Scanlan v. Eisenberg et al
Filing
322
Enter MEMORANDUM Opinion and Order Signed by the Honorable John F. Grady on 11/15/2012. Mailed notice (jdh)
09-5026.122-JCD
November 15, 2012
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MARY BUCKSBAUM SCANLAN,
individually, as Next Friend
for MARTIN MICHAEL SCANLAN and
STELLA CLARE SCANLAN, minors,
and derivatively on behalf of
GENERAL TRUST COMPANY, as Trustee,
Plaintiffs,
v.
MARSHALL EISENBERG, EARL MELAMED,
NEAL, GERBER & EISENBERG, LLP,
an Illinois limited liability
partnership, and GENERAL TRUST
COMPANY, a South Dakota
corporation,
Defendants.
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No. 09 C 5026
MEMORANDUM OPINION
Before
Eisenberg,
the
Earl
court
is
Melamed,
the
motion
and
Neal,
of
defendants
Gerber
&
Marshall
Eisenberg
LLP
(collectively, the “lawyer defendants”) to dismiss Counts I, II,
and III of the Amended Complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6). For the reasons explained below, the motion is
granted in part and denied in part.
BACKGROUND
Plaintiff Mary Bucksbaum Scanlan (“Scanlan”) is the primary
beneficiary of several discretionary trusts (the “Trusts”) that
were established by her father and uncle, who were the founders of
General Growth Properties (“General Growth”), one of the largest
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publicly-traded real estate investment trusts in the United States.
Scanlan’s
children,
Martin
and
Stella
Scanlan,
who
are
also
plaintiffs, are contingent remaindermen of the Trusts. Each of the
Trusts authorizes the corporate trustee, defendant General Trust
Company (the “Trustee” or “GTC”), to distribute to Scanlan all or
as much of the trust’s net income or principal as the Trustee deems
necessary for her support or in her best interests.
It is alleged that defendant Neal, Gerber & Eisenberg (the
“Law Firm”), primarily through two of its partners, defendants
Marshall Eisenberg and Earl Melamed, generally represented Scanlan
throughout her adult life “for every matter in which she needed
legal advice.”
(Am. Compl. ¶ 38.)
At the same time, they
represented the Trustee; General Growth; other Bucksbaum family
members, some of whom managed General Growth; and the investment
vehicles for the Trusts and the trusts of other Bucksbaum family
members.
Eisenberg and Melamed both own substantial amounts of
General Growth stock.
They also personally control the Trustee;
Eisenberg is its majority owner, and both serve on its Board of
Directors.
In 2007 and 2008, the price of General Growth stock fell
dramatically.
The plaintiffs allege that despite this fact, and
without Mary’s knowledge, the defendants caused the Trusts to
purchase (with the proceeds of the “Citi Loan,” a loan secured by
a
pledge
of
the
Trusts’
assets)
more
than
$300
million
in
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additional shares of the stock and explained that the purchases
were an effort to stabilize the stock’s value in accordance with
what
the
Trustee
deemed
to
be
“Bucksbaum Family” as a whole.
in
the
best
interest
of
the
It is also alleged that without
Mary’s knowledge, the defendants “caused assets owned by Mary’s
Trusts to be used to make personal unsecured loans totaling at
least $90 million to two officers of General Growth for the purpose
of allowing those officers to meet margin calls associated with
their holdings of General Growth stock.”
(Am. Compl. ¶ 16.)
The plaintiffs complain that these transactions were not made
in their best interests, but to further the interests of others
such as the lawyer defendants and other members of the Bucksbaum
family.
The eight-count amended complaint contains different
permutations of claims for legal malpractice, breach of fiduciary
duty, and aiding and abetting the breach. It also seeks removal of
the Trustee.
The lawyer defendants move to dismiss Counts I and II, which
are the claims of Scanlan alone against the lawyer defendants alone
for legal malpractice and breach of fiduciary duty.
discuss those two counts below.
We will
They also move to dismiss Count
III, a legal malpractice claim asserted by all three plaintiffs as
third-party beneficiaries of the lawyer defendants’ attorney-client
relationship with the Trustee. We have already dismissed Count III
with prejudice as to Scanlan’s children’s claims.
Scanlan v.
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Eisenberg, No. 09 C 5026, 2011 WL 862748, at *5 (N.D. Ill. Mar. 9,
2011). The lawyer defendants contend that our basis for dismissing
the children’s claims applies equally to Scanlan’s claim, and
Scanlan states in her response that she does not contest the
dismissal of Count III.
(Pl.’s Resp. at 17 n.6.)
Therefore, Count
III will be dismissed with prejudice in its entirety.
DISCUSSION
In Count I of the amended complaint, Scanlan alleges that she
had an attorney-client relationship with the lawyer defendants and
that the lawyer defendants committed legal malpractice by breaching
their duties to her in several ways.
In Count II, which is also
based on this alleged attorney-client relationship, Scanlan alleges
that the lawyer defendants breached their fiduciary duties to her.
The
lawyer
defendants
argue
that
Counts
I
and
sufficiently allege an attorney-client relationship.
II
do
not
They also
contend that Count II must be dismissed because it is duplicative
of Count I.
A.
Do Counts I and II Sufficiently
Allege an Attorney-Client Relationship?
The purpose of a Rule 12(b)(6) motion to dismiss is to test
the sufficiency of the complaint, not to resolve the case on the
merits.
5B Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1356, at 354 (3d ed. 2004). Under federal
notice-pleading standards, a complaint must offer more than just
“labels and conclusions” but need not contain “detailed factual
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allegations.”
(2007).
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
To survive a motion to dismiss, “a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
“A claim
has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S.
at 678.
The Court of Appeals for the Seventh Circuit has observed that
“[p]leading standards in federal litigation are in ferment after
Twombly and Iqbal,” In re Text Messaging Antitrust Litigation, 630
F.3d 622, 627 (7th Cir. 2010), and has issued additional guidance
to the district courts.
It has emphasized that Twombly and Iqbal
“do not change” the fact that “[o]ur system operates on a notice
pleading standard.”
Bissessur v. Ind. Univ. Bd. of Trs., 581 F.3d
599, 603 (7th Cir. 2009).
The Court has also addressed the
“plausibility” standard as follows:
The Court said in Iqbal that the “plausibility standard
is not akin to a ‘probability requirement,’ but it asks
for more than a sheer possibility that a defendant has
acted unlawfully.”
This is a little unclear because
plausibility, probability, and possibility overlap.
Probability runs the gamut from a zero likelihood to a
certainty. What is impossible has a zero likelihood of
occurring and what is plausible has a moderately high
likelihood of occurring. The fact that the allegations
undergirding a claim could be true is no longer enough to
save a complaint from being dismissed; the complaint must
establish a nonnegligible probability that the claim is
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valid; but the probability need not be as great as such
terms as “preponderance of the evidence” connote.
Text Messaging, 630 F.3d at 629 (citation omitted).
Furthermore,
in Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010),
the Seventh Circuit articulated the standard in a helpful way,
stating: “[T]he plaintiff must give enough details about the
subject-matter of the case to present a story that holds together.
In other words, the court will ask itself could these things have
happened, not did they happen. For cases governed only by Rule 8,
it is not necessary to stack up inferences side by side and allow
the case to go forward only if the plaintiff’s inferences seem more
compelling than the opposing inferences.”
“The required level of
factual specificity rises with the complexity of the claim.”
McCauley v. City of Chicago, 671 F.3d 611, 616-17 (7th Cir. 2011).
The defendants argue that the amended complaint fails to
allege that the scope of their representation of Scanlan included
the advice they allegedly failed to give, and they note, correctly,
that representation on particular matters does not create an
attorney-client relationship with respect to other matters. In the
lawyer defendants’ view, “Scanlan must allege that the Lawyer
Defendants were lawyers for her as trust beneficiary for the
purpose
of
representing
her
against
GTC
by
monitoring
GTC’s
investment activities (and monitoring their own role in directing
those investments as GTC officers/directors) and reporting to her
if
those
activities
were
in
breach
of
GTC’s
(or
their
own)
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fiduciary duties.”
(Defs.’ Mem. at 2.)
They assert that Counts I
and II fail to sufficiently allege either an oral contract or an
implied-in-fact contract between them and Scanlan.
They also
assert that it is “implausible” that they would have represented
Scanlan “generally” for every matter in which she needed legal
advice, as is alleged in the amended complaint, and that the work
Scanlan alleges they performed was “plainly unrelated” to the
Trusts.
(Defs.’ Mem. at 7-9.)
Scanlan responds that she and the lawyer defendants had not an
express, but an implied-in-fact contract for the lawyers to act as
her general counsel, which included advising her regarding her
interests as beneficiary of the Trusts.
She asserts that she has
pled many specific facts regarding her interactions with the lawyer
defendants
over
a
period
of
many
years,
including
numerous
instances in which they actually provided advice regarding her
interests in the Trusts.
She also contends that the lawyer
defendants improperly attempt to refute the allegations of the
complaint and ask the court to draw inferences in defendants’ favor
under the guise of making a plausibility assessment.
The elements of a legal malpractice claim in Illinois are (1)
the attorney’s breach (2) of a duty owed to the plaintiff that
arose from the attorney-client relationship (3) that proximately
causes (4) damages.
Fabricare Equip. Credit Corp. v. Bell, Boyd &
Lloyd, 767 N.E.2d 470, 474 (Ill. App. Ct. 2002).
The elements of
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a claim for breach of fiduciary duty are largely the same. Chicago
City Bank & Trust Co. v. Lesman, 542 N.E.2d 824, 826 (Ill. App. Ct.
1989).
The attorney-client relationship alleged by Scanlan is
predicated on a theory of an implied-in-fact contract, “one in
which a contractual duty is imposed by a promissory expression
which may be inferred from the facts and circumstances and the
expressions on the part of the promisor which show an intention to
be bound.”
Kohlenbrener v. N. Suburban Clinic, Ltd., 826 N.E.2d
563, 567 (Ill. App. Ct. 2005). “An implied-in-fact contract may be
found by examination of the acts of the parties even in the absence
of any express statement of specific agreement regarding the
details of the contractual relationship.”
Id.; see also O’Neil &
Santa Claus, Ltd. v. Xtra Value Imps., Inc., 365 N.E.2d 316, 319
(Ill. App. Ct. 1977) (stating that the essential terms of an
implied-in-fact contract are supplied by implication from the
parties’ conduct).
The case law cited by the parties does not assist with our
analysis.
This is not the parties’ fault; there appears to be a
dearth of authority involving allegations of a comparable longstanding and wide-ranging attorney-client relationship. Moreover,
we are mindful that “[d]etermining whether a complaint states a
plausible claim for relief [is] a context-specific task that
requires the reviewing court to draw on its judicial experience and
common sense.”
Iqbal, 556 U.S. at 679.
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We have reviewed Counts I and II of the amended complaint and
considered whether plaintiff provides enough details about the
alleged legal malpractice and breaches of fiduciary duty to present
a story that “holds together” and establishes a “nonnegligible
probability” that the claims are valid.
404; Text Messaging, 630 F.3d at 629.
has done so.
throughout
See Swanson, 614 F.3d at
We believe that plaintiff
The amended complaint alleges in paragraph 38 that
Scanlan’s
adult
life
and
until
2009,
the
lawyer
defendants “continually acted as [her] personal counsel for every
matter in which she needed legal advice” and that the Law Firm
represented her “in a variety of contexts, including matters
related to her Trusts,” and it lists some of those matters.
It
alleges in the same paragraph that Scanlan “reasonably believed”
that the lawyer defendants “were her attorneys for all of her legal
needs, including in her capacity as beneficiary of her Trusts.”
Paragraphs 39 through 44 and 47 through 55 contain examples of
matters as to which the lawyer defendants allegedly represented
Scanlan, beginning in 1989 and extending through 2009.
Paragraphs
40 through 44, 47 through 50, and 52 through 55 specifically
describe the lawyer defendants’ advice to Scanlan regarding the
Trusts that are at issue, including advice about her disposition of
assets in the Trusts and specifically regarding the General Growth
stock holdings in the Trusts.
Scanlan also alleges that the
lawyers initiated contact with her regarding her interests in the
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Trusts and that they never addressed the Law Firm’s conflicts of
interest, limited their representation of her, or told her that
they could not represent her in matters relating to the Trusts.
(Am. Compl. ¶¶ 56-57.) These details permit a reasonable inference
that the scope of Scanlan’s relationship with the lawyer defendants
included advice regarding her interests in the Trusts.
Plaintiff
does not allege the ordinary attorney-client relationship that is
confined to one particular matter, but, contrary to defendants’
argument, her story is not “implausible” simply because she alleges
a
broad
relationship
Defendants’
and
contentions
egregious
stray
too
conflicts
far
into
of
the
interest.
merits
of
plaintiff’s case.
To bolster her response to defendants’ motion, plaintiff has
attached several exhibits to her brief.
She asserts that they
demonstrate the plausibility of her allegations of an expansive
attorney-client
relationship
interests in the Trusts.
that
included
We agree.
the
matter
of
her
For example, Exhibit F is a
“personal and confidential” 2002 letter from Eisenberg to Scanlan
that includes advice regarding the exercise of Scanlan’s power of
appointment
for
one
of
the
Trusts.
The
lawyer
defendants
characterize Scanlan’s use of these exhibits as an inappropriate
attempt to cure a “deficient complaint” by “fill[ing] in missing
allegations.”
(Defs.’ Reply at 5-6.)
the complaint is not deficient.
As we have explained above,
Moreover, the Seventh Circuit has
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stated that a party opposing a Rule 12(b)(6) motion is allowed to
submit materials outside the pleadings to illustrate the facts the
party expects to be able to prove, without converting the motion
into one for summary judgment, and indeed “may find it prudent to
do so” “[i]n the turmoil concerning civil pleading standards
stirred up by” Twombly and Iqbal. Geinosky v. City of Chicago, 675
F.3d 743, 745 n.1 (7th Cir. 2012).
The lawyer defendants’ motion will be denied as to Count I of
the amended complaint.
B.
Is Count II Duplicative of Count I?
The defendants maintain that Count II, which alleges breach of
fiduciary duty, should be dismissed as duplicative of Count I
because it is based on the same facts and same injury.
Under
Illinois law, every alleged act of malpractice does not rise to the
level of a breach of fiduciary duty, but when “a breach of
fiduciary duty claim is based on the same operative facts as a
legal malpractice claim, and results in the same injury, the later
claim should be dismissed as duplicative.”
Fabricare, 767 N.E.2d
at 476; see also Hoagland v. Sandberg, Phoenix & Von Gontard, P.C.,
385 F.3d 737, 744 (7th Cir. 2004).
A close reading of Counts I and II reveals that they are
premised on different conduct.
Count I is based on the defendants
allegedly continuing to represent Scanlan after becoming unable to
render independent legal advice; failing to advise her to retain
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independent legal counsel; failing to withdraw from representing
her due to their conflicts of interest; failing to disclose to her
the existence and terms of the Citi Loan and advise her of the
risks associated with the purchase of additional shares of General
Growth stock for the benefit of the Trusts; failing to disclose to
her the existence and terms of the Freibaum and Michaels Loans and
advise of the risks those loans posed to the Trusts’ assets; and
facilitating the use of non-General Growth assets from the Trusts
to make those loans.
(Am. Compl. ¶¶ 113-116.)
Count II, however,
is based on the defendants allegedly assisting the Trustee with the
purchase of additional shares of General Growth utilizing the Citi
Loan and in extending the Freibaum and Michaels Loans; approving
the stock purchases; and approving the Freibaum and Michaels Loans.
(Am. Compl. ¶¶ 126-128.)
Because the operative facts of Count II
are distinct from those of Count I, the motion to dismiss will be
denied as to Count II.
CONCLUSION
The lawyer defendants’ motion to dismiss Counts I-III of the
amended complaint [251] is granted in part and denied in part.
motion is denied as to Counts I and II.
The
The motion is granted as
to Count III, which is dismissed with prejudice in its entirety.
General Trust Company’s motion to set a deadline for an
amended answer [249] is granted.
answers by December 6, 2012.
All defendants may file amended
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DATE:
November 15, 2012
ENTER:
_________________________________________________
John F. Grady, United States District Judge
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