Peterson v. Katten Muchin Rosenman Llp

792 F.3d 789 (7th Cir. 2015)

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Nature of the Case

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Facts

P appointed to marshal the assets of Lancelot Investors Fund and other entities in bankruptcy (Funds) has filed multiple suits against solvent entities that P maintains, failed to detect the peril the Funds were in and help curtail their risks. P claimed that D committed legal malpractice during the six years it advised the Funds how to structure their transactions. The Funds loaned money to the Petters vehicles (Petters created a Ponzi scheme), which in turn supposedly financed some of Costco's inventory. Petters insisted that the Funds not contact Costco; doing that, he said, would upset his favorable business relations with it. There was supposed to be a 'lockbox' bank account into which Costco would deposit its payments for the Funds to draw on, eliminating any risk that Petters would put his hand into the till. Petters was supposed to supply the paperwork showing the debts due from Costco. The Funds lied to investors about the arrangements and asserted that the money came directly from Costco even though it came from vehicles Petters had created. P claims that that D violated its duty to its clients by not telling them that the actual arrangement (no checks with Costco, no money directly from Cost-co) posed a risk that Petters was not running a real business. D had been engaged to structure transactions, and part of that duty entails telling the client what contractual devices are appropriate to the situation. The court dismissed the complaint. D maintains, and the opinion states, that Bell, one of the managers of the Fund, knowingly bypassed verification with Costco in order to obtain a higher interest rate from Petters. Thus, the Funds knowingly took a risk and cannot blame a law firm for failing to give business advice. The court dismissed, and P appealed.