Litigation Law Roundup

Sharp  Thinking

No. 196         Perspectives on Developments in the Law from Sharp-Hundley, P.C.         May 2021

 Lawyer Liability Under RICO Made More Difficult

The Seventh Circuit U.S. Court of Appeals has made significantly more difficult the task of tagging law firms with liability under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 (RICO).

Ruling in Muskegan Hotels, LLC v. Patel, 986 F.3d 692 (2021), the court said that “a law firm‘s provision of legal services for a client – even with knowledge of the client’s unlawful activities – does not alone demonstrate operation or management of a racketeering enterprise” under § 1962(c) of the RICO statute.  “Alleging mere knowledge is insufficient to state a claim against [the law firm] under the RICO statute.”

Section 1962(c) requires that the plaintiff allege that the law firm “engaged in the (1) conduct (2) of an enterprise (3) through a pattern of racketeering activity or collection of unlawful debt,” the court said.  Construing Supreme Court precedent, it said § 1962(c) “requires a showing that a defendant ‘participate(d) in the operation or management of the enterprise itself.’”  “The operation-or-management requirement is not met through the mere provision of professional services to the alleged racketeering enterprise.”

Moreover, the court applied the same doctrine to claims of conspiracy under § 1962(d).  “Allegations that a law firm provided legal representation to an enterprise do not, without more, suffice to state a RICO conspiracy,” the court said.  “The complaint needs to go further and allege that the firm, with knowledge of a conspiracy to violate the RICO statute, agreed to conduct or participate in the affairs of an enterprise through a pattern of racketeering and agreed to the commission of two predicate acts of racketeering.”

Reimbursement For Punitive Award Allowed In Malpractice

Neither Illinois’ statutory prohibition on recovery of punitive damages in legal malpractice cases (735 ILCS 5/2-1115) nor public policy bars malpractice plaintiffs from recovering punitive damages they claim they were required to pay as a result of the defendant lawyers’ negligence in representing them as defendants in the underlying action, the Appellate Court’s Fifth District has held.

Ruling in Midwest Sanitary Serv. Inc. v. Sandberg, Phoenix & von Gontard, P.C., 2021 IL App (5th) 190360, the court reasoned that reimbursement for the punitive damages awarded in the underlying action was in the nature of compensatory damages in the malpractice action and thus not afoul of § 2-1115’s command that “no punitive, exemplary, vindictive or aggravated damages shall be allowed” in legal malpractice cases.

It approved of a trial court ruling that there “exists no just reason to deny the plaintiff in this case the opportunity to recover its actual loss.  It should be remembered that ‘(t)he general rule of damages in a tort action is that the wrongdoer is liable for all injuries resulting directly from the wrongful acts ***, provided the particular damages are the legal and natural consequences of the wrongful act imputed to the defendant, and are such as might reasonably have been anticipated’” (quoting Haudrich v. Howmedica, Inc., 169 Ill. 2d 525 (1996)).

Court Reverses Rule On “Et Al.” Summonses

Recently we noted the apparent hostility to the rule on voidness of “et al.” summonses in the Second District of the Appellate Court.  “Laches Bars Challenge To Defective ‘Et Al.’ Summons,” Sharp Thinking No. 194 (March 2021).

The ink was hardly dry on that publication when that court issued an opinion outright reversing the rule invalidating summons which referred to additional defendants with the moniker “et al.” – in at least some circumstances.  Lisle Savings Bank v. Tripp, 2021 IL App (2d) 200019.

Tripp based that action on amendments to the Code of Civil Procedure and Supreme Court Rules.  Specifically, it relied on the current version of Illinois Supreme Court Rule 131 (eff. July 15, 2020), which provides that “(t)he use of the wrong form of summons shall not affect the jurisdiction of the court”, and 735 ILCS 5/2-201(c) (eff. August 23, 2018), which provides:

“(c)  A court’s jurisdiction is not affected by a technical error in format of a summons if the summons has been issued by a clerk of the court, the person or entity to be served is identified as a defendant on the summons, and the summons is properly served.  This subsection is declarative of existing law.”

In reviewing the amended statute, the panel found the term “technical error” to be “ambiguous”, justifying resort to materials extraneous to the text.  It relied upon legislative history to the effect that the intent of the amendment was to reverse the “et al.” summons rule.  It said “the legislative history of section 2-201(c) reflects a legislative intent to treat the absence of a defendant’s name on a summons’s caption as a technical error and to treat a defendant named on an attachment to a summons as having been ‘identified as a defendant on the summons.’”

Thus, a summons which did not name all defendants in the caption but which referred to an attached service list was allowed.

Cracks Develop In New Seventh Circuit Standing Doctrine

As noted in recent editions of this newsletter, the Seventh Circuit in the last five months has held eight times that a breach of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (FDCPA), does not, by itself, cause “injury in fact” under the standing doctrine in federal courts.  See Sharp Thinking No. 192 (January 2021); No. 194 (March 2021).

Make that nine times.  Markakos v. Medicredit, Inc., __ F.3d __, No. 20-2351 (7th Cir. May 14, 2021).

What’s significant about Markakos is that it shows some Seventh Circuit judges are less than enthusiastic about the court’s new case law.  In Markakos Judges Kenneth Ripple and Ilana Rovner wrote “concurrences” agreeing that dismissal of the complaint was required under circuit precedent, but going on to suggest that the recent rash of decisions went farther than Supreme Court precedent requires.  Indeed, Rovner went so far as to hope that “the Supreme Court will weigh in” and provide clarity.