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West Bend Mutual Insurance Co. v. Schumacher

United States Court of Appeals, Seventh Circuit

December 21, 2016

West Bend Mutual Insurance Company, Plaintiff-Appellant,
v.
Paul W. Schumacher, et al., Defendants-Appellees.

          Argued October 30, 2015

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. l:13-cv-04986 - Ronald A. Guzman, Judge.

          Before Posner, Ripple, and Hamilton, Circuit Judges.

          Ripple, Circuit Judge.

         In 2013, West Bend Mutual Insurance Co. ("West Bend") brought this legal malpractice action against its former counsel, Paul Schumacher, and his law firm, Roddy, Leahy, Guill & Ziema, Ltd. ("RLGZ"). The gravamen of the complaint is Mr. Schumacher's alleged performance in defending a workers' compensation claim in 2005 and 2006. The district court dismissed the second amended complaint on the defendant's 12(b)(6) motion and terminated the case. In the district court's view, the complaint failed to set forth with sufficient specificity a cause of action for legal malpractice. We agree; the complaint fails to state plausibly the causation and harm elements required under Illinois legal malpractice law. Accordingly, we affirm the judgment of the district court.

         I

         BACKGROUND

         West Bend first filed a legal malpractice action based on the performance of Mr. Schumacher and RLGZ in the underlying workers' compensation matter in 2008. The parties later agreed to a dismissal of that claim and entered into a tolling agreement pending the resolution of several other tangen-tially related actions, including one for medical malpractice.

         Following the resolution of those claims, West Bend brought the present action in the United States District Court for the Northern District of Illinois in July 2013, and filed an amended complaint in December 2013. After each of these filings, the defendants moved to dismiss. The district court granted each of the motions, concluding that the allegations were too speculative or vague. In each case, however, the court also granted leave to amend.

         A.

         The allegations of the Second Amended Complaint are central to our task. We therefore begin with a rendition of its contents.

         In December 2005, West Bend retained RLGZ to provide legal representation with respect to a workers' compensation claim filed by John Marzano against West Bend's insured, Nelson Insulation. The substance of Marzano's claim is not described. Mr. Schumacher was the attorney with principal responsibility for defending against the Marzano claim. After several continuances, including one requested by Mr. Schumacher, the Illinois Workers' Compensation Commission ("IWCC") scheduled a hearing on the matter for August 23, 2006.

         According to the complaint, Marzano supported his claim with the deposition of his treating physician, Dr. Sheinkop. He also had undergone an independent medical examination by Dr. Nelson, who provided a written report. This report indicated that Dr. Nelson's testimony would be favorable to West Bend and would counter Dr. Sheinkop's opinion. In his preparation for the scheduled August hearing, Mr. Schumacher did not speak to or depose Dr. Nelson. Instead, without seeking the approval of West Bend, he agreed with Mar-zano's counsel to put a redacted version of Dr. Nelson's report in evidence. Mr. Schumacher also did not speak to any other witnesses or potential witnesses until the day before the scheduled hearing; he then learned that a witness with relevant testimony was out of town and would not be available to testify the following day.

         Prior to the hearing, Mr. Schumacher possessed other information that was beneficial to West Bend's defense, including that Marzano worked a full day on the day of the alleged incident, that he continued to work for two additional weeks until he was laid off, and that his own treating physician could not find any change in the condition of his knee following the incident. Mr. Schumacher disclosed all of this information, favorable to his client, to Marzano's counsel prior to the hearing.

         Documents also indicated that Marzano had not reported the incident until after he was laid off and had retained an attorney. But Mr. Schumacher did not investigate Marzano's contrary statements and did not verify them with Marzano's former supervisor, to whom the incident report allegedly had been made.

         On the day of the IWCC hearing, Mr. Schumacher did not request a continuance or a bifurcated proceeding to allow for the presentation of additional evidence. Instead, "without [West Bend]'s knowledge or agreement, " Mr. "Schumacher made the representation to counsel for [Marzano] that [West Bend] would accept liability of the workers' compensation claim"[1] and the arbitrator was "advised of that position."[2]West Bend claims that it "was forced to accept that agreement pending further investigation of other litigation options."[3]

         The complaint further alleges that, as a result of Mr. "Schumacher's unauthorized actions and representations to [West Bend], [West Bend] was forced to make significant payments, including temporary total disability [("TTD")] benefits and medical expenses, with little or no likelihood of recovery."[4] To "justify his concession of compensability, defendant Schumacher overemphasized" to his client "the potential for penalties to [West Bend] if the hearing had gone forward."[5] Mr. Schumacher "continued to counsel [West Bend] against getting the case reopened to present its defenses as he believed the case was indefensible."[6]

         According to the complaint, West Bend alleged that Mr. Schumacher breached duties to West Bend by virtue of "(a) his unauthorized stipulation concerning compensability; (b) his failure to adequately investigate the claim or claimant's preexi[s]ting medical condition; (c) his subsequent representations to [West Bend] regarding their litigation options[;] and (d) his failure to adequately advise [West Bend] of material facts and legal options prior to hearing."[7] The specific allegations also concerned Mr. Schumacher's failure to depose Dr. Nelson, his disclosure to Marzano's counsel of information beneficial to West Bend, and his failure to discover and remedy the unavailability of a relevant witness for the hearing.

         All of these, West Bend alleged, resulted in its being "forced to accept a disadvantageous position which greatly compromised its ability to defend the claim."[8] It also was "forced to pay additional sums and eventually chose to reach a disputed settlement in order to mitigate its exposure": [a]lthough [West Bend] technically had the option of contesting the compensability of the claim or filing a motion to terminate benefits after retaining new counsel, those options were not practical as plaintiff had been paying benefits for some time and the Commission was unlikely to und[o] or reverse such payments. In other words, [West Bend]'s payment of benefits up to that point severely prejudiced its capability to reverse the concession by defendant Schumacher.[9]

         The complaint further alleged that even if the Commission had determined that West Bend was not liable, it was "extremely unlikely" that it would require repayment of prior benefits, and, if it did, "collection of those funds would have been difficult if not impossible."[10]

         B.

         In its July 18, 2014 order granting the motion to dismiss the Second Amended Complaint, the district court determined that, with respect to the bulk of West Bend's allegations about Mr. Schumacher's performance-including the failure to depose Dr. Nelson, the failure to contact witnesses prior to the hearing, and the disclosure of certain facts to Mar-zano's counsel-West Bend's complaint "does not... explain how any of these alleged acts and omissions harmed its defense."[11] With respect to the allegation that Mr. Schumacher had represented that West Bend would accept liability, the district court stated:

Though Plaintiff alleges that the representation "forced [it] to ... pay[] ... temporary total disability benefits and medical expenses, with little or no likelihood of recovery" and "to reach a disputed settlement in order to mitigate its exposure", these assertions are legally and factually unsupported. As a matter of law, paying benefits pending resolution of a claim does not preclude an employer from contesting liability. Moreover, plaintiff admits that it could have contested the claim, despite the representation. In short, because plaintiff does not and cannot allege that defendants' representation was the cause of any damages it may have suffered, the representation cannot support a malpractice claim.[12]

         The court therefore granted the motion, and, because it had concluded that West Bend had failed to state a claim in three successive complaints, it terminated the case.

         West Bend now appeals.

         II

         DISCUSSION

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