Written Release of File
Part of Fee Settlement
Does Not Get Law Firm
Off the Hook
Failure to Perfect Lien
Leads to Legal Mal Action
In 2002 Construction Systems, Inc. (“CSI”), a steel fabricator, worked on a large job at 6 North Michigan in Chicago. The owner, an LLC, hired AMEC as construction manager, then stepped in as general contractor when the original general contractor on the job, created by the members of the LLC ceased functioning.
The contract price for the steel package was $2,684,823, plus extras of $1,372,477. CSI stopped working on June 19, 2003 because of non-payment, and although partial payments reduced the balance owed to $3,146,200, CSI retained the law firm FagelHaber (since merge with Thompson, Coburn) to lien the job.
FagelHaber did a tract index search of April 3, 2003. A lender, Cosmopolitan Bank and Trust, recorded a mortgage on 6 North Michigan on May 6, 2003. Without updating its tract search, FagelHaber served a notice of lien on the owner and Amec on August 6, 2003. FagelHaber did not serve this notice on Cosmopolitan. On October 6, 2003 FagelHaber recorded a lien in the amount of $3,146,200, but the lien failed to include Cosmopolitan as an interested party. Nor was it on the service list. Only in December did FagelHaber perform a second search that picked up Cosmopolitan.
CSI became unhappy with FagelHaber’s billing practices and the lack of progress and brought in new counsel. FagelHaber put a retaining lien on the file until it was paid its fees. In November 2007 CSI entered into a release agreement that allowed new counsel to pick up the file, in exchange for $81,566.00 The release provided, in pertinent part:
“[Construction Systems] *** does hereby fully remise, release and forever discharge FagelHaber *** of and from any and all claims, demands, actions, causes of action, suits, ** existing at the date hereof or hereafter arising, both known and unknown, foreseeable and unforeseeable, *** arising from or in connection with any matter, *** including, without limitation, any Claims in connection with the legal services provided by FagelHaber to [Construction Systems] or the Indebtedness.”
In January 2009 CSI sued FagelHaber, now Thomas Coburn, for malpractice. CSI claimed that because of the firm’s negligence, its lien was subordinate to Cosmopolitan, leading to a loss of $1,321,200. A lower court granted FagelHaber’s motion for summary judgment, based on the release.
The appellate court found no evidence that FagelHaber advised CSI of its failure to perfect the lien. The new lawyer testified that she was never told. FagelHaber had a fiduciary duty to make a full disclosure. This was fatal to the law firm’s defense and the appellate court reversed.
This case teaches that a release is not necessarily global just because the wording sounds global. The courts will look at the occasion for the release, the context, and the fiduciary relationship lawyers have with their clients.