The opinion of the court was delivered by: Pallmeyer, District Judge.
MEMORANDUM OPINION AND ORDER
Until January 1996, Plaintiffs Pamela and Michael Alper were
the owners of Terrific Promotions, Inc. (TPI), a discount
merchandising business. In 1996, the Alpers transferred their
interest in TPI to Dollar Tree Stores (DTS) for fifty-three
million dollars. The Chicago law firm of Altheimer & Gray and two
Altheimer attorneys, Robert Schlossberg and Myron Lieberman,
represented the Alpers in this transaction. According to the
Alpers, however, they intended to sell only their retail business
and never intended to transfer their wholesale merchandising
business. The Alpers claim that, contrary to their wishes,
Defendants drafted an agreement that transferred both businesses
to DTS and enabled DTS to acquire key personnel and business
information from TPI.
This transaction gone awry has led to multiple lawsuits and a
tortured procedural history. In a nutshell, the Alpers sued DTS
and Timothy Avers, a former TPI employee who went to work for
DTS, in state court in 1996 for a variety of claims including
fraud, breach of contract, civil conspiracy, and unfair
competition. Ultimately, the Alpers voluntarily dismissed that
suit. Shortly before doing so, however, the Alpers sued DTS and
Avers in federal court for violation of federal securities and
antitrust laws, as well as state law causes of action which were
the same as
those the Alpers had pleaded in state court. Judge Lindberg
dismissed the federal claims and declined to exercise
supplemental jurisdiction over the state law claims. Terrific
Promotions, Inc. v. Dollar Tree Stores, 947 F. Supp. 1243
(N.D.Ill. 1996). The Alpers, residents of Florida, then filed the
instant diversity action against Defendants in federal court on
February 21, 1997.
The Alpers originally had eight claims against Defendants, but
they have withdrawn four of them. What remains are claims for
fraud (Count I), violation of the Illinois Consumer Fraud and
Deceptive Business Practices Act (Count II), professional
negligence (Count III), and breach of fiduciary duty (Count
VIII). Defendants have moved for summary judgment on Counts III
and VIII, claiming that the Alpers' legal malpractice claim is
premature. Judge Norgle, who was first assigned this case,
referred this motion as well as several others to Magistrate
Judge Denlow. Judge Denlow heard oral argument, but then recused
himself, and the referral was transferred to Magistrate Judge
Ashman. Judge Ashman also heard oral argument,*fn1 but before he
made any ruling the motions were transferred to newly-appointed
Magistrate Judge Nolan. On February 22, 1999, Judge Nolan issued
a report and recommendation (R & R)*fn2 that Defendants' motion
for summary judgment be denied. Defendants and the Alpers have
filed objections to this recommendation. This court must "make a
de novo determination upon the record, or after additional
evidence, of any portion of the magistrate judge's disposition to
which a specific written objection has been made." FED.R.CIV.P.
72(b). For the reasons set forth below, Defendants' motion for
summary judgment is denied.
In the absence of any objection from the parties as to its
particulars, the court adopts Judge Nolan's factual summary,*fn3
The Alpers are citizens and residents of Florida.
First Am.Cmplt. ¶¶ 2, 3. Defendant Altheimer & Gray
("Altheimer" or "A & G") is a law firm organized as
an Illinois partnership with its principal place of
business located at 10 South Wacker Drive, Chicago,
Illinois 60606. Id. ¶ 4. Myron Lieberman
("Lieberman") and Robert L. Schlossberg
("Schlossberg") are residents and citizens of
Illinois and partners of Altheimer. Id. ¶¶ 5, 6.¹
Thus, federal jurisdiction is premised on diversity
of citizenship pursuant to 28 U.S.C. § 1332.
1. Hereinafter the Defendants will be referred to
collectively as the Altheimer Defendants.
Prior to January 31, 1996, the Alpers owned 100% of
the stock of Terrific Promotions, Inc. ("TPI"). Id.
¶ 11. TPI engaged in two types of business: (1)
retail sale of consumer goods priced at one dollar
through their "Dollar Bill$" retail outlets supplied
by a distribution center; and (2) wholesale
merchandising of brand-name products to distributors
and wholesalers. Id. ¶ 10. In the fall of 1995,
Dollar Tree Stores, Inc. ("DTS"), a competitor of
TPI, offered to purchase the Alpers' retail business
center. Id. ¶ 11. The Alpers agreed to sell their
retail business and distribution center. Id. ¶ 12.
In September of 1995, the Alpers retained Lieberman
and Altheimer to represent them in the transaction
with DTS ("DTS transaction"). Id. ¶ 13. On
September 18, 1995, the Alpers and Lieberman met for
the first time and Lieberman [allegedly] promised the
Alpers that he would be personally and actively
involved in and supervise Altheimer's work on the DTS
transaction and that the Alpers would be charged a
fair and appropriate fee for legal services. Id. ¶
14. From the outset of the representation, the Alpers
[allegedly] advised Lieberman and Altheimer that the
DTS transaction would be limited to the sale of TPI's
retail business and distribution center. Id. ¶ 16.
According to the Alpers, TPI's wholesale
merchandising business was "off the table." Id.
Without the Alpers' approval, Schlossberg and other
inexperienced Altheimer attorneys performed the work
associated with the DTS transaction, including
preparing and reviewing the necessary documents and
formal agreements. Id. ¶ 19. During the course of
the representation, Leiberman [allegedly] assured the
Alpers that he was personally involved in and
responsible for the work on the DTS transaction.
Id. ¶¶ 20-23.
On or about January 16, 1996, the Alpers executed
signature pages of various transaction documents.
Id. ¶ 25. . . . According to the Alpers,
Altheimer's attorneys did not meet with them to
explain and review the terms of the final transaction
documents prior to their execution of the signature
pages. Id. The transaction closed on January 31,
1996. Id. ¶ 26.
The Alpers later discovered that Altheimer
[allegedly] negligently drafted the transaction
documents and "did not protect the Alpers' interests
and afforded DTS the opportunity to take the
TPI/Alper wholesale merchandising business." Id. ¶
25. The Alpers allege that the Altheimer Defendants
knew that the transaction documents might not
"inhibit DTS from hiring key wholesale merchandising
personnel" or "prohibit DTS from pursing a
continuation of the TPI/Alper wholesale merchandising
business." Id. ¶ 26. The Alpers maintain that
"negotiations could have been pursued with DTS so as
to immunize and protect the TPI/Alper wholesale
merchandising business as well as critical employment
relationships with key wholesale merchandising
C. Events After the DTS Transaction
After the closing, Timothy Avers ("Avers"), "a
critical employee" of TPI's wholesale business,
announced that he was joining DTS and taking other
key TPI wholesale personnel and information with him.
Id. ¶ 28. On February 12, 1996, the Alpers met with
Altheimer attorneys and sought advice regarding
Avers' conduct. Id. ¶ 29. On this same day, the
Alpers paid Altheimer $200,000 for legal services
associated with the DTS transaction. Id. The Alpers
allege that at least as early as February 12, 1996,
Altheimer knew or should have known that the Alpers'
"interests had been compromised by A & G's
incompetence and breaches of duty." Id. ¶ 30.
However, at the February 12, 1996 meeting, Altheimer
suggested potential claims by the Alpers against DTS
and failed to mention its own attorneys[']
"misfeasance and negligence." Id.
Following the February 12, 1996 meeting, the Alpers
retained new counsel. Id. ¶ 32. On February 20,
1996, the Alpers' new counsel met with Schlossberg to
discuss the details of the DTS transaction. Id.
During that meeting, Schlossberg confirmed that the
Alpers did not want to sell their wholesale business
and indicated that the transaction documents prepared
by Altheimer attorneys did not specifically retain
the wholesale business. Id. At the sane [sic]
meeting, the Altheimer Defendants stated that they
would cooperate with the
Alpers in any litigation against DTS and Avers. Id.