Meriturn Partners, LLC v. Banner and Witcoff, Ltd.
31 N.E.3d 451
Ill. App. Ct.2015Background
- Meriturn (private equity) planned a $6M investment in Sustainable Solutions; transaction involved Meriturn Fund ($3M) and an outside investor group ($3M).
- Meriturn retained Banner & Witcoff (Berghammer) to perform IP due diligence on patents central to the deal; the written engagement named only Meriturn Partners, LLC.
- Berghammer communicated with representatives of the outside investor group, provided patent advice, and did not limit the scope of representation to Meriturn alone.
- After closing, it emerged Sustainable Solutions did not own the '179 patent (it was owned by a third party), and the venture collapsed, losing the $6M investment and a hoped-for partnership with SEM.
- Plaintiffs (Meriturn and the outside investors) sued for legal malpractice; a jury awarded $6M. Defendants appealed; plaintiffs cross-appealed seeking a new trial on lost profits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Existence/scope of attorney-client relationship to outside investors | Berghammer agreed (expressly or by conduct) to represent the entire transaction, including outside investors | Representation was only for Meriturn (written engagement named Meriturn only) | Court held defendants consented to represent investors (by conduct and failure to limit scope); duty owed to outside investors |
| Liability as third-party beneficiaries | Even if no direct relationship, outside investors were intended beneficiaries of the Meriturn–attorney relationship | No duty to non-clients because contract named only Meriturn | Held investors were known/intended third-party beneficiaries; defendants’ duty extended to them |
| Reduction of damages for salvage value | Plaintiffs: investment was a total loss | Defendants: undisputed salvage value (~$345K) required reduction of award | Jury credited plaintiffs; court upheld $6M verdict as reasonable and within jury's fact-finding discretion |
| Lost-profits damages / entitlement to new trial | Plaintiffs: entitled to lost profits under (a) alternative-investment theory and (b) sales-projection theory | Defendants: theories speculative; sales-projection barred by new-business rule | Court denied new trial: alternative-investment damages lack reasonable certainty (jury permissibly rejected expert); sales-projection precluded as speculative under new-business rule |
Key Cases Cited
- In re Estate of Powell, 2014 IL 115997 (Illinois Supreme Court) (attorney duty to nonclients as intended beneficiaries)
- Newbrough v. Lockwood Dairy, 223 Ill. App. 3d 665 (appellate court) (jury award of damages will not be disturbed if reasonably related to loss)
- Drs. Sellke & Conlon, Ltd. v. Twin Oaks Realty, Inc., 143 Ill. App. 3d 168 (appellate court) (lost profits require reasonable basis and are not recoverable on speculation)
- SK Hand Tool Corp. v. Dresser Industries, Inc., 284 Ill. App. 3d 417 (appellate court) (new-business rule limits speculative lost-profit awards)
- Rosenbaum v. White, 692 F.3d 593 (7th Cir. 2012) (a putative client’s belief alone is not dispositive of an attorney-client relationship)
- Resolution Trust Corp. v. Stroock & Stroock & Lavan, 853 F. Supp. 1422 (S.D. Fla. 1994) (rejection of lost-profit damages when alternatives are speculative)