MORTON S. GOLDFINE et al., Appellees,
BARACK, FERRAZZANO, KIRSCHBAUM & PERLMAN et al., Appellants
[Copyrighted Material Omitted]
Where stock purchasers, after their acquisitions became worthless, reached a settlement with their broker and others on allegations of statutory and common law fraud, but sued for malpractice their attorneys who had negligently allowed claims under the Illinois Securities Law of 1953 to become time-barred, the supreme court rejected defendant lawyers' contentions that the 10% interest provision of the 1953 law could not be used as a measure of damages for the malpractice, either on the theory that it was applicable only to those who actually violated that statute or by virtue of the ban on punitive damages for legal malpractice; and the court held that interest should be recalculated so as to be computed before, rather than after, deducting for the earlier settlement, but should run only until its date.
J. Timothy Eaton, of Taft Stettinius & Hollister LLP, and Barry Levenstam, Irina Y. Dmitrieva, Kaija K. Hupila and Michael A. Scodro, of Jenner & Block LLP, all of Chicago, for appellants.
Edward T. Joyce and Rowena T. Parma, of the Law Offices of Edward T. Joyce & Associates, P.C., and Martin J. Oberman, all of Chicago, and Steven J. Plotkin, of Evanston, for appellees.
Michael T. Reagan, of Law Offices of Michael T. Reagan, of Ottawa, Daniel A. Cotter, of Chicago, and Paula Holderman and Charles J. Northrup, of Springfield, for amici curiae the Chicago Bar Association and the Illinois State Bar Association.
Leslie J. Rosen, of Chicago, for amicus curiae Illinois Trial Lawyers' Association.
Lisa Madigan, Attorney General, of Springfield (Carolyn E. Shapiro, Solicitor General, and Jane Elinor Notz, Deputy Solicitor General, of Chicago, of counsel), for amicus curiae Illinois Secretary of State.
JUSTICE KILBRIDE delivered the judgment of the court, with opinion. Chief Justice Garman and Justices Freeman, Thomas, Karmeier, Burke, and Theis concurred in the judgment and opinion.
[¶1] At issue in this appeal is the application of the civil remedies provisions of section 13(A) of the Illinois Securities Law of 1953 (Illinois Securities Law) (815 ILCS 5/1 et seq. (West 2010)) in calculating damages in a legal malpractice action.
[¶2] Plaintiffs, Morton and Adrienne Goldfine, brought a legal malpractice action against defendant law firm, Barack, Ferrazzano, Kirschbaum & Perlman, and several of the firm's partners, to recover damages as a result of defendants' failure to preserve their Illinois Securities Law cause of action against an investment firm.
[¶3] The circuit court of Cook County ruled in plaintiffs' favor and awarded damages for plaintiffs' Illinois Securities Law claim losses. The appellate court affirmed the trial court's findings in favor of plaintiffs. However, the appellate court determined that the trial court failed to apply the correct mathematical formula to calculate plaintiffs' Illinois Securities Law claim damages. The appellate court also determined the trial court's attorney fee award was based on its incorrect damage calculation. Accordingly, the appellate court reversed the trial court's award of damages and attorney fees and remanded the case to the trial court for a recalculation of damages and attorney fees. 2013 IL App. (1st) 111779, 993 N.E.2d 1013, 373 Ill.Dec. 454.
[¶4] We allowed defendants' petition for leave to appeal. Ill. S.Ct. R. 315 (eff. July 1, 2013). We now affirm in part and reverse in part and remand to the trial court.
[¶6] Plaintiffs' malpractice claim against defendants is predicated on an underlying cause of action against Shearson Lehman Brothers Holding, Inc. (Shearson), and other individuals and firms (Shearson defendants) for violations of the Illinois Securities Law. That cause of action arose from plaintiffs' purchases of First Capital Holdings (FCH) stock through Shearson's broker, Michael Steinberg, who was the office manager of Shearson's Peoria, Illinois, office, and a close personal friend of the plaintiffs. Plaintiffs purchased FCH stock between 1987 and 1990.
[¶7] FCH filed for bankruptcy in 1991, and plaintiffs' FCH stock became worthless. That same year, plaintiffs retained defendant law firm to represent them in claims arising from their purchases of the FCH stock. When plaintiffs retained defendant law firm, they had a viable claim against the Shearson defendants for rescission under the Illinois Securities Law. Defendants, however, failed to preserve plaintiffs' cause of action under the Illinois Securities Law by failing to serve the required rescission notice.
[¶8] In 1992, plaintiffs hired new counsel to pursue their claims against the Shearson defendants. Plaintiffs' complaint included their Illinois Securities Law claim, but that claim was dismissed by the circuit court as time-barred.
[¶9] In 1994, plaintiffs filed a malpractice action against the defendant law firm and several of its partners to recover damages plaintiffs would have recovered under the Illinois Securities Law if defendants had properly preserved plaintiffs' claim. In 1996, plaintiffs moved to transfer the malpractice action to the circuit court's commercial calendar. Defendants agreed not to oppose the transfer only if plaintiffs agreed to stipulate that the trial of plaintiffs' malpractice claim would take place only after all claims in the underlying Steinberg case were tried or otherwise resolved. Accordingly, a stipulated order was entered delaying the malpractice trial until resolution of the underlying Steinberg case.
[¶10] In 1999, plaintiffs' remaining claims in the underlying Steinberg case were dismissed by the circuit court. The appellate court affirmed the dismissal of the Illinois Securities Law claim as untimely, but reversed and remanded to the trial court plaintiffs' claims against the Shearson defendants for common law fraud and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 2004)). Goldfine v. Steinberg, 347 Ill.App.3d 1101 (2004) (unpublished order under Supreme Court Rule 23). In 2007, plaintiffs settled those claims for $3.2 million.
[¶11] After reaching settlement in the underlying Steinberg case, the legal malpractice case proceeded to a bench trial that lasted over eight weeks. On July 12, 2010, the trial court found that defendant law firm breached its duties to plaintiffs by failing to preserve plaintiffs' Illinois Securities Law claim and that the loss of that claim was caused by defendant law firm's negligent conduct. The trial court ruled that plaintiffs' damages would be calculated according to the following formula: plaintiffs' $3.2 million settlement would be deducted from the total they paid for their 11 stock purchases, and then 10% interest would be calculated on the remaining amount based on the various dates of the stock purchases. The trial court ordered the parties to calculate the exact amount to enter in a judgment order, ordered plaintiffs to prepare the judgment order, and gave plaintiffs leave to file a petition for attorney fees.
[¶12] On May 24, 2011, the trial court entered its judgment, adopting the securities purchase price and interest calculation proposed by defendants. Specifically, the trial court took the sum of $4,506,602.05, representing the total of plaintiffs' 11 stock purchases in 1988, 1989, and 1990, and deducted the 2007 Steinberg settlement of $3.2 million. Because the stocks were purchased on 11 different dates, the trial court applied a " proportionate reduction of $3,200,000.00 (71.00693%)" to each purchase to obtain a " net" purchase price for each of the 11 stock purchases. The total sum of those net purchase prices was $1,306,602.29. Using the net purchase price for each of the 11 purchases and the corresponding date of sale for each purchase, the trial court then calculated a 10% annual interest award, through May 24, 2011, of $2,785,149.19, for a total award of $4,091,752.19. The trial court also awarded plaintiffs attorney fees of 40% of the total award, or $1,636,700.80, and $207,167.28 in costs and expenses. The trial court entered a judgment totaling $5,935,610.10.
[¶13] Plaintiffs appealed, arguing that the trial court failed to calculate their statutory damages according to the mathematical formula in section 13(A) of the Illinois Securities Law. Plaintiffs also argued that the trial court erred in failing to award reasonable attorney fees, expenses and costs.
[¶14] Defendants cross-appealed, arguing that the award of interest, attorney fees and costs should be reversed because the fee-shifting and interest provisions of section 13(A) of the Illinois Securities Law are punitive and coercive and, thus, fall within the category of damages barred by statute in legal malpractice actions. Defendants also argued that the trial court erred in finding that plaintiffs proved their underlying Illinois Securities Law claim.
[¶15] The appellate court affirmed the circuit court's findings that plaintiffs proved their underlying Illinois Securities Law claim and legal malpractice action. The appellate court also affirmed the circuit court's award of plaintiffs' costs and expenses. The appellate court, however, determined that the circuit court failed to apply the correct mathematical formula to calculate plaintiffs' damages under the Illinois Securities Law. Specifically, the appellate court held there was no basis for the trial court to deduct the $3.2 million settlement from the purchase prices before calculating interest. Additionally, the appellate court held that the trial court's attorney fees award was incorrect based on a percentage of its erroneous damage calculation. Accordingly, the appellate court reversed the circuit court's award of damages and attorney fees and remanded the case to the trial court to recalculate plaintiffs' damages, to determine a reasonable amount of attorney fees based on the correct calculation of damages, and to award plaintiffs attorney fees and costs incident to the appeal.
[¶16] We allowed defendants' petition for leave to appeal. Ill. S.Ct. R. 315 (eff. July 1, 2013). We allowed the Chicago Bar Association and the Illinois State Bar Association to file a joint amicus brief. We also allowed the Illinois Secretary of State, Securities Department, and the Illinois Trial Lawyers' ...