Eckert v. Levin et al
Filing
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MEMORANDUM OPINION AND ORDER. Signed by the Honorable Gary Feinerman on 2/26/2015. Mailed notice(rj, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JEFFREY P. ECKERT,
Plaintiff,
vs.
FREEBORN & PETERS LLP and NEAL H. LEVIN,
Defendants.
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14 C 2871
Judge Feinerman
MEMORANDUM OPINION AND ORDER
In this diversity suit, Jeffrey Eckert alleges legal malpractice and fraud against the
Freeborn & Peters law firm and one of its partners, Neal Levin (together, “Levin”). Doc. 1.
Levin has moved to dismiss the case under Federal Rule of Civil Procedure 12(b)(6). Doc. 11.
The motion is granted as to the fraud claim and denied as to the malpractice claim.
Background
In resolving the motion to dismiss, the court assumes the truth of the complaint’s wellpleaded factual allegations, with all reasonable inferences drawn in Eckert’s favor, but not its
legal conclusions. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012). The court must also
consider “documents attached to the complaint, documents that are critical to the complaint and
referred to in it, and information that is subject to proper judicial notice,” along with additional
facts set forth in Eckert’s brief opposing dismissal, so long as those additional facts are
“consistent with the pleadings.” Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir.
2012). Orders entered and filings made in other courts are subject to judicial notice on a Rule
12(b)(6) motion. See Cancer Found., Inc. v. Cerberus Capital Mgmt. LP, 559 F.3d 671, 676 n.2
(7th Cir. 2009); United States v. Stevens, 500 F.3d 625, 628 n.4 (7th Cir. 2007). The facts are set
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forth as favorably to Eckert as permitted by those materials. See Gomez v. Randle, 680 F.3d 859,
864 (7th Cir. 2012).
This case arises from a lawsuit filed in the Circuit Court of DuPage County, Illinois.
Doc. 1 at ¶¶ 1, 10-11. Eckert, one of the state court defendants, was represented by an attorney
named Douglas Drenk. Id. at ¶¶ 10, 12. The state court plaintiff, Gregory Steiner, was
represented by Levin. Id. at ¶¶ 5, 10. Levin approached Eckert outside of Drenk’s presence and
persuaded him to enter into a settlement agreement with Steiner that required Eckert to pay over
$700,000. Id. at ¶¶ 12-13. Eckert signed the settlement agreement on June 29, 2010. Id. at ¶ 21;
see Doc. 1-1 at 170-179 (the settlement agreement).
The backstory is as follows. In December 2009, when Drenk represented Eckert and
Levin represented Steiner, Levin and Eckert began to exchange hundreds of emails. Doc. 1 at
¶ 15; see Doc. 1-1 at 2-169 (the emails). On December 9, 2009, Levin wrote to Eckert: “You
have a bad case in State Court, no matter what another attorney might tell you. … [A] settlement
would make it so that you wouldn’t have a judgment (or any lawsuit) against you, making it that
much easier (or even possible) to get financing for your business.” Doc. 1-1 at 11. Levin
promised to help Eckert develop his businesses as a means of raising the $700,000 necessary to
satisfy his payment obligation under the proposed settlement. Doc. 1 at ¶ 13; see Doc. 1-1 at 9
(“[T]he advisor will build a plan that has a line item for repayment to us while you develop and
grow the business. It’s a triple win and shuts down all litigation for you.”).
During the next two or so years, Levin and Eckert discussed, among other topics,
Eckert’s business, how to capitalize that business, strategies for raising money to pay what
Eckert owed under the settlement agreement, Steiner’s lawsuit against Eckert, the legal status of
the disagreement between Steiner and Eckert, and enforcement of the settlement agreement.
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Doc. 1 at ¶ 16. Levin introduced Eckert to potential business advisors and investors. Id. at ¶ 20.
Levin also provided Eckert a template for developing a business plan that Levin had created,
edited Eckert’s business plans, participated in meetings on behalf of Eckert’s business, and
communicated regularly with Eckert. Id. at ¶ 22. In correspondence with third parties, Levin
referred to Eckert as his “client.” Doc. 1-1 at 103-04.
On February 8, 2011, Steiner and Eckert agreed to alter the terms of the June 2010
settlement agreement. Steiner v. Eckert, 995 N.E.2d 483, 485 (Ill. App. 2013). On December
12, 2011, Steiner moved to enforce the settlement agreement against Eckert. Doc. 13-4. Levin
was one of the attorneys of record for Steiner on that motion. Id. at 5. On December 22, 2011,
Eckert moved to disqualify Levin as Steiner’s counsel. Doc. 13-5. The state trial court denied
Eckert’s motion in a one-line order dated March 27, 2012. Doc. 13-6. Then, on July 12, 2012,
the court granted Steiner’s motion to enforce the settlement agreement and entered judgment
against Eckert in the amount of $1,000,000. Doc. 13-7. On November 1, 2012, the trial court
denied Eckert’s motion to vacate that judgment. Doc. 13-8. The Appellate Court of Illinois
affirmed, Steiner v. Eckert, 995 N.E.2d 483 (Ill. App. 2013), and the Supreme Court of Illinois
denied leave to appeal, Steiner v. Eckert, 3 N.E.3d 802 (Ill. 2014).
Discussion
I.
Fraud Claim
Eckert’s fraud claim alleges that Levin fraudulently induced him into executing the
settlement agreement by falsely promising to help him raise the funds needed to satisfy his
financial obligations under the agreement. Doc. 1 at ¶¶ 45-50. Levin argues that this claim is an
improper collateral attack on the state court judgment. Doc. 13 at 11. Although he does not use
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the term, Levin’s argument is that res judicata, also called claim preclusion, bars the fraud claim
because it rests on allegations that Eckert could have raised in the state court case.
Res judicata “provides for the finality of rulings by barring the relitigation of claims or
defenses that had been or could have been brought in a prior case.” Smith Trust & Sav. Bank v.
Young, 727 N.E.2d 1042, 1045 (Ill. App. 2000) (emphasis added); see also Hicks v. Midwest
Transit, Inc., 479 F.3d 468, 471 (7th Cir. 2007); Wilson v. Edward Hosp., 981 N.E.2d 971, 975
(Ill. 2012). Because the underlying judgment was issued by an Illinois state court, its preclusive
effect is governed by Illinois law. See Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. 367,
373 (1996); Burke v. Johnston, 452 F.3d 665, 669 (7th Cir. 2006). In Illinois, res judicata applies
if: “(1) there was a final judgment on the merits rendered by a court of competent jurisdiction,
(2) there is an identity of cause of action, and (3) there is an identity of parties or their privies.”
River Park, Inc. v. City of Highland Park, 703 N.E.2d 883, 889 (Ill. 1998); see also Empress
Casino Joliet Corp. v. Johnston, 763 F.3d 723, 727-28 (7th Cir. 2014). In addition, the party
against whom res judicata is invoked must have had a “full and fair” opportunity to litigate the
claim in the prior suit. Hicks, 479 F.3d at 471.
The first requirement, a final judgment on the merits, is indisputably satisfied. The state
appellate court held that Steiner and Eckert had entered into a valid settlement agreement and
affirmed the trial court’s enforcement thereof, see Steiner, 995 N.E.2d at 489, and the state
supreme court denied leave to appeal. The judgment, therefore, constitutes a final judgment on
the merits as to the existence, validity, and enforceability of the settlement agreement. See In re
A.W., 896 N.E.2d 316, 321 (Ill. 2008) (“finality requires that the potential for appellate review
must have been exhausted”); Relph v. Bd. of Educ. of DePue Unit Sch. Dist. No. 103, 420 N.E.2d
147, 150 (Ill. 1981).
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The second requirement of res judicata, the identity of the cause of action, is satisfied as
well. Under the “transactional test” adopted by Illinois, “separate claims will be considered the
same cause of action for purposes of res judicata if they arise from a single group of operative
facts, regardless of whether they assert different theories of relief.” River Park, 703 N.E.2d at
893; see also Huon v. Johnson & Bell, Ltd., 757 F.3d 556, 558-59 (7th Cir. 2014); Cooney v.
Rossiter, 986 N.E.2d 618, 622 (Ill. 2012) (“Illinois does not require the same evidence or an
identical theory of relief.”). What constitutes a “single group of operative facts” is determined
pragmatically, “giving weight to such considerations as whether the facts are related in time,
space, origin, or motivation, whether they form a convenient trial unit, and whether their
treatment as a unit conforms to the parties’ expectations or business understanding or usage.”
River Park, 703 N.E.2d at 893 (internal quotation marks omitted); see also Garcia v. Vill. of Mt.
Prospect, 360 F.3d 630, 637 (7th Cir. 2004); Torasso v. Standard Outdoor Sales, Inc., 626
N.E.2d 225, 228 (Ill. 1993).
Eckert’s submission that Steiner’s lawyer (Levin) fraudulently induced Eckert to sign the
settlement agreement could have been asserted by Eckert in state court as a defense to Steiner’s
motion to enforce the agreement. Eckert initially did not respond to Steiner’s motion to enforce.
See Steiner, 995 N.E.2d at 486. Eckert later moved to vacate the judgment, arguing that “no
valid settlement agreement was shown to exist by either verified pleadings or evidence,” and that
even if an agreement existed, it “made no sense whatsoever and was completely nonsensical and
unenforceable even if valid.” Ibid. (internal quotation marks omitted). On appeal, Eckert argued
that the trial court had abused its discretion by summarily granting Steiner’s motion to enter
judgment because Steiner “submitted no verified pleadings or evidence to establish the existence
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of the settlement agreement” and, alternatively, that the trial court should have held an
evidentiary hearing before enforcing the agreement due to its ambiguity. Id. at 487.
Eckert’s fraudulent inducement claim in this case seeks the same bottom-line result that
he sought in state court: a holding that the settlement agreement is invalid and unenforceable.
See Extra Equipamentos E Exportacao Ltda. v. Case Corp., 541 F.3d 719, 726 (7th Cir. 2008)
(“the remedy for fraud in the inducement is to rescind the contract”). Eckert could have made a
fraudulent inducement argument in state court as a ground for denying Steiner’s motion to
enforce. See Havoco of Am., Ltd. v. Sumitomo Corp. of Am., 971 F.2d 1332, 1341-42 (7th Cir.
1992); Jordan v. Knafel, 880 N.E.2d 1061, 1071-73 (Ill. App. 2007). It follows that the identity
of cause of action requirement is satisfied. See Henry v. Farmer City State Bank, 808 F.2d 1228,
1234 (7th Cir. 1986) (“Illinois courts have consistently held that the bar of res judicata extends
not only to questions actually decided, but also to all grounds of recovery and defenses which
might have been presented in the prior litigation between the parties. … A defendant therefore
may not relitigate a defense, which was available but not raised in a prior action, by making it the
basis of a claim in a subsequent action against the original plaintiff which if successful would
nullify the initial judgment.”) (citing cases); Hughey v. Indus. Comm’n, 394 N.E.2d 1164, 1166
(Ill. 1979) (holding that res judicata “applies to every question relevant to and falling within the
purview of the original action, in respect to matters of both claim or grounds of recovery, and
defense, which could have been presented by the exercise of due diligence”); Lake v. Thomas, 90
N.E.2d 774, 777 (Ill. 1950) (“The rule is well settled that the doctrine of res judicata extends not
only to matters actually determined in the former suit, but also embraces all grounds of recovery
and defense involved and which might have been raised.”). It also follows for the same reasons
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that Eckert had a full and fair opportunity to litigate fraudulent inducement in state court. See
Abner v. Ill. Dep’t of Transp., 674 F.3d 716, 720 (7th Cir. 2012).
The third requirement of res judicata, the identity of parties or their privies, is satisfied as
well. “The rule of privity extends the preclusive effect of res judicata to those who were not
parties to the original action, if their interests were adequately represented by someone else.”
Cooney, 986 N.E.2d at 625; see Jackson v. Callan Publ’g, Inc., 826 N.E.2d 413, 428 (Ill. App.
2005) (holding that privity exists “where a person is so identified in interest with another that he
represents the same legal right.”). Eckert was a party in both the state case and this case, so the
only question is whether Steiner (Eckert’s opponent in the state case) is in privity with Levin
(Eckert’s opponent here).
The answer to that question is “yes.” As Steiner’s lawyer, Levin was Steiner’s agent in
the state case and thus shared the same interests. See Harrison v. Deere & Co., 533 F. App’x
644, 649 (7th Cir. 2013) (holding for purposes of the privity requirement that “[p]arties’ interests
are often aligned when one party is an agent of the other”); Garcia, 360 F.3d at 636 (holding that
a principal and its agent were in privity). And even putting aside their attorney-client
relationship, Levin and Steiner both have a personal interest in the settlement agreement being
held valid and enforceable—Steiner because the agreement resulted in a $1 million judgment in
the state court suit, and Levin because it predicates his defense of the malpractice claim in this
suit. Levin therefore is in privity with Steiner. See Ennenga v. Starns, 677 F.3d 766, 776 (7th
Cir. 2012) (finding privity where the federal defendant was the state court defendant’s law firm);
Henry, 808 F.2d at 1235 n.6 (“Even though the Bank was the only actual party to the state court
mortgage foreclosure proceedings, the other defendants, as directors, officers, employees, and
attorneys of the Bank, are in privity with the Bank for purposes of res judicata.”); Purmal v.
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Robert N. Wadington & Assocs., 820 N.E.2d 86, 94 (Ill. App. 2004) (“Privity expresses the idea
that as to certain matters and in certain circumstances persons who are not parties to an action
but who are connected with it in their interests are affected by the judgment with reference to
interests involved in the action, as if they were parties.”) (internal quotation marks omitted).
Because the Illinois court rendered a final judgment on the merits, Eckert could have
raised his fraudulent inducement argument as a defense in state court, there is an identity of
parties or their privies in the two suits, and Eckert had a full and fair opportunity to raise his
fraud argument in state court, res judicata bars Eckert’s fraud claim here. Given this disposition,
there is no need to address Levin’s other arguments for dismissing the claim.
II.
Legal Malpractice Claim
Eckert’s legal malpractice claim alleges that he had an attorney-client relationship with
Levin and that Levin committed malpractice by, among other things, recommending that Eckert
enter into a settlement agreement that did not condition Eckert’s payment obligation on Levin’s
success in helping Eckert raise the money necessary to satisfy that obligation, and ultimately
failing to succeed in that respect. Doc. 1 at ¶¶ 40-43. Levin’s Rule 12(b)(6) attacks on the
malpractice claim fail to persuade.
Again without using the term, Levin contends that the malpractice claim, like the fraud
claim, is barred by res judicata. Doc. 13 at 11-13. Unlike the fraud claim, however, the
malpractice claim does not satisfy the second requirement of res judicata, identity of cause of
action. As an initial matter, the malpractice claim rests in substantial part on events occurring
after the settlement agreement was signed in June 2010, such as Levin’s obtaining a large
judgment against Eckert. See Russian Media Grp., LLC v. Cable Am., Inc., 598 F.3d 302, 31011 (7th Cir. 2010) (holding that res judicata does not apply where the second lawsuit was based
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on events that had not occurred at the time of the first lawsuit); River Park, 703 N.E.2d at 893.
Moreover, the malpractice claim would not have been an effective defense to Steiner’s motion to
enforce the agreement, as the remedy for legal malpractice is damages, not rescission. See Bell
v. Eastman Kodak Co., 214 F.3d 798, 802 (7th Cir. 2000) (“The exclusive remedy for legal
malpractice in a civil case … is a suit for malpractice or for breach of fiduciary duty.”); Daniels
v. Brennan, 887 F.2d 783, 788 (7th Cir. 1989) (“The remedy for a client who suffers a dismissal
because of the negligence of his attorney is a malpractice action; the remedy is not in avoiding
the consequences of the conduct of a freely selected agent.”).
Levin also invokes (once again without using the term) collateral estoppel, or issue
preclusion, to argue that the state court’s denial of Eckert’s motion to disqualify him from
representing Steiner in state court bars his malpractice claim. Doc. 13 at 11-13. Issue preclusion
applies if “(1) the issue decided in the prior adjudication is identical with the one presented in the
suit in question, (2) there was a final judgment on the merits in the prior adjudication, and (3) the
party against whom estoppel is asserted was a party or in privity with a party to the prior
adjudication.” Talarico v. Dunlap, 685 N.E.2d 325, 328 (Ill. 1997). Further, “a decision on the
issue must have been necessary for the judgment in the first litigation, and the person to be
bound must have actually litigated the issue in the first suit.” Ibid.; see Wells v. Coker, 707 F.3d
756, 761 (7th Cir. 2013) (stating the four requirements).
Levin’s issue preclusion argument fails on at least two grounds. First, the question of
Levin’s alleged legal malpractice is not “identical” to the question presented by Eckert’s motion
to disqualify. “Under Illinois law, in order to prevail on a claim of attorney malpractice, a
plaintiff must succeed in proving four elements: (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
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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.” Mihailovich v.
Laatsch, 359 F.3d 892, 904-05 (7th Cir. 2004). By contrast, “[d]isqualification motions require a
two-step analysis. The court must consider (1) whether an ethical violation has actually
occurred, and (2) if disqualification is the appropriate remedy.” Guillen v. City of Chicago, 956
F. Supp. 1416, 1421 (N.D. Ill. 1997). The elements do not overlap, and thus are not identical for
preclusion purposes. See Nowak v. St. Rita High Sch., 757 N.E.2d 471, 480 (Ill. 2001) (“The fact
that plaintiff had not proven himself able to come to work on a regular basis is not identical to
the questions of whether defendant had accorded plaintiff his rights under the parties’ contract
and whether he could, in the months coinciding with the remedial tenure conferences, rectify his
attendance problems.”); Demski v. Mundelein Police Pension Bd., 831 N.E.2d 704, 707-08 (Ill.
App. 2005) (holding that the question whether a police officer’s “accident arose out of and in the
course of her employment” is not identical to the question whether the accident occurred during
“[a]ny act of police duty inherently involving special risk, not ordinarily assumed by a citizen in
the ordinary walks of life”) (internal quotation marks omitted). Second, the state trial court’s
one-line order denying Eckert’s motion to decertify does not indicate in any way that the court
actually found that Levin did not commit malpractice or that any such finding was necessary to
the order. Doc. 13-6 at 1; see Peregrine Fin. Grp., Inc. v. Martinez, 712 N.E.2d 861, 868 (Ill.
App. 1999) (“The party asserting the doctrine of collateral estoppel bears the heavy burden of
demonstrating with clarity and certainty what the prior judgment determined.”) (internal
quotation marks omitted).
Levin next argues that the settlement agreement’s nonreliance and release clauses
preclude Eckert’s malpractice claim. The nonreliance clause provides: “Eckert does hereby
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warrant and represent to Steiner that: (a) No promise or representation of any kind whatsoever
has been made to Eckert as a basis for entering into this Settlement Agreement other than those
made expressly herein; (b) Eckert did not receive and is not relying upon any representations
regarding the legality, advisability or potential tax implications of entering into this Settlement
Agreement from Steiner, AgriStar or their counsel; (c) Eckert intends that the terms of this
Settlement Agreement be valid and enforceable against Eckert ….” Doc. 13-1 at 4-5. And the
release clause provides: ““Immediately upon execution hereof, Eckert [the “Releasing Party”]
shall, concurrently with the execution of this Settlement Agreement, release and forever
discharge Steiner and AgriStar, including their agents, attorneys, successors and assigns
[individually, a “Released Party;” collectively, the “Released Parties”], from any and all claims,
whether in law, in equity or statutory, vested or contingent, choate or inchoate, known or
unknown, foreseen or unforeseen, that the Releasing Party now have [sic] or hereafter can, shall
or may have for, upon, or by reason of any known or unknown matters, cause or thing
whatsoever, occurring on or at any time prior to the date of this Settlement Agreement, whether
or not asserted on or before the date of this Settlement Agreement, including, but not limited to,
any such claims arising out of the conduct of any Released Party in the Adversary Proceeding or
in the underlying bankruptcy proceedings ….” Id. at 4.
Levin cannot use those contractual provisions to defeat Eckert’s legal malpractice claim,
at least at the pleading stage. As an initial matter, the release by its own terms applies only to
matters “occurring on or at the time prior to the date of th[e] Settlement Agreement.” Ibid.
However, as noted above, the complaint alleges malpractice not just with respect to matters
predating the June 2010 settlement agreement, but also with respect to matters that occurred
afterwards, including Levin’s communications and efforts surrounding the financing of Eckert’s
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business—efforts whose failure culminated in the entry of a $1 million judgment against Eckert
in June 2012, a judgment procured by Levin himself. Doc. 1 at ¶¶ 1, 13, 16-17, 33, 39-44.
Moreover, with respect to matters predating the settlement agreement, Eckert claims that it was
Levin’s malpractice that caused him to agree to the nonreliance and release clauses (along with
the rest of the agreement) in the first place. At least at the pleading stage, with all inferences
drawn in Eckert’s favor, Levin cannot deploy those ill-gotten clauses to defeat the malpractice
claim. See Bogie v. Rosenberg, (7th Cir. 2013) (noting that a contract does not defeat a
plaintiff’s claim where the complaint “alleg[es] that the plaintiff’s signature on the attached
contract or other instrument was obtained by … coercion”); cf. Nelson Bros. Prof. Real Estate,
LLC v. Freeborn & Peters, LLP, 773 F.3d 853, 857-58 (7th Cir. 2014) (“A reasonable jury could
find that the law firm violated its ethical obligations to the plaintiffs by not warning them of the
firm’s conflicts of interest, by drafting agreements that reflected favoritism toward Alliance
Equities and concealing the favoritism from the plaintiffs (as by not revealing that Alliance
Equities would be controlling the below-$50,000 expenditures—which later resulted in the
decision to pay the law firm $49,999 owed to the gap lender), and by failing to advise the
plaintiffs of the risks to them created by the bad-boy guarantees and the mechanics’ liens on the
shopping center, and finally by closing the deal for the shopping center without providing for an
escrow to cover the liens.”).
Conclusion
For the foregoing reasons, Defendants’ motion to dismiss is granted as to Eckert’s fraud
claim and denied as to his legal malpractice claim. Defendants shall answer the surviving
portions of the complaint by March 19, 2015.
February 26, 2015
__________________________________
United States District Judge
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