Whether Malpractice Claim Was Improperly Assigned Is an Issue of Fact

Brandon Apparel Group v. Kirkland and Ellis, 887 N.E.2d 748, 320 Ill.Dec. 604 (Ill.App. 1 Dist. 2008)

Brief Summary
When a third party is the primary beneficiary of a plaintiff’s legal malpractice claim and the third party consults with the plaintiff and influences the litigation, the question whether the plaintiff has improperly assigned the malpractice claim is an issue of fact which turns on the amount of control exercised by the third party.

Complete Summary
Law firm Kirkland & Ellis represented Brandon Apparel Group (“Brandon”) in a lawsuit between Brandon and a creditor, Johnson Bank, following Brandon’s default on two Johnson Bank loans. Kirkland & Ellis agreed to file an answer to Johnson Bank’s complaint by a certain date but failed to do so. Based on Kirkland & Ellis’s failure to respond, the trial court granted Johnson Bank’s motion for default judgment, leaving Brandon and two of its principals —Keywell and Lefkofsky, who had guaranteed Brandon’s debt — liable for approximately $11 million in unpaid loans. The court also entered a receivership order giving a Johnson Bank executive the rights to, inter alia, any proceeds from any claims against Kirkland & Ellis.

Brandon’s malpractice suit against Kirkland & Ellis was already pending at the time the receivership order was entered. Following this order, Kirkland & Ellis argued—in the malpractice proceeding—that Brandon had improperly assigned its malpractice claim to Johnson Bank. Kirkland & Ellis’s argument was based not only on the receivership order, but also on a “common interest agreement” between Brandon and Johnson Bank in which the parties agreed to consult about the Kirkland & Ellis litigation, and that such consultations would be subject to the attorney-client privilege. Kirkland & Ellis argued that the combination of the receivership and the common interest agreement amounted to a de facto assignment of the malpractice claim because Johnson Bank was the beneficiary of the litigation and had power to control the litigation. The trial court granted summary judgment for Kirkland & Ellis.

The appellate court reversed because issues of fact remained regarding how much control Johnson Bank had over the litigation. Despite the fact that “Johnson Bank’s counsel was vocal regarding the malpractice litigation,” the court held “[t]he receivership order, itself, did not give Johnson Bank the final word in the case of a disagreement with the plaintiffs.” Id. at 757. Moreover, evidence that Johnson Bank had influenced Brandon’s litigation decisions was not dispositive because it was not clear that Johnson Bank had power to mandate any litigation decisions. Therefore the court remanded the case for further determination of whether Johnson Bank controlled the litigation.

The appellate court did not opine on the proper remedy for an improper assignment.

Significance of Opinion
This case helps clarify a previously unaddressed issue in Illinois: as the court put it: “when is de facto assignment of a legal malpractice claim established as a matter of law?” Id. at 756.

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