Appellate: Legal malpractice claim over failed Loop project can proceed because firm did not tell of competing lien

By Dan Churney | Jul 10, 2015

6 N. Michigan Ave., Chicago  

A Chicago construction company has prevailed on appeal in its malpractice beef with a Chicago law firm, in which the company claimed it lost more than $1 million after the firm allowed a lender to jump its lien on a failed Loop condominium project.

In May 2002, Construction Systems began working to convert a 21-story office building at 6 Michigan Avenue — across the street from Millenium Park — into condominiums.

The work was being done at the behest of Global Real Estate Investors, Inc., run by Bassam Hajyousif and Romel Esmail. About one year later, after Global had allegedly stopped paying for months, Construction Systems stopped work, according to court documents. A few additional payments were made, but then nothing more, allegedly leaving Construction Systems in the hole for $3.1 million.

Construction Systems hired the FagelHaber law firm of Chicago to lodge a lien against Global, which was filed in August 2003. However, FagelHaber allegedly failed to note Cosmopolitan Bank and Trust had already filed a lien against Global on May 6, 2003. As a result, FagelHaber did not serve notice on Cosmopolitan or include Cosmopolitan as an interested party, according to court documents. FagelHaber learned of Cosmopolitan’s lien in December 2003.

Construction Systems grew dissatisfied with FagelHaber, which withdrew from the case in August 2004, having never told Construction Systems of Cosmopolitan’s lien, according to Construction Systems.

FagelHaber turned over to Construction Systems’ new attorney a portion of the case file, but balked at providing the rest until Construction Systems paid an outstanding balance of $81,566 in fees to FagelHaber.

Construction Systems signed a release with the law firm in November 2004, agreeing to pay $60,000 in exchange for the remainder of the file. The release also included language that precluded Construction Systems from seeking any claims against FagelHaber in “connection with the legal services provided by FagelHaber.”

Meanwhile, litigation continued between Construction Systems and Cosmopolitan over the lien, ending in December 2007 with FBOP Corporation, which had acquired Cosmopolitan in late 2004, agreeing to pay $1.8 million to Construction Systems.

In January 2009, after learning of Cosmopolitan’s preexisting lien, Construction Services filed a malpractice suit against FagelHaber, alleging FagelHaber’s omissions made its lien subordinate to Cosmopolitan’s lien, causing Construction Systems to lose $1.3 million. Construction Systems also asked for prejudgment interest.

In defense, FagelHaber pointed to the 2004 release, contending the release, under the doctrine of estoppel, barred Construction Systems from seeking redress.

Cook County Circuit Judge John C. Griffin was not persuaded by FagelHaber's estoppel argument or by Construction Systems' claim for prejudgment interest. However, he was impressed by the 2004 release and dismissed the suit on those grounds in May 2014.

Construction Systems then appealed.

A three-justice panel of the Illinois First District Appellate Court sided with the construction company, finding Griffin had erred and the release should not have applied. At the time of its execution, Construction Systems was in the dark as to FagelHaber’s failure to note Cosmopolitan’s lien, the justices said.

“Where a fiduciary relationship exists between the parties, the defendant has the burden to show that a full and frank disclosure of all relevant information was made to the other party,” justices said, quoting from a 1954 ruling.

Justices concluded, when Construction Systems signed the release, FagelHaber was withholding information that could have affected Construction Systems' decision to sign the release.

The Appellate Court also brushed aside FagelHaber’s attempt to counter Construction Systems' demand for prejudgment interest. The law firm argued the interest should not be available in legal malpractice cases. But justices said Construction Systems would have collected the interest if not for FagelHaber's alleged malpractice.

The Appellate Court overturned the lower court’s decisions against Construction Systems, remanding the case for further proceedings.

Justice Mary Anne Mason delivered the judgment, with justices Aurelia Pucinski and Michael B. Hyman concurring.

Construction Systems was represented by Carponelli & Krug, of Barrington. FagelHaber, which merged in 2007 with the St. Louis firm of Thompson Coburn, represented itself.

The men who ran Global were indicted for their roles in the condominium project, with Hajyousif sentenced in 2013 to 24 months in federal prison for bank fraud, while Esmail is believed to have fled the U.S.

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