Prospect Dev., LLC v. Kreger

55 N.E.3d 64

403 Ill.Dec. 877

PROSPECT DEVELOPMENT, LLC, a Delaware Limited Liability Company; Prospect Development Corporation, an Illinois Corporation; and John G. Wilson, Plaintiffs–Appellants

v.Donald KREGER and Schiff Hardin, an Illinois Limited Liability Company, Defendants–Appellees.

No. 1–15–0433.

Appellate Court of Illinois, First District, First Division.

May 23, 2016.

William J. Stevens, of Bridgman, Michigan, for appellants.

Miller Shakman & Beem LLP, of Chicago (Michael L. Shakman, Diane F. Klotnia, and William J. Katt, of counsel), for appellees.

OPINION

Justice HARRIS delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs brought this legal malpractice suit against defendant attorney and the law firm that employed him. Prior to this lawsuit, plaintiff had previously filed a breach of contract action against the city of Prospect Heights, Illinois, stemming from the collapse of a deal to develop a sports arena for the city. The defendant attorney in this action was general counsel for the city until the arena deal collapsed in 2004. In the previous lawsuit, the plaintiffs were successful in proving their claim for breach of contract but were denied recovery based on the doctrine of unclean hands. The court in the breach of contract action found plaintiffs' undisclosed loans to defendant attorney barred recovery on the breach of contract action. Plaintiffs then instituted this action against defendant attorney and his former firm for legal malpractice.

¶ 2 In their complaint, plaintiffs alleged each time a loan was made from 1997–2001, they inquired as to the propriety of the loans and whether they should be disclosed. Plaintiffs alleged each time they inquired, defendant attorney gave them negligent advice. Plaintiffs further alleged that the malpractice was concealed from them until the adverse ruling was handed down in the prior case. After motion practice, the circuit court dismissed plaintiffs' complaint after finding that in denying recovery in other case, the previous court made a factual determination that in January 2005 the plaintiffs had knowledge the loan advice they last received in October 2001 may not have been proper. The court ruled such a determination barred relitigation of the issue in this case. Because over two years remained before the statute of repose ran when plaintiffs obtained this knowledge in 2005, the circuit court found the suit barred by plaintiffs' failure to file within this period. Plaintiffs timely appealed the dismissal.

¶ 3 On appeal, plaintiffs argue that the statute of repose was tolled until the prior court issued its ruling denying them recovery. They argue that prior court's decision does not bar them from litigating when they had notice of the alleged negligent advice in this action.

¶ 4 For the reasons stated below, we affirm the order of the circuit court dismissing the second amended complaint with prejudice.

¶ 5 JURISDICTION

¶ 6 In November 2013, defendants moved to dismiss plaintiffs' second amended complaint based on section 2–619(a)(5) of the Code of Civil Procedure (735 ILCS 5/2–619(a)(5) (West 2012)), alleging the cause of action was barred by the six-year statute of repose. The circuit court originally denied defendants' motion to dismiss. On June 26, 2014, defendants moved for reconsideration. On October 20, 2014, the circuit court granted defendants' motion to reconsider and dismissed plaintiffs' second amended complaint. On November 19, 2014, plaintiffs moved for reconsideration of the court's dismissal order. The plaintiffs' motion was denied on January 14, 2015. Plaintiffs filed their notice of appeal on February 11, 2015. Accordingly, this court has jurisdiction over this matter pursuant to article VI, section 6 of the Illinois Constitution, and Illinois Supreme Court Rules 301 and 303. Ill. Const. 1970, art. VI, § 6 ; Ill. S. Ct. R. 301 (eff. Feb. 1, 1994); R. 303 (eff. May 30, 2008).

¶ 7 BACKGROUND

¶ 8 This case has a long factual history and many of the events that gave rise to this action are recounted in Prospect Development, LLC v. City of Prospect Heights, 2012 IL App (1st) 103759–U, 2012 WL 6955666. Accordingly, we recite only those facts necessary for the disposition of this appeal.

¶ 9 Attorney Donald J. Kreger (Kreger) was a partner in the Chicago office of Schiff Hardin LLP, and between 1977 and 2003 acted as general counsel for the city of Prospect Heights, Illinois. Kreger had a close relationship with plaintiff-appellee John Wilson (Wilson), whom he had met when their sons were on the same hockey team. In early 1994, the city of Prospect Heights hired Wilson as a consultant to conduct a feasibility study into constructing and operating a sports arena in the city. In June 1997, Prospect Development Corporation executed a redevelopment agreement to proceed with the project. Needless to say, the sports arena was never built and by 2004 the deal was dead. In January 2005, Wilson and his companies filed suit against the city for breach of contract. Wilson and his companies sought to recover over $20 million alleged to be owed to them under the contract with the city. Important to both this action and the previous action, Wilson and his companies pled the following in the original breach of contract complaint:

“25. In addition, during this time, Kreger, one of the City's Agents, approached Developer's principal Wilson on multiple occasions to ‘request’ a $100,000 loan in connection with a personal financial problem. In light of the close role that City's Agents had played in the Arena Project, Wilson granted such a loan in excess of $100,000 for fear that its refusal would adversely affect the Developer's ability to complete the Arena Project.”

¶ 10 The city construed this as an admission that Wilson and his companies knew the loans were inappropriate. Thus, in addition to the counterclaims brought by Prospect Heights, it also raised an affirmative defense of unclean hands. At trial, the circuit court heard testimony that beginning in December 1996 and lasting until October 2001, Wilson loaned over $150,000 to Kreger. These loans were never disclosed to the city.

¶ 11 After a bench trial, the circuit court issued its ruling on July 23, 2010. Judge Preston ruled in favor of Wilson and his companies on their breach of contract claim but denied them any recovery based on the doctrine of unclean hands. Judge Preston found Wilson engaged in “bad faith” and “clear misconduct” when he failed to disclose the secret financial relationship he had with Kreger. Specifically pointing to paragraph 25 of the original complaint, the court stated “Plaintiff, through its principal, Mr. Wilson, obviously knew that the ‘friendship loans' provided to Mr. Kreger may have presented a conflict of interest or may have been viewed as inappropriate.” Based on this, the court found that “Mr. Wilson admittedly felt that these loans might have been necessary if he wanted his company to complete the Arena Project.” This decision was affirmed by this court on appeal. See Prospect Development, LLC v. City of Prospect Heights, 2012 IL App (1st) 103759–U, 2012 WL 6955666 (affirming the trial court's unclean hands ruling).

¶ 12 Plaintiffs filed this action on July 12, 2012 alleging legal malpractice. In their complaint, Plaintiffs alleged that Schiff Harden and Kreger (1) represented plaintiffs in connection with the Wilson–Kreger loans, and (2) provided negligent advice that caused Wilson not to disclose the loans. Kreger and Schiff Harden moved to dismiss the complaint pursuant to section 2–619(a)(5) alleging that the cause of action was barred by the six-year statute of repose for legal malpractice. See 735 ILCS 5/13–214.3(c) (West 2012).

¶ 13 After motion practice, plaintiffs filed their second amended complaint in 2013. In the second amended complaint, plaintiffs acknowledged that they had filed their complaint after the six-year state of repose had expired. They asserted that Kreger's alleged misstatements and concealment suspended or tolled the statute of repose under the doctrine of equitable estoppel or fraudulent concealment. Kreger's alleged misstatements consisted of his assurances at the time that the loans were proper and need not be disclosed. The alleged concealment consisted of Kreger thereafter failing to inform plaintiffs that his alleged statements about the loans were wrong. They assert “Plaintiffs did not know that the representations concealing the foregoing information [relating to the Wilson–Kreger loans] were false and did not bring any action against defendants until after Judge Preston's ruling in 05 L 778.”

¶ 14 The fraudulent concealment claim was based specifically on the following allegations: (1) Kreger concealed the fact that the loans were improper and impaired the rights of Prospect Development LLC and Prospect Development Corporation to enforce their legal rights against the City of Prospect Heights; (2) Kreger concealed the fact that his legal opinions were not based on sound legal analysis; (3) Kreger concealed the fact that his recusal from negotiations with Prospect Development were insufficient to mitigate or cure Kreger's conflicts; (4) Kreger concealed the fact that the appointment by the City of Prospect Heights of independent counsel Bruce Huvard did not resolve Kreger's conflicts of interest; and (5) Kreger concealed the fact that his own disclosures to the City about his relationship with Jack Wilson were insufficient.

¶ 15 On May 23, 2014 the trial court denied the motion to dismiss the second amended complaint. The court found there was no injury to plaintiffs until Judge Preston ruled in 2010, and that, therefore, the statute of repose had not begun to run until this ruling. The circuit court also ruled that in order to determine whether the alleged fraudulent concealment tolled the statute of repose, the court would have to resolve “whether [there was] fraudulent concealment” and “whether Wilson should have...