Praxair v. Hinshaw & Culbertson

• Decision Date: 17 January 2001
• Docket Number: No. 00-1960,00-1960
• Citation: 235 F.3d 1028
• Parties: (7th Cir. 2000) Praxair, Inc., Plaintiff-Appellant, v. Hinshaw & Culbertson, Defendant-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1028

235 F.3d 1028 (7th Cir. 2000)

Praxair, Inc., Plaintiff-Appellant, v. Hinshaw & Culbertson, Defendant-Appellee.

No. 00-1960

In the United States Court of Appeals For the Seventh Circuit

Argued September 27, 2000

Decided December 20, 2000

Rehearing Denied Jan.17, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 97 C 3079--Wayne R. Andersen, Judge.

Before Posner, Coffey, and Kanne, Circuit Judges.

Posner, Circuit Judge.

Praxair, the plaintiff in this diversity suit for legal malpractice governed by Illinois law, appeals from the grant of summary judgment to the defendant, Hinshaw & Culbertson ("Hinshaw" for short), its former law firm. Praxair (actually a predecessor corporation, but we'll suppress that detail for the sake of simplicity) was the defendant in a breach of contract suit brought by Credit Agricole, a French bank. That suit, in which Praxair was represented by Hinshaw, ended in a judgment for Credit Agricole of almost $4 million which we affirmed in Caisse Nationale de Credit Agricole v. CBI Industries, Inc., 90 F.3d 1264 (7th Cir. 1996). In granting summary judgment in the present case, the district judge ruled that Praxair had failed to show that, had it not been for Hinshaw's alleged malpractice, Caisse Nationale would have been decided differently. In other words, Praxair had failed to show that the malpractice had made it any worse off, and if that is right then of course the Hinshaw firm has no tort liability.

Credit Agricole's suit had grown out of a swap contract that it had made with Praxair on February 18, 1991. The contract was negotiated by the New York and Illinois offices of Credit Agricole and the Illinois office of Praxair. During the term of the contract, which was to expire on January 16, 1994, Praxair was to pay Credit Agricole interest at a fixed rate on $35 million (Canadian, not U.S., dollars), while Credit Agricole was to pay Praxair interest at a variable rate, to be reset every three months, tied to the interest rate on Canadian bankers' acceptances (notes). The principal amount was purely notional; that is, it was not transferred, but was simply the base for calculating how much interest each party owed the other. The parties periodically netted their mutual obligations: if the variable rate had risen above the fixed rate, Credit Agricole paid Praxair; if the fixed rate had risen above the variable rate, Praxair paid Credit Agricole. Thus the swap shifted from Praxair to Credit Agricole the risk, both upside and downside, of interest-rate changes during the three-month periods between resettings of the variable rate.

Simultaneous with the swap, Praxair granted Credit Agricole an option, "exercisable between 9:00 a.m. and 5:00 p.m. EST up to and including January 16, 1994," to extend the swap for an additional two years on the basis of the Canadian bankers' acceptance rate on that day. We must mention one more wrinkle. To hedge the interest- rate risk that it was assuming, Credit Agricole made a swap with another bank, Bankers Trust. In that swap Credit Agricole committed to the fixed rate and Bankers Trust to the variable rate. Credit Agricole gave Bankers Trust an option to renew the swap that was essentially identical to the option that Praxair had given Credit Agricole; it too could be exercised up to and including January 16, 1994.

That day was a Sunday. The next day was a business day in Canada but a public holiday under both Illinois and New York law, and both states provide that a contractual obligation which comes due on a holiday may be performed on the next business day without loss of contract rights unless the parties provide otherwise either expressly or by implication. N.Y. General Construction Law sec. 25(1); 5 ILCS 70/1.11. The next business day was Tuesday, January 18. Credit Agricole attempted to exercise the option that day. Praxair took the position that this was too late, thus precipitating the suit by Credit Agricole that Praxair lost.

In that suit Hinshaw had moved for summary judgment on Praxair's behalf without conducting any discovery, discovery that would have brought to light documents suggestive that Credit Agricole itself may have believed that the swaption expired on January 16, not January 18. In support of the motion Hinshaw had submitted merely a skimpy memorandum of law that said little more than that "the Option Agreement expresses the intent that The Option be exercised by 5:00 p.m. EST on January 16, 1994. It wasn't." The memorandum acknowledged, contradicting the flat statement that January 16 was the deadline, that the underlying swap agreement (as opposed to the swaption, that is, the option agreement) defined a "business day," as opposed to a holiday, for obligations denominated in Canadian dollars as any day that was a business day in Toronto, which January 17 was but January 16, a Sunday, was not. So any payments or resets scheduled for January 16 would not have to be made until the next day. But, Hinshaw argued, they could not be made any later than that. And so the specification of Toronto business days in the underlying swap contract was irrelevant because Credit Agricole had not attempted to exercise the option on January 17 but had waited until the next day. The district court, seconded by a panel of this court, found this argument unpersuasive because "the terms of the option contract evince no intent-- express or implied-- to alter the weekend/holiday rule" of New York and Illinois. Caisse Nationale de Credit Agricole v. CBI Industries, Inc., supra, 90 F.3d at 1274. Given the location of the offices in which the swaption was negotiated and signed, the governing rule had to be the law of one of these two states and it didn't matter which one because they had the same rule. Id. at 1271 n. 3.

Praxair argues that Hinshaw could have made a much better argument for a January 16 or January 17 deadline and that had it done so this court would have reached a different result in the previous case. It is only the second proposition that is in issue here; the district court did not decide whether Hinshaw had actually been negligent. Negligent legal representation is a failure to meet minimum professional standards, e.g., Transcraft, Inc. v. Galvin, Stalmack, Kirschner & Clark, 39 F.3d 812, 815 (7th Cir. 1994); Bonhiver v. Rotenberg, Schwartzman & Richards, 461 F.2d 925, 928 (7th Cir. 1972), and is thus equivalent to what in Sixth Amendment cases is called ineffective assistance of counsel. Strickland v. Washington, 466 U.S. 668, 688 (1984); Lear v. Cowan, 220 F.3d 825, 829 (7th Cir. 2000); Hernandez v. Cowan, 200 F.3d 995, 999 (7th Cir. 2000); People v. Kluppelberg, 628 N.E.2d 908, 917 (Ill. App. 1993). It is not merely undistinguished representation. Restatement (Second) of Torts sec. 299A, comment e (1965). The summary judgment memorandum that Hinshaw filed in Caisse Nationale was that, and the failure to conduct any discovery may have been a worse lapse. If Praxair's allegations are credited, moreover, as the procedural posture of the case requires us to do, Hinshaw represented itself as expert in complex financial matters. A law firm or other professional entity that represents itself to have special competence in a particular matter commits itself to a standard of care above the average for the profession as a whole. E.g., Transcraft, Inc. v. Galvin, Stalmack, Kirschner & Clark, supra, 39 F.3d at 815; Hays v. Sony Corp. of America, 847 F.2d 412, 419 (7th Cir. 1988); Sparks v. NLRB, 835 F.2d 705, 707 (7th Cir. 1987); Restatement (Second) of Torts, supra, sec. 299A, comment d; 2 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice sec. 18.4 (4th ed. 1996). That is arguably what happened here, and we'll assume it is what happened here. A lawyer is not negligent for failing to make sophisticated economic arguments; few lawyers are capable of making such arguments. But a lawyer who holds himself out to his clients as being capable of making such arguments is bound to the standard of care of a lawyer having that capability. It is a case of tort law merging into contract law.

We shall thus assume that Hinshaw was negligent and pass on to the issue of causation on which the decision of the district court and the appeal to this court are based. We'll also brush by Hinshaw's alternative ground for affirmance--that the two-year statute of limitations for bringing a suit for legal malpractice in Illinois (whose law the parties acknowledge governs the limitations issue) ran not from the judgment against Praxair in Caisse Nationale but from the grant of summary judgment against Praxair in that suit, which presaged its doom, or at the latest from the denial of Praxair's motion for reconsideration, filed by new counsel; for by that time it was apparent both that Hinshaw had fallen down on the job and that a final judgment adverse to Praxair was going to be entered. The general rule regarding malpractice claims based on the mishandling of litigation--and we consider it a sound rule as well as one binding on us in this diversity suit--is that the statute of limitations does not begin to run until the trial court enters a final judgment. Kaplan v. Shure Brothers, Inc., 153 F.3d 413, 420-21 (7th Cir. 1998); Lucey v. Law Offices of Pretzel & Stouffer, Chartered, 703 N.E.2d 473, 477-79 (Ill. App. 1998). The reason is not that it is certain then that the loser (the subsequent malpractice plaintiff) has been hurt, because he may get the judgment overturned on appeal; it is that it is too difficult to identify an earlier point at which he can be said to have been injured. Was it when his lawyer failed to raise a dispositive defense in the answer to the complaint? When he failed to object to a crucial bit of evidence? When he fainted during final argument? To avoid these conjectures and resulting uncertainty about when the statute of limitations began to run, the...