Judge: Res judicata bars fraud claim, but not legal malpractice claim against Freeborn & Peters

A North Carolina businessman has secured permission to push on with his $1 million legal malpractice action against a Chicago lawyer and his firm for allegedly tricking him into signing a settlement agreement with another client of the firm.

However, plaintiff Jeffrey Eckert will be barred from pressing his fraud allegation against attorney Neal H. Levin and the firm of Freeborn & Peters LLP.

U.S. District Court Judge Gary Feinerman delivered a split ruling on Feb. 26, dismissing Eckert’s fraud claim, while denying Levin’s request to end the malpractice proceedings.

The decision stems from litigation filed by Eckert in 2013 against Levin and Freeborn & Peters.

In that action, Eckert essentially alleged Levin purported to represent him, while simultaneously representing a rival businessman who was suing Eckert, to allegedly deceive Eckert into signing a settlement agreement and use the money to satisfy unpaid legal bills from his other client.

According to Eckert’s lawsuit, Levin and Freeborn & Peters were representing Gregory Steiner and his company, Carol Stream-based Agristar Frozen Foods, in litigation first filed in 2004 in DuPage County Circuit Court against Eckert’s Platinum Frozen Foods.

In 2009, Eckert’s complaint alleges Levin approached him without his lawyer to settle the case for $700,000. In exchange for settling the case, Eckert claims Levin pledged to “put all of his … fundraising acumen to work” to help Eckert raise the capital needed to get a separate business venture off the ground.

Further, Eckert alleges Levin in 2009 also began acting as his legal counsel and investment banker while still representing Steiner, who had racked up about $600,000 in unpaid legal bills.

While pushing Eckert to settle the case, Levin also allegedly worked out a deal with Steiner to use Eckert’s settlement to settle Steiner’s legal debt.

In 2012, Levin, acting for Steiner, moved to enforce the settlement agreement, securing a $1 million judgment against Eckert in the case.

Eckert then sued Levin in for malpractice and fraud.

In response, Levin asked the judge to dismiss both counts. He argued the fraud claim could not be raised because Eckert failed to raise any allegations of fraud while failing to defeat and then to vacate the $1 million judgment.

Feinerman backed Levin’s argument against the fraud complaint, saying under the legal principle of res judicata, Eckert was barred from attempting to raise such a question when he failed to bring it up in earlier proceedings in state court challenging the $1 million judgment.

“Because the Illinois court rendered a final judgment on the merits, Eckert could have raised his fraudulent inducement argument as a defense in state court, there is an identity of parties or their privies in the two suits, and Eckert had a full and fair opportunity to raise his fraud argument in state court, res judicata bars Eckert’s fraud claim here,” Feinerman wrote in his opinion.

Levin, however, failed to similarly persuade the judge in his attempt to wipe out Eckert’s legal malpractice claim.

Levin argued the malpractice claim should be precluded because it is essentially identical to the fraud claim. Further, he argued two clauses in the settlement agreement also would bar Eckert’s actions from going forward.

But, Feinerman said Levin’s arguments against the legitimacy of the malpractice claim rest on shakier legal ground.

To begin, the judge said, the malpractice and fraud claims are not identical, as the malpractice claim could not have been used by Eckert in earlier proceedings to defend against the $1 million judgment, “as the remedy for legal malpractice is damages, not rescission.”

And Feinerman said, many of the malpractice allegations against Levin stem from events occurring after the settlement agreement was signed, meaning the clauses cannot be used as grounds to dismiss Eckert’s malpractice claim.

“At least at the pleading stage, with all inferences drawn in Eckert’s favor, Levin cannot deploy those ill-gotten clauses to defeat the malpractice claim,” Feinerman said.

Feinerman ordered Levin and Freeborn & Peters to answer the malpractice claim by March 19.