by Christopher Graham and Joseph Kelly

The Mississippi Supreme Court recently reversed a $103 million legal malpractice verdict against Baker & McKenzie, LLP and Baker attorney Joel Held and remanded for a new trial on proximate cause and damages. See Baker & McKenzie, LLP, et al v. Evans, et al, Case No. 2011-CA-01110-SCT (Oct. 17, 2013)

Lavon Evans and his companies obtained a verdict against Baker & McKenzie and Held in 2010 for, collectively, $103 million.

The Mississippi Supreme Court affirmed the firm and Held’s liability for conflict of interest and breach of fiduciary duty but reversed the verdict and remanding for a new trial on proximate cause and damages because of faulty jury instructions.

Tags: Mississippi, legal malpractice, conflict of interest, proximate cause

by Christopher Graham and Joseph Kelly

The U.S. Supreme Court is set to hear oral arguments on the issue of whether severance payments to laid off employees are taxable. The 6th Circuit Court of Appeals (covering Tennessee, Kentucky, Ohio and Michigan) previously decided that severance payments aren’t taxable. See U.S. v. Quality Stores, Case No. 10-1563 (6th Cir. 2012).

The Federal Circuit Court of Appeals held that severance payments were taxable. See CSX Corp., et al v. U.S., 518 F.3d 1328 (Fed. Cir. 2008).

The Supreme Court’s decision — expected sometime next year — will be significant for both employers and employees because both could have claims for tax refunds on taxes already paid on severance if the Supreme Court decides severance pay isn’t taxable.

Employers and employees should already be filing for refunds if they intend to reap the benefits of the Supreme Court ruling that severance pay isn’t taxable.

Tags: Severance pay, tax, employment law

by Christopher Graham and Joseph Kelly

Unfortunately for some companies their trade secrets don’t stay secret. (Not sure if information is a trade secret? See our post “What’s a trade secret?”)

Too often companies fail to take the necessary steps to protect that information.

Here are some of the steps businesses can take to protect trade secrets and confidential information:

• Stamp documents as confidential;
• Limit access to trade secrets and confidential information to employees on a need-to-know basis;
• Password-protect electronic files containing trade secrets or confidential information;
• Restrict physical access to documents containing trade secrets;
• Require employees and contractors to sign confidentiality or non-disclosure agreements.
• Establish a written confidentiality policy and enforce it.

Companies that don’t take proactive protective measures run the risk of the losing their most valuable assets.

Tags: Trade secrets, confidential information

by Christopher Graham and Joseph Kelly

Trade secrets are often a company’s most valuable assets.

Illinois (and most other states) have adopted the Uniform Trade Secrets Act which defines a trade secret as:

information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, that:

(1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and

(2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. 765 ILCS 1065/2(d)

In simpler terms, a trade secret is valuable information kept confidential. Common examples are Col. Sander’s recipe for fried chicken and the formula for Coca-Cola.

But most employers aren’t in the fast food or soft drink industry.

A more common example of a trade secret is a customer list.

Is a list that only contains customer names and contact info. publicly available likely a trade secret? No.

But what if a customer list contains other information that makes the list distinctive? Customer lists that include things like sales history, pricing information, contact info. for decision-makers, product preferences are much more likely to be trade secrets.

A company’s ability to succeed often depends on its ability keep its trade secrets protected. For more information on how to protect trade secrets, please see our post – “Protecting Trade Secrets and Confidential Information”

Tags: Trade secrets, confidential information, customer lists, Illinois, Uniform Trade Secrets Act

by Christopher Graham and Joseph Kelly

Nelson v. Quarles and Brady, LLP, 2013 IL App (1st) 123122 (Sept. 30, 2013).

Ken Nelson was the majority shareholder in two corporations – Ken Nelson AutoPlaza, Inc. (“AutoPlaza”) and Ken Nelson AutoMall, Inc. (“AutoMall”).

In 1989, Nelson entered into a stock purchase agreement with his business partner, Richard Curia, under which Curia had successive purchase options. If each option was exercised, Curia would purchase all of Nelson’s shares. Curia failed to exercise the first option, but did pay Nelson $200,000 for 25% of the AutoPlaza and AutoMall’s shares.

In 1993, Nelson and Curia entered into a “Modification Agreement” which provided that the parties made a mutual mistake in determining the companies’ shares fair market value and in determining the option payments. Under the “Modification Agreement”, Curia’s percentage share ownership increased to 47.7% for AutoPlaza and 43.3% for AutoMall, without Curia making any additional payments.

Nelson alleges that in 2004: (1) he and Curia had an oral agreement under which Nelson would sell all his stock in both companies to Curia for $4.2 million; (2) Curia didn’t perform under the agreement; and (3) Curia instead tried to exercise the final purchase option under the 1989 agreement — essentially trying to procure all of Nelson’s shares for much less than $4.2 million.

Nelson retained Quarles & Brady and sued Curia in federal court seeking a declaration that the 1989 purchase option was unenforceable because of the parties subsequent agreements. Curia sought a declaration for specific performance regarding the 1989 purchase option.

Curia won a partial summary judgment that Nelson was required to comply with the 1989 purchase option and sell his shares. Nelson moved for a stay while the appeal was pending, but the motion for a stay was denied. Nelson sold the shares under the order. The 7th Circuit ultimately reversed the trial court on appeal, but not before Curia had encumbered much of the companies’ assets and taken out loans. Nelson subsequently settled with Curia, but was not able to regain majority ownership of the companies.

Nelson sued Quarles & Brady for legal malpractice, alleging, in pertinent part, that the firm’s “negligent and careless conduct included but is not limited to the complete failure to assert a meritorious cause of action against Curia on [plaintiff’s] behalf and the complete failure to assert meritorious defenses to Curia’s alleged causes of action.”

Quarles & Brady successfully moved to dismiss two amended complaints filed by Nelson for failure to state a cause of action. Nelson filed a third amended complaint which, unlike the previously dismissed complaints, included an affidavit from a legal malpractice expert that stated, in pertinent part, that Quarles & Brady’s actions were professional negligence, not a mere error in judgment. Quarles & Brady successfully moved to dismiss the third amended complaint just the same.

On appeal, Nelson argues that the legal expert’s affidavit created a question of fact that precludes dismissal.

The court began its analysis by stating that under Illinois law, “It is clear that an attorney is liable to his client only when he fails to exercise a reasonable degree of care and skill; he is not liable for mere errors of judgment” and that “attorneys do not breach their duty to clients, as a matter of law, when they make informed, good-faith tactical decisions.”

Nelson argued that the affidavit created a question of fact that precluded dismissal. Quarles & Brady argued that the affidavit contained legal conclusions and shouldn’t be considered.

The court ultimately avoided the issue of “judgmental immunity”, holding, in pertinent part, that Nelson alleged sufficient facts to state a viable claim for legal malpractice.

Tags: Illinois, legal malpractice, judgmental immunity

by Christopher Graham and Joseph Kelly

Area Wide 79th & Western LLC, et al v. Keldermans, et al, 2013 IL App (1st) 122968-U (Sept. 3, 2013).

Faysal Mohamed, formed Area Wide 79th & Western LLC to develop a parcel of land in the City of Chicago for commercial development – namely, a Walgreens store and a TCF Bank. The development plan required Walgreens and TCF to grant each other cross-easements for parking, ingress and egress.

Area Wide retained attorney Francis Keldermans and his firm, Holland & Knight, LLP to handle the development. Keldermans allegedly failed to include a provision in a lease between Area Wide and Walgreens requiring Walgreens to grant the necessary easements to TCF and the lease was signed by the time the mistake was discovered. Walgreens balked at Keldermans’ and Mohamed’s subsequent requests that it grant the easements anyways.

On May 9, 2008, TCF backed out of a sales agreement with Area Wide when it learned about the easements wouldn’t be granted. Area Wide had mortgaged the entire property and by 2010 the bank foreclosed.

On April 10, 2012, Area Wide and Mohamed sued Keldermans and Holland & Knight for legal malpractice for failure to include the easement grants in the Walgreens lease. Keldermans and the firm successfully moved to dismiss based on Illinois’ two-year statute of limitations for legal malpractice. Area Wide and Mohamed appealed.

On appeal, Area Wide and Mohamed conceded that their cause of action accrued in 2008 and they didn’t argue the statute of limitations should have been tolled by the discovery rule.

Instead, Area Wide and Mohamed argue that the statute of limitations shouldn’t apply because of equitable estoppel.

Under Illinois law:

• “A party whose conduct has caused another to delay filing suit until after the limitations period has run may be estopped from asserting the statute of limitations as a bar to the action. To prevail on this theory, the party asserting estoppel must establish that [it] reasonably relied upon the other party’s conduct or representations in forebearing suit.”; and

• A plaintiff must show “(1) defendant has made some misrepresentation or concealment of a material fact; (2) defendant had knowledge, either actual or implied, that the representations were untrue at the time they were made; (3) plaintiff was unaware of the untruth of the representations both at the time they were made and the time they were acted upon; (4) defendant either intended or expected his representations or conduct to be acted upon; (5) plaintiff did in fact rely upon or act upon the representations or conduct; and (6) plaintiff has acted on the basis of representations or conduct such that he would be prejudiced if defendant is not estopped.”

Here, Area Wide and Mohamed also argued that Keldermans and the firm assured them they could successfully negotiate with Walgreens and that they were lulled into a false sense of security by such assurances. The 1st District rejected this argument as well because Area Wide and Mohamed knew of the lease mistake at the time of such assurances. The court stated “[e]stoppel cannot apply in this situation because plaintiffs were fully aware of their injury within the statute of limitations period…” The court further noted that “[i]n order for estoppel to apply, defendants must have known that their representation were untrue. [citation omitted]. Yet there is no indication anywhere in the complaint or affidavits that defendants were negotiating with Walgreens in bad faith merely as a delaying tactic, or that they knew all along that it would be impossible to obtain the [easements].”

Area Wide and Mohamed also argued Keldermans and the firm breached a fiduciary duty owed to them by failing to alert them that they had a cause of action against TCF. The 1st District rejected this argument because: (1) there was no supporting case law cited; and (2) plaintiffs appeared to equate equitable estoppel with fraudulent concealment, but didn’t plead fraudulent concealment.

The 1st District, thus, held that equitable estoppel did not bar Keldermans and the firm from asserting the statute of limitations as a successful defense.

Tags: Illinois, legal malpractice, statute of limitations, equitable estoppel

by Christopher Graham and Joseph Kelly

800 South Wells Commercial, LLC v. Horwood Marcus & Berk Chartered, 2013 IL App (1st) 123660 (Sept. 25, 2013)

In 1997, 800 South Wells Commercial, LLC (“800 South Wells”) sold a building complex, including apartments, commercial space, an underground parking garage, a parking lot, and a marina, to a developer. Sometime thereafter, 800 South Wells became owner of long-term leasehold interests in commercial space in the complex and the parking garage. 800 South Wells later mortgaged its leasehold interest.

In 2006, the complex went into foreclosure. During the foreclosure process, 800 South Wells agreed not to contest the foreclosure if it was given an option to acquire the parking garage at cost. 800 South Wells estimated that it would net a $3.5 million profit if it exercised the option and sold the parking spaces. But the manager and vice president of 800 South Wells – namely, Nicholas Gouletas and John Cadden — learned that much of that profit would have to go its creditors.

Gouletas and Cadden subsequently consulted with attorney Kenneth Bosworth who advised them to create a new entity to acquire the parking garage. Gouletas and Cadden did so and purchased the garage.

800 South Wells subsequently sued Gouletas and Cadden for breach of fiduciary duty and sued Bosworth’s firm for aiding and abetting a breach of fiduciary duty.

Defendant law firm moved to dismiss arguing that Illinois professional services statute of limitations barred the aiding and abetting claim.

735 ILCS 5/13-214.3(b) provides that a claim based on tort, contract, or otherwise “against an attorney arising out of an act or omission in the performance of professional services” must be commenced within two years from the time the party bringing the action knew or reasonably should have known of the injury for which damages are being sought.”

800 South Wells argued the above statute of limitations was limited to claims brought by a client against its attorney. Here, there was no attorney-client relationship between 800 South Wells and defendant law firm.

The court held the two-year statute of limitations in section 13-214.3(b) was not limited to claims by a client against its attorney. The court stated, in pertinent part:

“As there is no language in the statute restricting its application to legal malpractice claims or claims brought by an attorney’s client, the plain language of the statute directs that the two-year limitation applies to all claims against an attorney arising out of acts or omissions in the performance of professional services, and not just legal malpractice claims or claims brought against an attorney by a client. Had the legislature intended to restrict the applicability of the statute of limitations to malpractice claims, it could have explicitly done so in the text of the statute as it did when it prohibited the recovery of punitive damages in legal malpractice cases (735 ILCS 5/2-115 (West 2010)), but chose not to do in this instance.”

Tags: Illinois, legal malpractice, statute of limitations, aiding and abetting breach of fiduciary duty

by Joseph Kelly

Employers hazy on new pot law (Ameet Sachdev, Chicago Tribune, October 27, 2013)

Many Illinois employers have a zero tolerance drug policy. Those employers may want to read the story linked above which explains how such policies may soon conflict with their employees’ rights under new Illinois medical marijuana laws.

Tags: Illinois, employee handbook, medical marijuana, zero tolerance