Washington Group v. Bell, Boyd & Lloyd ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-2389
WASHINGTON GROUP INTERNATIONAL, INC.,
Plaintiff-Appellant,
v.
BELL, BOYD & LLOYD LLC,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 C 8974—James B. Zagel, Judge.
____________
ARGUED OCTOBER 27, 2003—DECIDED SEPTEMBER 9, 2004
____________
Before RIPPLE, DIANE P. WOOD, and EVANS, Circuit
Judges.
DIANE P. WOOD, Circuit Judge. While the technical issue
before us concerns the relation between this litigation and
an earlier bankruptcy proceeding, the underlying dispute
alleges that the firm of Bell, Boyd & Lloyd (Bell Boyd) com-
mitted legal malpractice in conjunction with a mechanic’s
lien. Washington Group, the successor to Raytheon Engineers
& Constructors, Inc. (Raytheon), claimed that Bell Boyd
negligently handled both the drafting of certain liens and
the litigation related to those liens. In response, Bell Boyd
claimed that all the issues Raytheon was raising in this
case had been resolved against it in an adversary proceed-
2 No. 03-2389
ing before the Delaware bankruptcy court in a case between
Raytheon and Acme, a client for whom Raytheon was
building a plant. The district court agreed with Bell Boyd
and dismissed all claims. We affirm.
I
In 1994, Raytheon entered into a contract with Acme
Steel Company for the construction of a steel mill. Raytheon
in turn signed a subcontract with United Steel Erectors,
Inc. (USE) for construction of the buildings at the steel mill.
USE enlisted Calumet Construction Corporation (Calumet)
for the erection of the structural steel for the steel mill build-
ings. In 1996, Calumet filed a sub-subcontractor’s claim for
a mechanic’s lien related to its work on the steel mill. It
followed up on that action with a lawsuit in February 1997
to enforce its mechanic’s lien against Acme, Raytheon, and
USE (the Calumet litigation). In March 1997, USE filed its
own mechanic’s lien and then cross-claimed against
Raytheon and Acme seeking to enforce that lien.
Faced with this array of disputes, Raytheon retained Bell
Boyd to represent it in the Calumet litigation and to protect
its rights vis-à-vis Acme. Over a year later, in September
1998, Acme voluntarily filed in the Delaware bankruptcy
court for Chapter 11 relief. Later, on November 13, 1998,
Bell Boyd filed a $12,006,799 mechanic’s lien (the Acme
Lien) on Raytheon’s behalf in connection with its work on
the steel mill. The property description Bell Boyd used in
the Raytheon lien was the same description as the one that
had been used in the Calumet and USE liens. Shortly after
filing the lien, Bell Boyd withdrew from further representa-
tion of Raytheon because of a conflict of interest.
On February 7, 2000, Acme brought an adversary action
in its bankruptcy proceeding seeking a declaration that
Raytheon’s Acme Lien was invalid because (1) the property
description was incorrect; and (2) even if the property de-
No. 03-2389 3
scription was acceptable, that the Illinois Mechanic’s Lien
Act, 770 ILCS 60/6, requires completion of work within three
years of commencement for a lien to be valid. Raytheon
vigorously defended the validity of the property description,
ultimately convincing the bankruptcy court that the
description was valid. The bankruptcy court determined, as
a matter of law, that the property description included in
the November 1998 lien was “ ‘sufficiently correct’ to put
anyone on notice of [Raytheon’s] claims” and “to effect a lien
on [Acme’s] Plant.” In re Acme Metals, Inc., 257 B.R. 714, 720-
21 (Bankr. D. Del. 2000). Nonetheless, the bankruptcy court
held the lien invalid because Raytheon had not completed
the work within three years of commencement. Id. at 723.
While the case was on appeal, Acme and Raytheon settled
both their adversary proceeding and the Calumet litigation.
The appeal was dismissed with prejudice on April 22, 2002.
On December 11, 2002, Raytheon’s successor, the Wash-
ington Group (an Ohio corporation with its principal place
of business in Ohio) brought this action under the diversity
jurisdiction, alleging that Bell Boyd (an Illinois limited
liability company, none of whose members are citizens of
Ohio) had committed malpractice. Raytheon claimed that Bell
Boyd should have discovered the incorrect property descrip-
tion in the Calumet and USE liens in 1997 and that Bell
Boyd prepared Raytheon’s 1998 lien negligently because it
used that same incorrect property description. Raytheon
also claimed that Bell Boyd was negligent in failing to advise
Raytheon that the three-year rule might invalidate
Raytheon’s lien. In addition to damages, Raytheon sought
reimbursement of the attorneys’ fees it spent litigating the
bankruptcy and Calumet cases.
Ruling on Bell Boyd’s 12(b)(6) motion, the district court
held that the bankruptcy court’s conclusion that the prop-
erty description was valid barred Raytheon’s claims related
to the property description. The district court also held that
Bell Boyd was not negligent in failing to advise Raytheon of
4 No. 03-2389
the three-year rule. Because Raytheon did not retain Bell
Boyd until close to the end of the three-year period,
Raytheon could not have taken any action based on Bell
Boyd’s advice that would have prevented the application of
the rule to its lien.
Before this court, Raytheon makes two principal argu-
ments: first, that the property description was indeed in-
valid and that it should not be bound by the bankruptcy
court’s conclusion on that point; and second, that an Illinois
court might have interpreted the three-year rule differently
than the bankruptcy court did, and the possibility of such
a discrepancy proves Bell Boyd was negligent in not
informing Raytheon of the rule’s effect. We find it unneces-
sary to consider the first point in detail, because we con-
clude that Raytheon was bound by the bankruptcy court’s
ruling on the three-year rule, and that it is plain on the face
of the pleadings that nothing Bell Boyd could have done,
given its late entry into the fray, could have made a differ-
ence.
II
An action for legal malpractice in Illinois requires the
plaintiff to prove five elements: “(1) an attorney-client rela-
tionship; (2) a duty arising out of that relationship; (3) a
breach of that duty; (4) causation; and (5) actual damages.”
Griffin v. Goldenhersh, 752 N.E.2d 1232, 1238 (Ill. App.
2001). Raytheon’s malpractice claims against Bell Boyd
thus depended upon, among other things, the possibility of
finding that Bell Boyd’s negligence with respect to the al-
legedly flawed mechanic’s lien caused some harm to Raytheon.
Raytheon believes that if Bell Boyd had discovered that the
property description was incorrect earlier or if Bell Boyd had
alerted Raytheon to the three-year requirement, Raytheon
would have prevailed in the Calumet litigation and would
never have been dragged into bankruptcy court— or at least
No. 03-2389 5
not to the degree that it was. Instead, it asserts, Bell Boyd’s
negligence forced Raytheon to defend itself in the Calumet
litigation and ultimately to suffer substantial losses.
Raytheon has argued that the bankruptcy court erred in
its application of the three-year rule in the Mechanic’s Lien
Act. Bell Boyd responds that it is too late in the day to
challenge that ruling, because it is entitled to preclusive
effect in the present case. Because we are considering what
effect should be given to the judgment of the Delaware
bankruptcy court, which is a unit of the district court, see
28 U.S.C. § 151, we apply the federal common law of issue
preclusion. Under that law, a party seeking to invoke
preclusion must show four things:
1) the issue sought to be precluded must be the same as
that involved in the prior action, 2) the issue must have
been actually litigated, 3) the determination of the issue
must have been essential to the final judgment, and 4)
the party against whom estoppel is invoked must be
fully represented in the prior action.
People Who Care v. Rockford Bd. of Educ., 68 F.3d 172, 178
(7th Cir. 1995); La Preferida, Inc. v. Cerveceria Modelo, S.A.,
914 F.2d 900, 905-06 (7th Cir. 1990). Raytheon challenges
only the first requirement—that the issue sought to be pre-
cluded in the present case is not the same as that decided
in the bankruptcy court. (When Bell Boyd responded to the
motion under Rule 12(b)(6) with a claim of collateral estop-
pel, Raytheon responded with arguments on the merits of
that point. It did not assert that Bell Boyd needed to plead
preclusion as an affirmative defense under Fed. R. Civ. P.
8(c), and thus we attach no weight to the procedural short-
cut that occurred here. We do, however, construe the facts
in the light most favorable to Raytheon, as is normal in
reviewing a decision under Rule 12(b)(6).)
In order to resolve this element of issue preclusion, we
examine first what was before the bankruptcy court, and
6 No. 03-2389
then what was before the district court. Raytheon filed two
secured proofs of claim in the bankruptcy proceeding, each
in the amount of $8,820,252. It asserted that its original
mechanic’s lien secured these claims. Acme responded that
Raytheon’s claims actually were unsecured because
Raytheon filed the lien improperly. Acme offered three ar-
guments in support of this position, one of which was that
the lien was invalid because it failed to meet the three-year
requirement of the Illinois Mechanic’s Lien Act, 770 ILCS
60/6.
Section 6 of the Illinois Mechanic’s Lien Act requires com-
pletion of work within three years of commencement in order
for a mechanic’s lien to be valid. The question whether the
Raytheon liens complied with this rule was precisely the
issue presented to the bankruptcy court. Indeed, this is the
reason why the bankruptcy court ultimately ruled that the
lien was invalid. See 257 B.R. at 722. The bankruptcy court
pointed out that the parties entered into the contract at
issue in July 1994, and the contract specified a guaranteed
completion date of June 16, 1997. Id. The contract was not
in fact completed by that date, nor were either of
Raytheon’s mechanic’s liens filed within four months of the
completion date. Id. (In fact, as we noted earlier, Bell Boyd
did not file the lien until November 13, 1998, well outside
the three-year period.)
Raytheon has already had its day in court with respect to
the question whether the lien complied with the three-year
rule, and it lost. That much is therefore established for
purposes of the liens at issue here. The only remaining
issue is whether Raytheon has stated a claim against Bell
Boyd for negligently failing to counsel it about the effects of
the three-year rule. The district court pointed out that
Raytheon did not even hire Bell Boyd until more than two
years of the contract had passed. Raytheon failed to allege
any facts suggesting that construction would be completed
by the statutory three-year deadline, or that, had Bell Boyd
No. 03-2389 7
alerted it to that rule earlier, it could have sped up con-
struction. Because Raytheon could take no action to stave
off the effects of the three-year rule even had Bell Boyd told
it about the rule, Bell Boyd’s failure to do so could not have
caused any damage to Raytheon.
III
We cannot improve on the conclusion that the district
court succinctly stated: “. . . [A]ll of the elements of collat-
eral estoppel are clearly met here, and there is no showing
that the defendant’s actions were the proximate cause of
any damage to Raytheon . . . .” The same reasons are
enough to defeat Raytheon’s request for attorneys’ fees it
paid allegedly because Bell Boyd was negligent. Finally, we
deny Raytheon’s motion to certify these issues to the Illinois
Supreme Court, as we see no issues that meet that court’s
standards for certification. See Ill. S. Ct. R. 20(a). We
AFFIRM the judgment of the district court.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-9-04