Sheldon A. Harris
A developer sued a former Prospect Heights city attorney for legal malpractice after their secret financial relationship scuttled a developer’s breach-of-contract suit against the city. But on Monday, a state appeals panel ruled the suit needed to be filed years earlier.
Under the state’s statute of repose, John G. Wilson, the owner of Prospect Development LLC, had six years after he last lent money to Donald J. Kreger, a Schiff, Hardin LLP attorney who represented Prospect Heights at the time, to sue him for legal malpractice, the 1st District Appellate Court found.
Whatever legal advice Kreger allegedly gave to Wilson about keeping their relationship a secret should have been called into question when Wilson sued Kreger’s client and shared information about the loans in that complaint, the panel continued.
Prospect Development sued Kreger and Schiff, Hardin in 2012, the same year a 1st District panel upheld a ruling denying him the ability to pursue damages in a breach-of-contract claim against Prospect Heights.
Former Cook County circuit judge Lee Preston ruled in 2010 that the undisclosed financial relationship between Wilson and Kreger meant Prospect Development came to court with unclean hands, making it unable to collect any relief.
Wilson’s subsequent legal malpractice complaint alleged Kreger’s legal advice led Wilson to believe it was OK for the city to enter into the contract without knowing about their financial ties.
It wasn’t until Preston’s 2010 decision in the lawsuit against the city that Wilson learned it was improper, he contended.
The last loan Wilson made to Kreger occurred in 2001. Wilson acknowledged the six-year time limit in his complaint, but argued the statute should be tolled to start counting from 2010, when Preston issued his ruling.
In May 2014, Circuit Judge John P. Callahan Jr. ruled in favor of Wilson, agreeing that the statute was tolled until 2010 — meaning the complaint was not time-barred.
Kreger and Schiff, Hardin moved for reconsideration, arguing that in Wilson’s 2005 complaint in the underlying case, he shared his own misgivings about keeping the financial relationship secret.
Kreger and Schiff argued the plaintiffs should have recognized a potential legal malpractice claim at the same time they sued Prospect Heights for breach of contract. In 2005, it still had two years to sue him under the statute.
Callahan found Kreger’s argument persuasive and dismissed the suit as time-barred. On appeal, Wilson and Prospect Development raised only one issue: Whether their lawsuit is barred by the statute of repose.
The panel’s majority found that Illinois courts do not toll the statute of repose when ordinary due diligence should have revealed what the pleading party argues was concealed.
By disclosing the secret financial relationship with Kreger in his initial 2005 lawsuit, Wilson was aware the loans may have been improper, Justice Sheldon A. Harris wrote.
“If plaintiffs knew or even had response to suspect in 2005 that the advice given in October 2001 by Kreger was negligent, then plaintiffs had a duty to investigate further and could no longer rely on Kreger’s statements, if any, to continue to toll the repose period,” Harris wrote.
Preston’s 2010 ruling indicated that “plaintiffs knew in 2005 the loans maybe improper and the legal advice not reliable,” Harris wrote.
“Thus, the issue decided in the previous lawsuit regarding plaintiffs’ knowledge is the same issue raised as part of plaintiffs’ fraudulent concealment claim,” he wrote. “Accordingly, we find all the elements of collateral estoppel are met and the circuit court properly applied it.”
Additionally, the panel rejected Wilson’s argument that he did not actually know about how bad Kreger’s alleged legal advice was; Wilson should have known or discovered this concealment was occurring; and that they had plenty of time to do their due diligence, the justices found.
“Plaintiffs, in January 2005, knew that loans may be inappropriate and may generate a conflict,” Harris wrote. “At this point, plaintiffs were aware that the legal advice they last received may not be accurate and were required to investigate further.”
“Plaintiffs had over two years from January 2005 to file this action within the period of repose, which certainly qualifies as ample time,” Harris continued.
This legal fight stems from the city’s decision to hire Wilson and his firm in 1994 to study whether it was feasible to build an arena on 35 acres of land south of Chicago Executive Airport, then known as Palwaukee Municipal Airport.
In 1996, Prospect Development sent the city a proposal to develop the arena; the city hired them a year later.
Under the terms of the deal, Prospect Development was to buy the land and secure private financing and investor commitments while the city sold bonds.
It was during this time Wilson and Kreger began their secret financial relationship. From 1996 to 2001, Wilson loaned Kreger over $150,000 in cash and $50,000 in stock from Ice Ventures, a company formed by Wilson to oversee development of the arena, which was envisioned to host ice hockey games.
But Prospect Heights could not sell enough bonds to make the deal happen. By 2004, the deal was dead, and the company was never reimbursed by the city.
In 2005, the company sued Prospect Heights for breach of contract, alleging it was owed about $20 million. In counterclaims, Prospect Heights wanted to recoup its expenses and sought punitive damages against the developer.
Preston’s ruling was a defeat for both the developer and the city. He ruled Prospect Development could not collect on such a claim because it came to court with unclean hands as a result of Wilson’s hidden financial relationship with Kreger.
Preston’s ruling also found that the developer had substantially performed its obligations under the contract, denying the city a victory.
Wilson and Prospect Development LLC were represented by Bridgman, Mich.-based attorney William Stevens.
Stevens said he would appeal to the Illinois Supreme Court. He said Preston’s ruling never addressed the prospect of when Wilson should have discovered Kreger’s alleged misconduct.
He added there are questions of material fact at play and that a jury should have decided this case.
Kreger and Schiff, Hardin were represented by Michael L. Shakman, Diane F. Klotnia and William J. Katt of Miller, Shakman & Beem LLP.
Shakman praised the panel’s finding, and indicated it could play a role in dismissing a complaint filed against Kreger by members of Prospect Development LLC.
Justices Joy V. Cunningham and Maureen E. Connors concurred with the opinion.
The case is Prospect Development LLC, et al., v. Donald Kreger, et al., 2016 IL App (1st) 150433.