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08/29/97 ANGELA SARNO AND BETTER CARE v. DR. ALFRED

August 29, 1997

ANGELA SARNO AND BETTER CARE, LTD., PLAINTIFFS,
v.
DR. ALFRED A. AKKERON, BROADWAY REAL ESTATE CORPORATION, BROADWAY ORTHOPEDIC, LTD., ALBERT L. GRASSO, PAUL THERMEN, LARRY BELLER AND EVANS, MARSHALL, & PEASE, P.C., DEFENDANTS. EVANS, MARSHALL, & PEASE, P.C., COUNTERPLAINTIFF-APPELLANT, V. ALBERT L. GRASSO, COUNTERDEFENDANT-APPELLEE.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE PATRICK E. McGANN, JUDGE PRESIDING.

Released for Publication October 9, 1997.

The Honorable Justice Hoffman delivered the opinion of the court. Hartman, P.j., and Hourihane, J., concur.

The opinion of the court was delivered by: Hoffman

The Honorable Justice HOFFMAN delivered the opinion of the court:

The plaintiffs, Angela Sarno and Better Care, Ltd., filed suit against Dr. Alfred A. Akkeron and Evans, Marshall & Pease ("EMP"), among others, alleging they conspired in the bad-faith filing of an involuntary bankruptcy petition against Better Care. EMP counterclaimed against its attorney, Albert Grasso, alleging that Grasso engaged in legal malpractice by advising EMP to participate in the involuntary bankruptcy petition. On motion by Grasso, the trial court dismissed EMP's counterclaim under section 2-6.15 of the Code of Civil Procedure ("Code")(735 ILCS 5/2-615(a)(4) (West 1994)), finding it barred by the bankruptcy court's decision. In this appeal, EMP contends that (1) it was prejudiced by the improper designation of Grasso's motion to dismiss as originating under Code section 2-615, rather than section 2-619 (735 ILCS 5/2-619 (West 1994)); (2) its counterclaim stated a cause of action for legal malpractice; and (3) the court erred in finding that it was precluded from asserting its legal malpractice claim under the doctrines of collateral estoppel and unclean hands.

In March 1986, Sarno, an occupational therapist, and Akkeron, an orthopedic specialist, formed a medical corporation known as Better Care, Ltd., to provide physical and occupational therapy services. Under their agreement, Akkeron was to refer patients to the practice while Sarno provided the physical therapy services. Akkeron also agreed to furnish the funds necessary to establish the business. Better Care retained EMP, Akkeron's personal and professional accounting firm, as the corporation's accountants, and also engaged Grasso, Akkeron's personal attorney, to assist in the process of incorporating Better Care and to serve as its counsel.

Late in 1986, it became necessary to restructure the business relationship between Sarno and Akkeron, and in the ensuing months, the two became embroiled in a bitter dispute over the control of Better Care. The dispute was still unresolved in early 1988, when EMP unexpectedly learned from Better Care's receptionist that it had been terminated as Better Care's accountant. As of that time, Better Care owed EMP $300 for its services for the most recent quarter-year. Better Care also had accumulated some outstanding debts to other creditors, including Akkeron and Broadway Land Development Company ("Broadway"), a corporation solely-owned by Akkeron which rented space to Better Care.

On February 22, 1988, Grasso filed a petition in bankruptcy court on behalf of EMP, Akkeron, and Broadway, which sought to impose involuntary bankruptcy upon Better Care. In a published order dated March 1, 1989, the court dismissed the petition, concluding that the petitioners had fallen short of satisfying the requirements of the Bankruptcy Code for a declaration of bankruptcy status. See 11 U.S.C. § 303(b), (h)(1) (1988). The court found, in relevant part, a complete lack of evidence that Better Care was not paying debts as they became due within the meaning of section 303(h)(1). In re Better Care, Ltd., 97 Bankr. 405, 407 (Bankr. N.D. Ill. 1989); 11 U.S.C. § 303(h)(1) (1988).

The court reserved jurisdiction to consider a petition filed by Better Care and Sarno alleging that the petitioners had initiated the bankruptcy proceedings in bad faith under section 303(i)(2) of the Bankruptcy Code (11 U.S.C. § 303(i)(2) (1988)). Following a hearing on July 14, 1988, the court determined that each of the creditors had filed the petition for the sole purpose of harassing Sarno and driving her and Better Care out of business. The court also found that Grasso had provided the creditors with incompetent representation regarding the petition. However, regardless of this fact, the court ruled that each creditor had formed its own antipathy towards Sarno and had decided to act upon it "wholly independently from Grasso's advice." Accordingly, after a third hearing in November of 1988, the court awarded Better Care, inter alia, compensatory damages of $3,496.19, attorney fees of $50,785.24, and punitive damages of $2,000 against EMP. In addition, the court sanctioned Grasso and his law firm sua sponte under Bankruptcy Rule 9011, for filing and pursuing the petition. The court "strongly urge[d] the Grasso firm to invest in bankruptcy education prior to embarking into bankruptcy matters in the future."

On July 26, 1993, Sarno and Better Care filed their first amended complaint for imposition of a constructive trust and other relief, which gave rise to the counterclaim at issue. The complaint alleged various acts undertaken, particularly by Akkeron, which were part of a scheme designed to destroy Better Care and to terminate Sarno's interest in the corporation. The complaint further charged that EMP knowingly took part in this scheme by joining in the filing of the bankruptcy petition.

EMP brought a two-count counterclaim charging Grasso with legal malpractice, based both upon negligence and breach of contract. According to the counterclaim, Grasso solicited EMP to participate in the filing of the bankruptcy action, representing that it was an appropriate means to collect the outstanding debt that Better Care owed EMP. EMP alleged that Grasso failed to indicate that the petition was without legal or factual basis, and neglected to advise EMP regarding the risks associated with the filing. EMP sought recovery of the actual and punitive damages it was ordered to pay by the bankruptcy court, plus any damages and attorney fees incurred as a result of Sarno and Better Care's pending claim.

Grasso moved to dismiss the counterclaim under Code section 2-615, advancing several arguments as to its legal insufficiency. In his reply brief, Grasso raised an additional argument sounding in collateral estoppel: that the bankruptcy court's determination of bad faith precluded EMP from recovering any damages against Grasso for legal malpractice.

Following a hearing, the transcript of which was omitted from the record, the trial court dismissed EMP's counterclaim under section 2-615. In written findings, the court concluded that EMP was collaterally estopped from suing Grasso for malpractice by the bankruptcy court's finding that it had filed the underlying action in bad faith. As an alternative basis for dismissal, the court found EMP's suit barred under the equitable doctrine of unclean hands. The instant appeal followed.

On appeal, EMP contends that the court erred in finding that the malpractice claim was barred by the bankruptcy court's decision that the creditors had filed the bankruptcy case in bad faith. Initially, however, EMP argues that Grasso engaged in improper motion practice by asserting his collateral estoppel argument in the context of a motion for judgment on the pleadings, rather than in a motion to dismiss under Code section 2-619(a)(4). 735 ILCS 5/2-619(a)(4) (West 1994). EMP ...


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