Court Opinion

ID: 2996761
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:31:15.27738+00
Date Added: 2024-06-11T12:38:15.175329
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 03-2575
ADCO OIL COMPANY,
                                            Plaintiff-Appellant,
                               v.

MICHAEL J. ROVELL,
                                            Defendant-Appellee.
                         ____________
       Appeal from the United States District Court for the
         Northern District of Illinois, Eastern Division.
            No. 03 C 341—James B. Moran, Judge.
                         ____________
  ARGUED JANUARY 6, 2004—DECIDED FEBRUARY 3, 2004
                    ____________

  Before EASTERBROOK, DIANE P. WOOD, and WILLIAMS,
Circuit Judges.
  EASTERBROOK, Circuit Judge. Adco Oil Company de-
veloped 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 bank-
ruptcy 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 stand-
ing 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 in-
terest 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 con-
sented during the Oklahoma litigation, and to usurp the
control of the litigation ceded to HJV as a result. It is un-
clear to us that Adco had any interest in the suit against
Mobil and Taylor to start with. Once it had sold its in-
tellectual property rights to HJV in exchange for a partner-
ship 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 extin-
guishes 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 pro-
ceeds 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 griev-
ance 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