In the

United States Court of Appeals

For the Seventh Circuit

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No. 03-2575

ADCO OIL COMPANY,

Plaintiff-Appellant,

v.

MICHAEL J. ROVELL,

Defendant-Appellee.

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Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 03 C 341—James B. Moran, Judge.

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ARGUED JANUARY 6, 2004—DECIDED FEBRUARY 3, 2004

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Before EASTERBROOK, DIANE P. WOOD, and WILLIAMS,

Circuit Judges.

EASTERBROOK, Circuit Judge. Adco Oil Company developed a means to increase the recovery of natural gas

from underground deposits and assigned this intellectual

property to Hugoton Joint Venture 1986 (HJV), in exchange

for a partnership interest: Adco was entitled to 20% of any

returns exceeding $1.1 million. Adco hired Guy Taylor as

legal counsel to negotiate on its behalf (and HJV’s) to

market its idea to Mobil Oil Company. According to Adco,

Taylor bungled the job and gave away the secret. HVJ and

Adco filed suit in Oklahoma against both Mobil and Taylor.

Adco and HJV engaged Michael J. Rovell, then a partner of

Jenner & Block, to represent them. Within a month, Adco
2 No. 03-2575

assigned to HJV whatever interest Adco held in the claims

against Mobil and Taylor. HJV settled with Mobil for

$250,000 and went to trial against Taylor. Before the jury

returned its verdict, HJV and Taylor cut a deal, including

a cap at $850,000 if the jury should make a higher award,

a low of $200,000 even if the verdict favored Taylor, and a

waiver of appeals and post-trial motions. The jury brought

back a verdict for $120 million, so HJV received $850,000.

Because total recoveries equaled $1.1 million, Adco did not

receive a distribution from HJV. Adco then sued Rovell for

malpractice, on the theory that he should have seen a huge

verdict coming and ensured that Adco got a slice, rather

than negotiating a cap that left Adco uncompensated.

Adjudication of Adco’s claim against Rovell has been

complicated by the fact that Rovell filed a federal bankruptcy proceeding, so the malpractice suit has proceeded as

an adversary action within the bankruptcy. (Federal

bankruptcy law is the source of subject-matter jurisdiction.

See 28 U.S.C. §1334(b).) A further complication is that

Rovell failed to give timely notice of the malpractice claim

to his insurance carrier, leading to extended litigation about

its duty to defend and indemnify. See Home Insurance Co.

v. Adco Oil Co., 154 F.3d 739 (7th Cir. 1998). After the

underbrush had been cleared away, Bankruptcy Judge

Ginsberg dismissed Adco’s malpractice claim on the ground

that, because of the assignment to HJV, Adco lacks standing to sue Rovell. District Judge Moran affirmed. 2003 U.S.

Dist. LEXIS 8352 (N.D. Ill. May 15, 2003).

Unlike the bankruptcy and district judges, we conclude

that Adco’s claim presents a controversy under Article III.

Adco wants money damages for a tort, and a favorable

judicial order would redress the injury. Its problem is not

standing but substance: Adco transferred to HJV any interest in both the intellectual property and the ensuing

claim against Mobil and Taylor. Adco’s injury thus is deriv-
No. 03-2575 3

ative rather than direct—HJV did not recover enough to

call for a payout to Adco. Yet Adco has elected to sue in its

own name rather than to make a derivative claim on behalf

of HJV, or a claim against HJV’s managing partner. No rule

of Oklahoma law of which we are aware permits a partner

such as Adco to litigate independently on account of an

injury done to a partnership. To the contrary, Oklahoma

follows the lead of Delaware, which requires a partner to

initiate a derivative action in order to obtain redress for an

indirect injury. See 54 Okl. St. §§ 357, 358; Litman v.

Prudential-Bache Properties, Inc., 611 A.2d 12 (Del. Ch.

1992). Adco therefore is not entitled to recover against

Rovell.

Adco’s demand for an independent recovery is a thinly

disguised effort to undo the assignment to which it consented during the Oklahoma litigation, and to usurp the

control of the litigation ceded to HJV as a result. It is unclear to us that Adco had any interest in the suit against

Mobil and Taylor to start with. Once it had sold its intellectual property rights to HJV in exchange for a partnership interest, any injury caused by Taylor’s errors was

suffered by HJV rather than Adco. (In other words, Adco’s

belief that it originally had a claim against Mobil and

Taylor is attributable to the same failure to distinguish

between direct and derivative injuries that besets the

malpractice claim against Rovell.) But this is beside the

point, for Adco transferred to HJV whatever interest Adco

had possessed in the legal action against Mobil and Taylor.

Midway through the proceedings in Oklahoma, Adco

changed its mind and tried to reclaim the chose in action by

disputing Rovell’s authority to sign off on the settlement,

but the state judiciary—both the trial court and the court of

appeals—held that the assignment is valid and extinguishes Adco’s independent claim. That decision is not

subject to collateral attack in this federal litigation, and

Adco’s insistence that as a matter of Oklahoma law it must
4 No. 03-2575

have retained some stake in the claim against Mobil and

Taylor is a form of prohibited collateral attack. So too is

Adco’s insistence that, because Rovell represented Adco

before he took HJV itself as a client, Rovell owed it a duty

to use this phantom claim to siphon some settlement proceeds direct to Adco, without passing through HJV. The

Oklahoma judiciary has concluded that whatever claim

Adco possessed was transferred to HJV. Legal ethics does

not compel a lawyer to sabotage such transactions.

HJV itself may or may not have had a legitimate grievance with Rovell’s advice and assistance. We do not explore

that question. Adco’s only interest was, and is, as a partner

of HJV, and its injury is derivative. Only HJV could

vindicate the interest of the partnership as a whole, and the

time to do so expired years ago. Adco should not attempt to

resurrect this claim by re-filing it as a derivative action;

that would just invite sanctions for frivolous litigation.

AFFIRMED.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—2-3-04