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Federal Deposit Insurance Corporation v. Lowis & Gellen Llp

United States District Court, N.D. Illinois, Eastern Division

February 20, 2014

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for FIRST CHICAGO BANK & TRUST, an Illinois chartered bank, Plaintiff,
v.
LOWIS & GELLEN LLP, an Illinois limited liability partnership, and ROBERT D. LEAVITT, Defendants/Third-Party Plaintiffs,
v.
KATTEN MUCHIN ROSENMAN LLP, an Illinois limited liability partnership, WILLIAM J. DORSEY and JOHN J. SIEGER, Third-Party Defendants.

MEMORANDUM OPINION and ORDER

YOUNG B. KIM, Magistrate Judge.

In this legal malpractice and breach of contract action, the Federal Deposit Insurance Corporation ("FDIC") as receiver for First Chicago Bank & Trust ("First Chicago") seeks to recover damages it incurred from a loan transaction gone wrong. FDIC alleges that First Chicago's former counsel, Lowis & Gellen LLP and Robert D. Leavitt (together, "L&G"), provided faulty advice and documentation in connection with a loan from First Chicago to IFC Credit Corporation ("IFC"). L&G is in turn suing Katten Muchin Rosenman LLP, William J. Dorsey and John J. Sieger (collectively, "Katten") in a third-party action claiming that Katten, as counsel hired by First Chicago to replace L&G, committed intervening and superseding negligence which ultimately caused or contributed to FDIC's damages. Before the court is L&G's Motion for Reconsideration in Part of this court's December 19, 2013 order denying L&G's October 28, 2013 motion to compel. The motion is denied for the following reasons:

Background

A. First Chicago's Complaint

First Chicago originally filed suit against L&G on May 10, 2011, in the Circuit Court of Cook County, Illinois. (R. 1-1.) After First Chicago filed for bankruptcy and FDIC was appointed as receiver, FDIC substituted itself as Plaintiff on August 25, 2011, and removed the case to this court. (R. 12 ¶¶ 3-5.) According to FDIC's amended complaint, in December 2007, First Chicago agreed to loan IFC up to $5 million (later increased to $10 million) to purchase or finance equipment that would be leased to third-parties. (R. 68, Am. Compl. ¶¶ 13, 23.) FDIC alleges that First Chicago hired L&G to prepare the necessary documents granting First Chicago a perfected first priority security interest in the loan collateral, but that L&G failed to deliver the secured interest it sought. ( Id. ¶ 16, 20.) FDIC further alleges that in correspondence exchanged between L&G and First Chicago after the transaction closed, L&G failed to correct First Chicago's misperception that a UCC filing was not necessary to perfect its security interest in the loan collateral. ( Id. ¶¶ 33-34.) First Chicago later hired Katten to replace L&G in 2009, and upon discovering that UCC financing statements had not been filed against IFC, Katten made the filing on First Chicago's behalf. ( Id. ¶¶ 61-62.) After IFC defaulted on the loan in June 2009 and refused to turn over the loan collateral, First Chicago filed a complaint and an emergency motion for the appointment of a receiver and temporary restraining order against IFC on July 7, 2009 (the "TRO Action"). ( Id. ¶¶ 63, 65.) IFC filed for bankruptcy a few weeks later on July 27, 2009, and the trustee of IFC's bankruptcy estate initiated an adversary proceeding against First Chicago seeking to: (1) avoid First Chicago's security interest and lien on the loan collateral; (2) avoid and recover certain payments made to First Chicago under the loan; and (3) bar First Chicago's claims against IFC. ( Id. ¶¶ 68, 72.) First Chicago ultimately settled with the trustee on December 1, 2010, and agreed to return $200, 000 and to assign all of its interest in the loan collateral to the trustee. ( Id. ¶¶ 73-74.) FDIC now seeks damages to recoup the losses First Chicago sustained from the failed loan transaction, along with legal fees and costs incurred in the proceedings surrounding IFC's bankruptcy and in bringing this action. ( Id. ¶¶ 84, 91.)

B. L&G's Third Party Complaint

L&G answered the complaint[1] on January 9, 2012, denying all allegations of wrongdoing and raising several affirmative defenses including First Chicago's contributory negligence and Katten's intervening and superseding negligence as successor counsel. (R. 16.) L&G also filed a third party complaint for contribution against Katten on January 23, 2012. (R. 19.) L&G alleges that Katten's failure to file the UCC financing statements perfecting First Chicago's security interest sooner and premature initiation of the TRO Action were intervening and superseding negligent acts or omissions barring FDIC's claims. ( Id. ¶ 22.) L&G contends that the TRO Action caused IFC to file for bankruptcy within 90 days of Katten perfecting First Chicago's security interest, thereby allowing the bankruptcy trustee to avoid First Chicago's security interest. ( Id. ¶ 21-22, 29.) Katten unsuccessfully sought dismissal of L&G's third party complaint, (R. 51), and filed its answer on March 15, 2013, denying all allegations of negligence, (R. 54).

C. L&G's Motion to Compel and Motion for Reconsideration

On October 28, 2013, L&G brought a motion to compel seeking, among other things, First Chicago's privileged communications with Katten regarding transactions with IFC. ( See R. 74 at 11-14.) L&G argued that "at-issue" waiver applied to otherwise privileged documents because without them, L&G cannot effectively defend against FDIC's claims and prosecute its third-party action against Katten. ( Id. at 12.) FDIC opposed L&G's motion, contending that at-issue waiver does not apply in this case and that the privileged communications L&G seeks are not vital to its defense. (R. 84 at 13-14.) FDIC also argued that unlike other malpractice cases in which at-issue waiver was found, this case does not concern multiple firms involved in the same underlying litigation. ( Id. at 14-15.) According to FDIC, L&G's malpractice in failing to properly secure the loan transaction was complete before First Chicago filed the TRO Action against IFC. ( Id. at 15.)

On December 19, 2013, this court granted L&G's motion in part, but denied the motion as to certain discovery requests because, among other reasons, the court was not convinced that First Chicago had waived its attorney-client privilege by putting its communications with Katten at issue. (R. 87.) Pursuant to a briefing schedule set by this court, (id.), L&G filed the current motion on January 23, 2014, seeking reconsideration of this court's December 19, 2013 order, (R. 91, L&G's Mot. ¶ 2). Specifically, L&G's motion focuses on Interrogatory Nos. 19 and 24 and Document Request Nos. 1, 7, 9, 10, 11, 16, and 17, directed to FDIC, and Interrogatory Nos. 2, 5, and 6, and Document Request Nos. 1, 2, 3, and 4, directed to Katten. ( Id. ¶ 1.) L&G argues that: (1) this court misapplied the law by conflating "at-issue" waiver with "subject matter" waiver; and (2) at-issue waiver occurred when FDIC injected an issue into the case which requires the examination of privileged communications to resolve. (R. 93, L&G's Mem. at 2-3.) In support of the second argument, L&G asserts that Katten's actions could have proximately caused FDIC's damages, and are therefore at issue. ( Id. at 3-4.) Alternatively, L&G contends that FDIC at least waived privilege with respect to Katten's redacted invoices, which were submitted to L&G in support of FDIC's claimed damages. ( Id. at 1, 12-15.) FDIC filed its response on February 7, 2014, which was adopted and joined by Katten, (R. 97), refuting L&G's argument that this court improperly conflated at-issue and subject matter waivers and arguing that L&G's reliance on federal decisions is inappropriate in this case not only because state law governs, but also because those decisions are distinguishable, (R. 98, FDIC's Resp. at 2-8). Relying primarily on the Illinois Supreme Court's decision in Fischel & Kahn, Ltd. v. van Straaten Gallery, Inc., 189 Ill.2d 579 (Ill. 2000), FDIC argues that the information L&G seeks should remain privileged. (R. 98, FDIC's Resp. at 5-8.) Finally, FDIC denies L&G's contention that by producing Katten's redacted invoices, FDIC waived its privilege as to those invoices. ( Id. at 8-10.)

Analysis

A motion for reconsideration is narrowly designed "to correct manifest errors of law or fact or to present newly discovered evidence." Hicks v. Midwest Transit, Inc., 531 F.3d 467, 474 (7th Cir. 2008). A motion for reconsideration will be granted when: (1) the court has patently misunderstood a party; (2) the court has made a decision outside the adversarial issues presented to the court by the parties; (3) the court has made an error not of reasoning but of apprehension; (4) there has been a controlling or significant change in the law since the submission of the issue to the court; or (5) there has been a controlling or significant change in the facts since the submission of the issue to the court. Bank of Waunakee v. Rochester Cheese Sales, Inc., 906 F.2d 1185, 1191 (7th Cir. 2009) (citation omitted). "Reconsideration is not an appropriate forum for rehashing previously rejected arguments or arguing matters that could have been heard during the pendency of the previous motion." Caisse Nationale de Credit Agricole v. CBI Indus., 90 F.3d 1264, 1270 (7th Cir. 1996) (citations omitted). Therefore, a court will grant a motion to reconsider when there is a "compelling reason, " including a change in the law that shows that an earlier ruling was erroneous, but not to address arguments that a party should have previously raised. Solis v. Current Dev. Corp., 557 F.3d 772, 780 (7th Cir. 2009).

A. At-Issue Waiver

L&G has failed to identify legitimate grounds for this court to reconsider its December 19, 2013 order. In its motion, L&G first argues that this court misapplied the law by referring to the "sword and the shield" analogy to describe the reasoning behind at-issue waiver. (R. 93, L&G's Mem. at 2.) Citing to Lama v. Preskill, 353 Ill.App.3d 300, 301-02 (App. Ct. 2004), and Center Partners, Ltd. v. Growth Head GP, LLC, 2012 IL 113107 (Ill. 2012), L&G contends that the analogy only applies to subject matter waiver, and that using the metaphor to describe at-issue waiver improperly conflates the two. (R. 93, L&G's Mem. at 2.) This argument falls flat. L&G makes much of the fact that Center Partners, a case involving subject matter waiver, references "the sword' and the shield' approach" to explain that a party should not be allowed to disclose portions of privileged communications to gain an advantage while also claiming privilege over undisclosed communications relating to the same subject matter. Center Partners, 2012 IL 113107 at P39. But the court in Lyon Financial Services, Inc. v. Vogler Law Firm, P.C., 2011 WL 3880948, at *3 (S.D. Ill. Sept. 2, 2011) used the very same analogy to describe at-issue waiver in words ...


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