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Driscoll v. Kins

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

August 26, 2019

KEVIN DRISCOLL, in his capacity as court-appointed receiver of AlphaMetrix Group, LLC, Plaintiff,


          John Z. Lee, United States District Judge.

         Plaintiff 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.

         Procedural History

         Prior 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.

         The Receiver then filed a separate lawsuit against Aleks Kins, [1] 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.

         The 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.

         Factual Background[2]

         In the 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.

         Between 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.

         During 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. Id.

         Nonetheless, 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.

         The 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.


         Defendants 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 ...

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