McKnight, Gary v. Dean, Kenneth A. ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-3007
Gary McKnight,
Plaintiff-Appellant,
v.
Kenneth A. Dean, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 8939--Paul E. Plunkett, Judge.
Argued April 9, 2001--Decided November 2, 2001
Before Posner, Evans, and Williams, Circuit
Judges.
Posner, Circuit Judge. In this
extraordinary case an individual who
obtained a $765,000 settlement in a suit
for legal malpractice is suing--for legal
malpractice--the lawyers who obtained the
settlement for him. It is a tangled
story, and we must begin at the
beginning.
In 1987 Gary McKnight brought suit
against his former employer, General
Motors, in a federal district court in
Wisconsin, charging discrimination in
violation of 42 U.S.C. sec. 1981 and
Title VII of the Civil Rights Act of
1964. He obtained a verdict of $110,000
in compensatory damages (of which half
represented back pay) and $500,000 in
punitive damages; the district judge
refused, however, to order him
reinstated. The parties cross-appealed.
Back pay and reinstatement were the only
relief sought by McKnight under Title
VII; and while the appeals were pending,
the Supreme Court held in Patterson v.
McLean Credit Union, 491 U.S. 164, 176-78
(1989), that section 1981 does not reach
discrimination by a private employer
against existing employees. (Congress
amended the statute to change this rule,
Hardin v. S.C. Johnson & Son, Inc., 167
F.3d 340, 346 (7th Cir. 1999), but that
has no bearing on this case.) General
Motors had failed to argue the ground
that the Court adopted in Patterson, even
though the Patterson case was pending in
the Supreme Court during the trial of
McKnight’s case. We thought this might be
a waiver, but did not decide, for "if by
this delay General Motors waived its
right to invoke Patterson, a question we
need not answer, McKnight cannot benefit.
For . . . he has never argued that
General Motors has waived its right to
rely on Patterson. A defense of waiver is
itself waivable. McKnight waived any
defense of waiver that he might have
had." McKnight v. General Motors Corp.,
908 F.2d 104, 108 (7th Cir. 1990). We
concluded that Patterson had knocked out
McKnight’s claims under section 1981, so
that the award of compensatory damages
beyond back pay (which was $55,000), plus
the award of punitive damages ($500,000),
had to be reversed. Id. at 112. We upheld
the award of back pay, however, under
Title VII; and though we suspected that
McKnight was seeking reinstatement merely
in order to extract compensation from GM-
-"after being fired by GM McKnight
entered the financial services industry
[as a stockbroker] where after a few
years he was earning more money than he
did earn or would have been earning at
GM," id. at 116--we held that the
district judge’s denial of reinstatement
could not stand. For it had been based in
part on the judge’s belief that the award
of punitive damages had fully
compensatedMcKnight for the loss of his
employment with GM--and we were vacating
that award.
In remanding we noted that "should the
judge again decide not to order
reinstatement, a remedial gap will open
up," for if "reinstatement is withheld
because of friction that would ensue
independently of any hostility or
retaliation by the employer, a remedy
limited to back pay will not make the
plaintiff whole." Id. We therefore left
open for consideration on remand whether
in such a case an award of "front pay"
(lost future earnings) was authorized by
Title VII and, if so, whether this was an
appropriate case for such an award. Id.
at 117.
On remand, the district court again
denied reinstatement. After refusing to
reopen the record to receive additional
evidence on the issue, the judge said
that the damages award in the previous
round had not figured importantly in his
decision to deny reinstatement. What had
been important was that McKnight’s
relationship with GM was acrimonious and
that he did not want reinstatement to his
previous job as a manufacturing
supervisor but instead wanted GM to give
him a position managing GM’s corporate
finances, a position for which he did not
appear to be qualified. The judge also
denied the alternative of front pay,
because McKnight wanted GM in effect to
insure him against the vicissitudes
consequent upon his own choice to switch
from manufacturing to financial services.
Anyway he had failed to submit the data
required to enable a calculation of the
amount of front pay. Indeed, he had
failed to brief the issues of
reinstatement and front pay. Finally, the
judge denied as untimely McKnight’s
request for prejudgment interest on the
$55,000 award of back pay.
We affirmed. The result was that GM owed
McKnight only the $55,000 in back pay,
plus postjudgment interest of some
$11,000 on that amount, plus a stipulated
amount of attorney’s fees (some $57,000)
which GM deposited in court. A dispute
then arose between McKnight and Robert
Gingras, the lawyer who had handled the
case in the district court, concerning
Gingras’s share of these fees. This
dispute led Gingras to sue McKnight in a
Wisconsin state court. One of McKnight’s
defenses in that suit was that Gingras
had committed malpractice in representing
him in his suit against GM. McKnight’s
new lawyer, Kenneth Dean, the principal
defendant in the present case (we can
ignore the other defendants), filed on
McKnight’s behalf a diversity suit
against Gingras in federal court,
charging Gingras with malpractice and
thus essentially duplicating the defense
that McKnight had raised in Gingras’s
suit, and he then dropped the defense
from that suit. Dean preferred to
litigate McKnight’s case in federal court
because Gingras’s law firm practices
extensively in the Wisconsin court in
which Gingras had sued McKnight. And,
sure enough, Gingras obtained a judgment
against McKnight in that suit--and then
pleaded it as res judicata in the federal
malpractice suit that McKnight,
represented by Dean, had brought against
him. The district judge held that the
plea was good as to any claim pertaining
to Gingras’s handling of the trial of the
discrimination suit (but not the appeal
or remand), and thus wiped out any
complaint about Gingras’s failure at the
trial to present evidence in support of
reinstatement or front pay, or to
calculate back pay correctly. The
malpractice defense, the judge ruled, had
been a compulsory counterclaim to
Gingras’s suit for attorneys’ fees, and a
compulsory counterclaim that is not
pleaded (or that is abandoned) is
forfeited. Fed. R. Civ. P. 13(a);
Southern Construction Co. v. Pickard, 371
U.S. 57, 60 (1962) (per curiam);
Burlington Northern R.R. v. Strong, 907
F.2d 707, 710 (7th Cir. 1990). (This
ruling was error, as we’ll see.) That
left the "waiver of waiver" on the first
appeal and also Gingras’s failure on
remand to brief reinstatement and front
pay as grounds for McKnight’s malpractice
suit against Gingras.
Now it happened that Gingras had
malpractice insurance with a cap of $1
million to cover both liability and
attorneys’ fees, and the insurance
company had expended $235,000 on the
defense of McKnight’s malpractice suit
against him. The company offered to
settle the case for the difference
between that amount and the $1 million
cap, that is, for $765,000 ($475,000
after Dean deducted his fee). Dean is
alleged by McKnight (we must assume
truthfully, in the present posture of the
case) to have told him that this was the
most he could expect to obtain, and so he
"must" settle for it--concealing from him
the fact that any judgment against
Gingras could be satisfied out of
Gingras’s personal assets as well as out
of the proceeds of the insurance policy.
So McKnight settled, thus setting the
stage for this malpractice suit against
Dean and his associates. McKnight claims
that Dean committed malpractice in
dropping the malpractice defense in the
suit that Gingras had brought in the
Wisconsin state court and in forcing him
to settle for $765,000 rather than
holding out for a larger settlement and
if necessary proceeding to trial. The
district court granted summary judgment
for the defendants on the ground that
McKnight had failed to show that the
alleged malpractice had actually hurt
him.
The reasonableness of Dean’s
representation of McKnight is related to
the gravity of the malpractice claim
against Gingras, the claim that Dean was
hired to press, and so let us begin with
the case against Gingras. His unexplained
delay in seeking prejudgment interest to
which McKnight undoubtedly was entitled
on the award of back pay, Loeffler v.
Frank, 486 U.S. 549, 557-58 (1988);
Herrmann v. Cencom Cable Associates,
Inc., 999 F.2d 223, 225 (7th Cir. 1993);
Booker v. Taylor Milk Co., 64 F.3d 860,
868-69 (3d Cir. 1995), was negligent, but
no effort has been made to estimate the
amount of such interest to which McKnight
would have been entitled.
Gingras could hardly be faulted for
having failed to put in more evidence in
support of a claim for reinstatement or
alternatively for front pay, whether at
the trial or on remand, because there was
very little evidence that he could have
put in. McKnight wanted to switch from
manufacturing to financial services, and
the ups and downs of his income that
ensued were due to that choice rather
than to his being discharged by GM, which
did not have a job in financial services
that matched his qualifications. Besides,
as noted in our previous opinion,
McKnight v. General Motors Corp., supra,908 F.2d at 116-17, we hadn’t yet held
that front pay was an available remedy in
a Title VII suit, as we since have held,
Williams v. Pharmacia, Inc., 137 F.3d
944, 951-53 (7th Cir. 1998), and as the
Supreme Court held in Pollard v. E.I. du
Pont de Nemours & Co., 121 S. Ct. 1946(2001). Because these holdings were not
at all unexpected, see, e.g., Anderson v.
Group Hospitalization, Inc., 820 F.2d
465, 473 (D.C. Cir. 1987); James v.
Stockham Valves & Fittings Co., 559 F.2d
310, 358 (5th Cir. 1977); Larry M.
Parsons, Note, "Title VII Remedies:
Reinstatement and the Innocent Incumbent
Employee," 42 Vand. L. Rev. 1441, 1456-57
(1989), Gingras’s failure to seek front
pay merely because the law was unsettled
might well have been negligent; but as
we’ve said, all that matters is that in
the circumstances of this case he could
not have made a persuasive case for
awarding McKnight front pay. As for his
failure to argue "waiver of waiver" in
this court in 1990, though it was by then
an established doctrine in this court,
see Garlington v. O’Leary, 879 F.2d 277,
282 (7th Cir. 1989); United States v.
Moya-Gomez, 860 F.2d 706, 745-46 n. 33
(7th Cir. 1988); Lynk v. LaPorte Superior
Court No. 2, 789 F.2d 554, 565 (7th Cir.
1986), we never held that GM had waived
its defense based on the Patterson case
by asserting it as late as it did, only
that it might have waived it. Nor was it
clear that GM even had such a defense in
McKnight’s case; it took us several pages
of dense analysis in our 1990 opinion to
conclude that it did. Legal malpractice
is not a failure to be brilliant, but a
failure to come up to even a minimum
standard of professional competence.
E.g., Praxair, Inc. v. Hinshaw &
Culbertson, 235 F.3d 1028, 1031 (7th Cir.
2000). It is not a synonym for
undistinguished representation. Id.For Dean to have extracted a settlement
of $765,000 from Gingras was impressive
given the weaknesses in the case against
Gingras, especially when we consider that
the failure to argue waiver of waiver
cost McKnight at most $555,000 (the
damages that we held barred by GM’s
Patterson defense). Had McKnight not
settled for $765,000, the insurance
company’s offer would have shrunk as the
company continued spending money on
Gingras’s defense; and Gingras, rather
than throwing some of his own money into
the settlement pot, might have decided to
fight the case--and might have won, or at
least lost less than $765,000.
Dean may have been negligent in dropping
the malpractice defense to Gingras’s
state court suit, though even this is
unclear. He had tactical reasons, which
it is not the office of malpractice
litigation to second guess unless
unreasonable, Crosby v. Jones, 705 So. 2d
1356, 1358 (Fla. 1998); Wagenmann v.
Adams, 829 F.2d 196, 220 (1st Cir. 1987);
Woodruff v. Tomlin, 616 F.2d 924, 930,
933 (6th Cir. 1980); cf. Bond v. United
States, 1 F.3d 631, 638 (7th Cir. 1993),
for preferring to be in federal court;
McKnight’s argument that it is
malpractice per se to give up a possibly
meritorious claim in order to obtain a
tactical advantage is frivolous. Woodruff
v. Tomlin, supra, 616 F.2d at 933;
Lipscomb v. Krause, 151 Cal. Rptr. 465,
467-68 (Cal. App. 1978); cf.
Entertainment Research Group, Inc. v.
Genesis Creative Group, Inc., 122 F.3d
1211, 1229 (9th Cir. 1997).
One might think, however--the district
judge thought--that since the defense
was a compulsory counterclaim, there was
no way to shift it to the federal court;
dropping it in the state court meant
forfeiting it in all courts. (Yet despite
this Dean negotiated a settlement that
generously valued Gingras’s alleged
malpractice, even though McKnight could
no longer litigate it!) Not so. Federal
courts are required to give the same
effect to a state court judgment that the
state that rendered the judgment would
give it. 28 U.S.C. sec. 1738; Kremer v.
Chemical Construction Corp., 456 U.S. 461(1982). The preclusive effect of the
Wisconsin judgment for Gingras in
McKnight’s federal suit against Gingras
therefore depended on Wisconsin’s law of
compulsory counterclaims, not the federal
rule. Migra v. Warren City School
District Board of Education, 465 U.S. 75,
81, 87 (1984); County of Cook v. MidCon
Corp., 773 F.2d 892, 898 (7th Cir. 1985).
Wisconsin defines compulsory
counterclaims very narrowly; failure to
plead a counterclaim bars suit only if
"the relationship between the
counterclaim and the plaintiff’s claim is
such that successful prosecution of the
second action would nullify the initial
judgment or would impair rights
established in the initial action."
A.B.C.G. Enterprises, Inc. v. First Bank
Southeast, N.A., 515 N.W.2d 904, 908
(Wis. 1994); Remer v. Burlington Area
School District, 205 F.3d 990, 1000 (7th
Cir. 2000) (applying Wisconsin law). That
test was not satisfied here, because
Gingras’s claim for fees could have
survived a finding that he was guilty of
malpractice if the value of his services
exceeded the loss that his malpractice
imposed. See Moores v. Greenberg, 834
F.2d 1105, 1110-11 (1st Cir. 1987);
Schultheis v. Franke, 658 N.E.2d 932, 941
(Ind. App. 1995).
We do not condone Dean’s action in
"forcing" McKnight to settle. If McKnight
was pigheaded and wanted to tilt at
windmills, that was his right. Dean
didn’t have to continue representing him
in those circumstances, but he could not,
whether to safeguard his fee or for any
other reason, use deception to induce his
client to settle against the client’s
will. The decision to settle is the
client’s alone. Evans v. Jeff D., 475
U.S. 717, 728 n. 14 (1986); Clarion Corp.
v. American Home Products Corp., 494 F.2d
860, 864 (7th Cir. 1974); Thomsen v.
Terrace Navigation Corp., 490 F.2d 88 (2d
Cir. 1974) (per curiam); In re
Disciplinary Proceedings Against
Martinez, 591 N.W.2d 866, 868 (Wis.
1999); Brewer v. National R.R. Passenger
Corp., 649 N.E.2d 1331, 1333-34 (Ill.
1995). But misconduct of this sort,
though a form of malpractice (more
precisely, a breach of the lawyer’s
ethical duty to his client), will often
be harmless. Dean did McKnight a favor in
"coercing" a $765,000 settlement, if that
is what really happened. (Dean denies it,
and the district court merely assumed,
for argument’s sake, that it did happen.)
For there is no basis for believing that
McKnight would have done better by
rejecting the settlement and going to
trial; and if there is no injury, there
is no tort.
Gingras and his insurance company could
not be expected to settle for more than
the likely amount of a judgment if the
case did not settle, discounted
(multiplied) by the probability of a
judgment, plus the amount of additional
legal expenses likely to be incurred in
defending the suit if it went to
judgment. Suppose the insurance company
believed that McKnight had a 60 percent
probability of winning a $1 million
judgment if the case was tried, and knew
that the defense would cost an additional
$165,000 in attorneys’ fees. Then the
discounted judgment cost (.60 x $ 1
million) plus the additional attorneys’
fees would equal $765,000, and that would
be the maximum for which the company
would settle--and so, given the company’s
willingness to settle for that amount,
McKnight did better than he could be
expected to do by insisting on a trial,
since that insistence would have an
expected value of only $600,000 (.60
$1 million). These are hypothetical
figures and the fact that the insurance
company settled for the policy limit
suggests it may have valued McKnight’s
claim at more than our figures suggest.
But that is merely a conjecture.
Insurance companies are not noted for
their generosity. Gingras’s alleged
malpractice had cost McKnight, at worst,
$500,000 in punitive damages, $55,000 in
compensatory damages, some prejudgment
interest on the back pay award, and
either reinstatement or front pay in lieu
of it. The prejudgment interest was a
small figure (never calculated) and
reinstatement, or in lieu thereof an
award of front pay, was highly
speculative. It is unlikely that a jury
would have returned a verdict
significantly in excess of the $765,000
for which Gingras’s insurance company
settled, and the verdict might have been
much less given the weaknesses in the
malpractice claim against Gingras.
McKnight argues that to repel summary
judgment all he had to prove was that
Dean’s malpractice had caused him some
injury, however slight--and that would be
true if Dean had obtained no money for
McKnight. But Dean obtained $765,000, so
that his negligence injured McKnight only
if, had it not been for that negligence,
McKnight could have expected to obtain
more than that amount in his suit against
Gingras. Praxair, Inc. v. Hinshaw &
Culbertson, supra, 235 F.3d at 1032;
Transcraft, Inc. v. Galvin, Stalmack,
Kirschner & Clark, 39 F.3d 812, 815 (7th
Cir. 1994); Picadilly, Inc. v. Raikos,
582 N.E.2d 338, 344 (Ind. 1991); Glamann
v. St. Paul Fire & Marine Ins. Co., 424
N.W.2d 924, 926 (Wis. 1988). That he has
failed to show.
Affirmed.