Brandon Apparel Group v. Kirkland and Ellis
| Decision Date | 21 April 2008 |
| Docket Number | No. 1-06-1432.,1-06-1432. |
| Citation | 887 N.E.2d 748 |
| Parties | BRANDON APPAREL GROUP, Eric P. Lefkofsky and Bradley A. Keywell, Plaintiffs-Appellants Cross-Appellees, v. KIRKLAND AND ELLIS, Defendant-Appellee Cross-Appellant. |
| Court | United States Appellate Court of Illinois |
Michael L. Shakman and Thomas M. Staunton, Miller Shakman & Beem, LLP, Chicago, IL, for Defendant-Appellee-Cross-Appellant.
Michael P. Connelly and William E. Snyder, Connelly Roberts & McGiveny, LLC, Chicago, IL, for Plaintiff-Appellant-Cross-Appellee.
The plaintiffs, Brandon Apparel Group (Brandon), Bradley A. Keywell, and Eric P. Lefkofsky, retained the defendant law firm Kirkland & Ellis (Kirkland) to represent them in a dispute over certain loans. After a default judgement was entered against Brandon, Keywell, and Lefkofsky in that litigation, they filed the instant legal malpractice action against Kirkland.
The trial court granted Kirkland's amended motion for summary judgment, finding the plaintiffs had improperly assigned their legal malpractice claim. The court denied Kirkland's motion for partial summary judgment as to the plaintiffs' damages.
The trial court entered an order pursuant to Supreme Court Rule 304(a) (210 Ill.2d R 304(a)), finding there was "no just reason for delaying either enforcement or appeal or both" of its grant of summary judgment. The trial court also stayed proceedings on Kirkland's counterclaim pending appeal. For the reasons that follow, we reverse and remand.
The alleged legal malpractice at issue in this case stems from the defendant law firm's representation of Brandon, Keywell, and Lefkofsky in Johnson Bank v. Brandon Apparel Group, Inc., No. 00-CV256, 2000 WL 35565630 (August 9, 2000), filed in the circuit court of Rock County, Wisconsin, in 2000 (the underlying litigation).
In 1997, Brandon, a company specializing in the manufacture and sale of athletic apparel, obtained two loans from Johnson Bank. The loans included a $5 million term loan and a $4 million revolving credit loan. These loans were secured by Brandon's assets. Keywell and Lefkofsky, Brandon's principals, were guarantors of the loans.
In May 1999, Brandon entered into the "First Amendment to Term Loan Agreement" and the "First Amendment to Revolving Credit Loan Agreement" with Johnson Bank. As part of these amendments, Brandon acknowledged the total principal of its loans was approximately $10.1 million. Brandon also agreed to release Johnson Bank from "all claims, demands or causes of action of any kind." Although Lefkofsky expressed concern about the release's "broad-based waiver" as to "all * * * legal rights" with regard to the loans, he and Keywell signed the amendments. Keywell and Lefkofsky also signed an "Acknowledgment and Agreement of Guarantors" for each loan. The acknowledgments released Johnson Bank from all "defenses, claims, offsets and counterclaims * * * accrued to date."
Soon after, Johnson Bank determined Brandon was in default of the loans. Brandon and Johnson Bank attempted to resolve the matter. On September 1, 1999, Brandon entered into the "Moratorium Agreement" with Johnson Bank. Keywell and Lefkofsky signed the agreement as guarantors. As part of this agreement, Brandon acknowledged $6.5 million was due and owing on the revolving credit loan and approximately $3.8 million was due and owing on the term loan.
Brandon retained Kirkland after the execution of the Moratorium Agreement. Kirkland represented Brandon in connection with the negotiation of the "Second Moratorium Agreement" with Johnson Bank. Pursuant to this agreement, Brandon, Keywell, and Lefkofsky acknowledged approximately $6.4 million plus interest due and owing on the revolving credit loan and $3.8 million plus interest due and owing on the term loan. As part of the agreement, Brandon, Keywell, and Lefkofsky released Johnson Bank from all "claims, demands or causes of action of any kind."
On March 8, 2000, counsel for Johnson Bank filed a complaint against Brandon, Keywell, and Lefkofsky in the circuit court of Rock County, Wisconsin. The complaint alleged Brandon was in default of the Second Moratorium Agreement. The complaint also alleged Keywell and Lefkofsky, as guarantors, were liable pursuant to their guarantees. The complaint asked for relief of approximately $10.7 million.
Kirkland attorney James Stempel entered into an agreement with Johnson Bank's counsel to answer or otherwise plead in the underlying litigation by April 14, 2000. This agreement was memorialized in a March 31, 2000, letter. When an answer was not filed by the agreed-to deadline, Johnson Bank filed a motion for a default judgment.
On May 18, 2000, Kirkland filed a motion in opposition to the entry of a default judgment. The motion (1) requested the court "enlarge" the time to answer or otherwise plead, (2) asked the court for leave to file an answer instanter, and (3) opposed the motion for a default judgment. In support of the motion, Kirkland attorney Stempel submitted an affidavit alleging the existence of an oral agreement with Johnson Banks's counsel, Albert Solochek, that further extended the time to answer the complaint.
Brandon's answer, which Kirkland sought leave to file instanter, denied the complaint's allegations of money due and owing and asserted affirmative defenses.
On August 9, 2000, the Wisconsin circuit court granted Johnson Bank's motion for a default judgment. In September 2000, a judgment of approximately $11 million was entered against Brandon, Keywell, and Lefkofsky. A timely appeal was filed.1
The Wisconsin appellate court reversed the entry of default judgment and remanded the case to the circuit court for an evidentiary hearing to determine whether the alleged oral agreement to extend the time to answer existed.
On January 4, 2002, the Wisconsin circuit court conducted an evidentiary hearing. Following the hearing, the circuit court concluded there was no oral agreement to extend the time to answer. The circuit court held that the entry of a default judgment was appropriate. On February 14, 2002, the circuit court entered a default judgment in the amount of $12,353,784 against Brandon, Keywell, and Lefkofsky. This amount included interest due and owing on the loans through January 14, 2002. Costs of approximately $37,000 were also entered against Brandon, Keywell, and Lefkofsky, with attorney fees to be determined at a later date.
On May 22, 2002, a Johnson Bank executive was appointed as a supplemental receiver of Brandon's property pursuant to a receivership order entered by the Wisconsin circuit court (the receivership order). The receivership order defined "property" to include "any and all proceeds from any actions, claims or interests by or of [Brandon, Keywell, and Lefkofsky] against or as to Kirkland & Ellis."
The receivership order also required Brandon, Keywell, Lefkofsky, and their attorneys to confer with the receiver regarding the course of any malpractice claim against Kirkland. Should the two sides disagree as to litigation decisions, either party could seek a judicial remedy in the Wisconsin circuit court. Pursuant to the receivership order, Brandon, Keywell, and Lefkofsky could not "settle, compromise, dismiss, or substantially impair [the malpractice litigation] without the express written consent" of the receiver or of the Wisconsin circuit court after notice and a hearing.
On November 17, 2000, Brandon, Keywell, and Lefkofsky (the plaintiffs) filed a declaratory judgment action against Kirkland in the circuit court of Cook County. The plaintiffs alleged Kirkland's failure to file a timely answer in the underlying litigation led to the entry of a $12 million default judgment. Kirkland's answer denied the legal malpractice and asserted a counterclaim for unpaid attorney fees and costs.
In September 2002, the plaintiffs filed a five-count first-amended complaint. Count I sought a judicial declaration that the Wisconsin circuit court had made no determination denying Brandon's affirmative defenses against Johnson Bank and, as a result, Kirkland may be held liable for damages proximately caused by Kirkland's negligence. Count II sought a judicial declaration that (1) Kirkland breached its duty to the plaintiffs, (2) the plaintiffs had no further obligations to Kirkland, and (3) Kirkland must reimburse the plaintiffs for all sums previously paid to the firm. Count III alleged fraud, count IV alleged professional negligence, and count V alleged breach of contract. On February 18, 2003, the trial court entered an order dismissing counts I and III.
After the filing of the first-amended complaint, the plaintiffs wished to retain new counsel. Johnson Bank disagreed with the plaintiffs' initial decision to retain counsel based on a contingency fee arrangement. Johnson Bank preferred the plaintiffs retain a firm based on an hourly billing arrangement. Johnson Bank's counsel stated Johnson Bank and the receiver "would consider the [contingency] fee arrangement * * * provid[ed] [Keywell and Lefkofsky] deposit[ed] sufficient sums * * * to cover and protect the Bank and the Receiver" from any additional amount that would be taken from the recovery because of a contingency fee arrangement as opposed to an hourly fee arrangement. Johnson Bank's counsel reminded Keywell, "you * * * have acknowledged on many occasions, the Bank is the real and only beneficiary in the Kirkland case." Johnson Bank's counsel suggested the plaintiffs seek a judicial determination of the dispute in the Wisconsin circuit court pursuant to the receivership order. The plaintiffs did not seek a judicial remedy, instead retaining a firm pursuant to an agreement that included aspects of both billing arrangements.
The firm currently representing the plaintiffs, Connelly Roberts & McGinvey, was retained in 2004. In the...
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