Last month, the Illinois Supreme Court handed down its unanimous decision in a case being closely watched by the local bar associations – Goldfine v. Barack, Ferrazzano, Kirschbaum & Perlman. Goldfine involved the issue of what damages are available, and how damages are calculated, in a claim for legal malpractice arising from an underlying claim pursuant to the Illinois Securities Law. Our detailed preview of the facts and underlying decisions in Goldfine is here. Our report on the oral argument is here.

The plaintiffs in Goldfine bought certain stock between 1987 and 1990. The company issuing the stock became bankrupt in 1991, rendering the stock worthless. That year, the plaintiffs retained the defendant law firm. At the time the plaintiffs hired the defendant firm, they had a viable claim for rescission of the stock purchases. But the defendants failed to serve a mandatory notice of rescission, and the claim was lost.

The plaintiffs sued the defendants in 1994. Two years after, the parties agreed that the malpractice claim would not be tried until the plaintiffs’ underlying case against the parties involved in the stock sale was tried or otherwise resolved. That finally happened eleven years later, in 2007, when plaintiffs’ remaining claims against the sellers were resolved for $3.2 million.

So back the parties went to the malpractice claim. According to Section 13 of the Illinois Securities Law, those harmed by a violation of the statute are entitled to damages amounting to “the full amount paid, together with interest from the date of payment for the securities sold.” The trial court awarded malpractice damages as follows: it proportionally deducted the $3.2 million settlement from each of the eleven stock purchases, then calculated interest from the date of each purchase to the date of the judgment.

Both parties appealed – the plaintiffs arguing that the trial court had erred in calculating the damages and the attorneys’ fees, and the defendants on the grounds that the fee-shifting and interest provisions of the Securities Law were punitive in nature and couldn’t be applied in a malpractice action. The Appellate Court reversed in part, finding that the Securities Law provided the proper measure of damages, but that there was no basis for deducting the amount of the settlement from the purchase price before calculating interest.

In an opinion by Justice Kilbride, a unanimous Supreme Court affirmed in part and reversed in part. The Court began by rejecting the defendants’ claim that the Securities Law amounted to punitive damages. The Law wasn’t being applied to the defendants, the Court found. The measure of damages was the sum the plaintiffs would have recovered but for the defendants’ negligence, and the Securities Law merely served as the measure of that sum. The defendants also argued that post-sale interest shouldn’t be applied against them, because the purpose of the statute was to promote rescission of questionable sales, and the attorneys had no ability to rescind the sale – thus, they were left to watch damages mount, with no way of stopping the accumulation. The Court pointed out that the defendants had chosen to postpone adjudication of the malpractice claim until the underlying securities suit was finished, as opposed to settling the case early on. The Court also rejected the defendants’ claim that the damages measure in the Securities Law amounted to punitive damages with respect to attorneys, noting that to be “punitive,” a damages measure must be calculated without regard to the plaintiffs’ actual damages.

The defendants had somewhat better luck, however, with their claim that the damages award violated due process guarantees. Although the overall measure passed due process scrutiny, the lower courts had erred, the Court held, by allowing interest to continue to mount after the 2007 settlement of the underlying action, since plaintiff’s damages thereby exceeded what they could have recovered in the underlying lawsuit. The Court concluded by affirming the Appellate Court’s holding that the $3.2 million settlement should have been deducted after calculating interest on the amount paid for the securities, rather than before, as the trial court had done.

Image courtesy of Flickr by William Creswell (no changes).