Minor M. Scott, III, as personal representative for the Estate of Maureen K. Scott, deceased, Plaintiff-Appellant,
Chuhak & Tecson, P.C., et al., Defendants-Appellees.
Argued October 26, 2013
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 09 c 6858 — Ronald A. Guzmán, Judge.
Before Easterbrook, Chief Judge, and Cudahy and Tinder, Circuit Judges.
Tinder, Circuit Judge.
This case has its origins in a dispute between two sisters, Maureen Scott and Diane Shah, over their parents' estate. Minor Scott, the former husband of now-deceased Maureen and personal representative of her estate, brought suit against Chuhak & Tecson, P.C. ("C&T"), and two of its attorneys, alleging breach of fiduciary duty arising out of the firm's estate-planning representation. Minor also sued Diane, a C&T client, in state court. Concerned with the need to protect privileged documents and communications arising out of the attorney-client relationship between Diane and C&T from disclosure to the attorneys representing Maureen's estate in the state litigation, the federal district court entered an agreed protective order and denied the estate's motion to compel the production of certain documents. When the estate violated this protective order, the district court imposed sanctions.
The estate appeals the imposition of sanctions, the court's denial of its motion to reconsider the sanctions order, its grant of C&T's motion for summary judgment, its grant of C&T's motion to dismiss several of the estate's claims, and its denial of several of the estate's motions to compel. We affirm on all issues.
Since 1973, Ruth Kiver and Milton Kiver have employed C&T, an Illinois law firm, for estate-planning purposes. Among the instruments that C&T prepared for the Kivers were the Milton S. Kiver Grantor Trust ("MGT"), the Ruth A. Kiver Grantor Trust ("RGT"), the Ruth A. Kiver Wealth Trust ("RWT"), and the Ruth A. Kiver Wealth Trust II ("RWT II"). These trusts were intended to benefit the Kivers' daughters, Diane and Maureen, among others.
Ruth and Milton designated Diane as the trustee of the MGT, RGT, and RWT II. Maureen and Diane were both designated trustees of the RWT. The MGT requires that, upon Milton's death, if any of the trust estate is determined to be part of Milton's estate for federal estate tax purposes, the smallest fraction of the trust estate that will result in the lowest federal estate tax liability is to be placed in a separate trust for Ruth, and the remainder is to be divided in separate trusts, of equal value, for Diane and Maureen. The MGT also states that, if a separate trust beneficiary dies before her trust is completely distributed, "such separate trust or the remainder thereof shall be distributed to or for the benefit of any [of] … the beneficiary's heirs." Also relevant to this appeal, the RGT, RWT, and RWT II allow the trustee to make distributions for certain purposes to Ruth's descendants, including Diane and Maureen.
Milton died in 2005. After his death, C&T created separate trusts for Maureen and Diane. C&T attorneys were present at a family meeting following Milton's death. During this meeting, the attorneys distributed an eighteen-page summary of the Kiver estate plans, identifying each trust's rights of distribution, powers of appointment, and other significant features. Maureen and Minor attended this meeting. The estate claims that C&T did not at any point give Maureen or Minor a physical copy of the actual MGT. Later that year, Maureen hired C&T to prepare her own estate plan.
By 2006, both sisters had accumulated intra-family debts: Maureen owed a significant amount of money to Ruth, and Diane owed a significant sum to a trust for which Ruth was the primary beneficiary. To enable the sisters to repay their debts, Ruth, Diane, and the family accountant decided that equal gifts would be made to Diane and Maureen from various family trust to which she owed money. Maureen did not receive her gift, but her debts were forgiven. We adopt the parties' use of the term "the gift plan" to refer to this episode.
Maureen died in March 2007. At the time of her death, she and Minor had two children, Samuel and Rebecca. Minor now serves as personal representative of Maureen's estate. Two months later that year, the IRS accepted Milton's final estate tax returns.
The estate filed this suit in federal district court against C&T and two of the firm's attorneys in November 2009, alleging that C&T failed to disclose the existence and terms of certain family trusts to Maureen, to her detriment, and failed to make distributions to her. The estate claimed that these allegations constitute a breach of fiduciary duty, namely legal malpractice. Arthur Gold represented the estate in federal court, and Michael Flaherty represented C&T.
The estate also filed a separate suit in state court against Diane, alleging that Diane breached her fiduciary duties as trustee of various family trusts by failing to disclose the existence of certain trusts to Maureen or make distributions to her from them. Andrew Fleming represented the estate in this state court case. Importantly, Fleming was not an attorney of record for the estate in the federal case, and had not filed any appearance on behalf of the estate in federal court. Mark Stang represented Diane in the state case. Diane was a client of C&T during the relevant period.
The discovery period in this case began on January 6, 2010, and, following an extension, was set to expire on August 9. During discovery, the estate filed a motion to compel C&T to produce metadata, billing records, other documents, and a response to an interrogatory. This motion to compel was denied on March 23, 2011.
On July 9, the district court granted in part C&T's motion to dismiss under Rule 12(b)(6). The district court dismissed with prejudice the estate's claims based on C&T's alleged interference with the gift plan and struck the estate's request for punitive damages. (The district court also ruled on other claims that are not relevant to this appeal.) In response, the estate filed an amended complaint, which did not contain allegations related to the gift plan or request punitive damages.
Since Diane was a client of C&T, the estate's pursuit of simultaneous suits against C&T and Diane presented some knotty issues concerning attorney-client privilege during the discovery process. To address these issues, the federal district court entered an agreed protective order governing discovery disclosure. That order included the following passages:
§ 7 All information or documents designated as Privileged Material in accordance with this Order shall be used only for the purpose of prosecuting or defending this lawsuit … and not for any other litigation … . All information designated as Privileged Material in accordance with this Order shall not be … communicated in any way to anyone except those persons designated in this Protective Order to whom it is ...