McKnight v. Dean

• Decision Date: 02 November 2001
• Docket Number: No. 00-3007,00-3007
• Citation: 270 F.3d 513
• Parties: (7th Cir. 2001) Gary McKnight, Plaintiff-Appellant, v. Kenneth A. Dean, et al., Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 513

270 F.3d 513 (7th Cir. 2001)

Gary McKnight, Plaintiff-Appellant, v. Kenneth A. Dean, et al., Defendants-Appellees.

No. 00-3007

United States Court of Appeals For the Seventh Circuit

Argued April 9, 2001

Decided November 2, 2001

Appeal from the United States District Court for the Northern District of Illinois, Paul E. Plunkett, Senior District Judge, Presiding. [Copyrighted Material Omitted] Before Posner, Evans, and Williams, Circuit Judges.

Posner, Circuit Judge.

In this extraordinary case an individual who obtained a $765,000 settlement in a suit for legal malpractice is suing--for legal malpractice--the lawyers who obtained the settlement for him. It is a tangled story, and we must begin at the beginning.

In 1987 Gary McKnight brought suit against his former employer, General Motors, in a federal district court in Wisconsin, charging discrimination in violation of 42 U.S.C. § 1981 and Title VII of the Civil Rights Act of 1964. He obtained a verdict of $110,000 in compensatory damages (of which half represented back pay) and $500,000 in punitive damages; the district judge refused, however, to order him reinstated. The parties cross-appealed. Back pay and reinstatement were the only relief sought by McKnight under Title VII; and while the appeals were pending, the Supreme Court held in Patterson v. McLean Credit Union, 491 U.S. 164, 176-78 (1989), that section 1981 does not reach discrimination by a private employer against existing employees. (Congress amended the statute to change this rule, Hardin v. S.C. Johnson & Son, Inc., 167 F.3d 340, 346 (7th Cir. 1999), but that has no bearing on this case.) General Motors had failed to argue the ground that the Court adopted in Patterson, even though the Patterson case was pending in the Supreme Court during the trial of McKnight's case. We thought this might be a waiver, but did not decide, for "if by this delay General Motors waived its right to invoke Patterson, a question we need not answer, McKnight cannot benefit. For . . . he has never argued that General Motors has waived its right to rely on Patterson. A defense of waiver is itself waivable. McKnight waived any defense of waiver that he might have had." McKnight v. General Motors Corp., 908 F.2d 104, 108 (7th Cir. 1990). We concluded that Patterson had knocked out McKnight's claims under section 1981, so that the award of compensatory damages beyond back pay (which was $55,000), plus the award of punitive damages ($500,000), had to be reversed. Id. at 112. We upheld the award of back pay, however, under Title VII; and though we suspected that McKnight was seeking reinstatement merely in order to extract compensation from GM- -"after being fired by GM McKnight entered the financial services industry [as a stockbroker] where after a few years he was earning more money than he did earn or would have been earning at GM," id. at 116--we held that the district judge's denial of reinstatement could not stand. For it had been based in part on the judge's belief that the award of punitive damages had fully compensated McKnight for the loss of his employment with GM--and we were vacating that award.

In remanding we noted that "should the judge again decide not to order reinstatement, a remedial gap will open up," for if "reinstatement is withheld because of friction that would ensue independently of any hostility or retaliation by the employer, a remedy limited to back pay will not make the plaintiff whole." Id. We therefore left open for consideration on remand whether in such a case an award of "front pay" (lost future earnings) was authorized by Title VII and, if so, whether this was an appropriate case for such an award. Id. at 117.

On remand, the district court again denied reinstatement. After refusing to reopen the record to receive additional evidence on the issue, the judge said that the damages award in the previous round had not figured importantly in his decision to deny reinstatement. What had been important was that McKnight's relationship with GM was acrimonious and that he did not want reinstatement to his previous job as a manufacturing supervisor but instead wanted GM to give him a position managing GM's corporate finances, a position for which he did not appear to be qualified. The judge also denied the alternative of front pay, because McKnight wanted GM in effect to insure him against the vicissitudes consequent upon his own choice to switch from manufacturing to financial services. Anyway he had failed to submit the data required to enable a calculation of the amount of front pay. Indeed, he had failed to brief the issues of reinstatement and front pay. Finally, the judge denied as untimely McKnight's request for prejudgment interest on the $55,000 award of back pay.

We affirmed. The result was that GM owed McKnight only the $55,000 in back pay, plus postjudgment interest of some $11,000 on that amount, plus a stipulated amount of attorney's fees (some $57,000) which GM deposited in court. A dispute then arose between McKnight and Robert Gingras, the lawyer who had handled the case in the district court, concerning Gingras's share of these fees. This dispute led Gingras to sue McKnight in a Wisconsin state court. One of McKnight's defenses in that suit was that Gingras had committed malpractice in representing him in his suit against GM. McKnight's new lawyer, Kenneth Dean, the principal defendant in the present case (we can ignore the other defendants), filed on McKnight's behalf a diversity suit against Gingras in federal court, charging Gingras with malpractice and thus essentially duplicating the defense that McKnight had raised in Gingras's suit, and he then dropped the defense from that suit. Dean preferred to litigate McKnight's case in federal court because Gingras's law firm practices extensively in the Wisconsin court in which Gingras had sued McKnight. And, sure enough, Gingras obtained a judgment against McKnight in that suit--and then pleaded it as res judicata in the federal malpractice suit that McKnight, represented by Dean, had brought against him. The district judge held that the plea was good as to any claim pertaining to Gingras's handling of the trial of the discrimination suit (but not the appeal or remand), and thus wiped out any complaint about Gingras's failure at the trial to present evidence in support of reinstatement or front pay, or to calculate back pay correctly. The malpractice defense, the judge ruled, had been a compulsory counterclaim to Gingras's suit for attorneys' fees, and a compulsory counterclaim that is not pleaded (or that is abandoned) is forfeited. Fed. R. Civ. P. 13(a); Southern Construction Co. v. Pickard, 371 U.S. 57, 60 (1962) (per curiam); Burlington Northern R.R. v. Strong, 907 F.2d 707, 710 (7th Cir. 1990). (This ruling was error, as we'll see.) That left the "waiver of waiver" on the first appeal and also Gingras's failure on remand to brief reinstatement and front pay as grounds for McKnight's malpractice suit against Gingras.

Now it happened that Gingras had malpractice insurance with a cap of $1 million to cover both liability and attorneys' fees, and the insurance company had expended $235,000 on the defense of McKnight's malpractice suit against him. The company offered to settle the case for the difference between that amount and the $1 million cap, that is, for $765,000 ($475,000 after Dean deducted his fee). Dean is alleged by McKnight (we must assume truthfully, in the present posture of the case) to have told him that this was the most he could expect to obtain, and so he "must" settle for it--concealing from him the fact that any judgment against Gingras could be satisfied out of Gingras's personal assets as well as out of the proceeds of the insurance policy. So McKnight settled, thus setting the stage for this malpractice suit against Dean and his associates. McKnight claims that Dean committed malpractice in dropping the malpractice defense in the suit that Gingras had brought in the Wisconsin state court and in forcing him to settle for $765,000 rather than holding out for a larger settlement and if necessary proceeding to trial. The district court granted summary judgment for the defendants on the ground that McKnight had failed to show that the alleged malpractice had actually hurt him.

The reasonableness of Dean's representation of McKnight is related to the gravity of the malpractice claim against Gingras, the claim that Dean was hired to press, and so let us begin with the case against Gingras. His unexplained delay in seeking prejudgment interest to which McKnight undoubtedly was entitled on the award of back pay, Loeffler v. Frank, 486 U.S. 549, 557-58 (1988); Herrmann v. Cencom Cable Associates, Inc., 999 F.2d 223, 225 (7th Cir. 1993); Booker v. Taylor Milk Co., 64 F.3d 860, 868-69 (3d Cir. 1995), was negligent, but no effort has been made to estimate the amount of such interest to which McKnight would have been entitled.

Gingras could hardly be faulted for having failed to put in more evidence in support of a claim for reinstatement or alternatively for front pay, whether at the trial or on remand, because there was very little evidence that he could have put in. McKnight wanted to switch from manufacturing to financial services, and the ups and downs of his income that ensued were due to that choice rather than to his being discharged by GM, which did not have a job in financial services that matched his qualifications. Besides, as noted in our previous opinion, McKnight v. General Motors Corp., supra, 908 F.2d at 116-17, we hadn't yet held that front pay was an available remedy in a Title VII suit, as we since have held, Williams v. Pharmacia, Inc., 137 F.3d 944, 951-53 (7th Cir. 1998), and as the Supreme Court held in Pollard v. E.I. du Pont de Nemours & Co., 121 S. Ct. 1946 (2001). Because these holdings were not at all unexpected, see, e.g., Anderson v. Group Hospitalization, Inc., ...