Appeal from the Circuit Court of Lake County. No. 96--L--70 Honorable Charles F. Scott, Judge, Presiding.
The opinion of the court was delivered by: Justice Thomas
JUSTICE THOMAS delivered the opinion of the court:
The plaintiffs, Profit Management Development, Inc. (Profit Management), now known as Petefish Management, Inc., Leslie G. Behrend (Mr. Behrend), and Norma A. Behrend (Mrs. Behrend), filed this legal malpractice lawsuit against the defendants, Jacobson, Brandvik & Anderson, Ltd. (JB&A), and Craig E. Anderson, alleging that the defendants negligently represented the plaintiffs in connection with an employment dispute between the plaintiffs and one of the plaintiffs' employees. Following a jury verdict in favor of the plaintiffs for $41,000, the trial court entered judgment on their behalf for that amount. Thereafter, both the plaintiffs and the defendants filed posttrial motions. The trial court denied both posttrial motions. The plaintiffs appeal and the defendants cross-appeal.
The record reveals that Mr. Behrend was the president of Profit Management and Mrs. Behrend was the treasurer and secretary. In 1980, the plaintiffs retained the services of JB&A, a Chicago law firm, to revise the plaintiffs' employment contracts for its sales personnel. Anderson and another partner from JB&A made that revision. In 1984, Profit Management entered into a written employment contract with Dean Baughman, one of the plaintiffs' salesmen. Under that contract, Baughman was to be paid a base salary of $35,000 per year, plus a 10% commission of gross sales that he initiated, minus his expenses. The contract prohibited modifications unless they were in writing and signed by both parties.
Leslie Behrend testified that Profit Management sent a letter to Baughman in March 1988 attempting to amend his commission schedule. According to Mr. Behrend, Baughman did not object to the letter, and he received and accepted commissions based upon the modified formula.
Dean Baughman testified that he did not agree to the modification because the new method of calculation under the modification would have reduced his commission 10 times. He testified that he specifically told Mrs. Behrend that the change was totally unacceptable. Thereafter, Baughman noticed inconsistencies in his commission checks and by November 1988 he was making continuous inquiries about them.
On April 18, 1989, Profit Management sent Baughman a letter terminating his employment. The letter acknowledged that Profit Management owed Baughman commissions of $20,719.64. On the same day that the letter was sent, Mr. Behrend sent a letter to a private investigator asking him to determine whether Baughman had had any employment outside of Profit Management in violation of a provision contained in the employment agreement prohibiting outside employment. On June 30, 1989, Mr. Behrend sent a letter to James A. Brandvik, a partner at JB&A, which stated that he had dismissed Baughman for "economic reasons" and that, although he did not have all the proof yet, he believed Baughman had been working for a competing consulting firm. Along with the letter, Mr. Behrend sent a copy of the private investigator's June 28, 1989, report on Baughman's activities. The letter to JB&A concluded by stating, "Let's have some more fun, Jim!"
On July 17, 1989, Profit Management sent Baughman a letter telling him that it would not pay him any commissions. On January 5, 1990, Baughman, through his attorney, sent a demand letter to Profit Management. Profit Management then sent that letter to JB&A, stating that it was "forwarding it to you for counsel and action decision. Please let us hear from you." On January 26, 1990, JB&A sent Baughman and his attorney a letter stating that Profit Management was denying the claim based on a provision in the parties' contract that, in the event of a violation of its terms by the employee, the employee would forfeit any unpaid bonuses or incentive compensation. On February 15, 1990, Baughman filed a breach of contract action against Profit Management in the circuit court of Cook County.
Paragraph 9 of that complaint stated:
"In early 1988, [Profit Management] attempted to alter the terms of the employment agreement signed by the parties, but this was never agreed to by Baughman, and no written modification was agreed to or signed by the parties, as required under the terms of the employment agreement, Section 11."
On May 29, 1990, Brandvik filed an answer of behalf of Profit Management admitting paragraph 9 of Baughman's complaint. The answer included an affirmative defense, alleging that Baughman was not entitled to commissions because he violated the forfeiture provisions of the parties' contract. In their answer, Brandvik and JB&A did not include an affirmative defense based on any attempted modification of the contract by Profit Management in 1988, nor did they file a counterclaim against Baughman for breach of contract.
After some discovery in the case, Baughman revised his demand claiming that he was entitled to $143,801.76 in commissions because he had not agreed to the 1988 modification. Thereafter, on April 30, 1991, Baughman made a written settlement offer of $35,000. According to Mr. Behrend, JB&A faxed the settlement offer to his office, but he did not see it because he was out of town at the time. He testified that he never discussed the settlement offer with anyone from JB&A, nor did JB&A advise him as to the cost of settlement in relation to the cost of defending the suit. However, on cross-examination, he acknowledged that he had previously given sworn testimony indicating that his attorney had told him about the $35,000 settlement but that he was "miles apart in agreement."
On November 7, 1991, Mrs. Behrend wrote Brandvik a letter stating in part:
"I get the feeling that your firm feels that we owe the man money for commission when he was not living up to the contract which your firm wrote. I don't want to lose this case. I know that nothing is 'for sure', but I do dislike always being the patsy for employees who sap my money and don't earn it."
On November 20, 1993, Profit Management terminated JB&A, claiming that the firm was not ready for trial of the case, which was scheduled for January 24, 1994. On November 30, 1993, the plaintiffs hired Joe Marconi of Johnson & Bell as substitute counsel. Mr. Behrend admitted that Marconi reviewed the file in the case and wrote him on December 17, 1993, that the case would be difficult to defend because of the admission to paragraph 9 of Baughman's complaint. In that letter, Marconi informed the Behrends that he had attempted to amend their answer to paragraph 9. The amendment was denied by the trial court on December 21, 1993. Mr. Behrend incurred attorney fees in connection with Johnson & Bell's efforts to amend the answer and affirmative defenses. He was billed for those services on December 21, 1993. Mr. Behrend admitted that he received that bill on January 21, 1994, and that he was personally responsible for the attorney fees billed by Johnson & Bell in connection with the case. Mr. Behrend acknowledged that Marconi told him that the attorney fees were incurred "to clean up what the Brandvik law firm did that was wrong."
On January 18, 1994, the trial court granted Baughman's motion to dismiss the affirmative defense based on the forfeiture provision of the parties' agreement, finding that it constituted a penalty and was therefore unenforceable as a matter of law. At that time, the trial court further made various rulings on previously filed motions in limine. In that regard, the court ruled that Profit Management could not present any evidence based on the forfeiture provision or with respect to the claim that the contract had been modified in 1988. At that time, the trial judge suggested that Profit Management take a judgment against itself for $75,000. Michael Lynch, an associate at Johnson & Bell, advised the Behrends that they should not allow a judgment to be taken against the corporation for that amount because it would not protect them from personal liability in a subsequent case filed against them individually and because the amount suggested did not include attorney fees. Also on January 18, 1994, Baughman filed an emergency motion to sue the Behrends personally after he learned that the corporation had insufficient assets to satisfy any judgment that might be obtained. The trial court denied that motion on January 20, 1994. The trial of the Cook County case commenced on January 24, 1994. The answer filed by JB&A to paragraph 9 of Baughman's complaint was used at trial as evidence that Baughman never agreed in 1988 to a modification of the method for computing commissions. A jury returned a verdict in favor of Baughman for $145,000. After adding attorney fees, the trial court entered a judgment in favor of Baughman for $218,992.04.
On April 18, 1994, Baughman filed a complaint in federal district court against Mr. and Mrs. Behrend, individually, alleging fraud and tortious interference with contract in their refusal to pay Baughman the commissions that were allegedly owed to him. With respect to the fraud claim, Baughman was required to prove by clear and convincing evidence that the Behrends acted fraudently. With respect to the tortious interference with contract claim, Baughman had to show that the Behrends interfered with his contract either for their own personal gain or to harm Baughman.
While the federal lawsuit was pending, the plaintiffs filed the present malpractice action against JB&A in the circuit court of Lake County on January 24, 1996. The plaintiffs' complaint alleged that JB&A breached the professional standard of care by not advising the plaintiffs of the risk of not paying Baughman's claim, by failing to advise them that the forfeiture provision of the Baughman contract was unenforceable, by filing an answer to Baughman's Cook County case admitting the allegations of paragraph 9 of the complaint, by failing to file a counterclaim against Baughman for breach of contract, by failing to advise the plaintiffs to settle when the $35,000 offer was presented, by failing to properly advise the plaintiffs of the risk of relying on the oral modification of the contract, and by failing to advise the plaintiffs of the cost of defense in relation to the settlement offer. The defendants in the present case filed an answer on June 28, 1996, and on November 6, 1996, they filed their first affirmative defense, alleging that the plaintiffs' cause of action was time barred by the applicable statute of limitations for legal malpractice actions contained in section 13--214.3(b) of the Code of Civil Procedure (the Code) (735 ILCS 5/13--214.3(b) (West 1998)).
In the federal case, the Behrends were precluded from presenting any evidence with respect to the attempted modification of Baughman's contract in 1988. Additionally, the amount of the Cook County judgment was allowed into evidence and was the only evidence of damages allowed. Baughman presented evidence in the federal case that the Behrends understated his commissions, hired a private investigator to investigate him the same day he was terminated, and personally took $50,000 out of their corporation after the Cook County judgment but claimed to have no assets to pay the judgment. While the jury was deliberating, the Behrends settled the federal case for $400,000. The settlement occurred sometime in October 1997. Thereafter, on November 7, 1997, the defendants in the present action were allowed leave to file a second affirmative defense, alleging that the plaintiffs fraudulently refused to pay Baughman his commission and, therefore, the defense of unclean hands should bar the plaintiffs from recovery in the Lake County case as a matter of law.
On January 15, 1998, the plaintiffs filed a third amended complaint in the Lake County case. The defendants filed a combined section 2--615 and 2--619 (735 ILCS 5/2--615, 2--619 (West 1998)) motion to dismiss that complaint based on the issues of the statute of limitations, unclean hands, standing, and proximate cause. The trial court denied the defendants' motion to dismiss. The defendants did not file an answer to the plaintiffs' third amended complaint. The plaintiffs then filed a motion for leave to file a verified fourth amended complaint.
Paragraph 42 of the plaintiffs' complaint alleged the following new allegation:
"JB&A's counsel in this action, as agents of the defendants, without the consent of the plaintiffs, turned over to Robert Bloch, counsel for Baughman in the federal court case, confidential documents of plaintiffs, including a letter dated June 30, 1989 from plaintiffs to Brandvik, their lawyer, and the transcript of the discovery deposition of Leslie Behrend taken in this action but not filed with the Clerk of this Court, which documents were used in final argument by Bloch to support his contention that the activities of Behrends in not paying Baughman were malicious."
In his deposition, Mr. Behrend stated that one of his successor attorneys from Johnson & Bell told him that any judgment Baughman obtained would have value only in the fact that Baughman would be able to place it on the bathroom wall and look at it when he "took a leak." The June 30, 1989, letter was referred to in the deposition. Both the letter and statement from the deposition were apparently used by Baughman's attorney in the federal lawsuit in support of the fraud claim.
The plaintiffs further alleged in their fourth amended complaint that the allegations contained in paragraph 42 constituted a breach of the professional standard of care in that the documents were confidential and protected by the attorney-client privilege. The defendants objected to paragraph 42 of the complaint. Following a hearing on the matter, the trial court struck paragraph 42, finding that the discovery deposition of Mr. Behrend and the letter of June 30, 1989, became public documents upon the taking of the deposition and, therefore, Daniel Konicek, the defendants' attorney in the present case, had the right to give a transcript of the deposition to attorney Bloch for use in the federal case. The trial court allowed the remainder of the plaintiffs' fourth amended complaint to be filed on August 12, 1998, and gave the defendants until August 17, 1998, to file an answer.
A jury trial in the case commenced on August 17, 1998, without the defendants having their answer on file. Following the presentation of the plaintiffs' case in chief on August 20, 1998, the plaintiffs filed a motion for a directed verdict and the defendants moved for leave of court to file their answer and affirmative defenses. The trial court denied the plaintiffs' motion for a directed verdict and allowed the defendants to file their answer and previously filed affirmative defenses. In so doing, the court noted that it had discretion to allow the late filing, that the plaintiffs' fourth amended complaint was filed eight days earlier, and the defendants' answer was three days late. He noted that the affirmative defenses were previously pleaded and did not take ...