ACER Am. Corp. v. SmithAmundsen LLC

1

2023 IL App (1st) 221104-U

ACER AMERICA CORPORATION, Plaintiff-Appellant, v. SMITHAMUNDSEN LLC, Defendant-Appellee.

SMITHAMUNDSEN LLC, Third-Party Plaintiff/Cross-Appellant, v. ORRICK, HARRINGTON &SUTCLIFFE LLP, Third-Party Defendant/Cross-Appellee.

No. 1-22-1104

Court of Appeals of Illinois, First District, Fifth Division

November 3, 2023

This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Cook County. No. 2019 L 001715 Honorable Jerry A. Esrig, Judge Presiding

JUSTICE MIKVA delivered the judgment of the court. Presiding Justice Mitchell and Justice Lyle concurred in the judgment.

ORDER

MIKVA JUSTICE.

¶ 1 Held: The circuit court's grant of summary judgment in defendant law firm's favor is affirmed; the firm's failure to file plaintiff's lawsuit against its insurance broker in California rather than in Illinois could not form the basis for a claim of legal malpractice where that underlying suit was time-barred in both states.

¶ 2 Plaintiff Acer America Corporation (Acer) engaged AON Trade Credit Insurance Services, Inc., and AON Risk Services (collectively, Aon), to procure credit insurance protecting it against the risk of default by its retail customers. One of those customers, Circuit City Stores, Inc. (Circuit City) filed for bankruptcy, and the bankruptcy trustee filed a preference claim against Acer seeking a return of payments Circuit City had made to Acer in the 90 days prior to the filing of the bankruptcy petition. The policy Aon had procured for Acer did not cover such claims, and Acer ultimately litigated the claim before settling it at a loss.

¶ 3 More than two years from the denial of coverage, but less than two years from the date on which Acer settled the preference claim, Acer hired defendant SmithAmundsen to assert a professional negligence claim against Aon, which the firm filed in Cook County, Illinois. That suit was dismissed as time-barred, on the basis that the two-year statutory limitations period for such claims began to run when the insurer denied coverage. We affirmed that dismissal on appeal. Acer America Corp. v. AON Trade Credit Insurance Services, Inc., 2017 IL App (1st) 170830-U.

¶ 4 Acer then initiated this action against SmithAmundsen alleging that the firm negligently failed to file the lawsuit against Aon in California, where a two-year statute of limitations also applies, but where claims do not accrue until a plaintiff has suffered actual damages. Acer maintained that it was not damaged until it settled with the bankruptcy trustee, and a suit filed against Aon in California would therefore have been timely. The circuit court granted SmithAmundsen's motion for summary judgment, agreeing with the firm that Acer suffered actual damages shortly after the denial of coverage, when it incurred legal expenses to have outside counsel advise it on the coverage problem and was forced to negotiate with the bankruptcy trustee from a compromised position.

¶ 5 Acer now appeals and, for the reasons that follow, we affirm.

¶ 6 I. BACKGROUND

¶ 7 The underlying facts, summarized below from the parties' pleadings and the affidavits and supporting documents attached to their summary judgment briefing, are generally undisputed.

¶ 8 A. Acer's Underlying Claim Against Aon

¶ 9 Acer is a California corporation that sells computers monitors, tablets, and similar products to large retail customers, often receiving payment for those goods 30-90 days after delivery. Acer has historically obtained credit insurance to cover the risk of default by its customers, and in 2005 Aon, an insurance broker headquartered in Illinois, solicited Acer to become the company's broker for such coverage. Acer provided Aon with a copy of its then existing policy, which provided Acer with, among other things, coverage in the event of default by a creditor who subsequently filed for bankruptcy protection and an endorsement protecting Acer from preference claims made by a bankruptcy trustee. Aon proposed a new policy, through insurer Euler Hermes (Euler), that Acer understood would provide it with the same protections and a higher coverage limit. Acer agreed to use Aon as its broker, and beginning in 2006, Aon placed Acer's credit insurance with Euler.

¶ 10 On November 10, 2008, one of Acer's retail customers, Circuit City, filed for Chapter 11 bankruptcy protection in the Eastern District of Virginia. Sections 547 and 550 of the United States Bankruptcy Code allow a bankruptcy trustee to file a preference claim to recover any property transferred by the debtor to another party in the 90 days preceding the filing of the bankruptcy petition that the court determines constituted a "preferential transfer." 11 U.S.C. § 547(b) (2006); 11 U.S.C. § 550 (2006). On November 5, 2010, the Circuit City bankruptcy trustee did just that, seeking the return of approximately $32 million that Circuit City had paid to Acer in the 90 days preceding the filing of Circuit City's bankruptcy petition.

¶ 11 In an April 29, 2011, e-mail confirming their previous telephone conversations, Euler informed Acer that because the credit insurance policy Aon had procured for it only covered preference claims made and settled or adjudicated within 90 days of the filing of the bankruptcy petition, the claim asserted by the Circuit City bankruptcy trustee "[did] not appear to be covered." However, due to what it viewed as its "excellent relationship" with Acer, Euler was willing to contribute, as a "commercial gesture," a portion of the total amount that Acer would have to pay back to Circuit City.

¶ 12 Following this exchange, Acer consulted its outside counsel, Womble Carlyle Sandridge &Rice, LLP (Womble), to assess the preference claim filed by the trustee against Acer and the insurance issue. Womble prepared a detailed memorandum on May 3, 2011, outlining Acer's defenses to the preference claim and the likelihood of Acer obtaining coverage if required to pay back the money it had received from Circuit City. Womble concluded that there was a good chance that some but not all of the payments Acer received from Circuit City in the 90 days before it filed for bankruptcy would be considered payments made in the ordinary course of business and not preferential payments, but that the bankruptcy trustee was more than 60% likely to obtain a judgment of at least $8 million against Acer. Because the Euler policy was an indemnification policy, any settlement or judgment would be Acer's responsibility, and Acer would then need to seek indemnification from Euler. Womble did not agree with Euler that the policy provided no coverage for preference claims but acknowledged that a preference claim "[did] not fit neatly within the typical claims asserted under [that] Policy." According to Womble, Acer's chances of prevailing on a claim against Euler were, "at best, 50% and more realistically around 40%."

¶ 13 Acer attempted to mediate the claim with the bankruptcy trustee on May 11, 2011, but no settlement was reached.

¶ 14 On June 4, 2013, a representative of Acer sent an email to a representative of Euler. Although "nothing [had] been settled or agreed yet" because mediation was about to begin again and it was "still possible that [Acer would] win [the] case and nothing [would] be lost," the e-mail stated, Acer's chief financial officer wanted to better understand why Euler was "not fully covering this case." The Euler representative wrote back to explain that although Acer's current policy covered preference claims like the ones Acer faced, the policy in effect when Circuit City's debt to Acer arose did not.

¶ 15 The Acer representative forwarded this exchange to individuals at Aon, saying, "[o]f course, we still hope that the court will find in our favour [sic] and there will be no loss, either to Acer or to Euler Hermes," but "if we lose the case, then the issues are now more clear for me." His understanding was that Acer had no coverage for the preference claim, that Euler's offer to make a partial payment as a commercial gesture was something the insurer had no legal obligation to do, and that Acer would "suffer a loss" of any amount it was ordered to repay that exceeded the amount of that voluntary payment. "I have to advise you," the Acer representative went on, "that we will hold Aon responsible for failing to ensure that [we were] properly covered against this preference claim." In the Acer representative's view, Aon "had an obligation to identify potential risks [and] make sure [Acer was] fully covered" but had "failed to do so." He concluded by letting the Aon representatives know that they should advise their company of this potential liability "in case the court [did] not find in [Acer's] favor."

¶ 16 Over two years after Acer first engaged Womble to advise it in the wake of Euler's denial of coverage, Acer retained Orrick, Herrington &Sutcliffe (Orrick) to investigate a potential broker negligence action against Aon. Orrick wrote to Aon on November 22, 2013, explaining that while the preference claim remained unresolved, it might "ultimately result in a multi-million dollar loss to Acer that should have been covered under the Policy." Orrick had investigated the matter and believed that such coverage was a standard feature typically included in trade credit policies and that Aon's failure to procure a policy including such coverage "may have breached the standard of care owed to Acer." Orrick invited Aon to discuss resolving the matter and, "[t]o allow those discussions to take place," asked if it would agree to enter into a tolling agreement. Aon did not agree to the tolling agreement and no substantive...