Appeal from the Circuit Court of Peoria County; the Hon.
Charles M. Wilson, Judge, presiding.
Plaintiffs, James and Janis York, and Lawrence and Donna LaCroix, brought an action at law against the defendant, John C. Stiefel, an attorney, to recover damages allegedly arising from the legal malpractice of the defendant. A circuit court jury of Peoria County returned verdicts in favor of Donna LaCroix ($15,000), James York ($5,000), and Janis York ($5,000), but was unable to reach a verdict as to plaintiff Lawrence LaCroix. The trial court entered judgment on the three verdicts and declared a mistrial as to the remaining plaintiff, who ultimately moved for a voluntary dismissal of his complaint, which was granted.
On appeal the defendant presents two issues for review: (1) whether the expert testimony elicited by plaintiffs was sufficient to sustain their burden of proving that defendant breached the standard of care of an attorney and whether the damages claimed by plaintiffs were the proximate result of legal malpractice, and (2) whether the evidence established the existence of an attorney-client relationship between plaintiffs Donna LaCroix and Janis York and the defendant.
The factual context from which the cause of action arose is as follows.
In 1974, plaintiffs Lawrence LaCroix and James York consulted a Chicago attorney, John Stiefel, with regard to the purchase of a Porsche-Audi dealership in Peoria, Illinois. Stiefel had become acquainted with York in 1972 when York was selling cars for another Porsche-Audi dealership in Winnetka, Illinois. York suggested Stiefel as an attorney to his partner, LaCroix, when counsel was needed to organize their business.
Stiefel suggested a Subchapter S corporate arrangement and performed the legal work to incorporate Countryside Porsche-Audi, Inc. (hereinafter referred to as Countryside). Lawrence LaCroix was president and handled the bookkeeping, bank loans, payroll and general administrative tasks of the corporation. York served as vice-president and was in charge of marketing new and used automobiles. Stiefel served as assistant secretary and registered agent for the corporation throughout its existence. Neither Donna LaCroix, Lawrence's wife, nor Janis York, James' wife, were employed by the corporation or officers of the corporation.
The corporation was capitalized by means of a capital loan of $50,000 from York's father, a capital loan from the Jefferson Bank (hereinafter Bank) of $75,000, and a floor plan agreement with the Bank. The limit on this floor plan loan was set at a later date at $275,000. Plaintiffs Lawrence LaCroix and James York each paid $500 in return for 500 shares of $1 par value stock.
The $75,000 capital loan from the Bank to Countryside was accompanied by a guarantee from the Small Business Administration (hereinafter SBA), which assured the Bank a repayment of any unpaid balance which might be forfeited by the financial failure of Countryside. The SBA obtained the personal guarantees of all four plaintiffs to reimburse the SBA for any funds which it might expend by virtue of a default by Countryside.
The floor plan loan to Countryside enabled the company to maintain a steady supply of inventory. The Bank paid the manufacturer or distributor for the cars ordered by Countryside and, in return, took a security interest in each vehicle. When a car was sold, Countryside was obliged to remit to the Bank the amount of its secured interest. Failure to remit these funds following a sale created a potential criminal liability for corporate officers under section 9-306.01 of the Uniform Commercial Code, a Class 3 felony (Ill. Rev. Stat. 1979, ch. 26, par. 9-306.01(2)(3)(4)). Penalties could include an order for restitution and a jail sentence. There was no personal guarantee from the individual plaintiffs to the Bank on the floor plan loan.
By virtue of the cross-collateral clauses in both loans from the Bank to Countryside, the Bank would, in the event of a default, allocate the proceeds from the sale of collateral to the unguaranteed loan first, in order that any unpaid and unreimbursed principal would be returned to the Bank under the SBA guarantee.
Stiefel did not participate in negotiations for the loan from York's father, the $75,000 capital loan from the Bank, the SBA guarantee, or the increase in the floor plan loan. Stiefel did assist in the negotiations concerning the initial floor plan loan, although he was not present when the final documents on that loan were signed.
With the initial capital loans, the assets for the new dealership were purchased from the Bank which had held them as principal creditor of the previous Porsche-Audi dealer, which had failed in the same market.
Stiefel counseled the plaintiffs as individuals prior to their move to Peoria in 1974. In early 1973 he represented York on a traffic ticket. He also assisted the LaCroix' and York's in the sale of their houses prior to their move to Peoria in 1974. After the plaintiffs had taken up residence in Peoria, he never spoke to Donna LaCroix or Janis York and spoke to LaCroix and York only as to matters relating to Countryside.
In January 1976, the Bank discovered that Countryside was selling secured vehicles without remitting to the Bank the value of its secured interest. Neither LaCroix nor York disputed that they had sold cars without honoring their trust agreement with the Bank. On February 6, 1976, the Bank, having already frozen the personal savings accounts of the plaintiffs, sent a personal representative to Countryside's place of business and advised that the Bank intended to foreclose Countryside at the close of business that day unless it received personal assurances in the form of second mortgages on the homes of LaCroix and York. Lawrence LaCroix called John Stiefel and arranged to meet with him in Chicago that day. He saw Stiefel immediately upon arriving at his offices and was with him approximately eight hours.
Following extensive phone conferences with Bank personnel and the Bank attorney, Stiefel recommended to LaCroix that he execute the second mortgage and release his personal savings accounts to the Bank. He gave the same advice to York via the telephone. He did not advise either Donna LaCroix or Janis ...