Jackson Jordan, Inc. v. Leydig, Voit & Mayer

• Decision Date: 20 January 1994
• Docket Number: No. 70410,70410
• Citation: 198 Ill.Dec. 786,633 N.E.2d 627,158 Ill.2d 240
• Parties: , 198 Ill.Dec. 786 JACKSON JORDAN, INC., Appellant, v. LEYDIG, VOIT & MAYER, Appellee.
• Court: Illinois Supreme Court

Page 627

633 N.E.2d 627

158 Ill.2d 240, 198 Ill.Dec. 786

JACKSON JORDAN, INC., Appellant, v. LEYDIG, VOIT & MAYER, Appellee.

No. 70410.

Supreme Court of Illinois.

Jan. 20, 1994.

Rehearing Denied April 4, 1994.

Michael T. Hannafan, Michael B. Dedio and William E. Blais, Michael T. Hannafan & Associates, Paul P. Biebel, Jr., and Thomas A. Reynolds, Jr., Winston & Strawn, Chicago, for appellant.

James T. Ferrini, Gary Kostow, Douglas J. Palandech, Suanne P. Hirschhaut and Sonia V. Odarczenko, Clausen, Miller, Gorman, Caffrey & Witous, P.C., Chicago, for appellee.

Barry A. Miller, Malcolm C. Rich and Elizabeth M. Streit, Chicago, for amicus curiae Chicago Council of Lawyers.

Justice HEIPLE delivered the opinion of the court:

The plaintiff, Jackson Jordan, Inc., brought the present action in the circuit court of Cook County against its former attorneys, the law firm of Leydig, Voit & Mayer. The plaintiff sought to recover damages for legal malpractice allegedly committed by The procedural background of this case is not in dispute. Jackson Jordan, Inc. (Jackson), manufactures and sells railroad track maintenance equipment. In 1973, Jackson asked its patent attorneys, the Chicago law firm of Leydig, Voit & Mayer (Leydig), whether a new track maintenance machine Jackson was planning to build and market, the Model 6000, would infringe on any existing patents. Jackson sent its attorneys diagrams and other information concerning the planned machine. Following an examination of the machine's design and a review of relevant patents on devices of that type, Leydig concluded that the Model 6000 would not infringe on any unexpired patents. In a letter to Jackson dated May 23, 1973, one of the Leydig firm's attorneys wrote:

                [198 Ill.Dec. 787] the defendant in the course of advising the plaintiff on a matter of patent law.  The circuit court granted the defendant's motion for summary judgment on the ground that the action was barred by the five-year limitations period applicable to legal malpractice claims.  The appellate court affirmed.  (199 Ill.App.3d 728, 145 Ill.Dec. 755, 557 N.E.2d 525.)   We allowed the plaintiff's petition for leave to appeal (134 Ill.2d R. 315(a)), and we now reverse the circuit and appellate courts
                

"We have also reviewed the prior art patents in our file for possible infringement by a machine of the basic design you have proposed. We did not find any unexpired patents that would present any infringement problems."

Following the receipt of counsel's letter, Jackson proceeded with its plans to manufacture and market the Model 6000 machine. In later years, Jackson also produced and marketed related machines--the Model 6500 and the Model 7000--that incorporated the same basic design used in the Model 6000.

In preparing the opinion letter of May 23, 1973, the Leydig firm allegedly failed to examine the patent that is the focus of the present action. On February 10, 1970, the United States Patent Office had issued patent No. 3,494,297 (the '297 patent or Plasser patent) for a railroad track maintenance machine to Franz Plasser and Josef Theurer, who had then assigned the patent to Plasser American Corporation. Although Leydig had sent Jackson a copy of this particular patent in April 1970 as part of the law firm's regular practice of relaying to its client pertinent patents in this field, Leydig did not refer to the '297 patent in its letter of May 23, 1973. The patent expired in February 1987.

In 1975, Plasser American brought a patent infringement suit against Canron, Inc., another competitor in the railroad track maintenance equipment industry. At some point, Jackson executives learned of the Plasser-Canron litigation, though the extent of their knowledge is not clear from the record and is in dispute. On April 23, 1980, the district court ruled in favor of Plasser in its suit against Canron, finding that Canron had infringed Plasser's '297 patent as well as another Plasser patent not relevant here. (Plasser American Corp. v. Canron, Inc. (D.S.C.1980), 546 F.Supp. 589.) Plasser and Canron later settled the case while the matter was pending in the court of appeals. On July 15, 1980, following an inquiry by a Jackson executive, Leydig sent Jackson a letter reporting the district court's decision in the Plasser-Canron litigation. Jackson later asked the firm to evaluate the possible impact of that litigation on its own track maintenance machines. Leydig responded in a letter dated August 26, 1980, reviewing at length the course of the Plasser-Canron litigation. In the August letter, a Leydig attorney assured Jackson that the Plasser patent was invalid and, in addition, outlined two defenses Jackson could assert against an infringement claim by Plasser: laches and estoppel. Leydig's letter concluded:

"To summarize, we believe Jackson has a sound defense of laches and estoppel to assertion of the Plasser patents. * * * In our opinion, the '297 patent should be held invalid if litigated outside of the Fourth Circuit. We recommend that Jackson decide now to sue Plasser if a customer is sued in the Fourth Circuit or it otherwise appears that Jackson could be brought before the Courts of the Fourth Circuit. Finally, we believe that there is a 50-50 chance that the problem will disappear through the Court of Appeals reversing On June 28, 1982, a Plasser executive wrote to Jackson's executive vice-president, J.H. Bush, contending that Jackson's track maintenance machines infringed on Plasser's '297 patent. Plasser's letter stated that the patent holder would sue Jackson for infringement if the parties could not amicably settle the matter. Jackson then sought Leydig's advice concerning the matter. According to a supplemental affidavit submitted by Jackson's president, Daniel Donahue, a Leydig attorney orally assured him that the company was not infringing on any valid patents and again advised that Jackson bring a declaratory judgment action against the patent holder.

[198 Ill.Dec. 788] [the district court judge in the Plasser-Canron case]."

Acting on Leydig's recommendation, on July 19, 1982, Jackson filed suit against Plasser in the United States District Court for the District of Delaware, seeking a declaratory judgment of its rights concerning the validity of the '297 patent; Leydig represented Jackson in those proceedings. Plasser filed a counterclaim, alleging Jackson's infringement of the '297 patent. The action was later transferred to the United States District Court for the Eastern District of Virginia, Norfolk Division. The district court severed the damages issue and, following a bench trial, ruled in Jackson's favor on several portions of its complaint on August 8, 1983. Addressing the parties' various claims for relief, the district court held that the equitable doctrine of laches would bar Plasser from obtaining damages for alleged infringement occurring prior to the commencement of the action. The court rejected Jackson's further argument, however, that Plasser was estopped from recovering any damages, whenever they were incurred, for the alleged infringement. With respect to the merits of Plasser's infringement claim, the district court determined that the relevant portions of the '297 patent were invalid. Finally, the court found that Plasser had not committed intentional fraud in prosecuting its patent application, and the court thus dismissed an antitrust claim Jackson was also asserting. Jackson Jordan, Inc. v. Plasser American Corp. (E.D.Va.1983), 219 U.S.P.Q. 922.

In a letter dated October 6, 1983, a Leydig attorney wrote to Jackson concerning the estimated time and expense that would be involved in Plasser's appeal from the district court judgment. The letter writer also assured Jackson that the favorable portions of the district court's decision would be upheld on appeal. The letter stated, in pertinent part, "[i]t is our belief that the decision in favor of Jackson will be affirmed and hence no additional liability is foreseen."

Leydig's assessment proved to be incorrect, however. On November 9, 1984, the Court of Appeals for the Federal Circuit vacated that portion of the district court judgment finding Plasser's '297 patent to be invalid, affirmed the other portions of the district court judgment, and remanded the matter to the district court for further proceedings. Jackson Jordan, Inc. v. Plasser American Corp. (Fed.Cir.1984), 747 F.2d 1567.

On February 27, 1986, the district court rejected Jackson's challenges to the validity of the Plasser patent and ruled that a number of Jackson's models infringed on the patent. (Jackson Jordan, Inc. v. Plasser American Corp. (E.D.Va.1986), No. 82-825-N.) The court of appeals affirmed that judgment on April 23, 1987, in an unpublished order. (Jackson Jordan, Inc. v. Plasser American Corp. (Fed.Cir.1987), 824 F.2d 977 (table).) The only issue remaining to be resolved was the amount of Plasser's damages. On September 16, 1987, Jackson invited the Leydig firm to take part in settlement negotiations with Plasser and, at the same time, advised Leydig of its intention to sue the law firm for malpractice. Leydig declined to participate in the negotiations, however, and withdrew as Jackson's counsel. Jackson and Plasser settled the patent infringement dispute on September 22, 1987, with Jackson agreeing to pay $1.9 million in damages to the patent holder.

Jackson filed the present action in the circuit court of Cook County on February 1, 1988. In its complaint, Jackson alleged that Leydig negligently failed to examine and review the '297 patent in 1970, when it was issued, and in 1973, when Jackson requested the opinion regarding its new Model 6000 In its answer to the complaint, Leydig denied Jackson's allegations of negligence and raised the statute of limitations as an affirmative defense. Leydig contended that the plaintiff's action was barred by the five-year limitations period provided by section 13-205 of the Code of...