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RICHARDSON v. KUBIESA

March 29, 2004.

THOMAS C. RICHARDSON, Trustee of the Bankruptcy Estate of MARK G. DALEN Plaintiff
v.
KENNETH T. KUBIESA, et al., Defendants



The opinion of the court was delivered by: JOAN GOTTSCHALL, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Thomas Richardson, trustee for the estate of Mark G. Dalen ("Dalen"), has brought a three-count legal malpractice complaint against Dalen's former attorney, Kenneth T. Kubiesa ("Kubiesa") and his former law firm, Power & Cronin, Ltd. ("Power"), arising out of Kubiesa's representation of Dalen's interests in the sale of Dalen's 50% share in two companies, and during the subsequent bankruptcy of one of those companies. Defendants have moved for summary judgment, arguing that certain of plaintiffs claims are barred by the two-year statute of limitations for attorney malpractice actions and that plaintiff has failed to show any dispute of material fact regarding whether Dalen was damaged as the proximate result of Kubiesa's alleged misconduct. For the reasons stated below, Defendants' motion for summary judgment is granted in part and denied in part. Page 2

FACTUAL BACKGROUND

  Dalen was a 50% shareholder in two related companies, Metropolitan Plant and Flower, Inc. ("Metropolitan") and Silkcorp. Plant and Tree International Factory Outlet Franchising System, Inc. ("Silkcorp"). When disagreements arose between Dalen and the other principals, Dalen entered into negotiations for a buy-out of Dalen's shares. Dalen hired defendant Kubiesa to represent Dalen in the sale.

  On March 4, 1994, Dalen entered into a Sales Agreement to sell his shares to one of the remaining principals of Metropolitan, Edward damage ("damage"), for approximately $3.3 million.*fn1 The agreement provided that a portion of the purchase price would be paid up front and a portion would be paid by Metropolitan over time. As collateral for future payments due Dalen, damage granted Dalen a security interest in all of Metropolitan's and Silkcorp's assets. Dalen testified that, before the agreement was finalized, he instructed Kubiesa to ensure that Dalen's security interest would be (a) secured, (b) second in priority only to an outstanding $1.1 million loan extended by NBD Bank ("NBD") to Metropolitan, and (c) backed up by a personal guarantee from damage and his father. Dalen testified that he did not review the Sales Agreement before signing it, but that he believed at the time that the agreement reflected his instructions.

  To facilitate Metropolitan's financing of the purchase of his shares, on April 18, 1994, Dalen entered into a Subordination Agreement and Assignment (the "S & A") with NBD which provided that Dalen would subordinate his interest in the assets of Metropolitan and Silkcorp. to NBD as additional collateral for NBD's loan to Metropolitan. Dalen testified that he instructed Kubiesa to negotiate the S & A so that Dalen's interest was second only to the $1.1 million outstanding debt to NBD. At the time Dalen entered into the S & A, he did not believe that his interest would be Page 3 subordinated to new loans extended by NBD to Metropolitan. However, the undisputed facts reflect that under the S & A Dalen's security interest was subordinated, without limitation, to any and all debt owed to NBD by Metropolitan and Silkcorp, including future extensions of credit. Moreover, Dalen testified that, by signing the S & A, he unknowingly assigned to NBD his interest in the personal guarantees provided by the damages. Plaintiff alleges that Kubiesa committed malpractice by failing to protect Dalen's security interest during negotiation of the S & A and failing to inform Dalen of the effect of the S & A on that security interest.

  By late 1995, Metropolitan encountered financial difficulties and stopped making payments to Dalen under the Sales Agreement. Over the course of the next few months, Dalen learned that his security interest was at risk. By November of 1995, Dalen learned that NBD had increased its loan to Metropolitan to $1.6 million and that, pursuant to the S & A, his interest was subordinated to the additional loan amount. That month, Dalen also discovered that Kubiesa had never recorded the necessary UCC statements to secure Dalen's security interest in Metropolitan's assets. By December of 1995, Dalen was told that Metropolitan's inventory was insufficient to cover its obligations to NBD and that, consequently, Dalen's security interest was jeopardized. On January 30, 1996, at a meeting at NBD regarding a forbearance for Metropolitan, Dalen learned that he was not a secured creditor and that he was in "last position" to make a claim against Metropolitan's assets. On February 14, 1996, Metropolitan filed for protection under the bankruptcy code.

  Dalen has testified that, once he realized his position was jeopardized, he repeatedly asked Kubiesa why he had not recorded the UCC statements in connection with the sale. Dalen testified that, when confronted, Kubiesa repeatedly reassured Dalen that filing the UCC statements "would not have made a difference." Dalen testified that — because of Kubiesa's assurances — it was not until November of 1997, during a meeting with new counsel, that Dalen became aware mat Kubiesa Page 4 "may have breached his professional responsibility in this regard."

  During the course of Metropolitan's bankruptcy, Metropolitan's trustee brought an adversary complaint against Dalen, alleging that the sale of Dalen's shares constituted a fraudulent conveyance. On May 7 or 8, 1996, a mediation conference was held regarding that adversary action. At the conference, a $70,000 settlement demand was presented to Dalen through Kubiesa. Kubiesa has testified mat, on May 9, 1996, Dalen was made aware of the demand but rejected it, telling Kubiesa that he "had no intention of paying any money" and that "he had no money." Kubiesa asserts that he rejected the settlement demand on Dalen's instructions. Dalen disputes Kubiesa's account of the settlement demand. Dalen testified that Kubiesa never informed him of the settlement conference, the settlement demand or the litigation risks that Dalen was facing. Dalen testified that he heard of the demand only when he received a call from damage, but did not realize that it was a serious offer. Dalen testified that, bad Kubiesa discussed the settlement demand with him, he would have been willing and able to settle the litigation for less than $100,000.

  After settlement discussions proved unsuccessful, Metropolitan's trustee moved for summary judgment on its fraudulent conveyance claim against Dalen. While that motion was pending, in October 1997, Dalen replaced Kubiesa with attorney David Levin. The court ultimately granted summary judgment in favor of the trustee and entered judgment against Dalen in the amount of $1.9 million.

  On April 16, 1998, Dalen sued Kubiesa and Power for malpractice. After Dalen entered bankruptcy, Thomas Richardson, trustee for Dalen's estate, took over as plaintiff. Plaintiff's current third amended complaint alleges that Kubiesa committed malpractice by (a) failing to follow Dalen's instructions in negotiating the S & A or to record the proper UCC statements and, thereby, failing to secure Dalen's interest in Metropolitan's assets (Count I), (b) failing to take various steps during the Page 5 bankruptcy to ensure that Dalen could recover on his claim against either damage or the Metropolitan estate (Count II), and (c) failing to inform Dalen of the litigation risks presented by the Metropolitan estate's adversary action and neglecting to inform Dalen of an opportunity to settle the adversary action for less than $100,000 (Count III).

  ANALYSIS

  Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). When considering a motion for summary judgment, the court must view the record and any inferences to be drawn from it in the light most favorable to the party opposing summary judgment. See Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir. 1991). The party opposing summary judgment may not rest upon the pleadings, but "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). There is no genuine issue for trial unless there is "sufficient evidence favoring the non-moving party for a jury ...


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