Hermansen v. Riebandt
| Decision Date | 25 November 2020 |
| Docket Number | 1-19-1735 |
| Parties | Louis HERMANSEN and Cheryl Hermansen, Plaintiffs-Appellants, v. James J. RIEBANDT ; Lee F. Dewald; Lester A. Ottenheimer, III; Riebandt & Dewald, PC; Dewald Law Group, PC ; Ottenheimer Law Group, LLC; and Ottenheimer Rosenbloom, LLC, Defendants-Appellees. |
| Court | United States Appellate Court of Illinois |
Nathan I. Neff, of Neff Law Group, PC, of Chicago, for appellants.
Joseph R. Marconi, David M. Macksey, Brian C. Langs, and Adam J. Sedia, of Johnson & Bell, Ltd., of Chicago, for appellees James J. Riebandt, Lee F. Dewald, Riebandt & DeWald, PC, and DeWald Law Group, PC.
Francis P. Cuisinier, David S. Allen, Thomas E. Soule, Edward F. Ruberry, and Edward D. Mizera, of Ruberry Stalmack & Garvey, LLC, of Chicago, for other appellees.
¶ 1 The instant appeal arises from the trial court's grant of summary judgment in favor of defendants James J. Riebandt, Lee F. DeWald, and Lester A. Ottenheimer, III, and their related law firms, in connection with a legal malpractice action filed against them by plaintiffs Louis and Cheryl Hermansen. Plaintiffs' lawsuit alleges that defendants failed to properly inform them of the risks of litigating the propriety of a mortgage lien on their residence, leading them to reject several settlement offers in reliance on defendants' advice and resulting in an adverse judgment against them. The trial court granted defendants' motion for summary judgment in the malpractice litigation, finding that the applicable statute of limitations and statute of repose barred plaintiffs' claims.
Plaintiffs appeal, and for the reasons that follow, we reverse.
¶ 4 On August 2, 2016, plaintiffs filed a complaint for legal malpractice against defendants. The complaint alleges that plaintiffs were the owners of C to C Imports, Inc. (CTC), a corporation that owned a parcel of real property in Elk Grove Village (commercial property). In connection with the commercial property, plaintiffs had signed two notes for a combined $1,266,724.53, which were secured by two mortgages and two guaranties, all with Bank of America.
¶ 5 In 2009, plaintiffs sought to sell the commercial property and retained Riebandt to represent them for that purpose. In August 2009, Riebandt informed plaintiffs that a prospective buyer had offered to purchase the commercial property for $1.25 million. After the application of closing costs, the proposed sale proceeds were $99,024.38 less than the amount of plaintiffs' outstanding obligations on the Bank of America notes. As a result, Riebandt negotiated with Bank of America, after which he informed plaintiffs that Bank of America would permit the sale of the commercial property and release its mortgage interests in the property, provided that plaintiffs would agree to (1) tender the net sale proceeds of $1,154,380.01 to Bank of America upon closing and (2) execute a guaranty for the $99,024.38 deficiency. On August 11, 2009, in reliance on Riebandt's representations, plaintiffs signed a real estate sale agreement with the prospective buyer for $1.25 million, with the closing scheduled for September 11, 2009.
¶ 6 On August 18, 2009, Riebandt contacted Bank of America about the execution of the sale contract, and Bank of America responded by forwarding to Riebandt three agreements: (1) a forbearance agreement, (2) a new note in the amount of $99,024.38, and (3) a new mortgage securing repayment on the new note. Under the terms of the forbearance agreement, Bank of America agreed to forbear legal action on the outstanding notes and mortgages until after the September 11, 2009, closing on the sale of the commercial property in exchange for plaintiffs' execution of the new note and new mortgage, which authorized Bank of America to record a mortgage lien on plaintiffs' personal residence in Elk Grove Village. However, the documents did not contain any restrictions or contingencies conditioning the validity and enforceability of the new note and mortgage on the successful closing of the sale of the commercial property.
¶ 7 On August 20, 2009, Riebandt presented plaintiffs with the Bank of America documents, but did not discuss the risks or benefits of executing them and simply instructed plaintiffs to sign the documents, which they did. Riebandt then tendered the executed documents to Bank of America, which recorded the mortgage lien against plaintiffs' personal residence on August 27, 2009, prior to any closing on the sale of the commercial property. On September 2, 2009, the prospective buyer informed Riebandt that it was terminating the contract, and the sale of the commercial property never closed. Plaintiffs' obligations under the original notes and mortgages were not released by Bank of America, and plaintiffs never received the $99,024.38 from Bank of America under the new note. Riebandt did not discuss with plaintiffs any impact of the failed closing on their obligations under the new note and mortgage.
¶ 8 Plaintiffs were not informed that Bank of America had recorded a mortgage lien against their personal residence until January 2011. Bank of America never issued any statements or demands to plaintiffs seeking repayment of the $99,024.38 obligation to Bank of America at any time in 2009, 2010, or 2011.
¶ 9 The complaint alleged that from September 2009 through 2013, Riebandt and DeWald, through their law firms, served as counsel for plaintiffs in several real estate related matters, including the sale of the commercial property, the sale of plaintiffs' personal residence, and in connection with several lawsuits filed by Bank of America against plaintiffs and CTC, their company, concerning the notes, mortgages, and guaranties on the commercial property.
¶ 10 As relevant to the instant lawsuit, on February 1, 2011, Riebandt and DeWald obtained a "Track Search Report" from Fidelity National Title Insurance Company (Fidelity), which showed claims or encumbrances on the title to plaintiffs' personal residence. The report showed that Bank of America had recorded a mortgage lien on August 29, 2009, to secure an indebtedness of $99,024. Accordingly, the complaint alleges that, "[a]s of February 1, 2011, or shortly thereafter, defendants Riebandt or DeWald, or both of them, knew or reasonably should have known" that Bank of America had recorded the mortgage. Riebandt and DeWald did not show the report to plaintiffs or discuss it with them.
¶ 11 In March 2011, Riebandt and DeWald represented plaintiffs in connection with a proposed sale of the commercial property. The proposed buyer offered to purchase the commercial property for $632,500. However, the commercial property was still subject to two mortgage liens and lis pendens liens arising from Bank of America's still-pending lawsuits against plaintiffs and CTC. Consequently, plaintiffs required Bank of America's consent to the transaction. Bank of America required plaintiffs to execute a "Mortgage Release Agreement," which plaintiffs did. The sale successfully closed, Bank of America released its mortgage interests in the commercial property, and all net proceeds from the sale ($469,458.17) were tendered to Bank of America.
¶ 12 Riebandt selected Fidelity to provide title insurance and escrow services for the sale of plaintiffs' commercial property, but unbeknownst to plaintiffs, Riebandt had a preexisting principal-agent relationship with Fidelity whereby Riebandt and Fidelity agreed to share monies paid for the title services provided by Fidelity in real estate sales transactions referred to Fidelity by Riebandt. Plaintiffs were never offered a choice of title insurers and were not informed of the conflict of interest presented by Riebandt's relationship with Fidelity. In the case of the sale of the commercial property, Riebandt received $1664 of the $3430 Fidelity charged for its title services.
¶ 13 By May 2011, plaintiffs had personal and corporate debt obligations in excess of $1 million and sought Riebandt's advice. Riebandt recommended that plaintiffs consider seeking bankruptcy protection and referred them to Lester Ottenheimer, a bankruptcy attorney. Plaintiffs retained Ottenheimer to provide them advice and assistance with their debt obligations, and he recommended that plaintiffs file for Chapter 7 bankruptcy relief. Plaintiffs instructed Riebandt and DeWald to provide Ottenheimer "with all materials as might bear upon or relate to the plaintiffs' financial circumstances, assets and debts, so as to assist and enable Mr. Ottenheimer's preparation of the Chapter 7 Bankruptcy Petition and related disclosures." Riebandt and DeWald provided Ottenheimer with documents, including a copy of the track search report showing the August 2009 recording of Bank of America's mortgage lien on plaintiffs' personal residence.
¶ 14 On May 31, 2011, Ottenheimer prepared and filed a petition with the United States Bankruptcy Court for the Northern District of Illinois, seeking complete discharge of all debts under Chapter 7 of the United States Bankruptcy Code. The Bank of America note and mortgage were not listed or disclosed in the bankruptcy petition.
¶ 15 During the pendency of the bankruptcy proceedings, Ottenheimer negotiated with the primary mortgage holder on plaintiffs' personal residence, CitiMortgage, and advised that plaintiffs desired to remain in their residence. Ottenheimer agreed not to seek discharge of plaintiffs' obligations to CitiMortgage. On September 13, 2011, the bankruptcy court entered a discharge order, which discharged plaintiffs' disclosed debts. The discharge order did not discharge plaintiffs' obligations to CitiMortgage, by agreement, and did not discharge plaintiffs' obligations under the Bank of America note and mortgage, which had never been disclosed in the bankruptcy petition.
¶ 16 On January 25, 2012,...
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