A $3.6 million verdict against a St. Louis law firm sufficiently covers legal damages an Illinois bank incurred after following the firm's advice, Fifth District Appellate Court justices ruled, affirming an earlier decision reached in Madison County Circuit Court.
Plaintiff Union Planters Bank appealed the decision of a Madison County Circuit Court jury to award it $3,654,606.40 in damages -- more than $8 million short of the $11,789,053.24 it sought from defendant Thompson Coburn.
Circuit Judge Daniel Stack presided over the eight-week long trial in 2008.
Thompson Coburn filed a cross appeal, arguing that the Illinois Appellate Court should reverse the trial court's decision, saying it mistakenly found that Union Planters Bank, formerly known as Magna, owed a fiduciary duty to creditors of trust, who form the center of the controversy.
The debacle began more than 20 years ago when several personal injury plaintiffs structured settlements with James Gibson, who owned a company called SBU, according to the opinion. SBU offered the plaintiffs a tax shelter by disclaiming any power over where the trust funds were allocated, the opinion states.
"This meant that the injured plaintiffs could not be designated as beneficiaries of the structured settlement trusts; rather, they were designated as creditors of the trusts," the opinion says.
In 1985, Union Planters Bank, which was known as Magna at the time, entered into an agreement with SBU to offer these injured plaintiffs tax-advantaged structured settlements in their personal injury cases, according to the opinion. In the agreement, Magna agreed to act as the trustee for the trusts and SBU agreed that all bonds would be purchased in Magna's name on behalf of the plaintiffs. In addition, the agreement stipulated that either party could terminate its relationship provided 30 days written notice.
SBU and Magna partnered up to provide brochures advertising their joint services primarily to plaintiffs' attorneys in Madison and St. Clair Counties, the opinion says. Soon, the companies began reeling in clients who agreed to structure their settlements with SBU -- about 77 structured settlement trusts over the course of eight years, the opinion states.
In 1993, SBU suddenly decided that it wanted to drop Magna as the trustee for the settlement trusts. It notified Magna that it intended to transfer 46 bonds to PrivateBank and Trust Company. Upon receiving notification, Magna consulted its lawyer, Thompson Coburn, about the possibility of continuing the trust, the opinion says.
Magna put up a fight, sending SBU a letter saying it would not voluntarily relinquish its position because SBU did not have the authority to revoke Magna's position as trustee. SBU subsequently filed suit in Madison County Circuit Court, alleging a declaratory judgment requesting the court terminate Magna's position as trustee and a breach of contract seeking monetary damages for Magna's refusal to voluntarily give up its position, the opinion says.
Magna hired Thompson Coburn to defend it in its battle against SBU, and the law firm filed a motion to dismiss SBU's complaint because SBU failed to reserve the power to remove the trustee in its agreement with Magna. Magna's motion to dismiss was denied and the court granted SBU the right to choose a subsequent trustee, according to the opinion.
Eventually, SBU and Magna reached an agreement to send the trust accounts to First National Bank of Carbondale. However, SBU later changed its mind and requested Magna send the trusts to Crews and Associates. But after investigating Crews and Associates, Thompson Coburn advised Magna that Crews and Associates was not a qualified corporate trustee. Magna questioned Crews' authority to handle the trusts, and SBU again changed its mind, deciding to transfer 15 trusts to First National Bank, according to the opinion.
After transferring the trusts, Magna notified SBU that both companies were required to provide notice to the plaintiffs of the change of their trustee. But SBU countered, saying Magna was only forced to notify SBU pursuant to a judge's orders, the opinion says.
Wanting clarification and to avoid potential lawusits, Magna filed an application for the advice and instructions of the court, asking the court to determine the proper procedure for transferring assets. Former St. Clair County Associate Judge Robert Hillebrand responded that Magna's only duty would be to notify plaintiffs that it would no longer be their trustee. Magna would not have to provide the name of the successor trustee, Hillebrand decided.
Thompson Coburn attorney Tom Hennessy then wrote Magna President Roger Beaman a letter, saying, "In ruling on [Magna's] [a]pplication for [a]dvice and [i]nstructions of [c]ourt, Judge Hillebrand stated that the only fiduciary obligation [Magna] has is owed to [SBU]. This is a significant ruling because it relieves us from the worry of what the payee beneficiaries may do if we comply with the instructions of [SBU]."
Meanwhile, Magna had filed an appeal to Judge Hillebrand's decision to allow SBU to appoint a new trustee. Magna continued to serve as trustee for the 62 accounts it agreed to keep with SBU until after its appeal was decided, the opinion states.
About a year later, Magna learned the 15 trusts that had previously been transferred to First National Bank were again transferred to a company called Flag Finance Company -- a company Thompson Coburn later learned through investigations was not authorized to be a trust company. In fact, Flag was controlled by SBU's Gibson, his wife and his daughter, the opinion says.
In the mean time, the Fifth Appellate Court issued its decision, affirming Madison County Circuit Court's previous judgments against Magna. This allowed SBU to transfer the remaining 62 accounts to a different trustee.
Magna asked Thompson Coburn to take the lead in transferring the trust accounts. The company's new president, Matt Finn, who was unfamiliar with previous judgments, asked Thompson Coburn if the company could add another sentence to its termination notices and name the successor trustee. Thompson Coburn advised that such an action could be taken despite Judge Hillebrand's explicit statement that the company would not have to do so.
Shortly thereafter, Gibson advised Thompson Coburn he would like to remove the trusts to Flag. At the advice of Thompson Coburn, Magna agreed to transfer the trusts, and Judge Annette Eckert confirmed the company as successor. In its letter to the injured plaintiffs regarding the transfer, Magna informed them of its termination as trustee and the subsequent appointment of Flag as trustee.
The plaintiffs continued to receive their payments until around April 2000 when Gibson spent his clients' money on unauthorized business transactions, high-risk investments and real-estate and luxury purchases for his own use. Eventually, Gibson was sentenced to 40 years in prison, but the plaintiffs were not satisfied. They subsequently brought lawsuits against companies, including Magna, to recover the settlement funds they had lost.
Magna hired Thompson Coburn to represent it. In one of the first cases, Thompson Coburn filed a motion to dismiss the counts against Magna, arguing the company owed no fiduciary duties to the plaintiffs. Eventually, Cook County Circuit Court granted Magna's motion to dismiss with prejudice.
"While this litigation was pending, Magna and Thompson Coburn discovered that Thompson Coburn might be implicated for the injured plaintiffs' losses," the opinion says. "Recognizing a potential conflict, Thompson Coburn withdrew from representing Magna in any cases involving SBU and recommended that Magna hire the law firm of Freeark, Harvey, Mendillo, Dennis, Wuller, Cain and Murphy."
While the first case against Magna was pending on appeal, the St. Clair County Circuit Court entered an order in another case granting the plaintiffs' motion for summary judgment and ruled that Magna owed the injured plaintiffs a duty in trust. The court concluded that Magna disregarded Judge Hillebrand's order and that its actions had allowed Flag to control the plaintiffs' accounts.
After the court's order, Freeark recommended Magna file a legal malpractice suit against Thompson Coburn. And, about a week after the order, Freeark asked Thompson Coburn to defend Magna in cases in which Magna's liability is based on Thompson Coburn's acts on the company's behalf, the opinion says. Thompson Coburn refused to comply, and in April 2003, Magna filed a suit against the law firm.
In September 2003, Magna settled yet another case against it, paying about $2.2 million. It eventually recovered $917,609 from other defendants in the case. It settled other cases for $5,728,425 and for $2.5 million, the opinion says.
By March 2008, Magna filed an amended complaint to its original complaint against Thompson Coburn, alleging negligence and breach of contract. It sought $11,789,053 -- consisting of $1,084,419 it paid to Thompson Coburn in attorneys' fees, the $997,486 it paid to Freeark in attorneys' fees and the $1,478, 721, the $2.5 million and the $5,728,425 it paid to settle complaints against it.
After being awarded only $3.6 million, Magna appealed the trial court's verdict, saying the trial court erred in refusing to grant a new trial on the issue of damages and by requiring it to choose only one of the two counts it brought forth.
Magna contends the $3.6 million it was awarded is "manifestly inadequate" and wants a new trial. The justices disagreed and refuse to grant it a new trial.
The justices say the jury's role is to resolve conflicts of evidence -- many of which were present in the Magna case.
"The jury heard evidence across the board regarding the amount of damages in this case," Justice James Wexsteen wrote in the court's majority opinion. "Not surprisingly, the experts on both sides disagreed with everything from whether Magna should have settled the cases in the first place to the amount Magna paid in settlement. At the end of the day, the jury took this conflicting testimony into deliberations and determined that Magna should recover $3,654,606 of the $11,789,053 in alleged damages incurred by Magna.
"It was the jury's role to resolve the conflicts in the evidence, to make credibility determinations, and to decide the weight to be given to the witnesses' testimony. We will not usurp that function."
Magna also argued in its appeal that the trial court erred when it forced the company to choose between either its negligence or its breach of contract claims. Again, the justices disagreed with Magna's summation of events. Instead, Magna's attorney was the one who declared Magna would not pursue both causes of action.
"While the court did later tell Carr, after he had told the court that he had waived Magna's right to take both counts to the jury, that Magna's election would have to be made prior to closing argument, by this point Magna had already waived its right to take both counts to the jury," Justice Wexsteen wrote. "Further, even if we found that Magna had not waived its right and had been required by the court to elect which count would go to the jury, we would not be inclined to reverse the judgment because Magna has failed to demonstrate how it was prejudiced."
Thompson Coburn also filed a cross-claim, saying the trial court's decision should be reversed and a new judgment should be entered because the trial court erred when it found Magna owed the plaintiffs a fiduciary duty.
In its argument, Thompson Coburn contended that Magna's case would have been dismissed or a pre-trial judgment would have been issued in the law firm's favor if not for the trial court's ruling that Magna owed a fiduciary duty to the plaintiffs. Without that duty from Magna to the plaintiffs, nothing Thompson Coburn did could have caused Magna to breach a duty and, in turn, expose it to liability, Thompson Coburn argued. It argues Magna was collaterally estopped from raising the issue of fiduciary duty in its lawsuit because the issue had already been decided by a previous court.
However, the justices in the Fifth District Appellate Court say requirements for collateral estoppel have not been satisfied and Magna is allowed to raise the issue of fiduciary duty.
"Here, the threshold requirements for collateral estoppal have not been met," Justice Wexstten wrote in the court's majority opinion. "The issue decided in the prior adjudication is not identical with the issue presented in this case. A close reading of Topsakalyan reveals that the issue decided there was limited to whether Magna owed a fiduciary duty to the injured plaintiffs as trust beneficiaries. Here, however, the injured plaintiffs brought suit against Magna under a number of different legal theories, not simply on the basis that the injured plaintiffs were trust beneficiaries."
Even if collateral estoppel were applied, it would not promote judicial economy -- the main reason for bringing such a doctrine forth, the justices say.
"Applying collateral estoppel at this point would not promote judicial efficiency because we would not be preventing the relitigation of issues that have already been resolved in earlier actions," Justice Wexstten wrote.
Thompson Coburn argued Magna also had to prove a case within a case to recover damages for the firm's alleged malpractice, which Magna failed to do.
"This is required because of the damages element of the action; no malpractice exists unless counsel's negligence has resulted in the loss of an underlying action," the opinion says.
However, Fifth Circuit Appellate Court judges disagreed with Thompson Coburn, saying that a case within a case is not always required where the plaintiff can otherwise establish damages. It says the jury was not given an instruction requiring Magna to prove a case within a case and the law firm did not allege the court was in error for failing to instruct the jury in such a fashion.
"In any event, the jury must have found that Magna proved its case within a case because it awarded Magna more than just its legal expenses," the opinion says. "It was not error for the jury to do so."
Justices Stephen Spomer and Bruce Stewart concurred with Wexstten.
Appellate Court case number: 5-08-0497.