban LLC, which Suburban used as a vendor of commercial property management services. In May 2010, Barus retained counsel for legal advice in terminating Suburban’s relationship with ROC/Suburban. Barus’s counsel, William Roger Carlson, Jr., and his law firm Carlson Partners, Ltd. (collectively “the defendants”), assisted in preparing a “break-up” letter that was sent to Siurek. 2022 IL 126935 at ¶4. The letter was not well received.

Barus implemented the actions described in the letter, including taking most of ROC/Suburban’s employees and no longer using ROC/Suburban as a vendor. ROC sued Suburban in August 2010, alleging breach of fiduciary duty that Barus owed to ROC/Suburban. Barus retained new counsel, Gaspero & Gaspero, Attorneys at Law, P.C., in October 2010 to defend Suburban in the ROC litigation. The trial court entered judgment in favor of ROC in June 2015. Specifically, the court found that Suburban, through Barus, breached its fiduciary duties and ordered it to pay ROC 50 percent of the fair value of the assets that Barus improperly transferred out of ROC/Suburban in addition to damages totaling $336,652.26.

Eleven months later, in May 2016, the plaintiffs filed a malpractice action against the defendants. The plaintiffs alleged that the defendants were negligent for (1) failing to advise them of the proper steps to dissolve ROC/Suburban, (2) recommending/approving the actions that resulted in their breach of fiduciary duties, and (3) failing to advise them of the consequences of these actions. The plaintiffs alleged that the defendants’ negligence caused them to suffer damages exceeding $600,000.

The defendants moved for summary judgment, asserting that the malpractice claim was barred by the two-year statute of limitations. 735 ILCS 5/2-1005, 5/13-214.3(b). The Cook County Circuit Court granted summary judgment in favor of the defendants, agreeing with their argument that “the limitations period on the claim had expired because plaintiffs’ payment of attorney fees to new counsel constituted an injury triggering the statute.” 2022 IL 186574 at ¶1.

The Illinois Appellate Court First District disagreed, finding that the plaintiffs’ malpractice claim was timely. 2020 IL App (1st) 191953 at ¶¶34, 36. The court found that Barus “did not suffer a realized injury until the trial court . . . entered a judgment against” him in June 2015. 2020 IL App (1st) 191953 at ¶13. Further, the court explicitly rejected the defendants’ argument that the plaintiffs’ payment of attorneys’ fees related to the defendants’ negligent advice constituted an injury, triggering the statute of limitations. 2020 IL App (1st) 191953 at ¶¶27 – 32.

The defendants then appealed the appellate court’s decision to the Illinois Supreme Court pursuant to Supreme Court Rule 315 (eff. Oct. 1, 2020).

The Illinois Supreme Court’s Analysis

Reviewing the appellate court’s decision de novo, the court looked to the language of §13-214.3(b) of the Illinois Code of Civil Procedure, which states that the statute of limitations begins to run when the client “knew or reasonably should have known of the injury for which damages are sought.” 735 ILCS 5/13-214.3(b); Cohen v. Chicago Park District, 2017 IL 121800, ¶17, 104 N.E.3d 436, 422 Ill.Dec. 869 (discussing standard of review).

First, the court clarified what is meant by “injury” because “[m]uch of the parties’ disagreement in this case stems from a misunderstanding of the nature of the injury in a legal malpractice claim.” 2022 IL 126935 at ¶16. The court explained that the necessary “injury” is “not a personal injury or the attorney’s negligent act” or “misapplication of expertise” but rather “a pecuniary injury to an intangible property interest caused by the lawyer’s negligent act or omission.” 2022 IL 126935 at ¶¶17, 26, citing Northern Illinois Emergency Physicians v. Landau, Omahana & Kopka, Ltd., 216 Ill.2d 294, 837 N.E.2d 99, 107, 297 Ill.Dec. 319 (2005), and Hermitage Corp. v. Contractors Adjustment Co., 166 Ill.2d 72, 651 N.E.2d 1132, 1141, 209 Ill.Dec. 684 (1995). Therefore, a client is not “injured” unless and until they have “sustained a monetary loss as the result of some negligent act on the lawyer’s part.” 2022 IL 126935 at ¶18, citing Northern Illinois Emergency Physicians, supra, 837 N.E.2d at 107. Speculative damages are insufficient to sustain a malpractice claim.

Second, the court distinguished the present case from the “typical . . . ‘case within a case,’ ” in which an attorney’s alleged negligence occurred in their representation of a client during the underlying litigation. 2022 IL 126935 at ¶¶19 – 20. In this situation, no injury exists “unless and until the attorney’s negligence results in the loss of the underlying cause of action.” 2022 IL 126935 at ¶19, citing Tri-G, Inc. v. Burke, Bosselman & Weaver, 222 Ill.2d 218, 856 N.E.2d 389, 395, 305 Ill.Dec. 584 (2006). Therefore, the statute of limitations does not begin to run until “a judgment or settlement or dismissal of the underlying action.” Id. Here, however, the alleged negligence pertained to advice given by a transactional attorney, which the client followed, resulting in the other party to the transaction bringing suit against the client. 2022 IL 126935 at ¶20. Discerning the injury is more challenging in this scenario, as evident in the court’s analysis.

Next, the court addressed the crux of the case: what constitutes the injury that triggered the statute of limitations? The plaintiffs argued that their injury accrued when judgment was entered against them in the ROC litigation in June 2015. In support, the plaintiffs relied on Lucey v. Law Offices of Pretzel & Stouffer, Chartered, 301 Ill.App.3d 349, 703 N.E.2d 473, 234 Ill.Dec. 612 (1st Dist. 1998), and Warnock v. Karm Winand & Patterson, 376 Ill.App.3d 364, 876 N.E.2d 8, 315 Ill.Dec. 8 (1st Dist. 2007).

In Lucey, the plaintiff sought legal advice on whether he could solicit clients from his current employer before resigning to start his own company. Lucey, supra, 703 N.E.2d at 475. The plaintiff followed the attorney’s advice — namely that he could solicit clients prior to his departure — and was subsequently sued by his former employer. Id. After hiring new counsel for the litigation and while it was still pending, the plaintiff sued the original law firm for malpractice. Id. The appellate court held that the action did not accrue “until the former employer’s lawsuit against the plaintiff concluded” because the damages were “entirely speculative until a judgment is entered against the former client or he is forced to settle.” Carlson, supra, 2022 IL 126935 at ¶23, citing Lucey, supra, 703 N.E.2d at 478, 480.

In Warnock, which is factually similar to both Lucey and the present case, the appellate court found that while the plaintiffs may have been alerted to their attorney’s malpractice when the lawsuit was filed against them, “plaintiffs had no actionable damages prior to the adverse judgment from the circuit court.” 2022 IL 126935 at ¶25, citing Warnock, supra, 876 N.E.2d at 15. The court found both Lucey and Warnock “aptly illustrate” the rule that a legal malpractice cause of action cannot succeed without a demonstration of monetary loss by the plaintiff.

Conversely, the defendants maintained that the “plaintiffs’ payment of attorney fees to new counsel [in 2010] constituted an injury that triggered the statute of limitations . . . regardless of any adverse judgment or settlement.” 2022 IL 126935 at ¶27. Alternatively, the defendants argued that injury could not have accrued later than April 2013 when the plaintiffs were told by the trial judge in the ROC litigation that Carlson committed malpractice. In support of these arguments, the defendants relied on Nelson v. Padgitt, 2016 IL App (1st) 160571, 66 N.E.3d 932, 408 Ill.Dec. 927, Construction Systems, Inc. v. FagelHaber, LLC, 2019 IL App (1st) 172430, 123 N.E.3d 1189, 429 Ill.Dec. 130, and Zweig v. Miller, 2020 IL App (1st) 191409, 182 N.E.3d 159, 450 Ill.Dec. 713.

The court rejected the defendants’ argument, finding that the cases they cited “merely stand for the proposition that in some cases, prior to a judgment, there may be an actual loss for which the client could seek monetary damages attributable to attorney neglect.” [Emphasis added.] 2022 IL 126935 at ¶28. In all three cases, “there was a pecuniary loss directly attributable to an attorney’s neglect prior to any adverse judgment or settlement.” [Emphasis added.] 2022 IL 126935 at ¶35. For example, in Nelson, supra, the hired attorney negotiated an employer contract on his client’s behalf that stipulated the client would lose his salary and commission on termination for cause. 2016 IL App (1st) 160571 at ¶15. The appellate court found that the client was injured as soon as he was terminated for cause, losing his salary and commission, under the terms of the contract. 2016 IL App (1st) 160571 at ¶¶4, 15 – 17. An adverse judgment was unnecessary for the plaintiff in Nelson to know he had been injured by his attorney. 2016 IL App (1st) 160571 at ¶22.

Unlike the cases relied on by the defendants, the Carlson court found that this case was not one “where, prior to any adverse ruling, plaintiffs knew or should have known they had suffered a monetary loss caused by defendants’ negligent advice.” 2022 IL 126935 at ¶36. Accordingly, the court ruled that “merely hiring new counsel to defend against a lawsuit challenging the attorney’s legal advice and incurring fees does not, standing alone, trigger a cause of action for malpractice.” Id.

But what about the fact that the trial judge in the ROC litigation alerted the plaintiffs that Carlson committed malpractice? On this issue, the court held that, regardless of this April 2013 statement, “the possibility of damages would not be actionable unless and until the ROC litigation ended adversely to plaintiffs with a finding that plaintiffs breached their fiduciary duties to ROC/Suburban.” 2022 IL 126935 at ¶37. Until that point, the injury was purely speculative because the action could have resulted in an outcome favorable to the plaintiffs. Id., citing Northern Illinois Emergency Physicians, supra, 837 N.E.2d at 107 (when damages are speculative, no cause of action for malpractice exists).

Therefore, the court found that the statute of limitations on the plaintiffs’ malpractice claim did not begin to accrue until June 2015 when the trial court in the underlying ROC litigation entered judgment against them. 2022 IL 126935 at ¶39. Thus, the complaint was timely because it was filed less than a year later; thus, the ruling of the appellate court was affirmed. Id.

Implications of the Decision

The Carlson decision encourages judicial economy and forestalls premature fractures in the attorney-client relationship. Further, this case allows aggrieved plaintiffs to avoid rushing to the courthouse when they’re also litigating another matter. Preventing plaintiffs from bringing their malpractice actions before their injury is concrete conserves judicial resources, reduces costs, and preserves (or at least prolongs) the relationship between attorney and client.

For more information about financial services, see CIVIL TRIAL EVIDENCE (IICLE®, 2022). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.

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