United States District Court, N.D. Illinois
January 9, 2004.
INDUCTAMETALS CORP., Plaintiff/Counter-defendant, v., ARENT FOX KINTNER PLOTKIN & KAHN, PLLC, Defendant/Counter-plaintiff, vs., INDUCTAMETALS CORP., ACME WINDOW COVERINGS, LTD., INDUCTAMETALS L.P., THEODORE KRENGEL AND JOSHUA KRENGEL, Counter-defendants
The opinion of the court was delivered by: SIDNEY SCHENKIER, Magistrate Judge
MEMORANDUM OPINION AND ORDER
This case involves a dispute between the plaintiff, Inductametals
Corporation ("Inductametals" or "IDM") and its former legal counsel,
Arent Fox Kintner Plotkin & Kahn, PLLC ("Arent Fox" or "AF"). In its
complaint, Inductametals alleges three claims for relief: in Count I,
Inductametals seeks a declaratory judgment that it has no further
obligation to pay attorneys' fees or costs for legal services Arent Fox
rendered before Inductametals terminated the relationship, and that Arent
Fox is required to return certain amounts that have been paid; in Counts
II and III, Inductametals asserts claims of legal malpractice, in the
form of claims for breach of fiduciary duty (Count II) and breach of
contract (Count III). For its part, Arent Fox has asserted a counterclaim
third-party action, asserting various theories in aid of its effort
to recover unpaid legal fees and expenses allegedly due to Arent Fox in
connection with its representation of Inductametals.*fn1
Arent Fox has filed a motion for partial summary judgment on Counts II
and III of Inductametals' complaint (doc. #36). For the reasons stated
below, Arent Fox's motion is granted.*fn2
Summary judgment is proper if the record shows that there is no genuine
issue as to any material fact, and that the moving parties are entitled
to judgment as a matter of law. Fed.R.Civ.P. 56(c). A genuine issue
for trial exists only when "the evidence is such that a reasonable jury
could return a verdict for the nonmoving party." Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). If the evidence is merely
colorable, or is not significantly probative, summary judgment may be
granted. Id. at 249-50; see also Flip Side Productions, Inc.
v. Jam Productions, Ltd., 843 F.2d 1024, 1032 (7th Cir.), cert.
denied, 488 U.S. 909 (1988). In deciding a motion for summary
judgment, the Court must view all evidence in the light most favorable to
the nonmoving party, Valley Liquors, Inc. v. Renfield Importers,
Ltd., 822 F.2d 656, 659 (7th Cir.), cert. denied,
484 U.S. 977 (1987), and must draw all reasonable inferences in the
nonmovant's favor. Santiago v. Lane, 894 F.2d 218, 221 (7th Cir. 1990).
When a material fact or a set of facts yields competing, but
reasonable, inferences, then there is a genuine issue that precludes
summary judgment. The non-moving party's burden is to identify facts that
are both material and genuinely disputed. Celotex Corp. v.
Catrett, 477 U.S. 317, 324
(1986) To be material, a fact must be outcome determinative under
the substantive law governing the motion. Insolia v. Philip Morris
Inc., 216 F.3d 596, 598 (7th Cir. 2000). A "genuine issue" exists
when the party opposing the motion for summary judgment serves and files,
pursuant to local Rule 56.1, a concise statement outlining the material
facts that require denial of summary judgment, supported by citations to
the evidentiary materials that support those denials (e.g.,
affidavits, depositions, answers to interrogatories, admissions etc.).
Fed.R.Civ.P. 56(c). Although the party seeking summary judgment bears
the initial burden of proving that there is no genuine issue of material
fact, Celotex, 477 U.S. at 323, the non-moving party cannot rely
upon the pleadings alone, but must use the evidentiary tools outlined
above to identify the material facts that show there is a genuine issue
for trial. Id. at 324; Insolia, 216 F.3d at 598.
We begin with the following material facts, which are not genuinely in
dispute. The parties organize the facts into two categories: the Xaloy
litigation and the insurance coverage disputes. We will adopt that
A. The Xaloy Litigation.
In January 2000, Xaloy Incorporated ("Xaloy") filed a patent
infringement suit against IDM in the United States District Court for the
Western District of Virginia (AF's Rule 56.1 Statement of Undisputed
Material Facts (hereinafter, "AF 56.1 St.," ¶ 6). The case was
assigned to Judge James C. Turk (Id.). In February 2000, IDM
contacted Arent Fox about representing it in connection with the Xaloy
litigation. On February 9, 2000, James H. Hulme, a partner at Arent Fox,
sent IDM's Chairman and CEO, Theodore Krengel, an engagement letter
outlining the terms of Arent Fox's proposed representation of IDM
(Id., ¶ 8). Although the parties dispute the precise date
Fox began to bill IDM for legal services, the parties agree that
IDM retained Arent Fox as legal counsel in the Xaloy litigation sometime
after the February 9, 2000 engagement letter was sent to IDM
(Id., ¶ 8).
Xaloy sought approximately $6 million in damages from IDM and an
injunction against infringing sales. An adverse judgment would have
effectively put IDM out of business (AF 56.1 St. ¶ 11). By no later
than October 2000, IDM and Xaloy were involved in settlement discussions
(see AF 56.1 St., Ex. 16). Settlement discussions between IDM
and Xaloy continued, from time to time, until Arent Fox withdrew from its
representation of IDM in June 2001 (AF56.1 St. ¶¶ 12, 14, 15 and Exs.
16-22). At least until April 2001, IDM's point person for the settlement
discussions with Xaloy was Howard Gilbert, a partner at the law firm of
Wildman, Harrold, Allen & Dixon and a Director of IDM (AF 56.1 So.
¶¶ 9, 12 and Exs. 16-22). In April 2001, Arent Fox took the lead in
the negotiations (AF 56.1 St., Ex. 22). However, prior to April 2001,
Arent Fox knew about the settlement discussions between IDM and Xaloy
(Id., ¶ 12).*fn3
In February 2001, IDM and Xaloy discussed a settlement involving
payment by IDM to Xaloy of $500,000.00 and the parties' mutual agreement
to a variety of other settlement terms (see AF 56.1 St., Exs.
17-18). When the parties could not reach agreement on all terms, on March
22, 2001, Xaloy informed IDM that Xaloy's settlement proposals was
withdrawn (Id., Ex. 19). On April 13, 2001, Xaloy sought to
revive the settlement negotiations (Id., at ¶ 14 and Ex.
20). At that time, Xaloy informed IDM that Xaloy would accept the terms
it had proposed in February 2001, but that Xaloy had increased its
monetary demand from $500,000.00 to $1 million (Id.)
offered to allow payment to be made in installments over two years,
rather than within 10 days as previously proposed (compare AF
56.1, Exs. 18 and 20). Between April 2001 and June 1, 2001, Mr. Hulme, an
Arent Fox attorney, in consultation with Ted Krengel and Mr. Gilbert,
drafted a settlement and license agreement that included the payment to
Xaloy of $1 million, over time and without interest (AF 56.1 St. ¶
15, Exs. 21-22). On May 31, 2001, Arent Fox strongly recommended to IDM
that it accept the settlement terms (Id., Ex. 22). IDM did not
do so, and on June 1, 2001, Xaloy again withdrew its settlement proposal
and discontinued negotiations (Id., ¶ 15 and Ex. 23).
On or about May 31, 2000, IDM retained the law firm of Jenner &
Block to replace Arent Fox as its lead counsel in the Xaloy litigation.
On June 5, 2001, IDM, through Jenner & Block and IDM's new local
counsel, Jones & Glenn, filed a motion for leave to substitute
counsel and for continuance of the trial date (AF 56.1 St., Ex. 25). The
motion for continuance stated, inter alia, that, while Xaloy had
conducted extensive discovery, IDM, through its then counsel
Arent Fox, had not conducted "such basic discovery as taking the
depositions of [Xaloy's] officers or employees, including key witnesses
such as the inventors of the patent at issue who remain officers or
employees of Xaloy." (AF 56.1 St., Ex. 25, ¶ 4). The motion assigned
as the "apparent" reason for the failure to complete this discovery the
parties efforts to settle the case (Id., Ex. 25, ¶ 4). The
motion also acknowledged that Judge Turk had continued the trial date
once before, at the parties' mutual request, but asked that IDM not be
punished because it "expended most of its efforts during that additional
period in a good faith pursuit of an amicable settlement with Plaintiff,
rather than on costly and burdensome discovery that at least initially
appeared would be rendered unnecessary by a settlement, . . ."
(Id., Ex. 25, ¶ 8).
In the motion, IDM asked Judge Turk to continue the trial date for 45
days to July 23, 2001 in order to allow IDM to "fulfill
its discovery obligations, complete basic discovery pertaining to
plaintiff Xaloy, Inc. . . ., and prepare for a trial on the merits" (AF
56.1 St., Ex. 25, Introductory Paragraph and ¶ 6). IDM set forth in
detail the discovery it planned to do in this 45-day period, including
responding to outstanding discovery IDM owed to Xaloy (Id., Ex.
25, ¶ 6); deposing key Xaloy witnesses, including retained expert
witnesses (Id. ¶¶ 4, 10-11); serving additional written
discovery on Xaloy (Id., ¶ 12); and disclosing its own
retained expert witnesses and presenting them for depositions
(Id., ¶ 10). IDM stated that this discovery was necessary to
permit IDM to present "a basic defense" (Id. ¶ 6), which IDM
stated would include a "significant patent invalidity defense based on
prior art" (Id., ¶ 7). IDM further stated that it intended
to file a Request for Reexamination of Xaloy's patent with the United
States Patent & Trademark Office ("PTO"). IDM also stated that during
this 45-day period, it anticipated that "settlement talks will continue"
(Id., ¶ 17).
In an order dated June 8, 2001 ("June 8 Order"), Judge Turk granted
IDM's motion for continuance (AF 56.1 St., Ex, 27). The order stated that
"[h]aving fully considered the parties' briefs, oral arguments and the
relevant law, it is this Court's opinion that the trial date should be
continued to allow newly substituted counsel adequate time to prepare for
trial" (AF 56.1 St. ¶ 18, Ex. 27). The June 8 Order required IDM to
"reimburse" Xaloy $10,000.00 "for reasonable attorney's fees and costs"
(AF 56.1, Ex. 27), although the order did not state the reason for this
reimbursement (IDM's rule 56.1 Statement of Additional Facts (hereinafter
"IDM Add'l Facts") ¶ 2, Ex. 27). The June 8 Order did not comment on
or impose any limits on IDM's proposed discovery program.
Moreover, nothing in the June 8 Order limited IDM's right to assert, or
evidence supporting, any potential defense to Xaloy's claims at
trial; nor did that order limit IDM's right to seek leave to assert
Judge Turk's order triggered a flurry of activity in the case. On or
about June 8, 2001, Xaloy filed a renewed motion for preliminary
injunction (AF 56.1 St. ¶ 19 and Ex. 28).*fn5 On June 19, 2001, 1DM
filed a 37-page brief in opposition to the motion, supported by 40
exhibits, as well as a motion for a preliminary construction of the
patent claims in suit, which EDM asserted was necessary before Xaloy's
preliminary injunction motion could be addressed (Id., ¶ 19
and Exs. 29-31). Soon thereafter, Xaloy withdrew its preliminary
injunction motion (See AF 56.1 St., Ex. 36, at 13).
IDM also pursued discovery. On June 19, 2001, IDM provided Xaloy with a
supplemental discovery response (AF 56.1 St. ¶ 20 and Ex. 32). In
that response, IDM among other things identified four
expert witnesses, as well as 17 citations to prior art that IDM claimed
rendered Xaloy's patent invalid (Id.). I DM also served expert
reports on Xaloy's counsel (Id., Ex. 35). In addition, although
there is no evidence that JDM served new written discovery requests on
Xaloy, IDM did seek further responses to written discovery that
previously had been served on Xaloy by predecessor counsel (Id.,
Ex. 34, at 2). IDM also worked by Xaloy to schedule the depositions of
seven current or former employees of Xaloy, as well as five retained
experts identified by Xaloy (Id., Ex. 34, at 1-2). As part of
their scheduling efforts, IDM and Xaloy agreed that the trial would
commence on August 13, 2001 (AF 56.1 St. ¶ 21).
The parties also revisited the subject of settlement. On June 18, 2001,
IDM's counsel sent Xaloy a proposed term sheet for settlement (AF 56.1
St. ¶ 24 and Ex. 33). IDM's settlement proposal included alternative
payment terms of $500,000.00 (if paid in equal installments over four
years) or $250,000.00 (if paid within ten days of the signing of a
settlement agreement) (Id., Ex. 33, at 2). Xaloy did not respond
to the proposal, and IDM thus withdrew it (AF 56.1 St. Ex. 36, at 15).
However, the parties did agree to participate in a court-mediated
settlement conference with the assigned magistrate judge, which took
place on July 11, 2001 (AF 56.1 St. ¶ 25). IDM submitted a mediation
brief in connection with that conference (Id., Ex. 36). In that
brief, IDM asserted that its defenses were strong; stated that, upon
establishing the invalidity of Xaloy's patent, IDM would pursue an
antitrust claim against Xaloy; and explained that IDM was not willing to
agree to the kind of terms it had proposed a few weeks earlier because
IDM was "fully prepared to try the case in a more confident position than
ever before" even though key discovery of Xaloy had not yet been
completed (Id., Ex. 36 at 15).
The parties reached a settlement agreement during the court-mediated
conference on July 11, 2001 (AF 56.1 St. ¶ 26 and Ex. 37 (under
seal)). As a result of that settlement, the Xaloy litigation was
dismissed with prejudice on September 26, 2001 (Id., ¶ 26
and Ex. 38). The terms of the settlement agreement reached were more
favorable to IDM than were the settlement terms negotiated between IDM
and Xaloy prior to June 2001 (Id., ¶ 27).*fn6 In deciding
to settle the case, IDM's chief executive officer, Ted Krengel, knew that
going to trial was an option, but made the business
judgment that the settlement being proposed was a better option
than taking the risk of a trial (AF 56.1 St., Ex. 5 (T. Krengel Dep.
235-36)). But, Mr. Krengel further testified that this did not mean he
thought IDM's defense was weak. To the contrary, Mr. Krengel testified
that "I thought we probably would win" if IDM took the case to trial
(Id. at 239).*fn7
Although IDM said it would do so in the motion seeking a continuance,
IDM did not file a request for re-examination in the PTO. Nor did IDM
seek to amend its pleading to add counterclaims or third-party claims.
IDM has offered no evidence that there was any order preventing
it from doing so, and has not identified any specific claims that it
wanted to but could not add. To the contrary, as
explained above, IDM told the magistrate judge presiding over the
settlement conference that it was planning to assert an antitrust claim
if IDM prevailed on Xaloy's claims. And, the viability of that antitrust
claim could not have been affected by Arent Fox's conduct, since that
claim was based on conduct by Xaloy on or about May 24, 2001 only
one week before Arent Fox was replaced (AF's 56.1 Response to IDM Add'l
Facts (hereinafter "AF Add'l Facts Resp.") ¶ 1, Ex. 7 (J. Krengel
Dep. at 158-59)).*fn8
B. The Insurance Coverage Disputes,
Xaloy's initial complaint, filed in January 2000, alleged only a patent
infringement claim. On September 27, 2000, Judge Turk granted Xaloy leave
to file an amended complaint that asserted claims for false advertising,
unfair competition and deceptive trade practices (AF 56.1 St. ¶ 29).
Less than one week later, on October 3, 2000, Arent Fox provided
written notice of Xaloy's new claims to IDM's insurance carrier, Chubb
Group of Insurance Companies ("Chubb") (Id. ¶ 30, Ex. 40).
Arent Fox informed Chubb that Xaloy's new claims were unrelated to and
independent of its patent infringement claim (which IDM's policies
excluded from coverage), and were covered as an "advertising injury"
(Id.). Arent Fox demanded that Chubb assume payment of IDM's
defense costs, and pay any "indemnity expenses" that might result from
Xaloy's claim (Id.).
In addition to its policies with Chubb, IDM also had an insurance
policy issued by Hartford Fire & Casualty Insurance Company
("Hartford") (AF 56.1 St. ¶ 31, Ex. 41). Arent Fox provided written
notice to Hartford of Xaloy's false advertising, unfair competition, and
deceptive trade practices claims on October 17, 2000. As with Chubb,
Arent Fox demanded that Hartford assume payment of IDM's defense and
provide indemnity for any judgments or other expenses resulting from
Xaloy's claims (Id.).
On December 8, 2000, Chubb denied coverage to IDM (AF 56.1 St. ¶
32, Ex. 43). Mr. Gilbert discussed with IDM the possibility of filing a
coverage action against Chubb Insurance, but IDM decided not to do so
(Id., Ex. 6, Gilbert Dep. at 58-59). IDM points to no evidence
indicating that Arent Fox was asked to pursue the matter further with
Hartford. To the contrary, in March 2001, Arent Fox was instructed to
turn the insurance files over to the Wildman firm, which would
then be handling the insurance matters; Arent Fox complied with
that request (AF 56.1 St., Exs. 8 (Hulme Dep. 211-12), 55).
Hartford also denied IDM's coverage claim, and on January 10, 2001,
filed a complaint against IDM seeking a declaratory judgment that it had
no coverage obligations with respect to the Xaloy litigation (AF 56.1 So.
¶ 33). IDM retained Wildman Harrold to represent it in connection
with Hartford's claim (Id.). At the request of Wildman Harrold,
Arent Fox transferred its file to the Wildman firm, which assumed
responsibility for IDM's representation. Shortly thereafter, Hartford and
IDM reached a settlement agreement and Hartford stipulated to the
dismissal of its claims with prejudice (Id.). The parties have
not revealed to the Court the terms of that settlement. More important
for purposes of this motion, IDM points to no evidence that Arent Fox was
asked or allowed to take any role in dealing with
Hartford after sending the October 17, 2000 notice letter.
In early June 2001, IDM instructed the Wildman firm to transfer all
files relating to the insurance claim against Chubb to Jenner & Block
(AF 56.1 St. ¶ 35 and Ex. 45). On July 12, 2001, Jenner & Block
provided notice of IDM's settlement with Xaloy to Chubb, and demanded
that Chubb indemnify IDM for the full settlement amount (Id.,
Ex. 46). Chubb rejected IDM's demand, and offered to indemnify IDM for 50
percent of the settlement amount (Id., Ex. 47). IDM accepted
Chubb's offer, and Chubb paid the agreed upon amount to EDM on or
about August 11, 2001 (Id., Ex. 48). Thereafter, in November
2001, Chubb agreed to pay a portion of the legal fees and expenses that
IDM had incurred that were allocable to the "advertising injury" claims
in the Xaloy litigation (Id. ¶ 36 and Ex. 49). On or about
November 9, 2001, IDM received payment from Chubb of a total of
$717,500.00, for payment of a portion of the settlement amount with Xaloy
and a portion of the legal fees incurred by IDM in the Xaloy litigation
(Id. ¶ 37, Exs. 48, 51).
Upon its entry into the case, Jenner & Block engaged in extensive
activity in defending against Xaloy's preliminary injunction motion,
engaging in discovery and trial preparation, and pursuing settlements
with Xaloy and Chubb. Between June 1, 2001 and July 31, 2001, Jenner
& Block billed IDM approximately $367,504.00 in attorneys' fees and
expenses (AF 56.1 St., ¶ 37, Ex. 9).
In Counts II (breach of fiduciary duty) and III (breach of contract),
IDM is essentially bringing a malpractice case against Arent Fox. As to
each count, IDM alleges that Arent Fox failed to competently represent
IDM by: (a) failing to provide competent advice regarding litigation
options; (b) failing to pursue necessary discovery; (c) failing to comply
with discovery orders and Rule 26 obligations; (d) failing to retain
experts; (e) failing to investigate and assert appropriate counterclaims
against Xaloy; and (f) failing to effectively pursue available insurance
coverage (AF 56.1 St., Ex. 1, at ¶¶ 9, 21, 26). IDM also alleges that
Arent Fox "deprived IDM of an otherwise credible defense, a strong
negotiation position and valuable counterclaims" (Id. at ¶¶
13-14; Ex. 2, at ¶ 5(b)). IDM claims that as a result of Arent Fox's
failings, it had no other reasonable alternative but to effect a
settlement of the Xaloy claims (IDM Add'l Facts, Ex. B, Krengel Aff.
There is no dispute that Illinois law governs these substantive claims.
Under Illinois law, an action for malpractice requires proof of the
following: (a) the existence of an attorney/client relationship; (b) a
duty arising from that relationship; (c) a breach of that duty on the
part of defendant/counsel; (d) proximate cause; and (e) damages. See
Claire Associates v. Pontikes, 502 N.E.2d 1186, 1190 (1st Dist.
1986). The legal issue raised by Arent Fox's motion for summary judgment
is proximate cause. Damages and proximate cause cannot be presumed.
Bank of St. Louis v. Gamble, 554 N.E.2d 779, 780 (3rd
Dist. 1990). Instead, a plaintiff must plead and prove that a loss has
been sustained as the result of some negligent act on the lawyer's part.
Id.', see also Claire, 502 N.E.2d at 1190. The rule of proximate
cause in an action for malpractice is that the "underlying action" (the
case and/or the claim or defense) must no longer be viable at the time
successor counsel inherits it; if the underlying action is still viable
when successor counsel takes over, then the plaintiff cannot prove that
the predecessor counsel's alleged failures were the proximate cause of
any subsequent damages. See Claire, 502 N.E.2d at 1190;
Sheppard v. Krol, 578 N.E.2d 256, 257 (1st Dist. 1991).
Thus, the question here is whether Arent Fox proximately cause the loss
of an "underlying action" as a result of its actions and/or failures to
act; or, stated differently, whether successor counsel Jenner & Block
have an opportunity to remedy Arent Fox's alleged malpractice at the time
that Arent Fox's representation of IDM ended (i.e., May 31,
2001). The relevant time frame is the time of Arent Fox's discharge as
IDM's counsel, because an attorney's duty to a client ceases upon new
representation. Land v. Greenwood, 478 N.E.2d 1203, 1206 (4th
Dist. 1985). There are two alleged "losses" alleged that IDM says creates
a triable issue: the loss of its ability to effectively defend the case,
and the loss of timely insurance coverage. We address those issues in
By June 1, 2001, the time when Jenner & Block took over the Xaloy
litigation for IDM, IDM claims that Arent Fox's actions had caused it to
lose: (1) unnamed "affirmative causes of action" and counterclaims; (2)
the right to conduct discovery, present evidence, and assert defenses;
and (3) the imposition of a $10,000.00 in sanctions, which Judge Turk
ordered IDM to pay Xaloy in his June
8 Order (IDM Add'l Facts, Ex. A, Neumeier Aff, ¶ 3(a-c)). Our
analysis will address each of these claims separately.
1. Affirmative Causes of Actions and Counterclaims.
The lead difficulty with IDM's argument about lost affirmative causes
of actions and counterclaims is that IDM never identifies just what
affirmative causes of actions or counterclaims it allegedly lost as a
result of Arent Fox's alleged malpractice. That omission is critical
because, as stated above, proximate causation and damages may not merely
be presumed but must be proven. Farm Credit Bank of St. Louis v.
Gamble, 554 N.E.2d 779, 780 (3rd Dist. 1990). Where successor
counsel had the opportunity to pursue claims that its predecessor had
neglected, there is no right to pursue a malpractice action. See,
e.g., Kaminsky v. Condell Memorial Hosp., 816 F. Supp. 484, 488
(N.D. Ill. 1993) (Illinois law "bars a legal malpractice action where an
attorney's involvement in representing his or her client had ended long
enough before the running of limitations for the claim to have been
timely asserted by the lawyer or lawyers who handled the case
Our independent review of the summary judgment record discloses only
one "affirmative cause of action" that IDM might have been
contemplating: an antitrust claim based on Xaloy's alleged communications
with IDM's customers (AF 56.1 St., Ex. 36, at 14). However, the
undisputed facts undermine any assertion that this potential claim either
was mishandled by Arent Fox, or that the potential claim was lost.
First, the alleged communications that would give rise to this
antitrust claim did not occur until the last week of May 2001 (AF 56.1
St., Ex. 7, J. Krengel Dep. at 158-59) only one week before IDM
replaced Arent Fox with Jenner & Block. Second, there is no
evidence that IDM ever informed Arent Fox of the evidence that gave rise
to this claim prior to the cessation of Arent Fox's
representation (Id., Ex. 7, J. Krengel Dep. at 159-60).
Third, in its mediation brief in the Xaloy litigation, IDM
stated that it intended to pursue the claim in a separate lawsuit, if IDM
prevailed on Xaloy's patent and false advertising claims, based on a
theory that Xaloy had used the Xaloy litigation and threats of patent
infringement to attempt to destroy IDM (Id., Ex. 36, at 14),
Under prevailing law, IDM had the right to pursue such a claim in a
separate lawsuit, and not as a compulsory counterclaim to Xaloy's
complaint. Mercoid v. Mid-Continent Inv. Co., 320 U.S. 661, 671
(1944). There is no evidence that IDM wished to use the antitrust claim
as a counterclaim in the Xaloy litigation, but was denied that
opportunity by the district court or as a result of any of the alleged
failures of Arent Fox prior to Jenner & Block's entry into the case.
The Jenner & Block affidavit submitted by IDM fails to create a
genuine dispute of material fact on this issue.*fn9 The affidavit
contains only generalized, conclusory assertions of lost causes of
actions and counterclaims; it offers no specifics. When responding to a
summary judgment motion, that is not enough.
"A party seeking to defeat a motion for summary judgment is required to
`wheel out all its artillery to defeat it.'" Caisse Nationale de
Credit v. CBI Indus., Inc., 90 F.3d 1264, 1270 (7th Cir. 1996)
(citation omitted). In order to properly controvert evidence cited by the
moving party, the nonmovant must cite to evidence. Flaherty v. Gas
Research Inst., 31 F.3d 451, 453 (7th Cir. 1994). A conclusory
denial of a supported factual assertion is insufficient to create a
genuine fact dispute, even when that denial is set forth in the trappings
of an affidavit. See, e.g., Lujan v. National Wild
Life Fed'n, 497 U.S. 871, 888 (1990) ("the object of
[Rule 56] is not to replace conclusory allegations of the complaint or
answer with conclusory allegations of an affidavit"). "Rule 56 demands
something more specific than the bald assertion of the general truth of a
particular matter, rather it requires affidavits that cite specific
concrete facts establishing the existence of the truth of the matter
asserted" Hadley v. County of DuPage, 715 F.2d 1238, 1243 (7th
Cir. 1983), cert. denied, 465 U.S. 1006 (1984).
The Jenner & Block affidavit fails to identify which claims should
have been pursued, and fails to direct this Court to evidence that any
failure by Arent Fox to pursue claims was the proximate cause of any
damage to IDM. The affidavit states that Jenner & Block inherited an
"extremely compromised position" (which rarely would not be the case when
new counsel enters a patent case late in the proceedings), but does not
provide any specifics explaining how that position was compromised or how
any counterclaims or other "opportunities" were lost (IDM's Add'l Facts,
Ex. A). Assertions in an affidavit must be stated as "specific concrete
facts" that are "admissible in evidence," and "although `personal
knowledge' may include inferences and opinions, those inferences must be
substantiated by specific facts." See, e.g., Drake v. Minnesota
Mining & Manufacturing Co., 134 F.3d 878, 887 (7th Cir. 1998).
The Jenner & Block affidavit fails to satisfy these requirements of
Rule 56 and thus fails to create a genuine issue of material fact on
proximate cause with respect to the lost causes of actions or
2. Discovery, Evidence and Defenses.
IDM claims that Arent Fox's conduct caused it to be limited in the
discovery IDM could pursue, and in the evidence IDM could present (IDM
Add'l Facts, Ex. A, ¶¶ 3(b)-(c)). In addition, IDM claims that its
right to present defenses at trial was a risk, and that Judge Turk would
allow it to do so only "if IDM's discovery responses were deemed
adequate" (Id., ¶ 3(a)). At the outset, we note that the
mediation brief IDM submitted to the magistrate judge in the Xaloy case
does not portray a company that believed it was laboring under these
obstacles. Rather, this document indicates that IDM expected to "try the
case in a more confident position than ever before," and that "key Xaloy
discovery to be completed in the near future." (Id., Ex. 36, at
15). IDM, through its CEO, Mr. Krengel, has testified that the settlement
ultimately reached was a good business decision, despite Mr. Krengel's
belief that IDM would "probably would win" if the case went to trial.
(Id., Ex. 5 Krengel Dep. at 239).*fn11
The only support IDM now offers for its assertions about the trial
obstacles it faced is the Jenner & Block affidavit, which again is
far too conclusory to create a triable issue. IDM has offered no
specifics on what discovery it wished to pursue but could not. That
omission is critical because it is plain that Judge Turk did not bar IDM
from pursuing discovery once Jenner & Block entered the case; rather,
he granted IDM's motion to continue the trial date in order to afford IDM
time to prepare for trial" (AF 56.1 St., Ex. 27). And, it is
equally plain that IDM thereafter pursued discovery: IDM supplemented its
discovery responses to Xaloy, to include identification of prior art that
IDM claimed invalidated the patent and four expert witnesses IDM would
use at trial; asked Xaloy to supplement its own prior discovery
responses; and, at the time settlement was reached, was prepared to
embark on a program of deposing seven current or former Xaloy employees
and Xaloy's five retained experts (Id., Exs. 32, 34, 35). IDM
offers no evidence to show that this discovery was inadequate to prepare
the trial defense, or how IDM's defense was compromised by the absence of
other discovery that was not taken or planned.
Likewise, IDM has offered no specifics on how it was limited in the
evidence it could present at trial. Judge Turk's order did not
specifically bar IDM from presenting any evidence, and we do not believe
it can be fairly read as impliedly doing so. Judge Turk's order stated
that the purpose of continuing the trial date was to give IDM time to
prepare for trial, and his order did not impose any limits on the
discovery that IDM could take. There would have been little need for a
continuance to prepare for trial, or to allow IDM to pursue the discovery
outlined in its motion to continue the trial date, if Judge Turk had
intended to tie IDM's hands by preventing it from presenting evidence.
The extensive discovery that IDM thereafter pursued and the
substantial attorneys' fees and expenses it incurred in doing so
is inconsistent with IDM's current assertion that it was limited in the
evidence it could present. IDM retained four experts, submitted expert
reports, provided an extensive listing of prior art, and was about to
begin a series of depositions at the time the case settled. There would
have been no reason to incur the expense in conducting this discovery and
trial preparation if IDM did not expect it would be able to present that
evidence at trial. And, in its
mediation brief, IDM stated that it expected to offer this
evidence. IDM cannot create a triable issue merely by attempting to
contradict that evidence with a conclusory affidavit.
Finally, as to IDM's right to present affirmative defenses, we
recognize that Xaloy filed a motion to strike affirmative defenses that
Judge Turk continued once Jenner & Block entered the case (AF 56.1
St., Ex. 27). Thus, the Jenner & Block affidavit correctly states
that the availability of those affirmative defenses to IDM "was not yet
resolved" when it entered the case (IDM Add'l Facts, Ex. A, ¶ 3(b)).
However, "not yet resolved" is different from "lost." The Jenner &
Block affidavit states that IDM would be allowed to assert those defenses
"if IDM's discovery responses were deemed adequate" (Id.). Thus,
IDM, through its new counsel, had an opportunity to preserve the right to
assert the defenses by correcting any shortcomings in the discovery
responses previously served by Arent Fox. IDM availed itself of that
opportunity, and supplemented its discovery responses. IDM does not offer
evidence to show that its supplementation was inadequate, or that IDM was
foreclosed from making an adequate response by Arent Fox's prior actions
or inactions. The undisputed material facts warrant summary judgment for
Arent Fox on this issue.
3. The $10,000 Award.
In his June 8, Order, Judge Turk required IDM to pay Xaloy $10,000.00
as "reimbursement" of attorneys fees and costs (AF 56.1 St., Ex. 27).
Judge Turk's order did not indicate what had led Xaloy to incur these
expenses or why he ordered IDM to pay them.
The Jenner & Block affidavit labels this payment as a "sanction"
that resulted "because of Arent Fox's failures" and resulted in a finding
of "default" (IDM Add'l Facts, Ex. A, ¶ 3(b)). Mr. Krengel's
affidavit repeats this assertion, stating that "IDM was sanctioned
$10,000.00 as a result of Arent Fox's breaches" (Id., Ex. B,
¶ 6). Arent Fox offers no evidence (by way of affidavit, or a
copy of the Memorandum Opinion that is referred to in the June 8
Order, or a transcript of the June 8 proceedings before Judge Turk) to
contradict those assertions, and so we accept them for purposes of
However, those assertions fail to create a trial issue on the question
of malpractice. Under Illinois law, a malpractice claim may lie only
where the alleged breach of duty by counsel is the proximate cause for
the loss of the case (or a claim or defense). Claire, 502 N.E.2d
at 1190. As we have explained above, IDM has failed to offer evidence
that could lead a reasonable jury to conclude that it lost claims or
defenses, or the right to conduct discovery and present evidence to
support claims or defenses, as a result of Arent Fox's conduct. We fail
to see how a $10,000.00 monetary sanction constitutes the loss of a case,
claim or defense, or creates a trial issue here on IDM's malpractice
B. Insurance Coverage Dispute.
Only one question remains: is there a triable issue on IDM's claim that
Arent Fox committed malpractice by failing to pursue and obtain insurance
coverage? While the Krengel affidavit offers the conclusory statement
that Arent Fox failed to pursue efforts to obtain insurance proceeds "in
a timely manner" (IDM Add'l Facts, Ex. B, ¶ 10), IDM offers no
evidence to support that conclusion.
First, the evidence shows that Arent Fox placed Chubb on
notice of defense and coverage claims less than a week after Xaloy
amended the complaint to add a false advertising claim, and placed
Hartford on notice a few weeks later. IDM has offered no evidence that
notice should have been provided earlier, or that there was anything
inadequate about the notice that was provided.
Second, the evidence shows that once these insurers denied
coverage, Arent Fox was relieved of any responsibility for dealing with
the insurance issues and was not asked to take further action. When
Hartford promptly filed a declaratory judgment action after denying
coverage, the Wildman firm handled the matter (AF 56.1 St. ¶ 33).
After Chubb denied coverage, IDM had the files transferred to the Wildman
firm in March 2001 (Id., Ex. 8 (Hulme Dep. 211-12), Ex, 55),
which then turned the file over to Jenner & Block in June 2001 (AF
56.1 St. ¶¶ 35). Moreover, it is undisputed that when Chubb denied
coverage, IDM discussed with the Wildman firm the possibility of pursuing
litigation against Chubb, and decided not to do so (Id., ¶
32). IDM has offered no evidence to show why Arent Fox is accountable for
delays that may have occurred in resolving the insurance matters that
occurred after Arent Fox was no longer responsible for dealing with those
Third, through the efforts of those other law firms, the
insurance matters were resolved. Hartford and IDM settled the declaratory
judgment action; neither party has provided evidence of the terms of that
settlement or when it occurred. And, in the summer and fall of 2001,
Chubb and IDM entered into agreements that resulted in IDM receiving more
than $700,000 to defray the cost of the settlement with Xaloy and the
attorneys' fees and expenses IDM had incurred (AF 56.1 St., Exs. 37
(under seal) 48, 51).
Because IDM offers no evidence to suggest that Arent Fox failed to
pursue proceeds from insurance coverage "diligently" or in "a timely
manner," IDM's assertion that it was injured by the delay in receiving
insurance proceeds (IDM Add'l Facts, Ex. B, ¶ 10) is for that reason
alone a non-starter. Additionally, the injury that IDM asserts
the failure to "enjoy the costs of defense as those costs were
incurred," which allegedly "compromised IDM's negotiating position with
the relevant parties" (Id.) is completely
unsubstantiated. There is no evidence that any of IDM's
attorneys, including Arent Fox, litigated the case differently
based on the absence of such funds at an earlier stage of the litigation.
We thus find Mr. Krengel's statement in his affidavit regarding lack of
insurance funds for the defense is insufficient evidence on which to find
a genuine question on the issue of proximate cause of malpractice.
The Court therefore directs the Clerk of the Court to enter summary
judgment in favor of Arent Fox on Counts II and III of IDM's complaint
(doc. # 36).