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Warnock v. Karm Winand & Patterson

September 7, 2007

TODD E. WARNOCK AND ELIZABETH H. WARNOCK, PLAINTIFFS-APPELLANTS,
v.
KARM WINAND & PATTERSON DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County. No. 03 L 5204 Honorable Lee Preston, Judge Presiding.

The opinion of the court was delivered by: Justice Tully

Published opinion

OPINION UPON DENIAL OF PETITION FOR REHEARING

On May 1, 2003, plaintiffs-appellants, Todd and Elizabeth Warnock (plaintiffs) filed a legal malpractice suit against defendant-appellee, the law firm of Karm Winand & Patterson (defendant), as a result of an underlying real estate transaction. In the underlying transaction, plaintiffs retained Karen Patterson (Patterson), a partner at defendant, to represent them in the sale of their property in Winnetka, Illinois, to Tony and Winifred Brown (the Browns). The real estate transaction did not close and the Browns filed suit against plaintiffs. Plaintiffs retained the law firm of Arnstein & Lehr to represent them in the suit brought by the Browns. The end result of the Brown litigation was an adverse judgment entered against plaintiffs in the amount of $342,750, plus prejudgment interest. Plaintiffs appealed and, while the appeal was pending, plaintiffs ultimately settled the Brown litigation for $325,000.

Nine months after the adverse judgment was entered by the circuit court, plaintiffs filed this legal malpractice suit against defendant. Plaintiffs alleged that Patterson failed to draft letter agreements properly during the sale of their property, which resulted in the adverse judgment in the Brown litigation. After discovery concluded in the legal malpractice case, defendant filed a motion for summary judgment, arguing that the two-year statute of limitations on plaintiffs' legal malpractice action had expired. The circuit court agreed and granted defendant's motion for summary judgment. Plaintiffs filed a motion to reconsider, but it was denied by the circuit court.

On appeal, plaintiffs claim that: (1) the two-year statute of limitations period had not expired when they filed their legal malpractice action; and (2) even if the two-year statute of limitations period had expired before they filed their legal malpractice action, defendant should be equitably estopped from raising a statute of limitations defense because it made misrepresentations to plaintiffs, which were designed to deter plaintiffs from filing a legal malpractice action. For the reasons stated below, we reverse and remand.

FACTS

In early 2000, plaintiffs intended to sell their property located at 381 Sheridan Road, Winnetka, Illinois. On March 2, 2000, a real estate contract was executed between plaintiffs and the Browns, stating a purchase price of $3,055,000. On March 4, 2000, plaintiffs retained Patterson, a partner at defendant firm, to represent them in this real estate transaction with the Browns.

The closing date originally was set for April 27, 2000. On April 26, 2000, the Browns' attorney contacted Patterson and requested an extension in order for the Browns to obtain the necessary financing. Patterson drafted a letter and sent it to the Browns' attorney, which stated that plaintiffs agreed to extend the closing date to May 11, 2000, provided that the Browns deposited $10,000 earnest money in an escrow account. The letter agreement also contained a liquidated damages clause, which stated that the $10,000 earnest money would be forfeited in the event that the closing failed to occur "for any reason" on May 11, 2000. In addition to this liquidated damages clause, the letter agreement also stated that plaintiffs retained "all rights in law and in equity as a result of the default."

On May 11, 2000 and June 2, 2000, the Browns requested additional extensions to the closing date because they were struggling to obtain the necessary financing. The plaintiffs again agreed, but required the Browns to deposit additional funds in the escrow account. Patterson sent additional letter agreements memorializing the closing extensions. Both letter agreements contained a liquidated damages clause, confirming that plaintiffs were entitled to the escrow money if the closing did not occur. In addition to the liquidated damages clause, both letter agreements also stated that plaintiffs retained all their legal and equitable rights. As of June 2, 2000, the total amount deposited in escrow was $342,750.

On June 2, 2000, the Browns again failed to close on the property. As a result, Patterson required the Browns to sign a form providing authorization to release earnest money. This authorization to release earnest money stated that if the Browns could not obtain a written loan commitment by June 8, 2000, the $342,750 in earnest money would be released to plaintiffs. The Browns failed to obtain the necessary financing and, on June 16, 2000, the real estate sales contract was terminated and the total escrow amount of $342,750 was transferred to Plaintiffs' account.

On August 1, 2000, the Browns' attorney sent a letter to Patterson asking that the $342,750 in earnest money be returned to the Browns. Plaintiffs refused to return the earnest money and, on October 4, 2000, the Browns filed suit against plaintiffs in the circuit court of Cook County, under the theory of unjust enrichment. Plaintiffs retained the law firm of Arnstein & Lehr to defend the Browns' lawsuit.

The Browns filed a motion for judgment on the pleadings, which the circuit court granted on August 2, 2002. In granting the Browns' motion, the circuit court reasoned that Patterson's letter agreements dated April 26, 2000, May 11, 2000, and June 2, 2000, which reserved plaintiffs' legal and equitable rights, rendered the liquidated damages clause unenforceable under Grossinger v. American National Bank & Trust Co., 240 Ill. App. 3d 737 (1992). The circuit court then entered judgment against plaintiffs in the amount of $342,750, plus prejudgment interest. Plaintiffs appealed. While the appeal was pending, plaintiffs reached a settlement with the Browns and agreed to pay them $325,000.

On May 1, 2003, plaintiffs filed this legal malpractice action against defendant, alleging that Patterson's failure to draft the letter agreements properly resulted in the adverse ruling in the Brown litigation. At the close of discovery, defendant filed a motion for summary judgment, arguing that the two-year statute of limitations had begun to run between August and October 2000, when plaintiffs retained Arnstein & Lehr to evaluate the merits of the demand letter sent by the Browns' attorney. On January 24, 2006, the circuit court granted defendant's motion ...


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