Our reports on the oral arguments from the May term of the Illinois Supreme Court continue with Goldfine v. Barack, Ferrazzano, Kirschbaum and Perlman. Goldfine poses a number of issues about legal malpractice actions arising under the Illinois Securities Law. Based on the number and tenor of the Court’s questions, several Justices seemed troubled by the breadth of the First District’s decision. Our discussion of the underlying facts and lower court holdings in Goldfine is here.
The plaintiffs in Goldfine made twelve separate purchases between 1987 and 1990 of a certain company’s stock. In the spring of 1991, the company filed for bankruptcy and the stock became worthless. The plaintiff retained the defendants to identify possible claims and negotiate a settlement, while preserving the claims for possible litigation once the plaintiffs found a contingency-fee lawyer to bring the suit.
The plaintiffs’ theory was that at the time they retained the defendant firm, they had a viable claim for rescission under the Illinois Securities Law. But to preserve that claim, they had to serve a notice of rescission within six months of learning of their right to the remedy – and they didn’t. So when the claim was finally filed in 1992, it was dismissed as time barred.
The plaintiffs filed their malpractice claims in 1994. Once the underlying merits litigation over the stock purchases was finally concluded, the malpractice case proceeded to a bench trial. The court held that the final eleven stock purchases had violated the Illinois Securities Law. The court calculated damages as follows: total price, minus a prorated share of the plaintiff’s $3.2 million settlement in its suit over the stock purchases (although the Securities Law claim was lost, various other claims were preserved), plus 10% interest on each stock purchase as of the day of purchase. Finally, the court awarded a further 40% as attorneys’ fees and costs.
The Appellate Court reversed the judgment in part. The Court held that there was no basis under the statute (815 ILCS 5/13(A)) for reducing the value of each stock purchase by a prorated share of the plaintiff’s recovery from other sources before calculating interest. The court also rejected the defendants’ claim that the award of attorneys fees and costs was punitive in nature, and thus violated the bar on awarding punitive damages in malpractice actions.
Justice Robert E. Gordon dissented in part, pointing out that by refusing to allow an offset for the plaintiffs’ 2007 merits settlement, the Court was in effect holding that the $3.2 million merits settlement continued to bear interest from the defendants for seven years after the plaintiffs received it.
Counsel for the defendants began by pointing that damages in the action are $1.3 million, but the plaintiff nevertheless is seeking another $18-21 million in statutory interest and fees. Counsel argued that the interest and fees provisions upon which plaintiff relies are clearly tied to a violator’s ability to stop interest and fees from accruing by rescinding a transaction and returning the purchase price. Since an attorney representing the buyer can’t do that, the interest and fees provisions necessarily don’t apply to calculating damages against the attorney. Because the attorney has no ability to rescind and stop the interest and fees from increasing, such an award was necessarily punitive as against counsel. Justice Thomas asked how the defendant addressed the fact that interest runs from the date of the purchase, not the date of the judgment, and is based on the amount of the investment – suggesting that it’s compenatory? Counsel answered that the provisions were compensatory with respect to an actual violator of the Securities Law, but not as to an attorney. Statutes in derogation of the common law must be interpreted strictly, counsel argued, and applying that rule here required finding that the interest and fees clauses of the Law don’t apply. Justice Burke asked whether such awards were needed to make defendants whole. Counsel responded that the Court has often held that plaintiffs have been made whole without an award of interest and fees. Such cases take time to litigate, counsel argued – Goldfine itself is 22 years old. If one applies the interest and fees provisions to a lawyer, interest awards will far exceed actual damages, and counsel can’t do anything about it, since he or she can’t rescind the purchase. Chief Justice Garman asked whether any interest award at all was permitted against the lawyer. Counsel answered that none was available under the Securities Law. Although no other source of interest was available in this case, in a given case interest awards might be available pursuant to a written agreement or on equitable grounds. The Chief Justice repeated Justice Burke’s question, asking about the need to make the plaintiff whole. Counsel once again argued that the Court has repeatedly affirmed verdicts without interest or fees. Applying that concept out of context against a lawyer transforms interest and fees into quasi-punitive damages. Counsel pointed out that both the state and Chicago Bar Associations filed amicus briefs in the case supporting the defendant and worrying about the impact of an affirmance on malpractice premiums and attorneys’ willingness to take similar cases. Justice Thomas asked whether the defendant’s position was that the plaintiff was merely entitled to the interest it could have received from the securities defendant back in 1991. Counsel answered that even if the Act applied, the plaintiffs never made an adequate showing that they would have achieved a judgment or a settlement under the Securities Law. Thus, the malpractice claim failed for failure of proof. Even if the claim were upheld, interest would only accrue on the plaintiffs’ actual damages from the alleged malpractice – the $1.2 million not recovered in the merits settlement. Justice Burke asked whether Justice Gordon’s dissent was based on equity or the language of the statute. Counsel answered that the dissent was based on the settled rule that statutes shouldn’t be interpreted to reach absurd results – such as awarding interest on the $3.2 million settlement for the seven years since it was received.
Counsel for the plaintiff began by noting that the plaintiffs had lost $5 million in all. The Securities Law is remedial in nature, intending to make a wronged party whole. Justice Thomas noted that plaintiffs were seeking more than twenty years’ worth of interest – was that what plaintiffs would have recovered if the Securities Law claim had been properly preserved? Counsel answered that plaintiffs would have received interest calculated from the day the broker purchased the stock until it paid the judgment. Counsel argued that the notion of recovering from the broker was “illusory,” since wealthy parties generally appeal. Justice Thomas asked counsel how he addressed the argument that the statute shouldn’t apply because the defendants were unable to prevent the ongoing accumulation of interest. Counsel responded that the argument was ridiculous – the defendants could have settled. Justice Burke asked whether there was any legal support for the view that attorneys fees and costs are not available in a legal malpractice case. Counsel answered that there was none. The defendants didn’t seek to intervene in the underlying case, counsel argued – with a single exception. They tried to intervene, counsel argued, in settlement negotiations merely in order to listen to the discussions. Justice Theis asked counsel why interest shouldn’t accrue post-2007 only against the unpaid portion of the $5 million loss. Counsel responded that the defendants had insisted that the $3.2 million settlement had nothing to do with malpractice damages, and now they want an offset for it. The statute is not ambiguous, counsel argued. Would the plaintiffs receive interest on money they had for seven years – yes, but that’s what the statute says. Justice Theis asked why the interest doesn’t stop running in 2007, at the time of the merits settlement. Counsel responded again that that’s not what the statute says. The defendants were responsible for the lengthy wait, counsel argued – they insisted that the malpractice case should wait until the merits case concluded. Justice Kilbride asked whether the order staying the malpractice case was agreed, or did the plaintiffs oppose it. Counsel answered that the plaintiffs had moved to transfer the malpractice case from the Law Division to the Commercial Calendar, and the defendants’ price for agreeing to that was that the case be stayed until the merits case was finished. Justice Theis asked whether the details of the negotiations were in the record, and counsel responded that the order reflects that it was by agreement, and the result of negotiation.
Counsel for the defendants argued that the defendants was sought a stay in 1996 on the grounds that the case wasn’t ripe until the merits case was over. Counsel addressed Justice Burke’s question about whether there was authority rejecting awards of fees and costs in malpractice actions, saying that there was: Tri-G, Inc. v. Burke, Bosselman & Weaver. In response to Justice Theis’ earlier question about interest ending in 2007, counsel pointed out that the statute is entirely silent about attorneys – suggesting that it was never intended to apply. Turning to Justice Thomas’ earlier question, counsel pointed out again that the statute expressly links interest and fees to the right to rescind. Counsel denied that the defendants had any realistic opportunity to settle, since actual damages hadn’t been determined until 2007. Counsel briefly addressed the amicus brief filed by the State, pointing out that it says nothing about lawyers. Counsel suggested that the State’s concern is solely that interest and fees might become discretionary with respect to wrongdoers themselves, as opposed to tortfeasors-once-removed such as attorneys. Counsel concluded by asking that the judgment should be modified to $1.3 million – the portion of the actual losses not recovered in the 2007 settlement – and affirmed.
Image courtesy of Flickr by 401kCalculator.