Gaylor v. Campion, Curran, Rausch, Gummerson & Dunlop, P.C.

• Decision Date: 15 November 2012
• Docket Number: No. 2–11–0718.,2–11–0718.
• Citation: 980 N.E.2d 215
• Parties: Robert W. GAYLOR, Joann A. Gaylor, Robert E. Gaylor, and Morna Gaylor, Plaintiffs–Appellants, v. CAMPION, CURRAN, RAUSCH, GUMMERSON AND DUNLOP, P.C., and Lee C. Lockwood, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

980 N.E.2d 215

Robert W. GAYLOR, Joann A. Gaylor, Robert E. Gaylor, and Morna Gaylor, Plaintiffs–Appellants,

v.CAMPION, CURRAN, RAUSCH, GUMMERSON AND DUNLOP, P.C., and Lee C. Lockwood, Defendants–Appellees.

No. 2–11–0718.

Appellate Court of Illinois, Second District.

Nov. 15, 2012.

Peter M. Katsaros and Laura A. Balson, Golan & Christie LLP, Harry C. Lee, Law office of Harry C. Lee, Chicago, IL, for appellants.

Christopher J. Graham, Dawn C. Wrona-Eby, and Joseph P. Kelly, Jones Lemon & Graham LLP, Geneva, IL, for appellees.

Justice ZENOFF delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs, Robert W. Gaylor (Robert), Joann A. Gaylor, Robert E. Gaylor (Bobby), and Morna Gaylor, filed a two-count second amended complaint against defendants, Campion, Curran, Rausch, Gummerson & Dunlop, P.C. (the Campion firm), and Lee C. Lockwood, an associate attorney of the Campion firm, alleging legal malpractice and common-law fraud. The trial court dismissed the fraud count, and the matter proceeded to trial on plaintiffs' one-count third amended complaint alleging legal malpractice only. The jury returned a verdict in favor of plaintiffs and awarded them damages of $182,625. Plaintiffs appeal, arguing (1) that the trial court erred in dismissing their fraud count and (2) that the jury's determination of damages was manifestly inadequate and ignored proven elements of damages. For the following reasons, we affirm.

¶ 2 BACKGROUND

¶ 3 The relevant background begins with the filing of plaintiffs' second amended complaint alleging legal malpractice and fraud. Plaintiffs alleged the same background facts in both counts. Plaintiffs owned and operated an excavating business and had used the Campion firm for various legal matters since 1998. In June 2002, Brian Bettis approached plaintiffs about the possibility of participating in a business venture to develop, manufacture, and sell electroluminescent technology (EL technology). Bettis represented to plaintiffs that he had obtained a number of patents for EL technology and that an Illinois corporation named ISD Technologies, LLC, in which Bettis and other investors were involved, currently owned the intellectual property rights and patents associated with EL technology.

¶ 4 Plaintiffs decided to participate in the EL technology venture with Bettis through a new company that would be called Ions, Inc. Plaintiffs and Bettis planned to transfer ISD Technologies' purported assets, including all intellectual property rights in EL technology, into Ions. Bettis represented to plaintiffs that all of the present and future EL technology products would become the exclusive property of Ions. The contemplated products included a helmet kit, a safety vest, a backpack, a bicycle kit, and jewelry.

¶ 5 In their legal malpractice count, plaintiffs alleged that, beginning in early July 2002, they consulted with Mark Gummerson, a partner in the Campion firm, and told him of their business plans with Bettis. Plaintiffs sought Gummerson's legal advice in connection with the proposed transfer of ISD Technologies' purported assets to Ions. Gummerson referred plaintiffs to Lockwood, telling plaintiffs that this type of transaction was Lockwood's expertise. Bobby asked Gummerson whether separate counsel was necessary to represent plaintiffs and Bettis in the transaction, and Gummerson told plaintiffs that separate counsel was unnecessary.

¶ 6 Plaintiffs alleged that, leading up to the closing to finalize the transaction, plaintiffs informed Lockwood that their intention was for all of the EL technology ever developed by Bettis to become the sole and exclusive property of Ions. Plaintiffs also instructed Lockwood to draft an agreement that would require Bettis to transfer to Ions all intellectual property rights in all EL technology he developed, for 10 years from the date of the closing and for an additional 10 years pursuant to an automatic option to renew the agreement. Plaintiffs asked Lockwood numerous times whether he had in his possession the patents that Bettis had obtained in the EL technology, and Lockwood repeatedly indicated that he had them in his office.

¶ 7 Regarding the closing, which took place on October 10, 2002, plaintiffs alleged that Lockwood began by passing out the documents he had drafted. The closing was attended by plaintiffs; Bettis; Bettis's girlfriend, Sharon Munn; Bettis's son, Rocky Bettis; Rocky's girlfriend, Cathy; Bettis's daughter, Danielle; and Bruce Salk. Plaintiffs alleged, on information and belief, that Salk was an attorney representing himself and other investors in ISD Technologies. Plaintiffs' understanding was that Lockwood was representing plaintiffs and Bettis. Lockwood and Salk were the only attorneys present at the closing.

¶ 8 As he had prior to the closing, Bobby asked Lockwood if he had the patents that had been issued in Bettis's name. Lockwood could not find the patents. Someone telephoned patent attorney Thomas Vigil, who faxed to the closing a memo stating that he was preparing patent applications on Bettis's behalf but that he had not filed them. Lockwood, Bettis, Salk, and Munn all told plaintiffs that Bettis had "pending patent applications" in EL technology, and that the applications were "better legal protection" than patents.

¶ 9 Plaintiffs went through with the closing. Bettis signed a licensing agreement; however, the licensing agreement did not transfer intellectual property rights in EL technology as plaintiffs had desired. Instead, the licensing agreement gave Ions "an exclusive license to modify the EL products" and granted Ions "the exclusive right to sell the modified EL products to end users." Through the preorganization subscription agreement signed at the closing, shares of stock in Ions were to be issued to plaintiffs, Bettis, Munn, Mary Nelson, Rocky, and A & B Partnership.

¶ 10 Plaintiffs alleged that they had an attorney-client relationship with the Campion firm, Gummerson, and Lockwood. Plaintiffs further alleged that the Campion firm, Gummerson, and Lockwood committed legal malpractice by, among other things, (1) failing to assign the matter to a qualified transactional attorney with expertise in patent law and contract drafting; (2) assuming multiple representations of clients with conflicting and adverse interests, without explaining the risks of doing so or obtaining conflict waivers; (3) failing to follow plaintiffs' instructions; and (4) failing to protect their clients' interests at the closing or in the EL technology. Plaintiffs alleged that they had incurred damages exceeding $400,000.

¶ 11 In their fraud count, which plaintiffs pleaded in the alternative to their legal malpractice count, plaintiffs began by alleging that there was no attorney-client relationship between plaintiffs and the Campion firm, Gummerson, or Lockwood. As they had in their legal malpractice count, however, plaintiffs alleged that, beginning in early July 2002, they consulted with Gummerson and told him of their business plans with Bettis. Plaintiffs alleged that it was only Bettis who sought legal advice from the firm. Nevertheless, Gummerson referred "plaintiffs and Bettis" to Lockwood and told them that this type of transaction was Lockwood's expertise. Bobby asked Gummerson whether separate counsel was necessary to represent "plaintiffs and Bettis" in the transaction, and Gummerson told plaintiffs that separate counsel was unnecessary.

¶ 12 As they had in their legal malpractice count, plaintiffs alleged that they informed Lockwood that their intention was for all of the EL technology ever developed by Bettis to become the sole and exclusive property of Ions. In addition, plaintiffs instructed Lockwood to draft an agreement that would require Bettis to transfer to Ions all intellectual property rights in all EL technology he developed, for 10 years from the date of the closing and for an additional 10 years pursuant to an automatic option to renew the agreement. However, plaintiffs alleged that Lockwood never informed plaintiffs that he and the Campion firm "could not work to realize their intentions because they were not acting as plaintiffs' attorneys."

¶ 13 Regarding the closing, plaintiffs alleged that they "relied exclusively on the factual representations" made by Lockwood "to lead them successfully through this complicated maze of legal documents." Plaintiffs' understanding at the closing was that Lockwood and the Campion firm were protecting plaintiffs' interests. Plaintiffs formed this belief based upon Gummerson's statement that separate counsel for plaintiffs was unnecessary, but Gummerson's statement was false.

¶ 14 Plaintiffs alleged that, in addition to misrepresenting that plaintiffs did not need separate counsel for the transaction, Gummerson, Lockwood, and the Campion firm made the following misrepresentations or omissions of material fact: (1) they failed to disclose that the Campion firm represented Bettis only; (2) they misrepresented that Lockwood was an expert in complex intellectual property transactions; (3) they misrepresented that Bettis owned patents in EL technology; (4) they misrepresented that the patents were physically present in the Campion firm's office; and (5) they misrepresented that pending patent applications offered better legal protection than patents. Plaintiffs relied on these misrepresentations or omissions in deciding to go through with the closing. Plaintiffs alleged that they had incurred damages exceeding $400,000, and they also sought damages for emotional distress and punitive damages.

¶ 15 Defendants moved to dismiss plaintiffs' second amended complaint, pursuant to section 2–615 of the Code of Civil Procedure (Code) ( 735 ILCS 5/2–615 (West 2006) ). On April 25, 2008, the trial court struck several paragraphs of plaintiffs' legal malpractice count. In addition, the court struck plaintiffs' fraud count in its entirety. The court found that legal malpractice was "the gravamen of both counts"...