In a few weeks’ time over at Appellate Strategist’s sister blog, the Illinois Supreme Court Review, we’ll address the question of just how rare it is to get an unpublished decision – what we in Illinois call a Rule 23 order – accepted for review by the Illinois Supreme Court. As we wrap up our review of the January term, we address a Rule 23 order newly added to the Court’s civil docket – Stevens v. McGuireWoods LLP. Stevens, which arises from Division 4 of the First District, poses a number of related questions regarding issue preclusion in the context of a claim against a law firm.
The plaintiffs in Stevens are former minority shareholders of a corporation. They hired a law firm to bring individual and derivative claims against the corporation’s managers as well as the majority shareholder for misappropriation of trademarks and other intellectual property. The plaintiffs successfully moved to disqualify another law firm from representing the managers in the ongoing litigation.
In the summer of 2008, the trial court dismissed all claims against the managers, and three of nine claims against the owner. The plaintiffs retained new counsel, and later filed two rounds of amended complaints. The second amended complaint purported to state claims “individually and on behalf of” the corporation against the disqualified law firm. The law firm, the managers and the owner/majority shareholder all filed separate motions to dismiss.
The trial court granted the motion to dismiss against the law firm, holding that all counts were time barred. The court nevertheless went on to consider the merits of the claims, holding that the plaintiffs could not bring five of their claims against the firm in an individual capacity, and that plaintiffs had failed to adequately allege derivative claims with respect to several claims. With respect to the claim for conversion, the court held that plaintiff had failed to adequately allege that it had any right to the property at issue, or that the firm had aided or abetted in the alleged conversion. The court therefore dismissed a total of six claims without prejudice. (In other orders, the court dismissed the complaint against the managers in their entirety, and dismissed several counts against the owner/majority shareholder. The case against the owner/majority shareholder was settled a few months later).
In late 2011, the plaintiffs sued their own counsel for breach of fiduciary duty, alleging that counsel had failed to sue the other law firm in a timely manner. According to plaintiffs, the case had been settled for less than it was worth because of the loss of the claims against the opposing law firm.
After limited discovery, the parties filed cross-motions for summary judgment. The law firm defendant argued that the plaintiff’s claims amounted to a collateral attack on the original trial court orders holding that the clients lacked standing to sue the opposing law firm. The trial court granted the defendants’ motion for summary judgment, holding that the plaintiffs’ new claim was barred by collateral estoppel.
The Appellate Court affirmed in part and reversed in part. The court concluded that the lower court in the original action had ruled that any individual claims against the opposing law firm were barred. It didn’t – and indeed, could not have – ruled that derivative claims against the opposing firm were barred. The lower court had dismissed the derivative claims against the opposing firm, but it had done so without prejudice. And besides, the trial court had never dismissed count II for usurpation of corporate opportunities at all. Therefore, although collateral estoppel certainly barred the plaintiffs’ claim against their former counsel with respect to the individual claims, it certainly didn’t with respect to the derivative claims.
The defendant argued that the plaintiffs lacked standing to bring any claim against it arising out of the derivative claims, since the law firm represented the corporation with respect to those claims. The Appellate Court disagreed. The defendant represented the individual plaintiff shareholders, the court found. Just because the law firm advised it to bring derivative as well as individual claims didn’t make the firm the corporation’s attorney.
We expect Stevens to be decided in eight to twelve months.