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ALPER v. ALTHEIMER & GRAY

August 31, 1999

PAMELA J. ALPER AND MICHAEL N. ALPER, PLAINTIFFS,
v.
ALTHEIMER & GRAY, AN ILLINOIS GENERAL PARTNERSHIP, MYRON LIEBERMAN, INDIVIDUALLY, AND ROBERT L. SCHLOSSBERG, INDIVIDUALLY, DEFENDANTS.



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The Alpers originally had eight claims against Defendants, but they have withdrawn four of them.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.

FACTUAL BACKGROUND

In the absence of any objection from the parties as to its particulars, the court adopts Judge Nolan's factual summary,*fn3 as follows.

A. The Parties

    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.

B. The DTS Transaction

    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
  and distribution

  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
  personnel." Id.

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.

D. Litigation²

1. State Court ...


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