A state appeals panel has backed a lower court's ruling that halted a Chicago developer's malpractice suit against his former attorneys, finding he has no personal claim to $2 million his bankrupt company lost in potential profit as a result of the alleged malpractice.
The June 11 decision was written by Justice Mary Mikva, with concurrence from justices Sheldon Harris and Sharon Oden Johnson, of Illinois First District Appellate Court in Chicago. The ruling was filed under Illinois Supreme Court Rule 23, which may limit its use as precedent.
The decision favored the Chicago-based law firm of Levenfeld Pearlstein in an action brought against it by developer David J. Dubin.
From 2006 to 2012, Levenfeld represented Dubin, and companies through which he did business, in Dubin's efforts to build housing projects in the Bridgeport and McKinley Park neighborhoods, according to court papers. The companies were the 3600 South Western Project Limited Partnership and the 35th and Morgan Corp.
Dubin said he made personal guarantees on loans from PNC Bank to finance the projects. But Dubin accused Levenfeld of malpractice during negotiations with the bank, which forced him, as well as the 35th and Morgan company, into bankruptcy.
Dubin sued in 2015 in Cook County Circuit Court, saying Levenfeld's mishandling of the negotiations cost him $2 million in profit from his two corporations, $638,000 in fees to his bankruptcy attorney and $1.8 million in profit from an outside project he had to abandon as part of his bankruptcy settlement.
In addition, Dubin said he had to fork out $707,000 for staff, office expenses and consultants connected to his bankruptcy proceedings, and had to borrow $465,000 from his wife to settle with the bankruptcy trustee.
Dubin contended the bankruptcy settlement gave him the personal right to sue Levenfeld. However, Cook County Associate Judge James Snyder ruled Dubin had no personal standing to sue for the $2 million lost from his corporations. Rather, standing belonged to 35th and Morgan Development Corp., Snyder said.
Neither Dubin nor Levenfeld distinguished between profits lost on the Bridgeport project and those lost on the South Western project, treating both as claims belonging to 35th and Morgan.
On appeal, Justice Mikva said it was clear the law was not on Dubin's side.
"The law is well settled in Illinois that an individual with an ownership interest in a corporation cannot bring a claim for the lost profits of that corporation," Mikva pointed out.
Mikva continued, "The settlement agreement does not assign to Mr. Dubin any claims that originally belonged to 35th & Morgan Corp.," and the settlement was made with a trustee for Dubin's bankruptcy, not that of 35th and Morgan. As a consequence, the trustee could only assign claims for Dubin, not the corporation, Mikva said.
"The drafters of the agreement took care to be precise" that the trustee was representing Dubin's estate, not 35th and Morgan's. Further, the only claims the trustee could assign, were those Dubin owned before before his bankruptcy, which did not include any claim for lost profits belonging to 35th and Morgan, Mikva noted.
Dubin has been represented by the firm of Edward T. Joyce & Associates, of Chicago.
Levenfeld has been defended by the Chicago firm of Hinshaw Culbertson.