Plaintiff v. Defendant Bankruptcy and Appellate Attorney

Synopsis:

In a two-week federal bench trial involving alleged legal malpractice where a former client and a trust sought $5.35 million from the firm’s bankruptcy and appellate lawyer, John J. Duffy and Scott J. Kater obtained a defense verdict.  The trial presented a $5 million exposure and possible deviation from the standard of care. Causation, however, was questionable. This was the first legal malpractice case DBMS has tried where the attorney client’s matter involved a United States Supreme Court appeal.

The federal judge presiding over the trial split his decision on standard of care, finding that the attorney complied with the standard of care in handling discovery but deviated from it while handling the client’s appeals to the district court and Seventh Circuit. The federal judge, however, found that no damages were proximately caused by the single deviation from the standard of care and entered a defense verdict and judgment for the bankruptcy and appellate lawyer. 

The client retained the bankruptcy and appellate attorney to represent him in a bankruptcy action.  During the case, the client failed to produce key financial documents, leading the bankruptcy court to deny the client a discharge.  The bankruptcy court also entered a declaratory judgment, finding that the client was the true owner of his mother's trust, which was valued at several million dollars. Creditors sought to use the trust to pay their claims. 

The bankruptcy and appellate attorney appealed the order denying discharge and finding that the client was the true owner of his mother’s trust.  On appeal, the bankruptcy and appellate attorney cited case law in his district court and Seventh Circuit reply briefs that may have reversed the bankruptcy court's order on jurisdictional, not substantive grounds.  The Seventh Circuit held that the jurisdictional argument under Stern v. Marshall, 564 U.S. 462 (2011) could not be waived.  The bankruptcy and appellate attorney convinced the Seventh Circuit to reverse the bankruptcy court's judgment and remand the matter to the bankruptcy court for further discovery. 

The United States Supreme Court accepted a petition for certiorari.  The United States Supreme Court held that the jurisdictional argument under Stern was a personal, not constitutional right that could be waived by failing to raise it in a party’s opening appellate brief.  The Supreme Court remanded the case to the Seventh Circuit for further review, and the Seventh Circuit applied the new Supreme Court decision and held that the jurisdictional argument was waived. The Seventh Circuit then upheld the bankruptcy court’s original judgment.

After conclusion of the bankruptcy appeals, the bankruptcy and appellate lawyer sued the client for about $200,000 in unpaid legal fees.  The client, and the trust, counterclaimed for legal malpractice, raising two theories: 1) that the bankruptcy and appellate lawyer lost key documents given to him that, if produced, would have prevented the denial of discharge and the declaratory judgment that the client, not his mother, owned the multi-million trust; and 2) the bankruptcy and appellate lawyer failed to raise the Stern argument on appeal, thus waiving it and losing the appeals in the district court and Seventh Circuit, leading to the new, but adverse, law developed in the United States Supreme Court.  The client claimed damages at trial of $5.35 million as trust funds were used to pay the client’s creditors.

This malpractice and unpaid fees matter proceeded to a two-week bench trial in the Northern District of Illinois.  John and Scott proved at trial that the bankruptcy and appellate lawyer did not fail to produce key documents in discovery.  The court held that the bankruptcy and appellate lawyer complied with the standard of care in handling discovery for the client.

The district court judge, however, found that the bankruptcy and appellate lawyer deviated from the standard of care by raising too late the Stern jurisdictional objection.  At trial, John and Scott successfully argued that such a failure did not cause the client’s $5.35 million injury.  The district court held that the client failed to prove that, upon remand, even if Stern was timely raised, that a different outcome would have occurred.  The client and trust called a DePaul Law School professor as their expert, but the court found that they failed to present sufficient evidence that the bankruptcy or district courts would have come to a different result had the appeal been decided differently.

On the claim for unpaid legal fees, the district court judge entered a $150,000 verdict and judgment for the bankruptcy and appellate lawyer and against his former client.