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August 18, 1994



Released for Publication September 27, 1994. Petition for Leave to Appeal Denied December 6, 1994.

Hoffman, Johnson, Theis

The opinion of the court was delivered by: Hoffman

PRESIDING JUSTICE HOFFMAN delivered the opinion of the court:

On January 31, 1990, the plaintiffs filed the instant action in the circuit court of Cook County against various attorneys and law firms seeking to recover damages allegedly sustained as a consequence of the legal representation afforded to them prior to and during a bankruptcy proceeding. After amending their complaint, the plaintiffs' filed a 17-count second-amended complaint on September 4, 1990. Counts I through IV of the complaint alleged actions against the defendant John Schwartz, counts V through VIII alleged actions against the defendant Norman B. Newman, counts IX through XII alleged actions against the defendant James Chatz, counts XIII through XV alleged actions against the defendant Lord, Bissell & Brook, and counts XVI and XVII alleged actions against the defendant Much, Shelist, Freed, Denenberg, Ament & Eiger.

Although prolix, the complaint can be divided according to the legal theories upon which the plaintiffs sought recovery. Counts I, V, IX, and XIII alleged negligence for the defendants' failure to disclose certain information to the plaintiffs relating to the financial consequences of seeking relief from their creditors under chapter 11 of the Bankruptcy Code (11 U.S.C. § 1101 et seq. (1988)), as opposed to chapter 7 of the code (11 U.S.C. § 701 et seq. (1988)). Counts II, IV, X, XIV, and XVI charge that the defendants were negligent in advising the plaintiffs to continue seeking relief under chapter 11 instead of converting their bankruptcy to a chapter 7 proceeding. Counts III, VII, XI, XV, and XVII charge that the defendants breached their fiduciary duties to the plaintiffs by failing to disclose information relating to the consequences of a chapter 11 proceeding and failing to advise the plaintiffs to convert their bankruptcy to a chapter 7 proceeding. Counts IV, VIII, and XII alleged fraud.

All of the defendants moved to dismiss the complaint pursuant to section 2-615 of the Code of Civil Procedure (Ill. Rev. Stat. 1991, ch. 110, par. 2-615 (now 735 ILCS 5/2-615 (West 1992)), for failing to state causes of action against them. While the defendants' motions to dismiss were pending, the plaintiffs voluntarily dismissed counts I, II, III, IV, VIII, and XII under section 2-1009 of the Code of Civil Procedure (Ill. Rev. Stat. 1991, ch. 110, par. 2-1009 (now 735 ILCS 5/2-1009 (West 1992)).) On February 6, 1991, upon hearing the defendants' motions as directed to the remaining 11 counts of the complaint, the trial court entered an order dismissing each remaining count for failure to state a cause of action. On March 21, 1991, the trial court denied the plaintiffs' motion to reconsider and the plaintiffs filed this appeal.

For the reasons which follow, we affirm the dismissal of counts V, VII, IX, XI, XIII, XV, and XVII, and reverse the dismissal of counts VI, X, XIV, and XVI.

Because this matter was disposed of at the trial level upon the defendants' motions to dismiss pursuant to section 2-615, the only question before this court is whether the dismissed counts state causes of action upon which relief can be granted. ( Burdinie v. Village of Glendale Heights (1990), 139 Ill. 2d 501, 565 N.E.2d 654, 152 Ill. Dec. 121; Janes v. First Federal Savings & Loan Association (1974), 57 Ill. 2d 398, 312 N.E.2d 605.) The issue presented is one of law; consequently, our review is de novo, which is independent of the reasoning of the trial court on the question. T & S Signs, Inc. v. Village of Wadsworth (1994), 199 Ill. Dec. 467, Ill. App. 3d , 634 N.E.2d 306.

For ease of analysis, we have grouped the dismissed counts according to their legal theories: counts V, IX, and XIII will be referred to as the "failure to disclose" counts; counts VI, X, XIV, and XVI will be referred to as the "negligent advice" counts; and counts VII, XI, XV, and XVII will be referred to as the "breach of fiduciary" counts. We will address the propriety of the dismissal of each group separately.

To plead a good and sufficient cause of action against an attorney for legal malpractice, a plaintiff must allege facts, which establish (1) an attorney/client relationship, (2) a duty owed by the defendant to the plaintiff arising out of that relationship, (3) a breach of that duty on the part of the defendant, (4) a proximate causal relationship between the defendant's breach of duty and the damages sustained by the plaintiff, and (5) damages. ( Claire Associates v. Pontikes (1986), 151 Ill. App. 3d 116, 502 N.E.2d 1186, 104 Ill. Dec. 526.) As stated earlier, the question of whether a good and sufficient cause of action has been pled is one of law; but the question of whether an attorney-defendant has breached a duty of care owed to the client-plaintiff is a question of fact for the trier of fact to resolve. Shanley v. Barnett (1988), 168 Ill. App. 3d 799, 523 N.E.2d 60, 119 Ill. Dec. 592.

The failure to disclose counts in the plaintiffs' complaint allege that the defendants never disclosed, advised of, or mentioned the following facts: (1) that if the plaintiffs pursued remedies under chapter 7 of the Bankruptcy Code instead of chapter 11, they would not be required to pay their unsecured creditors the amounts proposed in the chapter 11 reorganization plan; (2) that under a chapter 7 liquidation, any deficit owed to the secured creditors after foreclosure on their collateral would become unsecured debt limited to being paid from the bankruptcy estate without additional contribution from the plaintiffs; (3) that the creditors would be unlikely to pursue a liquidation of the plaintiffs' home and commercial building due to a lack of equity; (4) that under a chapter 11 proceeding, the unsecured creditors would be paid 50 cents on a dollar, whereas under a chapter 7 liquidation, the unsecured creditors would receive much less and the plaintiffs would not be required to make any payments to them; and (5) that if their bankruptcy were converted into a chapter 7 liquidation, the plaintiffs could file an administrativeclaim for all post-petition advances made by them. However, attached as an exhibit to the complaint and incorporated into each count thereof is a document entitled "Disclosure Statement, As Modified" which bears the signature of both of the plaintiffs. This document was filed in the plaintiffs' bankruptcy proceeding. Suffice it to say that each fact the plaintiffs claim was not disclosed to them, discussed with them, or mentioned to them is set forth with painstaking detail in that exhibit which they signed.

Exhibits are a part of the complaint to which they are attached and, absent some explanation, the factual matters contained within an exhibit serve to negate inconsistent allegations of fact contained within the body of the complaint. ( Goldstein v. Lustig (1987), 154 Ill. App. 3d 595, 507 N.E.2d 164, 107 Ill. Dec. 500; Village of Wheeling v. Stavros (1980), 89 Ill. App. 3d 450, 411 N.E.2d 1067, 44 Ill. Dec. 701; Sharkey v. Snow (1973), 13 Ill. App. 3d 448, 300 N.E.2d 279.) Both of the plaintiffs signed the document which is attached to their complaint as an exhibit and the complaint is devoid of any allegation explaining why the plaintiffs did not or could not have known of the disclosures contained therein. Therefore, absent some explanation in their complaint to the contrary, the plaintiffs must be charged with knowledge of the contents of a document which they signed. (See Dickinson v. Dickinson (1922) 305 Ill. 521, 137 N.E. 468.) Because the exhibit attached to the complaint belies the allegations upon which the plaintiffs' failure to disclose counts are premised rendering those counts duplicative of the plaintiffs' negligent advice counts, the trial court properly dismissed counts V, IX, and XIII of the plaintiffs' second-amended complaint.

An additional basis for affirming the dismissal of the failure to disclose counts is the total absence of any allegation that the plaintiffs would have chosen to convert their bankruptcy into a chapter 7 liquidation if they had been informed of the financial consequences of continuing to pursue relief under a chapter 11 reorganization. It is the duty of every attorney to inform a client of the available options for alternative legal solutions, as well as to explain the foreseeable risks and benefits of each. The purpose of such a rule is to enable the client to make an informed decision as to whether the foreseeable risks of a proposed legal course of action are justified by its potential benefits when compared to other alternative courses of action. If a client suffers damage because of the happening of a foreseeable risk of which he or she was not informed, the attorney may be liable. In such a case, the attorney's liability is not predicated upon the impropriety of the chosen course of action, but rather upon the failure to inform the client sufficiently to enable him or her ...

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