JAMES R. STEVENS, ARBOR RESEARCH HOLDING, INC., RICHARD L. CHAMBERS, CLYDE C. HARRISON, FRED D. HANDLER, PAUL TYALOR, and THE WORTH TRUST, Plaintiffs-Appellants, v. McGUIREWOODS L.L.P, Defendant-Appellee.
No. 1-13-3952
APPELLATE COURT OF ILLINOIS FIRST DISTRICT
September 30, 2014
2014 IL App (1st) 13-3952
PRESIDING JUSTICE FITZGERALD SMITH delivered the judgment of the court. Justices Howse and Taylor concurred in the judgment.
FOURTH DIVISION. Appeal from the Circuit Court of Cook County, Illinois, County Department, Law Division. No. 2011 L 11291. The Honorable Margaret Ann Brennan, Judge Presiding. NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).
¶ 1 Held: The circuit court partly erred in granting summary judgment in favor of the defendants on the basis of collateral estoppel. The circuit court incorrectly concluded that the plaintiffs’ one-count complaint alleging the breach of fiduciary duty against their former counsel for failure to bring certain claims against another law firm in the underlying law suit was in its entirety barred under the doctrine of collateral estoppel because the trial judge in the underlying case had ruled that the plaintiffs had no standing to pursue any individual claims
¶ 2 The plaintiffs-appellants, James R. Stevens, Arbor Research Holding, Inc., Richard L. Chambers, Clyde C. Harrison, Fred D. Handler, Paul Taylor, and the Worth Trust, appeal the circuit court‘s order granting summary judgment in favor of the defendant, their former counsel McGuireWoods, LLP (hereinafter McGuireWoods). The plaintiffs filed a one-count breach of fiduciary duty complaint against McGuireWoods, alleging that in an underlying law suit in which they were represented by McGuireWoods, McGuireWoods failed to assert claims against the law firm of Sidley Austin LLP (hereinafter Sidley). McGuireWoods filed a motion for summary judgment alleging that the plaintiffs could not establish any injury that the alleged breach of fiduciary duty could have caused them because in the underlying lawsuit the trial judge had ruled that the plaintiffs lacked standing to sue Sidley. The circuit court granted McGuireWoods’ motion for summary judgment, and the plaintiffs now appeal. For the reasons that follow, we affirm in part and reverse and remand for further proceedings in part.
I. BACKGOURND
¶ 4 The record reveals the following facts and procedural history. The plaintiffs are former minority shareholder members of a company called Beeland Management LLC (hereinafter Beeland). They hired McGuireWoods in 2005 to bring both individual claims on their behalf and derivative claims on behalf of Beeland against Beeland‘s managers Tom Price (hereinafter Price) and Alan Goodman (hereinafter Goodman), as well Beeland‘s majority shareholder and owner Jim Rogers (hereinafter Rogers).
¶ 6 In January 2007, the plaintiffs, represented by McGuireWoods, filed a multi-count complaint (hereinafter the underlying lawsuit) asserting, inter alia, both individually and derivatively that Rogers, aided by Price and Goodman, had misappropriated Beeland‘s trademarks and other intellectual property. In that complaint, the plaintiffs also asserted that Price, Goodman and Rogers had caused Beeland to enter into an ill-advised deal with a firm then known as Refco, causing Beeland harm.
¶ 7 That same year, the plaintiffs, represented by McGuireWoods, also filed a motion to disqualify Sidley from representing Price and Goodman in the pending litigation. The plaintiffs argued that because Sidley represented Beeland in some critical negotiations and corporate governance issues in connection with the transfer of intellectual property from Beeland to Rogers about which the plaintiffs complained, the firm should be disqualified as Price‘s and Goodman‘s counsel. The circuit court agreed, and on November 28, 2007, granted the plaintiffs’ motion to disqualify Sidley.
¶ 8 On August 21, 2008, the trial court dismissed all the claims against Price and Goodman and three of the nine counts against Rogers. The plaintiffs subsequently replaced the defendant with new counsel. Successor counsel was permitted to file an amended complaint in June 2009 and then a second amended complaint on February 15, 2010.
¶ 9 The plaintiffs’ second amended complaint sought the relief originally pleaded against Price, Goodman and Rogers, but also included new claims brought “individually and derivatively on behalf of Beeland” against Sidley. The plaintiffs alleged that Sidley “had become a pawn of Rogers” and “aided and abetted” and “conspired” with Rogers to breach his fiduciary duties to
¶ 10 In response, Sidley filed a motion to dismiss, contending, inter alia: (1) that all the claims against it were time-barred under the applicable statutes of limitations (
¶ 11 Price and Goodman also filed motions to dismiss (
¶ 12 On February 22, 2011, the circuit court granted Sidley‘s motion to dismiss. In doing so, in a comprehensive written memorandum, the court first found that all seven counts against Sidley were barred under
¶ 13 The court nevertheless then considered the merits of the plaintiffs’ claims. It first held that the plaintiffs could not pursue the following five counts in an individual capacity: (1) conspiracy in breach of fiduciary duty (count I); (2) unjust enrichment (count III); (3) misappropriation of Beeland funds (count VII); (4) fraud (count VIII); and (5) “aiding and abetting of Rogers” and contributory trademark infringement (count IX)). The court specifically held that Sidley, as Beeland‘s corporate attorney, owned only a duty to the corporation itself and not to its individual shareholders. See Felty v. Hartweg, 169 Ill. App. 3d 406, 408 (1988). Accordingly, it dismissed the aforementioned counts, brought by the plaintiffs’ in their individual capacity with prejudice.
¶ 15 The court finally addressed the plaintiffs’ derivative cause of action for conversion (count IV), and found that the plaintiffs had failed to sufficiently plead this cause by making no allegations that they had a right to the property at issue, or that Sidley had aided or abetted in the conversion.
¶ 16 Accordingly, the court dismissed counts I (breach of fiduciary duty), III (unjust enrichment), IV (conversion), VII (misappropriation of corporate funds), VIII (fraud) and IX (“aiding and abetting of Rogers” and contributory trademark infringement), filed by the plaintiffs derivatively on behalf of Beeland on the merits, but did so without prejudice.2
B. The Current Proceedings against McGuireWoods
¶ 19 On October 28, 2011, the plaintiffs filed the instant one-count complaint against McGuireWoods for breach of fiduciary duty. The plaintiffs alleged that McGuireWoods owed them a duty to “act with the skill, loyalty, competence and diligence of an ordinary reasonable attorney” and breached that duty in the underlying case by failing to: (1) assert any claims against Sidley in a timely manner; and (2) initiate and conduct discovery in advance of the
In count II, the plaintiffs brought a derivative suit on behalf of Beeland alleging that the defendants wrongfully usurped Beeland‘s corporate opportunities for the personal gain of Rogers, Price and Goodman. They asserted that as the fiduciaries of Beeland, the defendants, including Sidley, owed Beeland the duty to present it with any opportunities that arose with respect to any of Beeland‘s intellectual property and/or the licensing of such. Count II further specifically alleged that as counsel to Beeland, Sidley, inter alia, owed Beeland a duty to protect its interests (including presenting it with any future opportunities), instead of “deferring to the whims of Rogers.”
¶ 20 On January 39, 2012, McGuire Woods filed a section 2-619 motion to dismiss (
¶ 21 The parties proceeded with very limited discovery, and deposed only Michael Lieber (hereinafter Lieber), the McGuireWoods’ attorney who had handled the underlying case. In that deposition, Lieber testified, inter alia, that in 2006 by way of a joint representation agreement (hereinafter the JPA), the individual plaintiffs hired McGuireWoods to represent their interest in the underlying litigation. Lieber admitted that each plaintiff separately executed a copy of the JPA and agreed to pay McGuireWoods “in proportion to [his] percentage interest.” In addition,
¶ 22 In his deposition, Lieber next acknowledged that McGuireWoods did not name Sidley as a party in the underlying action in a timely fashion, but rather chose to proceed only on a motion to disqualify Sidley. Lieber testified however that this was a tactical decision. When asked who made the decision, Lieber initially stated that it was made collectively by all the attorneys in McGuireWoods working on the case. He then added that “it was a collective decision with our client.” However, when later questioned about whether he or anyone from McGuireWoods ever had discussions in June 2007 when the complaint was filed with the clients about filing a lawsuit against Sidley instead of a motion to disqualify, he answered in the negative.
¶ 23 After this limited discovery the parties filed cross-motions for summary judgment. In its motion, McGuireWoods argued that the plaintiffs’ allegations impermissibly sought to overturn rulings made by the trial judge in the underlying case, and that they were therefore precluded under collateral estoppel. McGuireWoods asserted that the trial judge in the underlying case had already ruled that the plaintiffs lacked standing to sue Sidley and that, as such they were precluded from arguing that McGuireWoods should have brought Sidley into the litigation earlier.
¶ 24 On June 25, 2013, after hearing arguments by the parties, the trial court granted
II. ANALYSIS
¶ 26 Summary judgment is ” ’ a drastic measure and should only be granted if the movant‘s right to judgment is clear and free from doubt.’ ” Carlson v. Chicago Transit Authority, 2014 IL App (1st) 122463, ¶ 22 (citing Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992). Summary judgment is appropriate “if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”
¶ 27 The moving party “bears the initial burden of proof” and satisfies it either by: (1)
¶ 28 On appeal, the plaintiffs contend that the circuit court erred in granting McGuireWoods motion for summary judgment on the basis of collateral estoppel. Collateral estoppel is an equitable doctrine that precludes a party from relitigating an issue decided in a prior proceeding. Building Venture v. O‘Donnell, 239 Ill. 2d 151, 158 (2010); Illinois Health Maintenance Organization Guar. Ass‘n v. Department of Ins., 372 Ill. App. 3d 24, 34-35 (2007) (citing Herzog v. Lexington Township, 167 Ill. 2d 288, 295 (1995)). “When properly applied, collateral estoppel or issue preclusion promotes fairness and judicial economy by preventing relitigation in one suit of an identical issue already resolved against the party against whom the bar is sought.” Kessinger v. Grefco, Inc., 173 Ill. 2d 447, 460 (1996); see also Du Page Forklift Service, Inc. v. Material Handling Services, Inc., 195 Ill. 2d 71, 77 (2001). Collateral estoppel applies where: (1) the issue decided in the prior adjudication is identical with the one presented in the suit in
¶ 29 In the present case, McGuireWoods asserts that summary judgment in its favor was proper because the plaintiffs’ one-count complaint alleging the breach of fiduciary duty against it for failure to bring Sidley into the underlying law suit was barred under the doctrine of collateral estoppel where the trial judge in the underlying case ruled that the plaintiffs had no standing to pursue individual claims against Sidley. McGuireWoods, however, misses the point.
¶ 30 The record below establishes that although the trial court in the underlying law suit ruled that the plaintiffs could not make any individual claims against Sidley it did not, nor could it have, ruled that the plaintiffs could not bring any derivative claims against the law firm. In fact, after dismissing the claims the plaintiffs individually brought against Sidley, the trial court in the underlying law suit, meticulously analyzed the merits of all seven claims the plaintiffs brought derivatively on behalf of their corporation against Sidley.
¶ 32 What is more, the trial court never dismissed count II of the plaintiff‘s underlying complaint on the merits. In that count, the plaintiffs alleged a derivative claim for usurpation of corporate opportunities. Specifically, they asserted that all of the defendants wrongfully usurped Beeland‘s corporate opportunities for the personal gain of Rogers, Price and Goodman. They alleged that as counsel to Beeland, Sidley, inter alia, owed Beeland a duty to protect its interests (including presenting it with any future opportunities), instead of “deferring to the whims of Rogers.” The trial court nowhere in its memorandum found that these allegations were insufficient to state a cause of action for usurpation of corporate opportunities.
¶ 33 Accordingly, the record establishes that the trial court never dismissed the plaintiffs’ derivative claims against Sidley on the basis of lack of standing. What is more, none of the plaintiffs’ derivative claims against Sidley were dismissed with prejudice on the merits. Rather,
¶ 34 McGuireWoods nevertheless argues that even if the derivative claims against Sidley survive, the plaintiffs cannot now raise those claims against McGuireWoods because at the time McGuireWoods represented the plaintiffs, it was representing the corporation, Beeland, and not the individual shareholders—the plaintiffs. We disagree.
¶ 35 We acknowledge that a shareholder seeking relief for an injury to the corporation, rather than a direct injury to the shareholder himself, must bring his or her suit derivatively on behalf of the corporation, unless he or she has a direct, personal interest in that cause of action. Sterling Radio Stations, Inc. v. Weinstine, 328 Ill. App. 3d 58, 62 (2002); see also Small v. Sussman, 306 Ill. App. 3d 639, 643 (1999). We further acknowledge that a shareholder in an ordinary corporation does not become a beneficiary of an attorney-client relationship between a lawyer and the corporation in which he owns shares, and that the lawyer for the corporation therefore, owes no fiduciary duty to the shareholder. ABC Transit National Transportation, Inc. v. Aeronautics Forwarders, Inc., 90 Ill. App. 3d 817, 831 (1980). However, the record here clearly establishes that this is not a situation where the plaintiffs, as shareholders, are attempting to sue a corporate attorney for failure to bring claims on behalf of the corporation. McGuireWoods was never the corporate attorney for Beeland. Rather, McGuireWoods was hired by the minority shareholders of Beeland to represent their individual interest in the underlying litigation, which involved both derivative and individual suits against the corporate
¶ 36 Accordingly, the plaintiffs can proceed against McGuireWoods in this cause of action. The plaintiffs must be permitted an opportunity for full discovery so as to determine whether they would have been successful in a derivative suit against Sidley but for McGuireWoods’ failure to bring Sidley into the action in a timely manner.
III. CONCLUSION
¶ 38 For these reasons, we affirm the trial court‘s grant of summary judgment for McGuireWoods’ on the basis of collateral estoppel as to the claims raised in the underlying law suit by the plaintiffs in their individual capacity, but reverse and remand for further proceedings on the issue of McGuireWoods’ failure to timely raise the plaintiffs’ derivative claims against Sidley in that same litigation.
¶ 39 Affirmed in part; reversed and remanded in part.