Appeal from the Circuit Court of Cook County. Honorable Brigid McGrath, Judge Presiding. No. 07 L 421
The opinion of the court was delivered by: Justice Robert E. Gordon
JUSTICE ROBERT E. GORDON delivered the judgment of the court, with opinion. Justices Cahill and McBride concur in the judgment and opinion.
This matter is before us on interlocutory appeal pursuant to Illinois Supreme Court Rule 308 (eff. Feb. 1, 1994), to consider two questions certified by the trial court. Plaintiff is the executor and principal heir of the estate of Edith-Marie Appleton (decedent), and is co-trustee and principal beneficiary of the Edith-Marie Appleton Trust (trust). Plaintiff brought suit against defendant Per K. Hanson and his former law firm, Erickson, Papanek, Peterson, and Erickson (EPPE),*fn1 for legal malpractice based on Hanson's allegedly negligent failure to file an Illinois estate and generation-skipping transfer tax return. That suit was settled, and the parties entered Plaintiff later filed a second suit against Hanson and EPPE for legal malpractice, and against Charles Martin and the accounting firm of Benham, Ichen & Knox, LLP, for accounting malpractice; the basis for the malpractice claims was Hanson's failure to take allowable deductions on the federal estate tax return. Hanson moved to dismiss the suit pursuant to section 2-619(a)(6) of the Code of Civil Procedure (Code) (735 ILCS 5/2-619(a)(6) (West 2008)), claiming that the release barred plaintiff's claim. Plaintiff opposed the motion, arguing that the claims arising out of the federal estate tax were unknown to plaintiff at the time the release was signed. The trial court denied Hanson's motion in relevant part. After plaintiff had amended his complaint several times, Hanson filed a motion to dismiss plaintiff's fourth amended complaint pursuant to section 2-619(a)(9) of the Code; the trial court denied Hanson's motion. Hanson then moved for a permissive interlocutory appeal pursuant to Supreme Court Rule 308, and the trial court granted Hanson's motion, certifying two questions for review. We answer both questions in the negative.
Plaintiff was the only son and principal heir of the decedent, who died testate on December 9, 1999. Plaintiff was named executor of her estate. At the time of her death, the decedent was the settlor, trustee, and beneficiary of a trust that held most of the decedent's assets; upon the decedent's death, plaintiff became co-trustee and the principal beneficiary of the trust. The trust provided that the trustee was to pay "all reasonable costs and expenses attendant the administration of the Estate, including taxes."
Hanson had been employed by the decedent for many years prior to her death, and plaintiff retained Hanson as the attorney for the executor of the estate and for the trustees of the trust. Hanson filed decedent's last will and testament for probate on December 14, 1999. The will was admitted to probate and plaintiff was appointed as executor on January 19, 2000.
Hanson performed a number of duties related to the administration of the estate. Among his duties was the preparation and filing of the Illinois estate and generation-skipping transfer tax return (Illinois return). As part of his duties, Hanson also notified Florida State University of the filing and admission to probate of the decedent's estate and of the final date to file claims against the estate. Litigation ensued with Florida State, and Hanson moved to withdraw as attorney for the executor with respect to the litigation, which was granted approximately March 12, 2001. Attorneys Sherman C. Magidson and Richard Miller represented the estate with respect to the claim.
Hanson, with assistance from his law firm, continued to represent the executor with respect to the administration of the estate and trust. Prior to June 1, 2003, Hanson terminated his employment with EPPE and practiced law as a sole practitioner; Hanson continued to represent the executor and trustee. On January 21, 2005, Hanson withdrew as plaintiff's attorney, and attorney Paul S. Shapiro was substituted as the attorney for the executor and the trust.
On March 21, 2005, plaintiff filed a lawsuit against Hanson and EPPE in the probate division of the circuit court of Cook County. In his complaint, plaintiff in part alleged that Hanson and EPPE had committed malpractice in the filing of the Illinois return.
According to the complaint, Hanson had failed to file the Illinois return on time and did not seek an extension of time in which to file the return. When plaintiff learned of the delay, he called Hanson and asked if there was a problem. Hanson told plaintiff not to worry, that Hanson had a meritorious excuse for not having timely filed the Illinois return, and that the Attorney General's office would not take any adverse action against the estate. On September 18, 2003, plaintiff received a letter from the Attorney General's office rejecting Hanson's excuses as lacking merit, turning down Hanson's offer of $500 to settle the claim, and announcing an intention to seek penalties of approximately $1.4 million from the estate and trust. When confronted by plaintiff, Hanson admitted that the delay was wholly Hanson's fault and that Hanson would personally be responsible for and pay any penalties imposed.
In late 2003 or early 2004, plaintiff learned that the Attorney General's office had rejected all of Hanson's excuses and was intending to collect the entire penalty. Plaintiff empowered accountant Charles Martin to seek a final resolution of the penalty. Martin negotiated a settlement of 10% of the claimed penalty, or approximately $140,000, in early 2004.
In mid-February 2004, Hanson issued a check to the Cook County treasurer for approximately $65,000. Hanson then directed the Attorney General's office to apply almost $75,000 of excess funds which had previously been deposited by the trust on behalf of the estate toward payment of the settlement. Plaintiff claimed no knowledge of this payment. Plaintiff claimed of learning of the payment when he received a billing statement from Hanson dated February 19, 2004. The statement credited the estate with a payment of $74,874 toward its outstanding balance of $185,089.61; plaintiff had previously disputed the amount of the balance On approximately December 19, 2005, plaintiff, Hanson, and EPPE entered into a settlement agreement, which included a mutual general release of all parties. While Hanson and EPPE denied any error or omission in the performance of legal services on behalf of the estate or trust, they agreed to pay plaintiff $35,000 and released any claim for unpaid legal fees.
The release entered into by plaintiff read:
"General Release by Albert Ivar Goodman, individually, as Executor of the Estate of Edith-Marie Appleton, Trustee of the Edith-Marie Appleton Trust and President of the Edith-Marie Appleton Foundation
In consideration of the sum of Thirty-five Thousand Dollars ($35,000) ***, the adequacy of which is hereby acknowledged by the parties, Albert Ivar Goodman, individually as Executor of the Estate of Edith-Marie Appleton, as Trustee of the Edith-Marie Appleton Trust and as President of the Edith-Marie Appleton Foundation and his heirs, representatives, administrators, successors and assigns do hereby remise, release and forever discharge Per K. Hanson, individually, The Firm of Per K. Hanson Associated, P.C., Erickson, Papanek, Peterson, Erickson, successor to Erickson, Papanek, Hanson, Peterson, and their representatives, executors, heirs, agents, administrators, personal representatives, successors, insurers and assigns, from any and all manner of actions, cause or causes of action, suits, debts, sums of money, accounts, bills, specialties, covenants, controversies, agreements, promises, variances, trespasses, damages, judgments, executions, claims and demands, whatsoever, known or unknown, in law or in equity, or for any other reason whatsoever, from the beginning of the world to the date hereof, and including, but not limited to, any and all claims and matters that have been asserted in the Litigation or that could have been asserted in the Litigation, and any and all claims arising out of or in any way related to the obligations, duties and management or administration of the Estate and/or Trust, Hanson and EPPE's fees and expenses, and the rendering of professional services by Hanson, The Firm of Per K. Hanson Associated, P.C., and EPPE and any and all claims which were asserted or could have been asserted in the Litigation in law or equity, the liability for which is expressly denied by Hanson, The Firm of Per K. Hanson Associated, P.C., and EPPE ***."
On December 30, 2005, the probate court entered an order approving the settlement, stating:
"The Complaint and all claims and causes of action between the Estate, Trust, Hanson and EPPE as more fully described in the Settlement Agreement and Mutual General Release are hereby dismissed with prejudice, pursuant to the Settlement Agreement and Mutual General Release, and this dismissal shall be a bar to any claim or cause of action asserted or which could have been asserted with respect to the performance of professional services by Hanson and EPPE to the Estate and Trust, with each party is to bear his or her costs in the litigation."
On January 12, 2007, plaintiff filed a second lawsuit against Hanson and EPPE for legal malpractice, and also filed suit against Charles Martin and Benham, Ichen & Knox, LLP, for accounting malpractice.*fn2 In the complaint, plaintiff alleged malpractice based on the same facts surrounding the filing of the Illinois return as he had in the first lawsuit.
Additionally, plaintiff alleged malpractice based on Hanson's failure to take certain deductions in the federal estate tax return (Federal return). In his complaint, plaintiff alleged that Hanson "negligently failed to take proper, allowable deductions" on the Federal return. During the administration of the estate and trust, "professional fees" of over $2 million were incurred, including legal fees and accounting fees. These professional fees were entitled to be deducted from either the Federal return or the estate or trust income tax returns. Most of the deductions were taken on the trust's income tax returns, even though the marginal tax rate for the Federal return was higher. Any claim for refund or for the filing of a protective claim for professional fees was required to be filed by July 11, 2005; no such claim was filed.
Plaintiff acknowledged the release, but claimed to be unaware that Hanson and EPPE had failed to take all allowable deductions on the Federal return. Neither Hanson nor EPPE informed plaintiff of the failure to take deductions on the Federal return, and if the failure had been disclosed, plaintiff would not have agreed to settle his claims for $35,000. Plaintiff first became aware of the alleged negligence on September 8, 2006, when he was ...