United States District Court, N.D. Illinois, Eastern Division
KEVIN DRISCOLL, in his capacity as court-appointed receiver of AlphaMetrix Group, LLC, Plaintiff,
JURIS KINS and DAVIS MCGRATH, LLC, Defendants.
MEMORANDUM OPINION AND ORDER
Z. Lee, United States District Judge.
Kevin Driscoll, the court-appointed receiver of AlphaMetrix
Group, LLC (“AMG”), has sued AMG's former
lawyers, Defendants Juris Kins and Davis McGrath, LLC
(“Davis McGrath”), alleging that they committed
legal malpractice against AMG. Pursuant to Federal Rule of
Civil Procedure (“Rule”) 16(c)(2)(A), Defendants
have moved to resolve the disputed legal issue of whether
Defendants are entitled to a set-off under the Illinois Joint
Tortfeasor Contribution Act (“Contribution Act”).
Defendants argue that they are entitled to a $4 million
set-off from any judgment against them in this case due to a
previous settlement agreement between Receiver and former
officers of AMG. For the reasons set forth below, the Court
holds that the Contribution Act does not apply here.
to this litigation, the U.S. Commodity Futures Trading
Commission (“CFTC”) sued AlphaMetrix, LLC
(“AML”), a CFTC-registered commodity pool
operator and trading advisor, and its parent company, AMG.
See CFTC v. AlphaMetrix, LLC, No. 13-cv-7896 (N.D.
Ill. filed Nov. 4, 2013) (“CFTC Action”). The
CFTC alleged that AML, rather than reinvesting approximately
$2.8 million of rebates back into commodity pools as it was
obligated to do by agreements with pool participants,
unlawfully transferred them to its parent company, AMG.
See id.; CFTC Action Compl. ¶¶ 15-16, ECF
No. 1. The CFTC's lawsuit resulted in the appointment of
a receiver. See CFTC Action, ECF Nos. 33, 257.
Receiver then filed a separate lawsuit against Aleks Kins,
President and Chief Executive Officer of AML and Managing
Member of AMG, and other former officers of AML and AMG, for
repayment of outstanding loans and breach of fiduciary duty.
See Driscoll v. Aleks Kins et al., No. 14-cv-2472
(N.D. Ill. filed Apr. 7, 2014) (“Officer
Action”). The Receiver alleged that the officers failed
to repay outstanding debts to AMG or implement spending
controls, among other misconduct related to AMG's
finances. Officer Action Am. Compl. ¶¶ 63, 72,
79-81, 85, 87, 90, 93, ECF No. 46.
Officer Action was resolved by a settlement agreement,
whereby the claims were dismissed, a finding of good faith
settlement was entered, and the officers agreed to pay $4
million to the receivership. See Officer Action, ECF
No. 96. The parties stipulated that the officers would not be
liable to third-party defendants if the Receiver should
pursue claims against third-parties, and that the
“Receiver shall reduce the amount of any judgment . . .
entered in the Receiver's . . . favor against any
third-party for injuries that is awarded for the actions or
omissions of a Defendant while they served as a manager,
member, officer, employee or agent of an AMG Entity by the
amount the Receiver receives from the Defendants pursuant to
th[e] agreement.” Defs.' Ex. A, Settlement
Agreement ¶ 7, ECF No. 54-1.
instant case, the Receiver alleges that Aleks's father,
Defendant Juris Kins, as well as Juris's law firm,
Defendant Davis McGrath, committed legal malpractice as
attorneys for AMG, which they represented from 2005 through
December 18, 2013. Compl. ¶ 8, ECF No. 1. As a Managing
Member of AMG, Aleks appointed his friends Charley Penna,
George Brown, and Geoff Marcus as officers of AMG and AML.
Id. ¶ 7. AMG loaned money to Aleks, Penna,
Brown, and Marcus during the course of their employment, and
Juris represented AMG in connection with these transactions.
Id. ¶ 8.
January 2006 and March 2012, Aleks took $1, 156, 877.37 in
undocumented loans from AMG without any repayment deadlines,
interest rates, or default protection for AMG. Id.
¶¶ 11-12. In March 2012, AMG's auditor
requested that the amount be memorialized. Id. Juris
then prepared a promissory note, dated and signed on March
15, 2012, requiring Aleks to repay $1, 156, 877.37 in monthly
installments of $7, 500 with a final balloon payment due on
December 31, 2015. Id. Aleks began paying AMG $7,
500 each month, but he took out an additional $141, 666 in
undocumented loans from AMG during 2013. Id. ¶
13. From 2011 through September 2013, AMG also made
undocumented loans to Penna, Brown, and Marcus, which were
payable on demand. Id. ¶¶ 14-15. Juris was
aware of these undocumented loans. Id.
the course of audits in 2011 and 2012, AMG's auditor
expressed reservations about the value of AMG as a going
concern. Id. ¶ 16. In February 2013, AMG's
primary lender, White Oak Global Advisors, LLC (“White
Oak”), claimed AMG was in violation of certain
financial covenants, and received additional guarantees from
AMG. Id. Juris was aware of the auditor's
apprehension regarding AMG's value as a going concern and
White Oak's escalating demands. Id. ¶ 17.
By August 31, 2013, Juris knew that AMG was insolvent.
in September 2013, Juris prepared amended promissory notes
with respect to AMG's previous loans to Aleks, Penna,
Brown, and Marcus that eliminated the borrowers'
obligations to make monthly payments to AMG, eliminated
AMG's protection against default, and extended the due
dates for repayment of the loans. Id. ¶¶
19-21, 23. The Amended Notes were executed on September 30,
2013. Id. ¶¶ 19, 24.
Receiver alleges that Juris committed legal malpractice
against AMG by preparing the Amended Notes without first
advising AMG that the amendments stripped AMG of the ability
to demand immediate payment of $1.4 million in loans and
effectively transferred these assets from AMG's balance
sheet to Juris's son, Aleks, and his friends.
Id. ¶ 25. As a result of Defendants'
malpractice, the Receiver contends that AMG has incurred
damages in the amount of the obligations under the Amended
Notes. Id. ¶ 33.
seek a determination of whether the Contribution Act applies
to any judgment or settlement in this case. The Contribution
Act provides that “[w]hen a release or covenant not to
sue . . . is given in good faith to one or more persons
liable in tort arising out of the same injury . . . it
reduces the recovery on any claim against the others to the
extent of any amount stated in the release.” 740 Ill.
Comp. Stat. 100/2(c). Under the Contribution Act,
“liability in tort . . . has been construed to mean
‘potential' tort liability.” Jo ...