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Eckert v. Freeborn & Peters LLP

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

February 26, 2015

JEFFREY P. ECKERT, Plaintiff,
v.
FREEBORN & PETERS LLP and NEAL H. LEVIN, Defendants.

MEMORANDUM OPINION AND ORDER

GARY FEINERMAN, District Judge.

In this diversity suit, Jeffrey Eckert alleges legal malpractice and fraud against the Freeborn & Peters law firm and one of its partners, Neal Levin (together, "Levin"). Doc. 1. Levin has moved to dismiss the case under Federal Rule of Civil Procedure 12(b)(6). Doc. 11. The motion is granted as to the fraud claim and denied as to the malpractice claim.

Background

In resolving the motion to dismiss, the court assumes the truth of the complaint's well-pleaded factual allegations, with all reasonable inferences drawn in Eckert's favor, but not its legal conclusions. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012). The court must also consider "documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice, " along with additional facts set forth in Eckert's brief opposing dismissal, so long as those additional facts are "consistent with the pleadings." Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). Orders entered and filings made in other courts are subject to judicial notice on a Rule 12(b)(6) motion. See Cancer Found., Inc. v. Cerberus Capital Mgmt. LP, 559 F.3d 671, 676 n.2 (7th Cir. 2009); United States v. Stevens, 500 F.3d 625, 628 n.4 (7th Cir. 2007). The facts are set forth as favorably to Eckert as permitted by those materials. See Gomez v. Randle, 680 F.3d 859, 864 (7th Cir. 2012).

This case arises from a lawsuit filed in the Circuit Court of DuPage County, Illinois. Doc. 1 at ¶¶ 1, 10-11. Eckert, one of the state court defendants, was represented by an attorney named Douglas Drenk. Id. at ¶¶ 10, 12. The state court plaintiff, Gregory Steiner, was represented by Levin. Id. at ¶¶ 5, 10. Levin approached Eckert outside of Drenk's presence and persuaded him to enter into a settlement agreement with Steiner that required Eckert to pay over $700, 000. Id. at ¶¶ 12-13. Eckert signed the settlement agreement on June 29, 2010. Id. at ¶ 21; see Doc. 1-1 at 170-179 (the settlement agreement).

The backstory is as follows. In December 2009, when Drenk represented Eckert and Levin represented Steiner, Levin and Eckert began to exchange hundreds of emails. Doc. 1 at ¶ 15; see Doc. 1-1 at 2-169 (the emails). On December 9, 2009, Levin wrote to Eckert: "You have a bad case in State Court, no matter what another attorney might tell you.... [A] settlement would make it so that you wouldn't have a judgment (or any lawsuit) against you, making it that much easier (or even possible) to get financing for your business." Doc. 1-1 at 11. Levin promised to help Eckert develop his businesses as a means of raising the $700, 000 necessary to satisfy his payment obligation under the proposed settlement. Doc. 1 at ¶ 13; see Doc. 1-1 at 9 ("[T]he advisor will build a plan that has a line item for repayment to us while you develop and grow the business. It's a triple win and shuts down all litigation for you.").

During the next two or so years, Levin and Eckert discussed, among other topics, Eckert's business, how to capitalize that business, strategies for raising money to pay what Eckert owed under the settlement agreement, Steiner's lawsuit against Eckert, the legal status of the disagreement between Steiner and Eckert, and enforcement of the settlement agreement. Doc. 1 at ¶ 16. Levin introduced Eckert to potential business advisors and investors. Id. at ¶ 20. Levin also provided Eckert a template for developing a business plan that Levin had created, edited Eckert's business plans, participated in meetings on behalf of Eckert's business, and communicated regularly with Eckert. Id. at ¶ 22. In correspondence with third parties, Levin referred to Eckert as his "client." Doc. 1-1 at 103-04.

On February 8, 2011, Steiner and Eckert agreed to alter the terms of the June 2010 settlement agreement. Steiner v. Eckert, 995 N.E.2d 483, 485 (Ill.App. 2013). On December 12, 2011, Steiner moved to enforce the settlement agreement against Eckert. Doc. 13-4. Levin was one of the attorneys of record for Steiner on that motion. Id. at 5. On December 22, 2011, Eckert moved to disqualify Levin as Steiner's counsel. Doc. 13-5. The state trial court denied Eckert's motion in a one-line order dated March 27, 2012. Doc. 13-6. Then, on July 12, 2012, the court granted Steiner's motion to enforce the settlement agreement and entered judgment against Eckert in the amount of $1, 000, 000. Doc. 13-7. On November 1, 2012, the trial court denied Eckert's motion to vacate that judgment. Doc. 13-8. The Appellate Court of Illinois affirmed, Steiner v. Eckert, 995 N.E.2d 483 (Ill.App. 2013), and the Supreme Court of Illinois denied leave to appeal, Steiner v. Eckert, 3 N.E.3d 802 (Ill. 2014).

Discussion

I. Fraud Claim

Eckert's fraud claim alleges that Levin fraudulently induced him into executing the settlement agreement by falsely promising to help him raise the funds needed to satisfy his financial obligations under the agreement. Doc. 1 at ¶¶ 45-50. Levin argues that this claim is an improper collateral attack on the state court judgment. Doc. 13 at 11. Although he does not use the term, Levin's argument is that res judicata, also called claim preclusion, bars the fraud claim because it rests on allegations that Eckert could have raised in the state court case.

Res judicata "provides for the finality of rulings by barring the relitigation of claims or defenses that had been or could have been brought in a prior case." Smith Trust & Sav. Bank v. Young, 727 N.E.2d 1042, 1045 (Ill.App. 2000) (emphasis added); see also Hicks v. Midwest Transit, Inc., 479 F.3d 468, 471 (7th Cir. 2007); Wilson v. Edward Hosp., 981 N.E.2d 971, 975 (Ill. 2012). Because the underlying judgment was issued by an Illinois state court, its preclusive effect is governed by Illinois law. See Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. 367, 373 (1996); Burke v. Johnston, 452 F.3d 665, 669 (7th Cir. 2006). In Illinois, res judicata applies if: "(1) there was a final judgment on the merits rendered by a court of competent jurisdiction, (2) there is an identity of cause of action, and (3) there is an identity of parties or their privies." River Park, Inc. v. City of Highland Park, 703 N.E.2d 883, 889 (Ill. 1998); see also Empress Casino Joliet Corp. v. Johnston, 763 F.3d 723, 727-28 (7th Cir. 2014). In addition, the party against whom res judicata is invoked must have had a "full and fair" opportunity to litigate the claim in the prior suit. Hicks, 479 F.3d at 471.

The first requirement, a final judgment on the merits, is indisputably satisfied. The state appellate court held that Steiner and Eckert had entered into a valid settlement agreement and affirmed the trial court's enforcement thereof, see Steiner, 995 N.E.2d at 489, and the state supreme court denied leave to appeal. The judgment, therefore, constitutes a final judgment on the merits as to the existence, validity, and enforceability of the settlement agreement. See In re A.W., 896 N.E.2d 316, 321 (Ill. 2008) ("finality requires that the potential for appellate review must have been exhausted"); Relph v. Bd. of Educ. of DePue Unit Sch. Dist. No. 103, 420 N.E.2d 147, 150 (Ill. 1981).

The second requirement of res judicata, the identity of the cause of action, is satisfied as well. Under the "transactional test" adopted by Illinois, "separate claims will be considered the same cause of action for purposes of res judicata if they arise from a single group of operative facts, regardless of whether they assert different theories of relief." River Park, 703 N.E.2d at 893; see also Huon v. Johnson & Bell, Ltd., 757 F.3d 556, 558-59 (7th Cir. 2014); Cooney v. Rossiter, 986 N.E.2d 618, 622 (Ill. 2012) ("Illinois does not require the same evidence or an identical theory of relief."). What constitutes a "single group of operative facts" is determined pragmatically, "giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding ...


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