Litchfield Cavo Wins Summary Judgment in a “Case Within a Case” Legal Malpractice Action

Chicago Partner James E. Abbott obtained summary judgment on April 6, 2017 in the Circuit Court of Cook County in a “case within a case” legal malpractice matter on behalf of an attorney and that attorney’s law firm who were retained to represent plaintiff in an accounting malpractice action.  Plaintiff alleged that they failed to advise their client regarding his other options, including a potential legal malpractice action against plaintiff’s initial attorney, which they knew or should have known was a more viable option for plaintiff than the underlying accounting malpractice action for which they were retained.

Plaintiff initially retained attorney number one to prosecute an accounting malpractice action against one of the “Big Four” accounting firms, but became frustrated with that attorney’s unresponsiveness and alleged failure to timely prepare the accounting malpractice complaint.  Accordingly, plaintiff fired his initial attorney and retained the defendants, who agreed to prepare, file, and prosecute the accounting malpractice action on plaintiff’s behalf despite expressing reservations about the accounting malpractice statute of limitations possibly having expired as to some of the claims.

In the underlying accounting malpractice action, plaintiff alleged that his accountants negligently failed to timely file amended tax returns with the Illinois Department of Revenue pursuant to deficiency notices regarding tax years in the late 1980s to early 1990s, which resulted in substantial penalties and interest.  Additionally, plaintiff alleged that his accountants negligently failed to file amended Federal returns and seek refunds regarding overpayments of self-employment taxes on his Federal returns for tax years in the mid to late 1990s.   Ultimately, plaintiff sought approximately $1.6 million in financial damages in the underlying accounting malpractice action.  Plaintiff fought IDOR’s decision, which resulted in an administrative hearing in July 2005 and an adverse administrative ruling in March 2006.  Shortly thereafter, plaintiff retained attorney number one to pursue the accounting malpractice action.

However, in October 2007, plaintiff replaced attorney number one with the defendants, who filed the accounting malpractice action in late December 2007.  When they were retained, they verbally advised plaintiff that they would not pursue litigation against the first attorney, but they did not prepare a written retention agreement.  Plaintiff eventually voluntarily dismissed the accounting malpractice action when it became apparent that statute of limitations problems applied.  Around that time, he spoke with several other attorneys, who advised him that the accounting malpractice action was a waste of time because the limitations period had expired; instead, he ought to consider pursuing a legal malpractice action against the attorney that he initially hired for blowing the statute of limitations.  However, by this time, the limitations period for suing the attorney was most likely blown.

Plaintiff argued that the defendants should have recognized at the outset that the accounting malpractice action was a dead end and that they breached their duty to him by failing to advise him of the time in which a legal malpractice action against his first attorney needed to be brought, concerns about the limitations period regarding the accounting malpractice action, concerns about the first attorney’s handling of the matter, dates in which plaintiff would need to act to preserve an action against the first attorney, and instructions to retain a different attorney if he was to pursue a legal malpractice action against his first attorney.

Mr. Abbott filed summary judgment on grounds that the defendants did not owe plaintiff a duty to advise him regarding a potential legal malpractice action against the first attorney because they limited the scope of their representation to the accounting malpractice action, and plaintiff was a sophisticated client who knew that if he wanted to pursue a legal malpractice action against his first attorney he would need to hire a different attorney to do so.  The summary judgment motion pointed out that plaintiff admitted, when asked by Mr. Abbott at his deposition, that the defendants verbally told him that they would not pursue litigation against the first attorney.  Additionally, the defendants argued that the underlying accounting malpractice action would not have been successful even if prosecuted to its conclusion and that the accounting malpractice action was time barred even before plaintiff retained the first attorney.  In granting the summary judgment motion, the Court reasoned that the defendants did indeed limit the scope of their representation, and thus they did not owe plaintiff a duty.  The Court did not rule on when the accounting malpractice statute of limitations expired.