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A.O. SMITH CORP. v. LEWIS

October 29, 1991

A.O. SMITH CORPORATION and 16752 CORPORATION, f/k/a STERLING ELECTRIC, INC., Plaintiffs,
v.
LEWIS, OVERBECK & FURMAN, DOUGLAS A. LINDSAY, ROBERT A. SUBKOWSKY and ROBERT A. WOLZ, Defendants



The opinion of the court was delivered by: SHADUR

 This legal malpractice action turns on the intricacies of antitrust law. A.O. Smith Corporation ("Smith") and 16752 Corporation, formerly known as Sterling Electric, Inc. ("Sterling"), lost an antitrust tying case in which members of the firm of Lewis, Overbeck & Furman ("Law Firm") served as Sterling's trial counsel. Law Firm failed to raise a certain legal argument at trial, after which the jury returned a verdict and multimillion dollar trebled damage award against Sterling--a verdict since sustained after tortuous passage through the appellate process.

 Sterling *fn1" now brings an issue-narrowing motion under Fed. R. Civ. P. ("Rule") 16, asking for a pretrial ruling on the existence of a proximate cause relationship between the claimed malpractice and Sterling's injury. For the reasons stated in this memorandum opinion and order, this Court decides the motion against Sterling and dismisses the action.

 Facts and Procedural History

 Our Court of Appeals has twice rehearsed the details of the underlying antitrust action, which was captioned Parts & Electric Motors, Inc., v. Sterling Electric, Inc.: first at 826 F.2d 712 (7th Cir. 1987) ("P & E I") and again at 866 F.2d 228 (7th Cir. 1988) ("P & E II"). This Court's colleague Honorable James Holderman had also discussed the facts at length in his original memorandum opinion and order, No. 83 C 2349 (N.D. Ill. April 14, 1986) (LEXIS, Genfed library, 7Dist file) ("Holderman Opinion"). Only a spare outline of those details is needed here.

 Sterling made motors and parts. Parts and Electric Motors, Inc. ("P & E") distributed them under contract with Sterling. Sterling pressured P & E to buy more motors or face losing its right to buy both parts and motors. When P & E did not increase its motor purchases to Sterling's satisfaction, Sterling cancelled the contract, depriving P & E of the opportunity to sell both products. P & E then sued Sterling for violations of the antitrust laws, claiming that the linkage between parts and motors constituted illegal "tying." Armed with Judge Holderman's jury instructions, a jury returned a verdict for P & E and assessed actual damages of $ 1,231,992, which by law were then trebled to $ 3,695,976.

 Sterling then moved for judgment notwithstanding the verdict. *fn2" Judge Holderman granted the motion, ruling that the case should not have gone to the jury because P & E had failed to present evidence on the alleged element of "tied market power": whether Sterling's requirement that P & E buy more motors in order to continue selling parts created a substantial threat that Sterling would acquire market power in motors (Holderman Opinion at 11). P & E I reversed the grant of j.n.o.v. and held that Sterling had failed at trial to preserve the issue of tied market power. On remand Judge Holderman then denied Sterling's motion for a new trial, and P & E II affirmed that decision. Sterling's last hope in the antitrust case expired when the United States Supreme Court denied certiorari (493 U.S. 847 (1989)). It then paid the judgment with interest.

 Sterling then trained its sights on Law Firm. On September 5, 1990 Sterling filed this diversity action charging Law Firm with legal malpractice and breach of contract. *fn3" Law Firm filed a motion to dismiss in lieu of an answer, in response to which this Court's October 16, 1990 memorandum opinion and order (1990 U.S. Dist. LEXIS 15120) dismissed the breach of contract claim and directed Law Firm to answer the malpractice claim.

 On June 16 of this year Sterling requested a pretrial ruling on the issue of proximate cause. It did so via a mislabeled "motion for partial summary judgment" under Rule 56. On June 20 this Court issued a brief memorandum (1991 U.S. Dist. LEXIS 8481) expressing its willingness to consider the motion instead as an issue-narrowing motion under Rule 16--that is, as an effort to narrow the scope of issues requiring discovery and trial. *fn4" Law Firm's counsel did not object to that approach, but they asked that this Court also consider the issue of whether tied market power was an element of the tying claim in addition to the issue of proximate cause. In effect, then, the parties have submitted a joint request for pretrial rulings on the questions of proximate cause and tied market power.

 Legal Malpractice

 Illinois law provides the rules of decision as to Sterling's malpractice claim--though not of course as to the subset of substantive antitrust issues. To prove legal malpractice in Illinois a plaintiff must establish five elements: (1) an attorney-client relationship; (2) a duty arising out of that relationship; (3) breach of duty; (4) causation; and (5) actual damages ( Land v. Auler, 186 Ill. App. 3d 382, 384, 542 N.E.2d 509, 511, 134 Ill. Dec. 330 (4th Dist. 1989)). This motion concerns the fourth element.

 It is worth noting that of the elements not contested in the present motion, only breach of duty (element 3) is likely to be the subject of dispute. Obviously an attorney-client relationship existed (element 1), from which as a matter of law there arose a duty to exercise a reasonable degree of care and skill in the representation (element 2). Injury (element 5) clearly resulted from the jury's damage award. Thus a decision in Sterling's favor on proximate cause would leave open for trial just one question: whether attorneys exercising a reasonable degree of care and skill would have preserved the issue of tied market power.

 Proximate Cause

 Proximate cause ordinarily poses an issue of fact for the jury ( Castorena v. Browning-Ferris Industries of Illinois, 217 Ill. App. 3d 328, 577 N.E.2d 185, 189, 160 Ill. Dec. 309 (Ill.App. 2d Dist. 1991)). But Wilson v. Bell Fuels, Inc., 214 Ill. App. 3d 868, 873, 574 N.E.2d 200, 204, 158 Ill. Dec. 406 (1st Dist. 1991) teaches that is not always so:

 Proximate cause becomes a question of law, however, when the material facts are undisputed and there can be no difference in judgment of reasonable men as to the inferences to be drawn from them.

 This action resembles many other legal malpractice cases in that all the "material facts" involved in determining proximate cause are to be found within hard covers in the Federal Reporter. When proximate cause depends in essence upon "whether the client would have received a more favorable judgment [on appeal]," then "clearly, a judge is in a much better position [than a jury] to make these determinations" ( Daugert v. Pappas, 104 Wash. 2d 254, 704 P.2d 600, 603-04 (Wash. 1985), citing cases from numerous jurisdictions; 2 Roland Mallen & Jeffrey Smith, Legal Malpractice § 27.10, at 658 (3d ed. 1989)).

 Sterling asserts that Law Firm's failure to preserve the issue of tied market power for post-trial motion or appeal was the proximate cause of its loss--the only instance of malpractice that it alleges (Amended Complaint para. 37) For that malpractice action to succeed, it must be clear that a post-trial motion or appeal alleging P & E's failure of proof on tied market power would have resulted in a judgment for Sterling in the antitrust case. As J & G Restaurant, Inc. v. Regas, 156 Ill. App. 3d 834, 838, 510 N.E.2d 17, 19, 109 Ill. Dec. 396 (1st Dist. 1987) put it, "the client must establish that but for [the attorney's] neglect, he would have prevailed on appeal." Where "a further appeal would be futile," failure to preserve or pursue the appeal cannot constitute malpractice ( Chicago Red Top Cab Ass'n, Inc. v. Gaines, 49 Ill. App. 3d 332, 364 N.E.2d 328, 7 Ill. Dec. 167 (1st Dist. 1977)).

 Sterling R. Mem. 1-2 offers the Holderman Opinion as essential proof of causation:

 We know how Judge Holderman would have decided the original case but for defendants' waiver.

 That argument seems to presuppose that Sterling can prove malpractice regardless of the legal sufficiency of its argument about tying. But the cases make clear that where proximate cause turns on the determination of a purely legal issue, the actions of the initial trier of fact prove nothing. Jurisdictions that have spoken on that issue have uniformly declared that the trial judge in a malpractice case must reconsider legal issues raised in the underlying case from the standpoint of the "reasonable judge" (see, e.g., Cornett v. Johnson, 571 N.E.2d 572, 575 (Ind.App. 1991); Helmbrecht v. St. Paul Ins. Co., 122 Wis. 2d 94, 362 N.W.2d 118, 124-26 (Wis. 1985)). This Court's job is to engage in a dispassionate and objective reconsideration of any disputed legal issues from the antitrust case. So while the reasoning of the Holderman Opinion may persuade this Court, the fact that Judge Holderman granted j.n.o.v. is of no weight. *fn5"

 By now it should be clear that the issues of causation and tied market power, though presented as two independent issues by the parties, really merge. If tied market power was indeed an essential element of P & E's case, then Sterling's failure to preserve the issue necessarily proves proximate cause. If tied market power was not such an element, there endeth the malpractice case, for the failure to make an incorrect and therefore ineffective legal argument cannot constitute malpractice. In sum, the legal sufficiency vel non of the underlying antitrust claim is all that requires decision today.

 Tied Market Power in General

 Plaintiff in a tying case typically alleges that a seller has required it to buy one product in order to buy another. As Justice O'Connor explained in her concurring opinion in Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 33, 80 L. Ed. 2d 2, 104 S. Ct. 1551 (1984) (emphasis in original):

 Tying is a form of marketing in which a seller insists on selling two distinct products or services as a package. A supermarket that will sell flour to consumers only if they will also buy sugar is engaged in tying. Flour is ...


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