and (2) the state had instituted an action to nullify title to Pratinha. With respect to this latter finding, the Court stated: "This area of property is under judicial proceedings, with a strong argument that it has been acquired by fraudulent means, even though theoretically, the title documents prevail or are in effect until they have been definitively cancelled. It is prudent not to regularize tax situations capable of presenting a good opportunity for new real estate operations on these lands prior to a definitive solution of the pending judicial proceedings." Id. at 2-3.
Another deficiency listed by Smith was Anson's failure to account for his use of the power of attorney. Plaintiff's Appendix, at 109. "Your accounting of the use of power of attorney is inadequate in that you stated in our meeting that you have never pledged or contracted lands of the Pratenha [sic] Fazenda when I have reason to believe that you have offered and pledged such land to third parties." Id.
The current title registration for Pratinha indicates that the property was sold to Joaquim Sirqueira Sobrinho of Brazil in accordance with a private instrument dated October 10, 1979. See Plaintiff's Appendix, at 7-8; Defendants' Exhibit B Attached to Affidavit of Keith Rosenn, Document No. 70. This sale is noted in the margin of Smith's recordation of title. Also noted in the margin is a power of attorney em causa propria which Anson transferred to Dr. Getulio Vieira de Aguiar "all powers in causa propria" that had been granted to Anson by Smith.
Although the property was sold in 1979, Smith alleges that he did not become aware of the sale until he had a title search run in 1987 upon finding another potential buyer for the property. Smith filed this lawsuit on September 12, 1988, seeking damages from Anson and his wife, as well as from attorney Prosser and the law firms in which Prosser was employed.
Separate motions for summary judgment were filed by Phyllis Anson, individually and as executor of the estate of the deceased Eldon T. Anson (Document No. 75), Don Prosser and his law firms (Document Nos. 70, 101 and 103) and the plaintiff (Document No. 84). Because a settlement has been reached between the plaintiff and Phyllis Anson (See Motion for Finding of Good Faith, Document No. 122), the Court hereby DENIES the Anson motion for summary judgment as MOOT. Accordingly, the Court's discussion below is restricted to the issues raised in the Prosser motions.
A court may grant summary judgment only if the party seeking summary judgment demonstrates that no genuine issue of fact exists for trial and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(e); Wilson v. Chicago, Milwaukee, St. Paul & Pacific R.R. Co., 841 F.2d 1347, 1354 (7th Cir. 1988). If that showing is made and the motion's opponent would bear the burden at trial on the matter that forms the basis of the motion, the opponent must come forth with evidence to show what facts are in actual dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Donald v. Polk County, 836 F.2d 376, 379 (7th Cir. 1988). Where the moving party fails to meet its strict burden of proof, summary judgment cannot be entered even if the opposing party fails to respond to the motion. Yorger v. Pittsburgh Corning Corp., 733 F.2d 1215, 1222 (7th Cir. 1984).
When the parties do not dispute the factual basis of a motion for summary judgment, the court's only inquiry is whether judgment should issue as a matter of law. The burden of proof on this matter rests with the moving party. Summary judgment is inappropriate, however, if the parties disagree about inferences reasonably to be drawn from undisputed facts. Bowyer v. United States Dep't of Air Force, 804 F.2d 428, 430 (7th Cir. 1986).
When the parties dispute the facts, the parties must produce proper documentary evidence to support their contentions. The parties cannot rest on mere allegations in the pleadings, Boruski v. United States, 803 F.2d 1421, 1428 (7th Cir. 1986), or upon conclusory allegations in affidavits. First Commodity Traders, Inc. v. Heinold Commodities, 766 F.2d 1007, 1011 (7th Cir. 1985). The Court must view the evidence and any permissible inferences from the materials before it in favor of the non-moving party, Matsushita Elec. Indus. Co., Ltd, v. Zenith Radio Corp., 475 U.S. 574, 588-89, 106 S. Ct. 1348, 89 L. Ed. 2d 538, (1986), as long as the inferences are reasonable. Davis v. City of Chicago, 841 F.2d 186, 189 (7th Cir. 1988). The non-moving party must show that the disputed fact is material; that is, it must be outcome-determinative under the applicable law. Wainwright Bank & Trust Co. v. Railroadmens Fed. Sav. & Loan Ass'n, 806 F.2d 146, 149 (7th Cir. 1986).
A. Defendants' Motions
The defendants filed two motions for judgment on the pleadings based upon a recent Illinois Supreme Court decision which held that attorney malpractice actions that seek recovery for only economic loss must be based upon contract, rather than upon tort. See Collins v. Reynard, No. 70325 (Ill. October 31, 1991). Pursuant to this decision, the defendants argue that Count III of the plaintiff's third amended complaint must be dismissed because it is based upon a tort theory of malpractice. They further argue that Count VI, which is based upon contract, is barred by the five-year statute of limitations. Ill. Rev. Stat ch. 110, P 13-205 (1989).
As a preliminary matter, the Court notes that the Illinois Supreme Court granted a petition for rehearing in Collins on February 2, 1992. Oral arguments were heard in May and the case is currently on the state court's advisement docket awaiting an opinion. As a result, the original Collins opinion has not yet been published in the permanent law reports and may be revised or withdrawn at any time before publication.
The rehearing granted in Collins does not preclude this Court from applying the decision. As two federal courts noted with respect to another case that was on rehearing before the state supreme court, the original opinion "clearly indicates how the Supreme Court of Illinois would resolve the issue confronting this court; if the Illinois Supreme Court later revises or withdraws the . . . opinion, this court's order may he modified accordingly." Doran v. Corn Products-U.S., 776 F. Supp. 368, 372 n.2 (N.D. Ill. 1991) (quoting Kalp v. American Nat'l Can Co., 1991 U.S. Dist. LEXIS 6763, slip op. at 2, 1991 WL 86096 (N.D. Ill. 1991)).
The Court must determine, however, whether Collins should be applied retroactively to the case at bar, or only prospectively. The Collins decision provides no guidance as to whether the decision has retroactive effect. Therefore, the Court looks to the test for prospective application, as enunciated in Elg v. Whittington, 119 Ill. 2d 344, 357, 518 N.E.2d 1232, 1238, 116 Ill. Dec. 252 (1988).
Whether the rule will be applied prospectively will depend upon whether: "the decision to be applied retroactively . . . establishes a new principle of law, either by overruling clear past precedent on which litigants may have relied . . ., or by deciding an issue of first impression whose resolution was not clearly foreshadowed. . . . If this criteria is met, the question of prospective or retroactive application will be answered by considering (1) whether, given the purpose and history of the rule, its operation will be retarded or promoted by prospective or retroactive application and (2) whether prospective application is mandated by the balance of equities.
Id. (citaitons omitted).
The Court finds that the first part of this test is met. The Collins decision is an outgrowth of the Illinois Supreme Court's ruling in Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 435 N.E.2d 443, 61 Ill. Dec. 746 (1982), which held that a plaintiff could not use a tort theory in a product liability action where the plaintiff had suffered only economic, or commercial, loss, as opposed to personal injury or physical injury to property. In subsequent decisions, the court applied the Moorman doctrine to actions against non-lawyer professionals such as architects, contractors and builders. See, e.g., 2314 Lincoln Park West Condominium Ass'n v. Mann, Gin, Ebel & Frazier, Ltd., 136 Ill. 2d 302, 555 N.E.2d 346, 144 Ill. Dec. 227 (1990); Anderson Elec. Inc. v. Ledbetter Erection Corp., 115 Ill. 2d 146, 503 N.E.2d 246, 104 Ill. Dec. 689 (1986); Morrow v. L.A. Goldschmidt Assocs., Inc., 112 Ill. 2d 87, 492 N.E.2d 181, 96 Ill. Dec. 939 (1986). However, these decisions did not clearly foreshadow the state supreme court's decision to apply the Moorman doctrine to attorneys. In fact, the court's most recent pre- Collins opinion stated, albeit in dicta, that
While we do not intend in the present case to determine the future application of Moorman in all areas of professional malpractice, we must reject the plaintiff's theory that denial of the negligence claim against the present architect would signal in general the end of malpractice recovery in tort. . . . We believe that other professional relationships are readily distinguishable from the present case. For example, since Moorman, malpractice actions against attorneys have gone forward, without any suggestion that the form of recovery traditionally recognized in such actions would no longer be allowed.
Lincoln Park at 317-18, 555 N.E.2d at 353. Therefore, until Collins was decided, litigants had no reason to deviate from the traditional practice of using tort law to resolve claims of attorney malpractice. See Collins, at 12 (Miller, C.J., dissenting) ("Indeed, since Moorman, and until today's decision, this court has continued to permit attorney malpractice actions sounding in negligence to proceed on that ground, without ever intimating that this more familiar tort-based theory of recovery should no longer be available.").
The second step of the Elg analysis presents a more difficult question. As a general matter, the Court finds that the plaintiff would not suffer undue hardship by proceeding under the substantive law of contract, rather than tort. Although proceeding under a contract theory may affect the type of damages that the plaintiff would recovery, the plaintiff is not left without a remedy. The Court also finds that retroactive application of Collins would promote, rather than retard, the Illinois Supreme Court's rationale in Collins -- i.e., that "contract law provides a superior basis to tort law for the resolution of issues concerning the failed expectations of clients of professionals where only economic loss is sought to be recovered." Collins, at 7.
The plaintiff would suffer great hardship, however, with respect to the applicable statute of limitations. Although the plaintiff's cause of action would fall under the five-year statute of limitations regardless of whether it is brought in contract or in tort, a great disparity exists as to when the cause of action accrues under each theory. Illinois courts have long recognized that the statute of limitations begins to run in a negligence action when the plaintiff "discovers" the wrong. This "discovery rule" has been applied in legal malpractice actions. See Belden v. Emmerman, 203 Ill. App. 3d 265, 560 N.E.2d 1180, 148 Ill. Dec. 583 (1st Dist. 1990). However, the rule does not apply to contract actions. Rock Island Bank v. Aetna Casualty & Surety Co., 692 F.2d 1100 (7th Cir. 1982).
Applicability of the discovery rule is crucial to the plaintiff's action because the defendants' breach of contract occurred with acts or omissions that took place in the mid- to late-1970s when the power of attorney in rem propriam was drafted and used. Assuming that Prosser breached a contractual duty by failing to retrieve the 1976 power of attorney from Anson, this breach continued, at the very latest, to 1979 when Anson used the power to sell the property. Thus, if the discovery rule is inapplicable, the plaintiff's action would have been barred in 1984. The plaintiff escapes this bar only by alleging that he did not discover the sale of the property until he ran a title search in 1987.
Therefore, the plaintiff would be left without a remedy in this case if the statute of limitations for contracts is applied.
The United States Supreme Court was faced with a similar situation in Chevron Oil Co. v. Huson, 404 U.S. 97, 30 L. Ed. 2d 296, 92 S. Ct. 349 (1971).
Shortly before Chevron, the Supreme Court had held that admiralty law was inapplicable to cases under the Outer Continental Shelf Lands Act. Rodrigue v. Aetna Casualty & Surety Co., 395 U.S. 352, 23 L. Ed. 2d 360, 89 S. Ct. 1835 (1969). One effect of Rodrigue was to prohibit the use of the equitable doctrine of laches. Thus, the district court in Chevron held that Louisiana's one-year statute of limitations, rather than the admiralty doctrine of laches, governed the case and barred the plaintiff's action. The Supreme Court disagreed, holding that Rodrique should not be invoked to require application of the Louisiana statute of limitations retroactively.
In this case, as in Chevron, "it would produce the most 'substantial inequitable results'. . . to hold that the [plaintiff] 'slept on his rights' at a time when he could not have known the time limitation that the law imposed upon him." Chevron, 404 U.S. at 108. Retroactive application of the statute of limitations "would deprive the [plaintiff] of any remedy whatsoever on the basis of superseding legal doctrine that was quite unforeseeable." Id. The unfairness of this result is underscored by the fact that the plaintiff has incurred great expense to bring this action, including the costs of obtaining and interpreting Brazilian court documents. In fact, had it not been for the delays necessary to obtain and interpret such documents, the case would have been resolved long before Collins was decided.
The Court, therefore, holds that the rules governing the statute of limitations for contract actions shall not be applied retroactively to legal malpractice actions. The plaintiff may rely upon the discovery rule to bring his cause of action within the five-year limitations period. The Court, however, holds that Collins will be applied to this case retroactively with respect to the substantive law.
Accordingly, the Court DENIES the defendants' motion for judgment on the pleadings on Count VI of the plaintiff's third amended complaint (Document No. 103), but GRANTS the motion for judgment on the pleadings on Count III (Document No. 101).
In so holding, the Court's ruling will not retard operation of the rule announced in Collins. The Court is following Collins's mandate that legal malpractice actions be limited to contractual remedies; the Court's action merely provides that the plaintiff is not barred by a statute of limitations that was inapplicable at the time that he brought his suit.
The defendants' motion for summary judgment raises the issue of whether the plaintiff has suffered any damage as a result of the defendants' alleged malpractice. First, the defendants argue that the plaintiff never had good, marketable title in Pratinha. Secondly, they argue that the plaintiff suffered no damage as a result of any act or omission by the defendants because the power of attorney that Anson used to convey the property was null and void ab initio.
In support of their first argument, the defendants argue that Manoel Berilo Gomes Dias's criminal conviction conclusively establishes the fact that Smith obtained only a fraudulent title to Pratinha. This argument is based upon Article 1525 of the Brazilian Civil Code, which provides that "civil liability is independent of criminal liability; however, one cannot continue to question the existence of acts or who performed them when these questions have been decided in a criminal proceeding." Defendants' Exhibit F Attached to Reply Affidavit of Keith Rosenn, Document No. 112. Because Manoel Berilo Gomes Dias was convicted of fraudulently creating the title to Pratinha, the defendants contend that the plaintiff cannot challenge this fact in a civil action.
The plaintiff argues that the order of conviction refers to Manoel Berilo Gomes Dias's actions in the summary probate of the property "Prainha" and not Pratinha. Thus, the plaintiff contends that the conviction relates to an entirely different parcel of property and, as a result, does not establish the falsity of Smith's title to Pratinha. The Court, however, agrees with the defendants that the reference to Prainha was a typographical error. When all of the court documents are read in context, it is clear that Manoel Berilo Gomes Dias, Iraci Resende, and Gerson de Castro Costa were indicted for fraudulently creating the title to Pratinha and that Manoel Berilo Gomes Dias and Iraci Resende were ultimately convicted upon the charges in the indictment.
Based upon Article 1525 of the Brazilian Civil Code, the Court finds that the plaintiff cannot challenge the fact that the title to Pratinha was fraudulently created. However, the Court rejects the defendants' argument that the plaintiff suffered no damage because he lacked good marketable title to the property. The defendants contend that the title was void ab initio. However, no Brazilian court has ever nullified Smith's title. In fact, although the court in Bahia refused to accept Smith's attempt to deposit his taxes with INCRA the court did not find Smith's title null and void. Rather, the court referred to the pending state action to nullify the title and stated that there was "a strong argument that it has been acquired by fraudulent means even though theoretically, the title documents prevail or are in effect until they have been definitively cancelled." This order was entered in November 1979, which was more than a year after Manoel Berilo Gomes Dias's conviction. Thus, it is significant that the Bahia court, although bound by the preclusive effect of this conviction, did not find that Smith's title was null and void ab initio.
It is equally significant to note that the state of Bahia has not pursued its action to nullify the title to Pratinha during the past 13 years and it is questionable whether it will ever do so. Therefore, until Anson used the power of attorney in rem propriam to transfer Pratinha, Smith still held title to the property. Bahia's lawsuit presented a cloud on that title and clearly diminished its value. However, it would not have prevented Smith from exercising possession over the land until such time, if any, that the title was nullified. Smith, therefore, suffered some damage as a result of Anson's sale of the property. The value of being deprived of that clouded title is a question of fact for the jury to determine.
Similarly, the Court rejects the defendants' argument that Smith suffered no damages because the power of attorney in rem propriam was void under Brazilian law. Even assuming that a Brazilian court would find that the power of attorney was void, the fact remains that Anson used the power to sell Pratinha. Smith, at the very least, must incur the costs and expenses of the legal proceedings necessary to void any transactions based upon the power of attorney and to clear the title of the clouds caused by Anson's use of the power. Therefore, it is incorrect to assume that Smith suffered no damage. Here again, however, the value of such damages present a question of fact for the jury. Accordingly, the Court hereby DENIES the defendants' Motion for Summary Judgment (Document No. 70).
B. Plaintiff's Motion for Summary Judgment
In addition to the questions of fact identified above, the Court also finds that there is a genuine issue of fact with respect to plaintiff's breach of contract allegations against attorney Prosser and his law firms. Accordingly, the Court DENIES the plaintiff's motion for summary judgment.
For the foregoing reasons, the Court hereby DENIES the defendants' Motion for Summary Judgment (Document No. 70) and motion for judgment on the pleadings on Count VI of the plaintiff's third amended complaint (Document No. 103), but GRANTS the motion for judgment on the pleadings on Count III (Document No. 101).
The Court further DENIES Phyllis Anson's motion for summary judgment (Document No. 75) as MOOT.
IT IS SO ORDERED.
DATED: August 20, 1992
James L. Foreman
SENIOR DISTRICT JUDGE