Bill A. Busbice Jr. v. Adrian Vuckovich et al

Filing 249

MEMORANDUM Opinion signed by the Honorable Andrea R. Wood on 12/1/2018. Mailed notice (aw,)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BILL A. BUSBICE, JR., et al.,
Plaintiffs,
v.
ADRIAN VUCKOVICH, et al.,
Defendants.

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No. 17-cv-01640
Judge Andrea R. Wood

MEMORANDUM OPINION
Plaintiffs Bill A. Busbice, Jr., Ollawood Productions, LLC (“Ollawood”), and Ecibsub,
LLC have sued Defendants Adrian Vuckovich and the law firm of Collins, Bargione and
Vuckovich (“CBV”) for their roles in facilitating an investment fraud by which Plaintiffs lost
over $10 million. In their Second Amended Complaint, Plaintiffs assert claims against
Defendants for engaging in a civil conspiracy to defraud Plaintiffs, aiding and abetting the fraud
perpetrated against Plaintiffs, and negligence and breach of fiduciary duty in connection with
Defendants’ legal representation of the entity Luxe One, Inc. (“Luxe One”). This Court
previously denied the parties’ cross-motions for summary judgment on the civil conspiracy and
aiding and abetting claims; those claims are proceeding to trial. This opinion addresses the
remaining issue from the parties’ motions—namely, whether either Plaintiffs or Defendants are
entitled to summary judgment on the negligence and breach of fiduciary duty claims. The answer
to that question turns on the validity of an assignment of claims from Luxe One to Plaintiffs. As
the Court finds the assignment to be invalid under the governing law, Defendants’ motion for
summary judgment on the negligence and breach of fiduciary duty claims is granted.

BACKGROUND
The Court assumes familiarity with its Memorandum Opinion dated November 30, 2018
(Dkt. No. 240), which addresses the parties’ cross-motions for summary judgment on the civil
conspiracy and aiding and abetting fraud claims. For present purposes, the key facts are
undisputed.
Between April 2013 and January 2014, Busbice invested over $10 million in various film
projects. As alleged in the Second Amended Complaint, those purported investment
opportunities were actually part of a fraud perpetrated by various third parties not named as
defendants in this action, and facilitated by their alleged co-conspirators and attorneys,
Vuckovich and CBV, who are defendants here. Busbice organized Ollawood, with himself as the
sole member and manager, to invest in one of the projects through Luxe One. But instead of
using the funds Busbice invested through Luxe One to make and market the film, Defendants
and their co-conspirators enriched themselves at Plaintiffs’ expense.
On July 30, 2015, Plaintiffs entered into a settlement agreement with eleven defendants
named in a federal lawsuit filed in the United States District Court for the Central District of
California; those defendants included Luxe One. Pursuant to the settlement agreement, Luxe One
transferred and assigned to Ollawood “any and all claims, suits, causes of action, contract rights,
intellectual property rights, insurance claims, tax refunds, or rebates and/or any other
enforcement rights and recoveries now or in the future by, for the account of or for the direct or
indirect benefit of Luxe One.” (Defs.’ Am. Stmt. Undisputed Material Facts, Ex. 6 ¶ 10, Dkt. No.
141-6.) It is pursuant to this assignment provision that Plaintiffs assert the right to pursue the
instant negligence and breach of fiduciary claims against Defendants based on their conduct
while representing Luxe One.

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DISCUSSION
Plaintiffs assert that Defendants negligently represented Luxe One by providing
representation while suffering from a conflict of interest. To prevail on an action for legal
malpractice under Illinois law, a plaintiff must prove the following: “(1) an attorney-client
relationship; (2) a duty arising out of that relationship; (3) a breach of that duty; (4) causation;
and (5) actual damages.” Wash. Grp. Intern. Inc. v. Bell, Boyd & Lloyd LLC, 383 F.3d 633, 636
(7th Cir. 2004). Plaintiffs additionally contend that Defendants breached their fiduciary duty to
Luxe One by dissipating Luxe One’s assets and orchestrating a real estate transaction to launder
Luxe One’s money. To prove a claim for breach of fiduciary duty under Illinois law, Plaintiffs
must demonstrate that a fiduciary duty exists, that the fiduciary duty was breached, and that such
breach proximately caused the injury of which the plaintiffs complain. Ball v. Kotter, 723 F.3d
813, 826 (7th Cir. 2013). Both Plaintiffs and Defendants have moved for summary judgment on
the negligence and breach of fiduciary duty claims. Because Defendants’ challenge to the
assignment of those claims to Plaintiffs is dispositive, the Court’s analysis starts and ends there.
I.

Choice of Law

As an initial matter, the Court must determine which law to apply in determining the
validity of the assignment. In their original briefing of their cross-motions for summary
judgment, the parties address the assignment issue applying Illinois substantive law. Specifically,
Defendants argue that negligence and breach of fiduciary duty claims based on attorney
malpractice cannot be assigned under Illinois law, while Plaintiffs contend that Illinois courts
have carved out an exception to the general prohibition against such assignments. After the Court
observed that the settlement agreement under which Luxe One’s claims were assigned contains a
choice-of-law provision providing for the application of California law, the parties were given an

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opportunity to submit additional briefing on whether California law should govern the
assignment and, if so, whether the assignment is valid.
The choice-of-law provision in the settlement agreement states that the agreement “shall
be governed by and interpreted under the laws of the State of California applicable to contracts
made and to be performed entirely within California.” (Defs.’ Am. Stmt. Undisputed Material
Facts, Ex. 6 ¶ 29, Dkt. No. 141-6.) A federal court exercising diversity jurisdiction—as is the
case here—generally must apply the choice-of-law rules of the state in which it sits. See, e.g.,
McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 2014) (“Federal courts hearing
state law claims under diversity or supplemental jurisdiction apply the forum state’s choice of
law rules to select the applicable state substantive law.”). And under Illinois law, contractual
choice-of-law provisions are generally enforceable. See Hofeld v. Nationwide Life Ins. Co., 322
N.E.2d 454, 458 (Ill. 1975).
Neither party now disputes that California law governs the assignment of the negligence
and breach of fiduciary claims. For their part, Plaintiffs expressly take the position in their
supplemental brief that California law applies. (Pls.’ Suppl. Br. on Choice of Law at 1–2, Dkt.
No. 231.) Meanwhile, Defendants contend that Illinois and California law are so similar that
there is no need for a choice-of-law analysis. (See Defs.’ Supp. Mem. of Law on Choice of Law
at 1, Dkt. No. 229.)1 In light of the presumption that the agreement’s choice-of-law provision
controls and the lack of opposition, this Court finds that California law governs the assignment
dispute here.

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In declining to argue whether Illinois or California law applies, Defendants have waived any argument
against California law. See McCoy, 760 F.3d at 684 (noting that a choice-of-law argument may be waived
if a party fails to raise it); see also Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547
(7th Cir. 2009) (“Courts do not worry about conflict of laws unless the parties disagree on which state's
law applies.”) (quoting Wood v. Mid–Valley Inc., 942 F.2d 425, 427 (7th Cir.1991)).

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II.

Validity of the Assignment

As a rule, California law bars the assignment of causes of action for legal malpractice.
White Mountains Reinsurance Co. of Am. v. Borton Petrini, LLP, 164 Cal. Rptr. 3d 912, 926
(Cal. 2013). Indeed, “California courts have consistently held legal malpractice claims are
nonassignable to protect the integrity of the uniquely personal and confidential attorney-client
relationship.” Fireman’s Fund Ins. Co. v. McDonald, Hecht & Soldberg, 36 Cal. Rptr. 2d 424,
430 (Cal. 1994). California courts have also found that public policy concerns militate against
assignability. See, e.g., Goodley v. Wank & Wank, Inc., 133 Cal. Rptr. 83, 87 (Cal. App. Ct.
1976) (“[T]he ever present threat of assignment and the possibility that ultimately the attorney
may be confronted with the necessity of defending himself against the assignee of an
irresponsible client who, because of dissatisfaction with legal services rendered and out of
resentment and/or for monetary gain, has discounted a purported claim for malpractice by
assigning the same, would most surely result in a selective process for carefully choosing clients
thereby rendering a disservice to the public and the profession.”).
Plaintiffs do not deny that California law generally bars such assignments. But they
nonetheless argue that the assignment of Luxe One’s claims should be allowed because the
public policy concerns identified by California courts are not present here. But California law
permits the assignment of legal malpractice claims only under very narrow circumstances; the
mere fact that certain specific public policy concerns might be absent does not necessarily
resolve the issue in Plaintiffs’ favor. Plaintiffs cite White Mountains for the proposition that
California courts are willing to “permit assignments when the relationship between the assignor
and assignee does not offend the policy considerations underlying the bar.” (Pls.’ Suppl. Choice
of Law Br. at 3–4, Dkt. No. 231.) But White Mountains recognized only a very narrow exception
to the prohibition on assignment of legal malpractice claims: such claims may be assigned when
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the assignment is only a small, incidental part of a larger commercial transfer between insurance
companies involving the transfer of assets, rights, obligations, and liabilities. See White
Mountains, 164 Cal. Rptr. 3d at 926. In White Mountains, the state appellate court allowed an
auto-insurer’s successor-in-interest to bring a malpractice action against a law firm the original
insurer had hired. Id. at 927–28. Critical to the court’s decision was the fact that the successor-ininterest was not a former adversary of the original insurance company. Id. at 926.
Luxe One’s assignment to Ollawood does not fit into the narrow exception provided by
White Mountains. First, it is not clear whether the exception would ever extend beyond
assignments between insurance companies. Courts interpreting White Mountains have either
interpreted the exception as applying solely to insurance companies or recognized as a favorable
factor a client’s status as an insurance company. See In re S&B Surgery Center, 707 Fed. Appx.
928 (9th Cir. 2017) (assignment where original client was not an insurance company, among
other factors, came “nowhere close” to satisfying the test);2 Lesa, LLC v. Family Tr. of
Kimberley and Alfred Mandel, No. 15-cv-05574-KAW, 2016 WL 1446770, at *8 n.7 (N.D. Cal.
2016) (noting that White Mountains was the “one exception to the rule of nonassignability of
legal malpractice claims”); 3123 SMB LLC v. Horn, No. CV 14-8115 DSF (FFMx), 2015 WL
12765869, at *1, n.2 (C.D. Cal. 2015) (defining the “narrow exception” of White Mountains as
applying to transfers between insurance companies). The focus on insurance companies matters
because, unlike the “special nature” of the attorney-client relationship, the procurement of
insurance “is a commercial transaction with intended beneficiaries beyond the client alone.” See
Baum v. Duckor, Spradling & Metzger, 84 Cal. Rptr. 2d 703, 712–13 (Cal. App. Ct. 1999)

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In re S&B Surgery Center is an unpublished Ninth Circuit order issued after January 1, 2007. Although
not precedential, the order provides a useful point of comparison here. See Fed. R. App. P. 32.1(a); 9th
Cir. R. 36.3; 7th Cir. R. 32.1(b).

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(finding that a legal malpractice claim belonging to the bankruptcy estate of a corporation could
not be assigned by the trustee of that estate to a creditor of the corporation or any other person).
Neither Luxe One nor Ollawood is an insurance company: at the very least, this fact weighs
against the application of the White Mountains exception.
Next, Luxe One is a former adversary of Plaintiffs. Vuckovich, a defendant in this case,
represented Luxe One in previous litigation. These circumstances raise the very public policy
concern referenced in White Mountains—if an attorney perceives a future threat of the client’s
assignment of a legal malpractice claim to a stranger or adversary, the trust between the attorney
and client is at risk of being impaired. See White Mountains, 164 Cal. Rptr. 3d at 918.
Nor may Plaintiffs escape the conclusion that their assignment cannot be enforced by
labeling their claims as ones for “breach of fiduciary duty” and “negligence” instead of “legal
malpractice.” Claims need not be styled in a specific manner to fall under the umbrella of legal
malpractice: the key inquiry is whether the claims originate from an attorney’s professional
negligence. See Kracht v. Perrin, Gartland & Doyle, 268 Cal. Rptr. 637, 639–40 (Cal. 1990)
(holding that actions arising out of an attorney’s professional negligence were non-assignable
legal malpractice claims). When the plaintiff suffers an injury because of an attorney’s
professional negligence, “the gravamen of the claim is legal malpractice.” Jackson v. Rogers &
Wells, 258 Cal. Rptr. 454, 460, 462 (Cal. 1989) (treating fraud and breach of contract theories
involving professional “judgment calls” as malpractice claims for assignability purposes). Here,
the “breach of fiduciary duty” and “negligence” counts in the Second Amended Complaint are
both rooted in the same allegations of professional negligence. The Court therefore finds them to
be legal malpractice claims, as defined by California law.

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Finally, Plaintiffs offer an alternative theory for why they should be able to pursue Luxe
One’s claims. They contend that Busbice has standing to sue either individually or derivatively
because he is entitled to the entirety of Luxe One’s proceeds as its sole investor. Plaintiffs cite
only one Illinois case in support of this argument, Stevens v. McGuireWoods LLP, 43 N.E.3d 923
(Ill. 2015). Stevens, however, stands only for the proposition that to bring a derivative claim on
behalf of a limited liability company, a plaintiff must have been a shareholder at the time of the
transaction about which he complains and must maintain his status as a shareholder throughout
the pendency of the action. Id. at 931. Stevens does not carve out a new path to standing based on
an individual’s status as the only “real” party in interest or investor. The Court finds it
inapplicable here.
CONCLUSION
Accordingly, for the reasons set forth above, the Court grants the remainder of
Defendants’ motion for summary judgment (Dkt. No. 126) relating to Plaintiffs’ negligence and
breach of fiduciary duty claims. Plaintiffs’ cross-motion for summary judgment on those claims
(Dkt. No. 145) is denied as moot.
ENTERED:

Dated: December 1, 2018

__________________________
Andrea R. Wood
United States District Judge

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