Find Legal Information

Docket No. 88685-Agenda 24-September 2000.

EDWARD MORRIS, Appellee, v. ARTHUR MARGULIS et al. (Bryan Cave, L.L.P., et al., Appellants).

Opinion filed July 19, 2001.

JUSTICE FITZGERALD delivered the opinion of the court:

Following a federal jury trial, Edward Morris was convictedof mail fraud and wire fraud for his involvement in a public noteoffering by a now-defunct St. Louis savings and loan association.After his conviction was affirmed on appeal, Morris filed a breachof fiduciary duty complaint in the St. Clair County circuit courtagainst, among others, a St. Louis law firm, which had representedMorris in several unrelated personal matters and served as thesavings and loan association's corporate counsel, and four of thefirm's partners. Morris alleged that these defendants breached theirfiduciary duty to him when two of the partners drafted questionsfor the federal prosecutor to use in cross-examining Morris. Thetrial court granted summary judgment to the defendants, and theappellate court reversed. 307 Ill. App. 3d 1024. We allowed thedefendants' petition for leave to appeal. Morris v. Margulis, 187Ill. 2d 571 (2000); see 177 Ill. 2d R. 315(a). We now reverse theappellate court and affirm the trial court's award of summaryjudgment to the defendants.

BACKGROUND

After the savings and loan industry was deregulated in the1980s, Germania Bank (Germania), a St. Louis savings and loanassociation, expanded its loan portfolio beyond traditionalresidential real estate loans into larger residential and commercialprojects. These projects diluted the bank's loan loss reserves, itsprotection against loan defaults. In early 1987, as Germaniaresponded to concerns from its independent auditors and federalregulators about the adequacy of its loan loss reserves, Morris, thebank's chief executive officer, proposed that the bank make a $10million public offering of subordinated capital notes, or"Schnotes." Following a September 1987 internal review ofGermania's loan portfolio, the bank management recommendedthat the bank's executive committee add $9.3 million in loan lossreserves. The executive committee rejected this recommendationand, instead, approved only an additional $1.2 million in reserves.This decision allowed the bank to show a quarterly profitimmediately before the Schnote offering. Germania's Schnoteoffering circular, however, assured potential investors that the bankhad made adequate provision for estimated loan losses. TheSchnote sales began in October 1987 and proceeded into March1988.

In a year-end audit for 1987, Germania's independent auditorsrecommended an additional $6.5 to $13 million in loan lossreserves. In February 1988, near the conclusion of the Schnoteoffering, the bank's board of directors ultimately approved $9.4million in additional reserves. Germania's financial conditionquickly deteriorated. In 1990, Germania was seized by the Officeof Thrift Supervision, and the Resolution Trust Corporationbecame its conservator. The Schnotes became worthless.

The federal government then began civil and criminalinvestigations into the Schnote offering, which resulted in anindictment against Morris for mail fraud and wire fraud. Thegovernment charged that Morris, as Germania's chief executiveofficer, disseminated the Schnote offering circular withoutdisclosing the need for additional loan loss reserves. Morrisinitially asked Bryan Cave, L.L.P. (Bryan Cave), a St. Louis lawfirm and Germania's corporate counsel, to represent him in thecriminal case stemming from the Schnote offering. The firmpreviously had represented Morris in personal matters-estateplanning, domestic relations, and employment compensation.Bryan Cave declined to represent Morris in the criminal case,however, because of a potential conflict of interest. John Goebel,a Bryan Cave partner, was an outside director of Germania and hadbeen named as a defendant in civil litigation related to the Schnoteoffering. Goebel was represented by Bryan Cave partner DanielO'Neill, who asserted that Goebel was also a subject in thegovernment's criminal investigation. Morris' wife, a Bryan Cavecontract attorney, did receive guidance from O'Neill in draftingMorris' response to an investigation by the Securities andExchange Commission (SEC).

In October 1993, Morris' federal criminal trial began. ArthurMargulis, Morris' defense attorney, outlined an advice-of-counseldefense in his opening statement:

"Let's talk about what the evidence is going to show youabout the concealment of this September [1987] analysis.First, I anticipate that Jimmy New [Germania's chieffinancial officer] is going to testify for the Government,and I think he is going to tell you that he said to Ed Morrisafter the meeting, don't you think we ought to talk to ourlawyers and see if we're supposed to disclose this toanybody, and Ed Morris said yes, I do, I think we should,and he contacted John Goebel at Bryan Cave. That's thelargest law firm in this area. He contacted him, told himthe situation, and John Goebel said I don't think in view ofwhat you told me, in view of the way it was prepared, Idon't think there is any reason to disclose it. Jimmy Newwill tell you that Ed Morris came back to him and said wedon't have to disclose it.

* * *

The Schnote sales go ahead, but as soon as the[independent auditor's] report came out with the analysisthat they needed the nine million, it was Ed Morris whostopped the Schnote sales. Ed Morris again goes to BryanCave, John Goebel the lawyer and said should we offer thepeople who have bought this the right to rescind, and theadvice is, the legal advice is, let's wait and see whathappens, and six days later the sales resume and they soldout.

Throughout everything I am telling you, ladies andgentlemen, Ed Morris *** consulted the lawyers on aregular basis, not just about the offering circular but aboutthe marketing to make sure they were in compliance withthe law, and they were assured at every step of the waythat they were."

O'Neill and Thomas Archer, another Bryan Cave partnerrepresenting Goebel, heard Margulis' opening statement. Inresponse, O'Neill drafted and delivered to the federal prosecutor athree-page document entitled "Possible Areas of Inquiry"containing 15 multipart questions for use in cross-examiningMorris. The proposed questions sought to show the lack ofevidence that Morris relied upon Goebel's legal advice in failingto disclose Germania's inadequate loan loss reserves. Several dayslater, Morris' wife surreptitiously discovered the questions in asearch she made of the law firm's computer system; she dictatedthem and gave an audio tape to Margulis' associate.

At trial, Morris did not testify that he had relied upon Goebel'slegal advice. Asked whether he and Goebel discussed Germania'sdisclosing the recommended reserve increase, Morris replied,"[N]ot that I remember, I don't think we discussed it." Theproposed questions were not used by the government. Morris wasconvicted on two counts of mail fraud and one count of wire fraudand was sentenced to 46 months' imprisonment. His convictionsand sentence were affirmed on appeal (United States v. Morris, 80F.3d 1151 (7th Cir. 1996)), and the United States Supreme Courtdenied his petition for a writ of certiorari (Morris v. United States,519 U.S. 868, 136 L. Ed. 2d 120, 117 S. Ct. 181 (1996)).

While Morris' federal appeal was pending, he filed a breachof fiduciary duty complaint against, among others, defendantsBryan Cave and its partners Goebel, O'Neill, Archer, and AlanDixon.⁽¹⁾ The defendants moved for summary judgment.Specifically, they contended that they did not breach any fiduciaryduty which they may have owed to Morris by providing the federalprosecutor with the proposed cross-examination questions.According to the defendants, ethics rules allowed them to defendthemselves against the accusation in defense counsel's openingstatement that Goebel had advised Morris not to reveal the need forgreater loan loss reserves. The defendants also contended that noattorney-client relationship existed between the parties with respectto Germania matters, that Morris could not recover damages for hisconviction because the conviction was never overturned, that theproposed questions were not a proximate cause of the convictionand would not support recovery for emotional distress, and that thecomplaint was barred by the applicable statute of limitations. Thetrial court granted summary judgment to the defendants.

The appellate court reversed. The court concluded that anattorney-client relationship may have existed between Bryan Caveand Morris with respect to Germania matters. 307 Ill. App. 3d at1037. The court held that the opening statement did not waiveMorris' attorney-client privilege because the accusation against thedefendants did not arise in Morris' own testimony. 307 Ill. App. 3dat 1038. Additionally, the court held that Morris did not have toestablish his actual innocence of the criminal charges as part of hiscause of action against the defendants, that he could recoverdamages for his emotional distress, and that he timely filed hiscomplaint. 307 Ill. App. 3d at 1039-40. This appeal followed.⁽²⁾

ANALYSIS

The defendants raise six issues on appeal. We focus upon theirfinal issue: whether summary judgment was appropriate becauseMorris' breach of fiduciary duty claims were time-barred undersection 13-214.3 of the Code of Civil Procedure. See 735 ILCS5/13-214.3 (West 1994).

Summary judgment should be granted if "there is no genuineissue as to any material fact and *** the moving party is entitled toa judgment as a matter of law." 735 ILCS 5/2-1005(c) (West1998); Petrovich v. Share Health Plan of Illinois, Inc., 188 Ill. 2d17, 30-31 (1999). Summary judgment can aid in the expeditiousdisposition of a lawsuit, but it is a drastic measure and should beallowed only "when the right of the moving party is clear and freefrom doubt." Purtill v. Hess, 111 Ill. 2d 229, 240 (1986). If theplaintiff fails to establish any element of his claim, summaryjudgment is appropriate. Pyne v. Witmer, 129 Ill. 2d 351, 358(1989). Our standard of review is de novo. Jones v. Chicago HMOLtd., 191 Ill. 2d 278, 291 (2000).

Section 13-214.3(b) provides:

"An action for damages based on tort, contract, orotherwise *** against an attorney arising out of an act oromission in the performance of professional services ***must be commenced within 2 years from the time theperson bringing the action knew or reasonably should haveknown of the injury for which damages are sought." 735ILCS 5/13-214.3(b) (West 1994).

Section 13-214.3(b) contains its own "discovery" rule. Underthe discovery rule a limitations period begins to run only when theplaintiff "knows or reasonably should know of his injury and alsoknows or reasonably should know that it was wrongfully caused."Witherell v. Weimer, 85 Ill. 2d 146, 156 (1981); accord JacksonJordan, Inc. v. Leydig, Voit & Mayer, 158 Ill. 2d 240, 249 (1994).Normally, the discovery date will be a question of fact. KnoxCollege v. Celotex Corp., 88 Ill. 2d 407, 416 (1981). "Where it isapparent from the undisputed facts, however, that only oneconclusion can be drawn, the question becomes one for the court."Witherell, 85 Ill. 2d at 156.

In his deposition Morris testified that he first learned of theproposed cross-examination questions "[s]ometime during the[federal] trial. *** I think it was, my best recollection, it was in themiddle of my testimony." Morris later clarified that he received acopy of the questions "the tail end of the week before theconviction" or "[a]t least the week before" the jury returned itsguilty verdict on November 10, 1993. When asked by thedefendants' attorney if he felt damaged at the time he saw thequestions, Morris answered:

"Oh, yes, sir, absolutely damaged.

* * *

That the firm that I had used for years, the firm that,great friends that I had, sharing information during thetime prior to the indictment with my wife, all of a suddenhad been using information *** to try to convict me. Hell,yes, I would have thought I was damaged, hell, yes."

Thus, Morris discovered his alleged injury and its wrongful causebefore his November 10, 1993, conviction, but he did not file hiscomplaint until November 13, 1995, more than two years later.

Morris still contends that his complaint was timely. In support,Morris relies upon his own affidavit opposing the defendants'summary judgment motion, in which he stated that he did notdiscover his claim against the defendants until April 1995, whenhis attorney in his federal appeal advised that Morris may have aclaim against the defendants. This affidavit, however, contradictshis deposition testimony, and we have held previously that aparty's later submission of an affidavit inconsistent with thatparty's deposition testimony will not raise a disputed issue of factor prevent the entry of summary judgment. See Vesey v. ChicagoHousing Authority, 145 Ill. 2d 404, 422 (1991). Additionally,Morris did not need a professional opinion concerning thedefendants' putative misconduct to know that he was wrongfullyinjured. See Butler v. Mayer, Brown & Platt, 301 Ill. App. 3d 919,923 (1998).

Morris further contends that Goebel made a "deal" with thefederal prosecutor to refute Morris' advice-of-counsel defense, butnever informed Morris about this arrangement before his criminaltrial began. This secret betrayal, Morris contends, was "tantamountto fraud," and the limitations period accordingly was tolled undersection 13-215 of the Code of Civil Procedure. Section 13-215provides:

"If a person liable to an action fraudulently conceals thecause of such action from the knowledge of the personentitled thereto, the action may be commenced at any timewithin 5 years after the person entitled to bring the samediscovers that he or she has such cause of action, and notafterwards." 735 ILCS 5/13-215 (West 1998).

The appellate court agreed with Morris: "If Bryan Cave had anattorney-client relationship with Morris, then the act of secretlyproviding cross-examination questions or other assistance to theUnited States Attorney would constitute a breach of the duty ofloyalty. Because the act was secret, it would be a fraudulentconcealment." 307 Ill. App. 3d at 1041, citing Chicago ParkDistrict v. Kenroy, Inc., 78 Ill. 2d 555 (1980).

We need not decide whether section 13-215 tolls thelimitations period in section 13-214.3(b), or whether thedefendants fraudulently concealed Morris' breach of fiduciary dutyclaim when they gave the proposed questions to the federalprosecutor without telling Morris. "If at the time the plaintiffdiscovers the 'fraudulent concealment' a reasonable time remainswithin the applicable statute of limitations, [section 13-215] doesnot toll the running of the limitation period." Anderson v. Wagner,79 Ill. 2d 295, 322 (1979); accord Serafin v. Seith, 284 Ill. App. 3d577, 590 (1996); Muskat v. Sternberg, 211 Ill. App. 3d 1052, 1061(1991) ("This rule is logical because once a party discovers thefraud, it is no longer concealed, and if time remains within whichto file the action, section 13-215 cannot operate to toll thelimitations period").

By his deposition testimony Morris acknowledged that hediscovered the alleged fraudulent concealment shortly after itoccurred and prior to his conviction. His claim accrued, and thelimitations period began, at the same time the concealment ended.Accordingly, he had two years in which to file his breach offiduciary duty claim. See Barratt v. Goldberg, 296 Ill. App. 3d 252,258-59 (1998) (holding that an entire two-year limitations periodconstitutes ample time to file a legal malpractice complaint oncethe defendants' fraudulent concealment is discovered). Section13-215 was inapplicable, and Morris' complaint was time-barred.

CONCLUSION

For the reasons we have discussed, the judgment of theappellate court is reversed and the judgment of the circuit court isaffirmed.

Appellate court reversed;

circuit court affirmed.

1. ¹Morris' original complaint also contained breach of fiduciary dutycounts against Margulis and his firm. Morris amended his complaint toadd civil conspiracy counts against Bryan Cave, O'Neill, and Archer,alleging that Goebel had conspired with the federal prosecutor to obtainMorris' conviction. The Bryan Cave defendants removed the case tofederal district court. See 28 U.S.C.