EDELMAN, COMBS v. Hinshaw and Culbertson

Decision Date27 March 2003
Docket NumberNo. 1-01-3638.,1-01-3638.
PartiesEDELMAN, COMBS AND LATTURNER, Daniel A. Edelman, Cathleen M. Combs, James O. Latturner, and Tara L. Goodwin, Plaintiffs-Appellants, v. HINSHAW AND CULBERTSON, Credit Protection Association, L.P., Etan General, Inc., American International Group, Inc., Robert H. Muriel, David M. Schultz, and Peter D. Sullivan, Defendants-Appellees.
CourtUnited States Appellate Court of Illinois

Daniel A. Edelman, Cathleen M. Combs, James O. Latturner, Edelman, Combs & Latturner, LLC, Chicago, for Appellant.

Richard H. Donohue, Karen Kies DeGrand, Sherri M. Arrigo, Donohue Brown Mathewson & Smith, Chicago, for Appellee.

Presiding Justice THEIS delivered the opinion of the court:

This appeal arises out of the trial court's dismissal of plaintiffs', Daniel Edelman, Cathleen Combs, James Latturner, Tara Goodwin and their law firm Edelman, Combs & Latturner (collectively, plaintiffs), complaint. Plaintiffs essentially allege that defendants, lawyers Robert H. Muriel, David M. Schultz, Peter D. Sullivan, their law firm Hinshaw & Culbertson (Hinshaw), and Hinshaw clients Credit Protection Association, L.P., Etan General, Inc., and its insurer, American International Group, Inc. (collectively, defendants), unlawfully published a legal memorandum to a bankruptcy trustee, two attorneys, and a "John Doe." The memorandum allegedly contains false accusations that Edelman, Combs & Latturner (Edelman) engaged in a pattern of dishonest litigation tactics. On appeal, plaintiffs argue for reversal of the trial court's grant of defendants' combined motion to dismiss under section 2-619.1 of the Illinois Code of Civil Procedure (Code) (735 ILCS 5/2-619.1 (West 2000)) because: (1) the defendants' communications were not protected by absolute or qualified privileges; and (2) plaintiffs stated causes of action for libel per se, intentional interference with prospective economic advantage, and civil conspiracy. For the following reasons, we affirm in part and reverse in part.


This cause of action arose out of bankruptcy and consumer protection practices involving four law firms: Feld & Korrub, Edelman, Hinshaw, and Jenner & Block (Jenner). Feld & Korrub represents debtors petitioning for bankruptcy and refers the debtors' potential consumer protection claims to Edelman. Edelman, a consumer protection litigation specialist, files these claims, often as class action lawsuits, for the debtors. Hinshaw defends many of these consumer claims. Jenner has defended at least one of Edelman's consumer claims, detailed below. Plaintiffs allege that an acrimonious relationship erupted between Hinshaw and Edelman, and listed a number of federal consumer protection actions in which Hinshaw demonstrated an "animus" against Edelman.

The specific libelous statements originated from the interplay of bankruptcy cases In re Harris, 98 B 9794, and In re Frys, No. 98 B 27293, brought by Feld & Korrub, and consumer protection cases Harris v. Etan Industries, Inc., 98 C 4718, and Frys v. Dayton Hudson, 99 C 134, brought by Edelman.

On March 31, 1998, Feld & Korrub filed a chapter 7 (11 U.S.C. § 701 et seq. (1994)) bankruptcy petition on behalf of debtor Charles Harris. In re Harris, No. 98 B 9794. A creditor's meeting was held, and six days later Feld & Korrub filed and served the debtor's amended schedules. The amended schedules disclosed and exempted Harris's two potential consumer claims, thus retaining the claims for Harris rather than distributing them as assets through the estate to the creditors. Six days later, the bankruptcy trustee filed a report without objection stating the Harris estate contained no assets. The bankruptcy court discharged Harris from his debts on or about July 26, 1998, closed the bankruptcy estate, and discharged the trustee.

On July 30, 1998, Edelman filed the consumer lawsuit, Harris v. Etan Industries, Inc., 98 C 4718 (Harris), under the Fair Debt Collection Practices Act (15 U.S.C. § 1692 et seq. (2000)) ("FDCPA") against defendants Credit Protection Association, L.P. (CPA), Etan General, Inc., and Media One. CPA and Etan were general partners and were engaged in the debt collection business. American International Group, Inc. (AIG), was the insurer of CPA and Etan (hereinafter CPA/Etan) and was obligated to defend them in the Harris lawsuit. AIG hired Hinshaw to represent CPA/Etan, and Jenner represented Media One in the Harris lawsuit.

On November 9, 1998, Jenner filed "Media One's Answer to Class Action Complaint." The answer asserted an affirmative defense that Harris lacked standing because the consumer claim "belongs, if to anyone, to the trustee of [Harris's] bankruptcy estate" because the claim should have been declared an asset of the Harris estate. Jenner prepared a draft of a memorandum in support of the affirmative defense. This "Harris memorandum" contains the statements that form the basis of the present matter. The memorandum accuses Edelman and other bankruptcy law firms, including Feld & Korrub, of a pattern of concealing assets from the bankruptcy trustee in order to later file those claims as lucrative class action lawsuits. Concealment of the asset is tantamount to a violation of federal bankruptcy and criminal law and a violation of rules of professional responsibility.

The memorandum stated, inter alia, that the trustee's failure to administer debtor Harris's consumer claim during the Harris bankruptcy estate, No. 98 B 9794, "was procured through a pattern of concealment on the part of ... both Edelman & Combs and its bankruptcy affiliates"; Edelman & Combs "routinely attempts to conceal claims from the trustees who are appointed to administer their clients' estates"; and Edelman "routinely hide[s] claims from the bankruptcy trustees until after the trustee has closed his file"; and "Media One's preliminary investigation provides strong circumstantial evidence that Edelman & Combs and Feld & Korrub make a practice of failing to disclose assets to the bankruptcy trustees." A list of cases where Edelman had concealed claims and a chart summarizing Jenner's investigation of Edelman's conduct accompanied the memorandum.

At approximately 4:56 p.m. on March 15, 1999, Jenner attorneys faxed the draft Harris memorandum, Jenner's investigation charts, and a cover letter to Muriel and Schultz at Hinshaw's offices. On March 16, 1999, Jenner filed with the federal district court a final version of the Harris memorandum. Plaintiffs allege Jenner made last-minute changes between the draft and the final version of the Harris memorandum. The difference consisted of the number of cases concealed by Edelman and Feld & Korrub. The complaint asserts that the discrepancies in the numbers between the final memorandum and the draft were such that "anyone would know" that the "numbers were false and had been manipulated and contrived to support a predetermined result," and "the final version had been prepared in great haste." The conclusion of the memorandum —the accusation of concealment—remained the same in both the draft and final versions.

In March 1999, Jenner told an employee of the United States Trustee's Office about the Harris memorandum and promised to forward the memorandum to the employee. The complaint alleges that Jenner acted as an agent of Hinshaw, CPA/Etan, AIG, Muriel, and Schultz.

A similar contention arose in the Frys litigation. On August 31, 1998, Feld & Korrub filed a Chapter 7 bankruptcy petition, In re Frys, No. 98 B 27293, on behalf of Carol and Monte Frys. The trustee assigned to represent the Frys bankruptcy estate was attorney Bruce de'Medici. On October 14, 1998, after the creditor's meeting, de'Medici filed a report determining that the Frys estate had no assets. On October 21, 1998, Feld & Korrub filed an amended schedule for the Frys, listing six potential consumer causes of action. The schedule stated that each cause of action was "exempt" from the bankruptcy estate. The creditors did not file an objection, the court discharged the debtors from their debts, and the court discharged de'Medici as trustee on December 29, 1998. On January 12, 1999, Edelman filed a consumer lawsuit, Frys v. Dayton Hudson, 99 C 134, seeking class action certification. Carol Frys's individual debt to Dayton Hudson was $100, and her individual FDCPA claim against Dayton Hudson was limited to the statutory maximum of $1,000. As a class action, however, plaintiffs allege the lawsuit threatened Dayton Hudson with a settlement or judgment of as much as $500,000.

On February 18, 1999, de'Medici filed a motion seeking to reopen the Frys bankruptcy estate and to vacate his previous "no asset" report. The bankruptcy court initially heard the motion on March 2, 1999, and gave the trustee until March 16, 1999, to file a brief. On March 11, 1999, Hinshaw filed an appearance as substitute counsel for Dayton Hudson in the Frys consumer lawsuit. On March 16, 1999, at 10:51 a.m., Hinshaw, Muriel, and Schultz distributed the draft Harris memorandum to de'Medici for consideration in connection with the motion. Also on March 16, Jenner published the final copy of the Harris memorandum to de'Medici "on behalf of, and jointly, in concert and as part of a joint endeavor with defendants Hinshaw, CPA/Etan, AIG, Muriel, Schultz, and Sullivan." De'Medici filed the brief in the bankruptcy court on or about March 18, 1999.

The complaint also alleges that sometime on or after March 15, 1999, Hinshaw provided a copy of the draft memorandum to an unknown individual, a straw man or "John Doe," allegedly with the intention that this individual "would provide the document to the ARDC [Attorney Registration and Disciplinary Commission] and [United States] Trustee's Office in a manner that would not impute responsibility to any of the defendants." On April 2, 1999, Hinshaw, Muriel, and Schultz allegedly sent a copy of the "draft or...

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