Goldfine v. Barack

• Decision Date: 28 June 2013
• Docket Number: Docket No. 1–11–1779.
• Citation: 2013 IL App (1st) 111779,373 Ill.Dec. 454,993 N.E.2d 1013
• Parties: Morton GOLDFINE and Adrienne Goldfine, Plaintiffs–Appellants and Cross–Appellees, v. BARACK, FERRAZZANO, KIRSCHBAUM AND PERLMAN, Peter Barack, Dennis Ferrazzano, Howard Kirschbaum, Charles Perlman, Ray Razner, Debra Cafaro, David Nadoff, Thomas Page, David Selmer, Robert Shapiro, Wendi Sloane Weitman, and Jill Ann Coleman, Defendants–Appellees and Cross–Appellants.
• Court: United States Appellate Court of Illinois

2013 IL App (1st) 111779

993 N.E.2d 1013

373 Ill.Dec. 454

Morton GOLDFINE and Adrienne Goldfine, Plaintiffs–Appellants and Cross–Appellees,

v.BARACK, FERRAZZANO, KIRSCHBAUM AND PERLMAN, Peter Barack, Dennis Ferrazzano, Howard Kirschbaum, Charles Perlman, Ray Razner, Debra Cafaro, David Nadoff, Thomas Page, David Selmer, Robert Shapiro, Wendi Sloane Weitman, and Jill Ann Coleman, Defendants–Appellees and Cross–Appellants.

Docket No. 1–11–1779.

Appellate Court of Illinois, First District, Sixth Division.

June 28, 2013.

Law Offices of Edward T. Joyce & Associates, P.C. (Edward T. Joyce and Rowena T. Parma, of counsel), and Martin J. Oberman, both of Chicago, and Steven J. Plotkin, of Evanston, for appellants.

OPINION

Presiding Justice LAMPKIN delivered the judgment of the court, with opinion. Justice Reyes concurred in the judgment and opinion. Justice Gordon concurred in part and dissented in part, with opinion.

[373 Ill.Dec. 457]¶ 1 This is a legal malpractice case based on an underlying cause of action for a violation of the Illinois Securities Law of 1953 (Illinois Securities Law) (815 ILCS 5/1 et seq. (West 2010)). Plaintiffs Morton and Adrienne Goldfine brought a legal malpractice action against defendants, the law firm of Barack, Ferrazzano, Kirschbaum & Perlman (BFKP) and several partners of that law firm, to recover damages plaintiffs sustained as a result of defendants' failure to preserve plaintiffs' Illinois Securities Law cause of action against Shearson Lehman Brothers Holdings, Inc., and others.

¶ 2 The trial court found that plaintiffs proved their underlying Illinois Securities Law claim and ruled in their favor on their legal malpractice claim. The trial court awarded them statutory damages for their Illinois Securities Law claim and attorney fees, costs and expenses.

¶ 3 On appeal, plaintiffs argue that the trial court erred (1) in calculating the amount of their mandatory statutory award for damages under the Illinois Securities Law, and (2) in denying their full claim for attorney fees, costs and expenses.

¶ 4 In their cross-appeal, defendants argue that the award of interest, attorney fees and costs should be reversed because the fee-shifting and interest provisions of the Illinois Securities Law are punitive and coercive and, thus, fall within the category of damages that are barred by statute in legal malpractice actions. Defendants also argue that the trial court erred in finding that plaintiffs proved (1) their underlying Illinois Securities Law claim where Mr. Goldfine's reliance on his broker's representations concerning stock purchases was not reasonable, and (2) that defendants' legal malpractice proximately caused plaintiffs' damages.

¶ 5 For the reasons that follow, we reject defendants' argument that the award of statutory damages under the Illinois Securities Law is barred by statute in legal malpractice actions. We also affirm the trial court's findings that plaintiffs proved their underlying Illinois Securities Law claim and legal malpractice action. Further, we affirm the trial court's award of plaintiffs' costs and expenses. However, we find that the trial court failed to apply the correct mathematical formula to calculate plaintiffs' mandatory statutory award for damages under the Illinois Securities Law. Specifically, the clear and unambiguous language of section 13(A) of the Illinois Securities Law (815 ILCS 5/13(A) (West 2010)) required the circuit court to calculate plaintiffs' award of 10% interest on the full amount they had paid for the stocks at issue before the circuit court deducted the amount plaintiffs had received from a settlement. In addition, the trial court's attorney fees award was based on a percentage of the court's incorrect damage calculation. Accordingly, we reverse the trial court's award of damages and attorney fees and remand this matter to the trial court to calculate plaintiffs' section 13(A) damages consistent with this order and to determine a reasonable amount of attorney fees based on the correct amount of damages.

¶ 6 I. BACKGROUND

¶ 7 The “case within a case” on which plaintiffs' malpractice claim is predicated was plaintiffs' cause of action against Shearson Lehman Brothers Holdings, Inc. (Shearson), and other individuals and firms (the Shearson defendants) for violations of the Illinois Securities Law. That cause of action arose from plaintiffs' 12 separate purchases of First Capital Holdings (FCH) stock through Shearson broker Michael Steinberg, who was the office manager of Shearson's Peoria, Illinois, office and a close personal friend of the plaintiffs. Plaintiffs' purchases were made between 1987 and 1990 and totaled $4,745,254.45.

¶ 8 In the spring of 1991, FCH filed for bankruptcy, and plaintiffs' FCH stock became worthless. In 1991, plaintiffs retained the defendant law firm BFKP to: identify and evaluate plaintiffs' claims arising from their investments in FCH stock; negotiate a settlement of those claims with the Shearson defendants; and—if no settlement could be effected—preserve plaintiffs' claims until they retained a contingent-fee lawyer to file suit. BFKP did not achieve a settlement of plaintiffs' claims.

¶ 9 When plaintiffs retained BFKP, plaintiffs had a viable claim against the Shearson defendants for rescission under the Illinois Securities Law. The Illinois Securities Law mandates that victims of securities fraud are entitled to recover their entire stock purchase price, plus 10% interest on that purchase from the date of the purchases to the date of judgment, plus their attorney fees, costs and expenses. 815 ILCS 5/13(A) (West 2010). However, in order to bring that Illinois Securities Law claim, the purchaser must serve a notice of rescission within six months of learning of his right to this statutory remedy. 815 ILCS 5/13(B) (West 2010). BFKP, however, never served the rescission notice, never advised plaintiffs to do so, and never sought to toll the time to serve the rescission notice.

¶ 10 In 1992, plaintiffs hired new counsel to prosecute their claims against the Shearson defendants in the underlying case. Although plaintiffs' complaint included the Illinois Securities Law claim, that claim was dismissed by the trial court as time-barred, and that dismissal was ultimately affirmed on appeal. Goldfine v. Steinberg, No. 1–00–1004, 347 Ill.App.3d 1101, 310 Ill.Dec. 802, 867 N.E.2d 115 (2004) (unpublished order under Supreme Court Rule 23). Meanwhile, in 1994, plaintiffs filed the instant malpractice action against defendants BFKP and its partners to recover the damages plaintiffs would have recovered under the Illinois Securities Law if defendants' negligence had not barred plaintiffs from pursuing their Illinois Securities Law claim. In 1996, while the underlying Steinberg case was pending, a stipulated order was entered that delayed the malpractice trial until after the resolution of the Steinberg case.

¶ 11 In 1999, the trial court dismissed plaintiffs' remaining claims in the Steinberg case, and plaintiffs appealed. In 2004, this court remanded to the trial court two of plaintiffs' claims against the Shearson defendants—common law fraud and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 2004)). In 2007, plaintiffs settled their non-Illinois Securities Law claims in the underlying Steinberg case for $3.2 million.

¶ 12 Thereafter, this malpractice case proceeded to a bench trial. The trial court heard both plaintiffs' “case within a case” claim under the Illinois Securities Law and their malpractice claim against BFKP and its partners for failing to preserve the Illinois Securities Law claim in the underlying Steinberg case. Over nearly eight weeks, the court heard numerous witnesses, both live and videotaped, and through deposition testimony, and the parties introduced voluminous exhibits.

¶ 13 On July 12, 2010, the trial court ruled that, after the plaintiffs' first purchase of FCH stock, the Shearson defendants violated the Illinois Securities Law concerning plaintiffs' next 11 FCH stock purchases. The trial court accepted and credited Mr. Goldfine's testimony and found that plaintiffs were entitled to relief under Section 13(A) of the Illinois Securities Law. The court also heard extensive testimony from the defendant lawyers who had handled plaintiffs' representation and expert witnesses for both sides. The court found that BFKP had breached its duties to plaintiffs by negligently failing to carry out its assignment to preserve plaintiffs' Illinois Securities Law claim and that the loss of that claim had been caused by BFKP's negligent conduct. The trial court ruled that plaintiffs' damages would be calculated according to the following formula: plaintiffs' $3.2 million settlement would be deducted from the total they had paid for their 11 stock purchases, and then 10% interest would be calculated on the remaining amount based on the various dates of those stock purchases. The court ordered the parties to calculate the exact amount to enter in a judgment order, ordered plaintiffs to prepare the judgment order, and gave plaintiffs leave to file their petition for attorney fees.

¶ 14 Plaintiffs moved the court to modify or clarify its July 2010 order. Plaintiffs argued, inter alia, that the trial court's damage calculation formula was erroneous and contrary to precedent as set forth in Kugler v. Southmark Realty Partners III, 309 Ill.App.3d 790, 243 Ill.Dec. 407, 723 N.E.2d 710 (1999). Thereafter, the parties filed briefs on the damage calculation issue and various motions and responses concerning plaintiffs' petition for attorney fees. On September 22, 2010, after argument was held on plaintiffs' motion to modify the July 2010 order, the trial court denied plaintiffs' motion and ordered them to file their petition for attorney fees and costs. Specifically, the trial court stated that this legal malpractice...