SIXTH DIVISION September 7, 2007
No. 1-05-3969
SPIRO VISVARDIS AND JOANNE VISVARDIS, ) Appeal from the ) Circuit Court of Plaintiffs-Appellants, ) Cook County ) v. ) ) ERIC P. FERLEGER, P.C., ERIC P. ) FERLEGER, FERLEGER & ASSOCIATES, and ) FERLEGER & COHEN, ) Honorable ) Abishi Cunningham, Defendants-Appellees. ) Judge Presiding
OPINION AS MODIFIED UPON DENIAL OF REHEARING
JUSTICE McNULTY delivered the opinion of the court:
In July 2002, Spiro Visvardis brought a legal malpractice
action against Eric Ferleger, the attorney who represented him in
a lawsuit against Spiro's brother, Nick Visvardis. The trial
court dismissed the complaint against Ferleger, under section 2-
615 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-615
(West 2002)), based on the decision of the court that dismissed
the underlying action against Nick. We hold that the court
should not have considered documents outside of the complaint in
ruling on Ferleger's motion to dismiss under section 2-615.
Because Spiro has alleged facts that could support a finding he
would have won the underlying lawsuit if Ferleger had not acted
negligently, we reverse and remand. We publish the decision to
criticize and clarify the rule in Illinois requiring plaintiffs
in legal malpractice cases to plead the solvency of the 1-05-3969
underlying defendants.
BACKGROUND
In 1986, Spiro and Nick formed Techco, a company
specializing in industrial painting and sandblasting. Nick and
Spiro each owned half of Techco's shares. Nick managed Techco's
finances and Spiro oversaw the work sites. Techco employed
Nick’s wife, Maria Visvardis, to handle various accounting
matters. Nick and Maria also set up two other corporations,
which they named Tecorp and Omega Industries. Techco granted the
National Bank of Greece a security interest in Spiro’s primary
residence in exchange for a loan. On December 31, 1995, Techco
had $425,602 in cash, accounts receivable of $631,437, and
retained earnings in the amount of $784,851. The National Bank
foreclosed the mortgage on Spiro’s home in 1996 because Techco
defaulted on the loan.
In July 1997, through Ferleger, Spiro sued Nick, Maria,
Techco, Tecorp, and Omega Industries ("the original defendants"),
seeking equitable relief and damages for breach of fiduciary duty
and fraud. According to the complaint in the action for legal
malpractice, Nick and Spiro agreed to take equal salaries from
Techco. Techco paid Spiro $28,600 in 1996, while it paid Nick
$72,800 in salary and $101,810 in other income. Also in 1996
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Nick transferred $400,000 from Techco’s bank account to his
personal bank account without Spiro’s authorization and without
Spiro receiving a similar monetary draw. Nick changed all of the
locks on the doors of Techco without providing Spiro new keys.
He removed Spiro as an authorized signatory from Techco’s bank
accounts. Maria forged Spiro’s signature on negotiable
instruments written on behalf of Techco. Nick and Maria
intentionally defaulted on the loan from National Bank, despite
the availability of substantial assets to repay the loan.
According to the complaint Spiro filed against Ferleger,
Nick owned all shares of Allied Maintenance Contractors, and
Maria owned Tecorp and served as president of Century Financial &
Realty Corporation. In July 1997 Century purchased Techco’s
assets, valued at $996,098, for $87,970.45. Pete Maroulis, a
former Techco employee, swore in an affidavit incorporated into
the malpractice complaint that subsequent to 1996, Nick and Maria
owned various pieces of equipment costing a total of
approximately $422,000, Techco performed several jobs from which
it earned approximately $740,000, and Allied Maintenance
performed several jobs from which it earned over $1 million.
On May 2, 2000, the original defendants moved for summary
judgment. Ferleger filed a response that included an expert
opinion as to the amount of damages Spiro sustained. The court
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granted the motion for summary judgment, stating that Ferleger
failed to produce "a single fact" in his response. On behalf of
the plaintiffs, Ferleger filed a motion to reconsider the court’s
entry of summary judgment. To this motion, Ferleger attached 30
exhibits, including various affidavits, a "Facts Chart," and
other materials.
The court denied the motion, stating that Ferleger had
produced "an unorganized bulk of fact, charges, lists [of] a
bunch of things that are supposedly facts. They’re not organized
in any way as to how they’re material facts." The trial court
noted that the affidavit of the expert indicated that he lacked
the documents he needed to reach a conclusion concerning some of
Spiro's allegations of wrongdoing. The trial court reasoned:
"The proper procedure would have been *** to
insist vigorously on that production in front of the
Court with a motion to compel. That was not done. The
motion for reconsideration is not the proper vehicle
for Counsel to reverse his trial tactics."
Ferleger filed an appeal on behalf of Spiro on April 19,
2002. Spiro retained new counsel to prosecute the appeal. On
June 30, 2003, this court affirmed the judgment in favor of the
original defendants.
In July 2002, Spiro initiated a legal malpractice action
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against Ferleger, alleging that Ferleger acted negligently by
failing to sue all responsible parties, by failing to obtain all
documents the expert needed, and by failing to produce available
evidence in response to the motion for summary judgment. In
November 2005, the trial court dismissed Spiro’s fourth amended
complaint, with prejudice, pursuant to section 2-615 of the Code.
735 ILCS 5/2-615 (West 2002). The trial court found that even if
Ferleger had not committed the alleged malpractice, Spiro would
have lost his claim against the original defendants. The trial
court reasoned, "both the trial and appellate courts found the
facts as alleged to be insufficient to sustain the case" against
the original defendants. Spiro now appeals.
ANALYSIS
A section 2-615 motion attacks only the legal sufficiency of
the complaint. 735 ILCS 5/2-615 (West 2002); Illinois Graphics
Co. v. Nickum, 159 Ill. 2d 469, 484 (1994). Section 2-615
motions "raise but a single issue: whether, when taken as true,
the facts alleged in the complaint set forth a good and
sufficient cause of action." Scott Wetzel Services v. Regard,
271 Ill. App. 3d 478, 480 (1995). Ferleger brought his motion
pursuant to section 2-615, but his arguments and the trial
court's rulings rest primarily on the appellate court's
disposition of the underlying action. Ferleger argues that
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Visvardis is "[r]ehashing unsuccessful allegations and materials"
rejected by the court in the underlying case. Ferleger asserts
that "there is nothing in the record suggesting that the trial
and appellate courts in the underlying case" did not review the
new evidence submitted with the motion for reconsideration.
Spiro did not incorporate into the complaint against Ferlenger
the appellate court's order disposing of the underlying action.
Facts not alleged in or attached to the complaint cannot support
a section 2-615 motion. Gilmore v. Stanmar, Inc., 261 Ill. App.
3d 651, 654 (1994).
In essence, Ferleger’s argument sounds in collateral
estoppel. He claims that Spiro cannot relitigate a question that
the appellate court has adjudicated against him in the underlying
suit. Todd v. Katz, 187 Ill. App. 3d 670, 674 (1989). Defendant
should use section 2-619(a)(4) (735 ILCS 5/2-619(a)(4) (West
2002)) to attack the complaint on grounds that a prior judgment
bars the cause of action. See Todd, 187 Ill. App. 3d at 674.
Meticulous practice requires proper designation of all
motions. Premier Electrical Construction Co. v. La Salle National
Bank, 115 Ill. App. 3d 638, 642 (1983). The appellate court
shall reverse if the misdesignation prejudices the nonmovant.
Premier Electric, 115 Ill. App. 3d at 642. Here, at the hearing
on the motion to dismiss, Spiro argued only the sufficiency of
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the allegations in his complaint, as he should in opposition to a
motion to dismiss pursuant to section 2-615. The trial court
asserted that section 2-615 warranted the dismissal. However,
the trial court’s reasoning relied on facts outside the
complaint, specifically that "both the trial and appellate courts
found the facts as alleged to be insufficient to sustain the
case" against the original defendants.
Spiro did not have an opportunity to respond properly to the
mislabeled motion. Allowing the defendant to attack the
complaint under section 2-619 after failing to file the proper
motion would be unjust "because the purpose of the statute is to
give the plaintiff an opportunity to respond to the objection and
to cure the defect in the trial court." Rowan v. Novotny, 157
Ill. App. 3d 691, 694 (1987). As Ferleger brought only a section
2-615 motion, and the court granted only a section 2-615 motion,
we will confine our review to the standards for reviewing section
2-615 motions. Accordingly, we ignore all arguments based on
facts not shown on the face of the complaint.
Ferleger, relying on Goran v. Glieberman, 276 Ill. App. 3d
590 (1995), urges us to take judicial notice of the appellate
court's judgment. In Goran the court took judicial notice of
documents in the record in order to decipher when plaintiff
incurred attorney fees. Goran, 276 Ill. App. 3d at 596. However,
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the defendant in Goran brought his motion to dismiss under
section 2-619, not section 2-615, and therefore the court could
consider matters outside of the complaint. Furthermore, in
Goran, the use of the documents did not prejudice either party.
We review a dismissal under section 2-615 de novo. Hopewell
v. Vitullo, 299 Ill. App. 3d 513, 516 (1998). In order to
withstand a motion to dismiss based on section 2-615, a complaint
must allege facts that set forth the essential elements of the
cause of action. Urbaitis v. Commonwealth Edison, 143 Ill. 2d
458, 475 (1991). "[A] court must take as true all well-pled
allegations of fact contained in the complaint and construe all
reasonable inferences therefrom in favor of the plaintiff."
Vernon v. Schuster, 179 Ill. 2d 338, 341 (1997). In ruling on a
motion to dismiss, the court will construe pleadings liberally.
Pfendler v. Anshe Emet Day School, 81 Ill. App. 3d 818, 821
(1980). However, the court will not admit conclusions of law and
conclusory allegations not supported by specific facts. Village
of South Elgin v. Waste Management of Illinois, Inc., 348 Ill.
App. 3d 929, 930-31 (2004). "A plaintiff is not required to
prove his case in the pleading stage; rather, he must merely
allege sufficient facts to state all the elements which are
necessary to constitute his cause of action." Claire Associates
v. Pontikes, 151 Ill. App. 3d 116, 123 (1986).
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To plead a cause of action for legal malpractice, a
plaintiff must allege facts that could support a finding that (1)
the attorney owed the plaintiff a duty arising from the attorney-
client relationship, (2) the attorney breached that duty, and (3)
the attorney’s breach proximately caused the plaintiff to sustain
damages. Metrick v. Chatz, 266 Ill. App. 3d 649, 652 (1994);
Claire Associates, 151 Ill. App. 3d at 122. Where the
malpractice claimant seeks to recover for loss of a cause of
action, he must also plead and prove that he would have won a
judgment against a solvent defendant. Sheppard v. Krol, 218 Ill.
App. 3d 254, 259 (1991).
Ferleger does not challenge the sufficiency of Spiro's
allegations of an attorney-client relationship and a breach of
duty. To satisfy the proximate cause element of a malpractice
action, Spiro must plead and prove that "but for" Ferleger’s
negligence, Spiro would have won the underlying action. Ignarski
v. Norbut, 271 Ill. App. 3d 522, 526 (1995).
Spiro argues that he would have recovered a judgment against
the original defendants on his breach of fiduciary duty claims
but for Ferleger's negligence. To state a cause of action for
breach of fiduciary duty, a plaintiff must allege: (1) a
fiduciary duty on the part of the defendant and (2) a breach of
that duty that (3) proximately caused (4) an injury. In re Estate
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of Lis, 365 Ill. App. 3d 1, 8 (2006). In Illinois Rockford Corp.
v. Kulp, 41 Ill. 2d 215, 222-23 (1968), our supreme court held
that 50% shareholders in a corporation owe each other fiduciary
duties. "[I]n a closely held corporation, the mere fact that a
business is run as a corporation rather than a partnership does
not shield the business venturers from a fiduciary duty similar
to that of true partners." Hagshenas v. Gaylord, 199 Ill. App.
3d 60, 70 (1990). In this case, Spiro’s complaint alleges
sufficient facts to support an inference that Nick had fiduciary
duties to Spiro.
In Hagshenas, 199 Ill. App. 3d at 72, the court found that
defendant had violated his fiduciary duty when the defendant
opened a competing business and hired away all of the
corporation’s employees. In Kulp, the defendant negotiated a
better deal for himself in the sale of the corporation and misled
the other 50% shareholder to believe they would both receive
equal shares. Our supreme court found that the defendant
breached his fiduciary duties to the plaintiff. Kulp, 41 Ill. 2d
at 223. Similarly, according to the complaint here, Nick
repeatedly misappropriated funds from Techco for his own personal
use without Spiro’s authorization. Nick locked Spiro out of
Techco’s offices and intentionally defaulted on Techco’s loan,
resulting in the loss of Spiro’s home. If Spiro proved these
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allegations, a trier of fact could find that Nick breached his
fiduciary duties. As Nick controlled Techco's accounts and
payments on the bank loan the trier of fact could also infer that
Nick caused Spiro's damages.
The appellate court in Sheppard, 218 Ill. App. 3d at 259,
held that the plaintiff in a legal malpractice action must plead
and prove that the defendant in the underlying case had some
funds from which to pay any damages that a court would have
awarded the plaintiff, had his attorney not committed
malpractice. The court in Sheppard rested its holding on the
dubious authority of Goldzier v. Poole, 82 Ill. App. 469 (1899).
See Universal Underwriters Insurance Co. ex rel. Manley Ford,
Inc. v. Long, 215 Ill. App. 3d 396, 400 (1991) (appellate court
opinions dated before 1935 lack precedential value). Other
jurisdictions have soundly criticized the rule adopted in
Sheppard. Jourdain v. Dineen, 527 A.2d 1304, 1306 (Me. 1987);
Kituskie v. Corbman, 452 Pa. Super. 467, 474, 682 A.2d 378, 383
(1996); Smith v. Haden, 868 F. Supp. 1, 2 (D.D.C. 1994); Ridenour
v. Lewis, 121 Or. App. 416, 854 P.2d 1005 (1993); Teodorescu v.
Bushnell, Gage, Reizen & Byington, 201 Mich. App. 260, 506 N.W.2d
275 (1993); Albee Associates v. Orloff, Lowenbach, Stifelman &
Siegel, P.A., 317 N.J. Super. 211, 721 A.2d 750 (1999); Power
Constructors, Inc. v. Taylor & Hintze, 960 P.2d 20, 31-32 (Alaska
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1998). Those courts have pointed to the unfairness of imposing
the burden of proving solvency on the plaintiff, who may have
lost evidence of solvency due to the attorney's negligence.
Lindenman v. Kreitzer, 7 A.D.3d 30, 36, 775 N.Y.S.2d 4, 8 (2004).
Because proof of uncollectability allows the negligent attorney
to avoid compensating the plaintiff for the negligence, the
attorney should bear the risk of uncertainty of proof concerning
collectibility. Power Constructors, 960 P.2d at 31-32.
Nonetheless, Illinois apparently continues to require legal
malpractice plaintiffs to plead and prove the solvency of the
underlying defendants. Bloome v. Wiseman, Shaikewitz, McGivern,
Wahl, Flavin & Hesi, P.C., 279 Ill. App. 3d 469, 478 (1996);
Klump v. Duffus, 71 F.3d 1368, 1374 (7th Cir. 1995).
Ferleger claims that Spiro must project some date on which
he would likely have won a judgment in the underlying case and
plead facts showing that on that date the underlying defendants
had sufficient wherewithal to pay the judgment. We find no
support for such a requirement. Instead the plaintiff must plead
facts supporting an inference that after the date of the
malpractice, and some time before the judgment against the
underlying defendant would become unenforceable due to its age,
the underlying defendant would have some funds available for
payment of some part of the damages. Klump v. Duffus, 71 F.3d at
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1374; Lindenman, 7 A.D.3d at 36, 775 N.Y.S.2d at 9; Matson v.
Weidenkopf, 101 Wash. App. 472, 3 P.3d 805 (2000).
According to the complaint against Ferleger, Ferleger first
committed malpractice in July 1997 when he filed the insufficient
complaint in the underlying case. In 1997 and thereafter Nick
continued a profitable business in industrial painting and
sandblasting. The corporations Nick and Maria owned generated
almost $2 million in revenue after 1996. Nick and Maria also
owned industrial equipment costing more than $400,000. The
complaint adequately alleges facts that could support a finding
that Nick remained solvent after the alleged malpractice. Thus,
Spiro has sufficiently alleged facts from which a trier of fact
could infer that he had a viable cause of action against Nick.
Spiro contends that he has sufficiently pled that Ferleger's
negligence caused him to lose the underlying action. According
to the complaint, Ferleger failed to produce any evidence in
response to the motion for summary judgment. Spiro further
argues that Ferleger’s production of evidentiary materials with
the motion for reconsideration did not rectify the error.
Ferleger responds that the court in the underlying case
considered the newly produced evidence and plaintiff still lost.
According to the complaint against Ferleger, the trial court in
the underlying case found that Ferleger had "not organized [the
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evidence] in any way as to how they [show] material facts." The
trial court added that the expert lacked the documents he needed
to assess Spiro's allegations of wrongdoing. The trial court
concluded that "[t]he motion for reconsideration [was] not the
proper vehicle for Counsel to reverse his trial tactics."
Ferleger argues that the trial and appellate courts in the
underlying action reviewed the evidence he presented in the
underlying case and found it insufficient to require trial.
Insofar as Ferleger’s argument rests on documents outside of the
complaint, Ferleger should have brought the motion under section
2-619(a)(4), not section 2-615. Spiro has adequately alleged
facts that could support a finding that Ferleger committed legal
malpractice that caused Spiro to lose his viable claims against
the original defendants. Accordingly, we reverse the judgment
dismissing the case pursuant to section 2-615, and we remand for
further proceedings consistent with this opinion.
In his petition for rehearing Ferleger claims that the trial
court properly took judicial notice of the decision on appeal in
the case Spiro brought against Nick. However, the record here
includes no mention of judicial notice prior to the petition for
rehearing. The record on appeal does not even include either the
trial court's judgment or the decision of this court disposing of
the claims Spiro brought against Nick. Therefore, Ferleger has
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waived, for this appeal, any argument based on judicial notice.
See Ball v. Village of Streamwood, 281 Ill. App. 3d 679, 687
(1996). We have discretion to address the issue despite the
waiver. See Ball, 281 Ill. App. 3d at 687. We decide not to
address the issue. Instead, we remand the case to permit the
parties to develop arguments concerning judicial notice and the
question of whether the prior appellate order leaves unresolved
factual issues that may determine the viability of Spiro's
claims. We deny the petition for rehearing.
Reversed and remanded.
JOSEPH GORDON and FITZGERALD SMITH, JJ., concur.
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