Opinion
No. 97 C 3079
March 9, 2000
MEMORANDUM OPINION AND ORDER
I. BACKGROUND
In 1991, Chameleon Finance Company BV ("Chameleon"), the Dutch subsidiary of CBI Industries, Inc. ("CBI") and Caissise de Nationale de Credit Agricole ("Credit Agricole") executed a swap option confirmation (the "Option Contract"). In 1994, CBI retained defendant Hinshaw Culbertson ("Hinshaw") to provide the defense in a lawsuit filed by Credit Agricole in the Northern District of Illinois (the "Credit Agricole Action").
In the Credit Agricole Action, Credit Agricole claimed that CBI breached the Option Contract by refusing to honor Credit Agricole's exercise of the option on January 18, 1994. The trial court determined as a matter of law that the Option Contract was unambiguous, expired on January 18, 1994, and that Credit Agricole had timely exercised the option. On June 22, 1995, Judge Leinenweber entered judgment against CBI for $3,307,036.09. Judge Leinenweber also denied CBI's motion to amend the judgment. On appeal, the Seventh Circuit affirmed the entry of judgment against CBI. Caisse Nationale de Credit Agricole v. CBI Industries, Inc., 90 F.3d 1264, 1276 (7th Cir. 1996).
Plaintiff, Praxair, Inc. ("Praxair") is the successor in interest to CBI, the defendant in the Credit Agricole Action. For clarity, we will usually refer to Praxair rather than CBI throughout this opinion even if CBI was the actual entity at the time. Praxair now brings this lawsuit against its former attorneys in the Credit Agricole Action.
The factual background necessary to dispose of Hinshaw's motion for summary judgment has been meticulously detailed in the Seventh Circuit's opinion issued in the Credit Agricole Action. Caisse Nationale De Credit Agricole., 90 F.3d at 1267-69. That factual discussion is incorporated here by reference.
In 1997, Praxair filed suit against Hinshaw claiming fraud (Count I), breach of fiduciary duty (Count II), negligence (Count III) and breach of contract (Count IV). We denied Hinshaw's motion to dismiss on December 3, 1998. Praxair asserts that Hinshaw engaged in a negligent litigation strategy, which the Seventh Circuit deemed "risky," by filing a motion for summary judgment after conducting virtually no discovery. Additionally, Praxair alleges that Hinshaw misrepresented its expertise in complex financial transactions to gain Praxair's business. Hinshaw denies both claims.
On the eve of trial, Hinshaw filed the instant motion for summary judgment pursuant to Fed.R.Civ.P. 56(c) on all four counts. For the reasons discussed below we, grant summary judgment on all four counts of Praxair's Third Amended Complaint.
II. DISCUSSION A. Standard of Review
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, do not show a genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Salima v. Scherwood South Inc., 38 F.3d 929, 932 (7th Cir. 1994). On summary judgment, the non-moving party must present specific evidence demonstrating the existence of a triable issue of fact on issues on which the non-movant bears the burden of proof at trial. Liu v. TH Machine, Inc., 191 F.3d 790, 795-96 (7th Cir. 1999). "Neither `the mere existence of some alleged factual dispute between the parties,' nor the existence of `some metaphysical doubt as to the material facts,' is sufficient to defeat a motion for summary judgment." Bellaver v. Quanex Co., 200 F.2d 485, 491 (7th Cir. 2000) (citations omitted).
Moreover, the plain language of Rule 56(c) mandates the entry of summary judgment against a party who fails to establish the existence of an essential element of a claim. Nucor Corp. v. Aceros Y Maquilas De Occidente, S.A. de C.V., 28 F.3d 572, 583 (7th Cir. 1994) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). Indeed, the non-movant's failure to establish an essential element "`necessarily renders all other facts immaterial.'" Id. The court must draw every reasonable inference from the record in the light most favorable to the nonmoving party. However, the court must not make credibility determinations or weigh evidence. Anderson v. Liberty Lobby, 477 U.S. 242, 255 (1986).
B. Choice of Law
The parties do not agree on which state's law should be applied to interpret the Option Contract. In the Credit Agricole Action, the parties agreed that New York law applied. This suit considers Hinshaw's conduct in that proceeding. Thus, we will apply New York law to analyze the arguments that Praxair asserts Hinshaw should have made in the Credit Agricole Action. In any event, the result would be the same under Illinois law.
Because the rules of distinct states can determine different issues in one lawsuit, Ruiz v. Blentech Corp., 89 F.3d 320, 323-24 (7th Cir. 1996), cert. denied 519 U.S. 1077 (1997), we will apply Illinois law to determine if Praxair raises triable issues of fact with regard to its claims for conduct occurring in Illinois, namely fraudulent misrepresentation, legal malpractice, breach of fiduciary duty and breach of contract.
C. Statute of Limitations
In its motion for summary judgment, Hinshaw repeats its previously rejected argument that the applicable statute of limitations bars Praxair's claim for legal malpractice. Once again, we reject Hinshaw's argument.
The parties dispute the date on which Praxair's cause of action accrued. On December 20, 1994, Praxair's new counsel filed its motion for leave to file appearances in the Credit Agricole Action. In that motion, Praxair asserted that Hinshaw failed to present material facts and arguments to the court. Thus, Hinshaw maintains that Praxair knew about Hinshaw's purported negligence on that date. Praxair argues that its malpractice claim accrued on June 22, 1995, the date the trial court entered final judgment in the Credit Agricole Action. We agree with Praxair.
In Illinois, an action for legal malpractice "must be commenced within 2 years from the time the person bringing the lawsuit knew or reasonably should have known of the injury for which damages are sought." 735 ILCS 5/13-214.3. More specifically, a cause of action for legal malpractice accrues when a plaintiff incurs damages directly attributable to counsel's neglect. Lucey v. Law Offices of Pretzel and Stouffer Chartered, 703 N.E.2d 473, 477 (Ill.App.Ct. 1998). "Illinois courts have frequently recognized, either expressly or impliedly, a cause of action for legal malpractice will rarely accrue prior to the entry of an adverse judgment, settlement, or dismissal of the underlying action in which plaintiff has become entangled due to the purportedly negligent advice of his attorney." Id. at 479 (listing examples). A court may decide when the plaintiff knew or reasonably should have discovered his injury as a matter of law if only one conclusion may be drawn from the undisputed facts. Butler v. Mayer, Brown and Platt, 704 N.E.2d 740, 743 (Ill.App.Ct. 1998).
Here, Praxair claims that Hinshaw's conduct in the Credit Agricole Action caused Praxair to lose that lawsuit and have a large judgment entered against it. Judge Leinenweber entered final judgment on June 22, 1995. Praxair filed its complaint in instant lawsuit on April 28, 1997, well before the two-year statute of limitations expired. Therefore, we can draw but one conclusion from the undisputed facts, namely that Praxair's claim for legal malpractice is timely.
D. Count III: Negligence (Legal Malpractice)
In Count III, Praxair contends that Hinshaw's conduct in the Credit Agricole Action amounted to legal malpractice. Praxair asserts that had Hinshaw exercised a reasonable degree of care and skill in the preparation and presentation of the defense, Praxair would have prevailed in the Credit Agricole Action. This lawsuit has given Praxair the opportunity to engage in full discovery to determine if the newly discovered evidence would change the result in the Credit Agricole Action. After a complete review of the evidence offered by Praxair in this lawsuit, we have concluded that the original decision and analysis of the Seventh Circuit in the Credit Agricole Action is still valid.
To state a claim for malpractice in Illinois, Praxair must prove: "(1) the existence of an attorney-client relationship that establishes a duty on the part of the attorney; (2) a negligent act or omission constituting breach of that duty; (3) proximate cause establishing that `but for' the attorney's negligence, the plaintiff would have prevailed in the underlying action; and (4) actual damages." Lucey, 703 N.E.2d at 476.
1. Ambiguity
First, Praxair argues that had Hinshaw possessed adequate experience with swaps, conducted a proper investigation and conducted routine discovery, Hinshaw would have discovered readily available evidence that would have allegedly convinced the court that the Option Contract is ambiguous and that the option expired before Credit Agricole exercised it on either Sunday January 16, 1994 or Monday January 17, 1994. Praxair then concludes that but for Hinshaw's alleged negligent conduct in the Credit Agricole Action, Praxair would have prevailed.
In order to evaluate Praxair's assertion, we must examine the language of the Option Contract to determine if the contract is ambiguous and, therefore, if Praxair's new evidence is admissible. Whether the contract is clear or ambiguous is a question of law for the court, and, absent any ambiguity, the interpretation of the contract is a matter for the court.Benderson v. Wiper Check. Inc., 697 N.Y.S.2d 448, 449 (NY. Ct. App.), appeal denied 2000 WL 176239 (N.Y. 1999). For the reasons stated below, we find as a matter of law that the language of the Option Contract is clear and unambiguous, and, therefore, Praxair's newly asserted extrinsic evidence is inadmissible.
The primary objective in contract construction is to give effect to the intention of the parties and that intention is to be ascertained from the language of the contact. Id. Moreover, "contract terms must be given their ordinary, popular and non-technical meaning. . . ." Id. at 450. If a contract is clear and unambiguous on its face, the judge must determine the intention of the parties solely from the language of the agreement itself. Moores Lane Devel. Co. v. Suffolk County Water Auth., 1999 WL 1261779 at *1 (N.Y.Ct.App. 1999); National Union Fire Ins. Co. of Pittsburgh. Pa v. Robert Christopher Assoc., 691 N.Y.S.2d 35, 40 (N.Y.Ct.App. 1999).
A contract term is ambiguous if the language is reasonably or fairly susceptible to more than one interpretation. Super Glue Corp. v. Avis Rent A Car Sys., Inc., 557 N.Y.S.2d 959, 961 (N.Y.Ct.App. 1990), appeal denied 567 N.E.2d 980 (1991). The court may resort to extrinsic evidence to determine the parties' intentions only if the express terms of the instrument are ambiguous. Goodstein Properties. Inc. v. Rego, 698 N.Y.S.2d 709, 711 (N.Y.Ct.App. 1999). Illinois law is in accord.E.g., Chandler v. Maxwell Manor Nursing Home. Inc., 666 N.E.2d 740, 749 (1996); In re Marriage of Hoffman, 637 N.E.2d 628, 630 (Ill.App.Ct. 1994); Omnitrus Merging Corp. v. Illinois Tool Works. Inc., 256 Ill.App.3d 628 N.E.2d 1165, 1168 (1993). Before we can analyze the language of the Option Contract, we must determine which documents compromise the agreement.
The Option Contract states that "(t)his Conformation supplements, forms part of, and is subject to, the Interest Rate Swap Agreement, as amended and supplemented from time to time. . ." We agree with Praxair that the most natural reading of this language is that the Option Contract incorporates the terms of the underlying swap agreement and any referenced documents, such as the Interest Rate and Currency Exchange Agreement (the "IRCEA"). By its own terms, however, the IRCEA governs swap agreements, not options. The IRCEA is a detailed, comprehensive document and we find no compelling reason to interpret its silences or to add additional terms to allow the IRCEA to be applied to options. The reference to the underlying swap agreement in the Option Contract is relevant only to define the terms of' the offer that comes into play if Credit Agricole exercises the option. Accordingly, we find that the IRCEA merely supplements and clarifies the terms of the underlying swap agreement. The swap agreement is a separate contract and the terms of that agreement are not part of the Option Contract.
Next, we look to the language of the Option Contract itself. Paragraph two of the Option Contract states:
2. The particular Rate Swap Option Transaction to which this confirmation relates is an option, the terms of which are as follows: Seller: CHAMELEON FINANCE COMPANY BV Buyer: CNCA GC [Caisse Nationale de Credit Agricole Grand Cayman] Trade Date: February 18, 1991 Option Premium: None Expiration: January 16, 1994 Option Exercise Period: Option is exercisable between 9:00 a.m. and 5:00 p.m. EST up to and including January 16, 1994.
The Option Contract clearly and unambiguously states that the option expires at 5:00 p.m. on January 16, 1994. That day, however, was a Sunday. In 1994, the holiday commemorating Martin Luther King Junior's birthday was celebrated on January 17, 1999 in New York and Illinois, but not in Toronto. The Option Contract, however, contains neither a definition of business day nor an express system for extending a deadline falling on a non-business day. We find a matter of law that this silence does not create an ambiguity because state law fills in the gap.
Praxair points to no language in the Option Contract that defines business day. Rather, Praxair refers to a laundry list of extrinsic evidence that Praxair claims demonstrates that the Option Contract is ambiguous and that Toronto business days apply. For example, Praxair cites the IRCEA, which provides a comprehensive system for adjusting dates that fall on non-business days and defines business days as Toronto business days. Because we find that the Option Contract is unambiguous, this evidence is inadmissible. See Moores Lane Devel. Co., 1999 WL 1261779 at *1; Goodstein Properties, Inc., 698 N YS.2d at 711. Thus, even if Hinshaw had presented the evidence Praxair now asserts, it would have been irrelevant. Moreover, had Hinshaw conducted a hundred depositions or propounded a thousand interrogatories, none of that evidence would have been admissible for the interpretation of the unambiguous Option Contract. In any event, even if we looked to Praxair's evidence, we find as a mater of law that it does not change our conclusion that the Option Contract is unambiguous.
The New York and Chicago branches of Credit Agricole and the Oak Brook, Illinois offices of CBI and Chameleon entered in to the Option Contract. Absent a clear definition of business days, the law of one of those two states controls. Both New York and Illinois law contain similar holiday law provisions that extend deadlines in contracts. For continuity, we use New York law here. The result under Illinois law is identical.
N.Y. General Construction Law § 25(1) (McKinney 1999) states:
1. Where a contract by its terms authorizes or requires the payment of money or the performance of a condition on a Saturday, Sunday or a public holiday, or authorizes or requires the payment of money or the performance of a condition within or before or after a period of time computed from a certain day, and such period of time ends on a Saturday, Sunday or a public holiday, unless the contract expressly or impliedly indicates a different intent, such payment may be made or condition performed on he next succeeding business day, and if the period ends at a specified hour, such payment may be made or condition performed, at or before the same hour of such next succeeding business day, with the same force and effect as if made or performed in accordance with the terms of the contract.
(Emphasis added). Section 25 applies to options. Caisse Nationale de Credit Agricole, 90 F.3d at 1271 (citing Hirsch v. Lindor Realty Corp., 472 N.E.2d 1024, 1025 (N.Y. 1984 and Joannides v. Assimacy, 216 App. Div. 133, 214 N YS. 692 N.Y. 1926)). The holiday provision in Illinois is virtually identical, 5 ILCS 70/1/1 (1993), and also applies to options. Providence Ins. Co. v. LaSalle Nat'l Bank, 455 N.E, 2d 238, 240-41 (1983).
Under the clear terms of the Option Contract, the option expired on January 16, 1994, a Sunday and the following Monday was a bank holiday in New York (and Illinois). Pursuant to Section 25 and 5 ILCS 70/11/1, the option expiration was extended to Tuesday, January 18, 1994. Credit Agricole, therefore, timely exercised its option on that date. Both Credit Agricole and Praxair are sophisticated parties and veterans of swaps and options. If the parties either desired Toronto business days to apply or to contract out of the holiday statute, they could have stated so in the contract. The express terms of the contract do not include any such direction and we will not infer any into the parties' unambiguous agreement. Had interest rates turned in Praxair's favor causing Credit Agricole to forgo its option, we are sure that Praxair would not have complained about any alleged ambiguity in the Option Contract.
Moreover, Praxair's position confuses the concept of "unfamiliarity with the subject matter of the contract" with the notion of "contractual ambiguity." To a person completely unfamiliar with the game of baseball, the phrase "three strikes and you're out" might seem ambiguous. Yet, to those who understand the rules of the game, the phrase is perfectly clear. Once one understands the terminology and mechanics of the business, the straightforward, unambiguous simplicity of the Option Contract becomes obvious. Therefore, we find as a matter of law that Hinshaw's failure to discover and present evidence allegedly demonstrating that the Option Contract is ambiguous did not cause Praxair to lose the Credit Agricole Action.
2. Latent Ambiguity
Second, Praxair contends that had Hinshaw conducted proper investigation, it would have discovered evidence and successfully argued that the option contact contained a latent ambiguity under Illinois law. Even if we applied Illinois law, we reject Praxair's assertion.
The existence of a latent ambiguity is uncommon in an otherwise unambiguous agreement. Nevertheless, "when the terms of the instrument are clear, extrinsic evidence may be used in the rare situation where a latent ambiguity exists, meaning the terms of the contract cannot be applied because they do not fit the factual circumstances to which they are addressed." Ahern v. Board of Education of City of Chicago, 133 F.3d 975, 981 (7th Cir. 1998). Accord Napleton v. Ray Buick, Inc., 704 N.E.2d 864, 871 (Ill.App.Ct.), appeal denied 712 N.E.2d 818 (Ill. 1999).
Praxair correctly states that Illinois law allows evidence of latent ambiguity from knowledgeable insider testimony and custom and practice.See Bristow v. Drake St. Inc., 41 F.3d 345, 351-52 (7th Cir. 1994). In its 12(n) statement, Praxair presents an extensive list of allegedly pertinent evidence that Hinshaw failed to present in the Credit Agricole Action. Viewed in a light most favorable to Praxair, we find as a matter of law that this evidence fails to demonstrate a latent ambiguity in the Option Contract. Moreover, none of Praxair's "new" evidence convinces us that the parties intended to apply Toronto business days or to specify a particular system for extending deadlines other than the applicable holiday statute. Accordingly, we find as a matter of law that Praxair suffered no damage as a result of Hinshaw's failure to argue that the contract contained a latent ambiguity.
3. Mutual Mistake
Third, Praxair argues that Hinshaw's failure to present evidence of mutual mistake in the underlying swap agreement and Option Contract, caused Praxair to lose the Credit Agricole Action. We disagree.
Extrinsic evidence is admissible to establish mutual mistake. Investors Insur. Co. of Amer. v. Dorinco Reinsurance Co., 917 F.2d 100, 105 (2d Cir. 1990); Accord O'Brien v. Cacciatore, 591 N.E.2d 1384, 1390 (Ill.App. Ct. 1992). In Paragraph 7 of its 12(n) statement, Praxair's states that a confirmation of the underlying swap specifies January 18, 1994 as the maturity date of the swap and then concludes "(t)his was a mutual mistake." In Paragraph 9 of its 12(n) statement, Praxair claims that the option did not incorporate the IRCEA signed by the parties, but instead referenced an unexecuted Interest Rate Swap Agreement and "(t)his was another mutual mistake." Praxair, however, fails to offer evidence demonstrating why or how either of these instances establishes a mutual mistake. It is axiomatic that Praxair's own legal conclusion cannot raise the requisite factual dispute to defeat summary judgment.
As explained above, Praxair would have lost the Credit Agricole Action regardless of Hinshaw's conduct. No amount of discovery, extrinsic evidence or argument can change the clear and unambiguous language of the Option Contract. We, therefore, find as a matter of law that even if Hinshaw had presented all the new evidence that Praxair now characterizes as crucial and made the arguments currently asserted by Praxair, Praxair would have lost the Credit Agricole Action. Praxair has failed to establish that "but for" Hinshaw purported negligence, Praxair would have prevailed in the Credit Agricole Action. Accordingly, we grant summary judgment for Hinshaw on Count III.
E. Count I: Fraud Based on Intentional Misrepresentation
In Count I, Praxair claims that Richard Sandrok, a partner at Hinshaw, misrepresented Hinshaw's experience with interest rate swaps so that Praxair would hire Hinshaw in the Credit Agricole Action. The elements of a claim for fraudulent misrepresentation are: (1) a false statement of material fact; (2) knowledge or belief of the falsity by the party making it; (3) intention to induce the other party to act, (4) action by the other party in reliance on the truth of the statements; and (5) damage to the other party resulting from such reliance. Soules v. General Motors Corp., 402 N.E.2d 599, 601 (Ill. 1980); Kelly v. Sears Roebuck and Co., 720 N.E.2d 683, 692 (Ill.Ct.App. 1999).
Based on our findings in section II, E, no reasonable jury could find that Praxair suffered any damage due to Hinshaw's purported misrepresentations. Even a lawyer highly familiar with interest rate swaps would have be unable to demonstrate that the Option Contract contained an ambiguity. Therefore, no matter who represented Praxair or that attorney's expertise in complex financial transactions, Praxair would have lost the Credit Agricole Action. Praxair's failure to establish damages, an essential element of its misrepresentation claim, requires the entry of summary judgment. See Ribando v. United Airlines, 200 F.3d 507, 510 (7th Cir. 1999); Nucor Corp. 28 F.3d at 583 (citing Celotex Corp., 477 U.S. at 324)). Consequently, we need not determine whether Praxair has raised a triable issue of fact regarding the remaining elements of this cause of action. Summary judgment is granted for Hinshaw on Count I.
F.Count II: Breach of Fiduciary Duty
In Count II, Praxair argues that in order to gain Praxair's legal business, Hinshaw breached its fiduciary duties of fidelity, honesty, and good faith by intentionally misrepresenting its experience with interest rate swap litigation and by failing to alert Praxair to the risks occasioned by Credit Agricole's litigation strategy. Had Hinshaw not breached these duties, Praxair insists that it would have prevailed in the Credit Agricole Action.
A fiduciary relationship exists as a matter of law between an attorney and her client. Morris v. Margulius, 718 N.E.2d 709, 712 (Ill.App.Ct. 1999), appeal allowed 187 Ill.2d 571 (2000). Through the attorney-client relationship certain duties arise such as, fidelity, honesty and good faith. Doe v. Roe, 681 N.E.2d 640, 645 (Ill.App.Ct.), appeal denied 686 N.E.2d 1160 (Ill. 1997). An attorney breaches these duties when she places her personal interests above those of her client. Id. An attorney who has breach these fiduciary duties is liable for the proximately caused damages. Bauer v. Hubbard, 593 N.E.2d 569, 572 (Ill.App.Ct. 1992).
It is undisputed that Praxair was a client of Hinshaw, Even assuming that Hinshaw placed its interest in acquiring Praxair's legal business above Praxair's interest in securing qualified legal counsel, Hinshaw is entitled to summary judgment on Count II. As explained above in Section II-D, Hinshaw's conduct in the Credit Agricole Action did not proximately cause Praxair to lose that lawsuit. Rather, Praxair lost the Credit Agricole Action because the language of the Option Contract clearly and unambiguously states that the option expires on January 18, 1994, the day that Credit Agricole exercised its option. Accordingly, any alleged dishonest statements or purported bad faith actions supposedly committed by Hinshaw in the Credit Agricole Action could not be the proximate cause of Praxair's loss. Therefore, as a matter of law, we find that Praxair cannot survive summary judgment on Count II because it has failed to demonstrate proximate cause, an essential element of its breach of fiduciary duty claim. See Doe, 681 N.E.2d at 645; Nucor, 28 F.3d at 583.
G. Count IV: Breach of Contract
In Count IV, Praxair contends that Hinshaw's supposed failure to familiarize itself with swap transactions and its alleged negligent preparation and execution of the defense in the Credit Agricole Action, amounted to a breach of contract. To prevail on this claim, Praxair must demonstrate "`an offer, acceptance, consideration, definite and certain terms of the contract, plaintiffs performance of all required contractual conditions, the defendant's breach of the terms of the contract, and damages resulting from the breach.'" Aardvark Art, Inc. v. Lehigh/Steck-Warlick, Inc., 672 N.E.2d 1271, 1275 (Ill.App.Ct. 1996) (citation omitted), appeal denied 677 N.E.2d 963 (Ill. 1997).
It is undisputed that Praxair and Hinshaw entered into a contract. Nonetheless, Praxair's claim fails as a matter of law. "In determining the range of compensable damages under the law of contracts, Illinois follows the rule in Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854), that recoverable damages are those which naturally result from the breach, or are the consequence of special or unusual circumstances which are in the reasonable contemplation of the parties when making the contract." Doe, 681 N.E.2d at 650. Once again, Praxair's inability to prove that it suffered any damages proximately resulting from Hinshaw's conduct in the Credit Agricole Action necessitates an entry of summary judgment for Hinshaw on Count IV.
III. CONCLUSION
For the foregoing reasons, Hinshaw's motion for summary judgment is granted on Counts I-IV. This is a final appealable order.
It is so ordered.