When a lawsuit settles, both sides get something. When one of our cases settles, one of the things we get is a raft of mixed emotions. Undeniably, there is a sense of relief. Three weeks of 20 hour days suddenly open up. We can go home. (That sounds a little funny now that we are homebound courtesy of the Coronavirus pandemic.) But equally undeniable is an immense letdown. There is more glory from victory than from compromise. People come up to congratulate you on the settlement, and you wonder why. But at least there is closure.
Or is there? Can a settling party undergo a change of heart? When we prosecuted cases, one or two criminal defendants withdrew their guilty pleas. They usually offered no real reason, but the courts usually let them try their luck with the jury. (That luck ended up being bad for them.) We have heard of cases where criminal defendants withdrew their guilty pleas because the prosecutor had withheld exculpatory evidence. That’s a Brady violation, that’s the ultimate prosecutorial no-no, and that should not happen. In our career as a civil lawyer, we once dealt with a plaintiff who tried to renege on a settlement. That led to our motion to enforce settlement, which led to the single most comical court hearing we ever attended, which led to an angry judge scolding the plaintiff and granting our motion.
We never heard of a civil plaintiff who settled a case, but then filed a follow-up action premised on an alleged discovery violation. It is bad enough when plaintiffs make a case about the conduct of discovery in that case. It is even worse for plaintiffs to make a case about the conduct of discovery in a prior case. Inasmuch as plaintiffs always think defendants are stiffing them in discovery, such a theory would take a big chunk out of any closure that a settlement is supposed to provide.
That’s why we read Turubchuk v. Southern Illinois Asphalt Co., 2020 WL 2059931 (7th Cir. April 29, 2020), with interest. It is not a drug or device case, but if the plaintiff in Turubchuk had been permitted to get away with filing a post-settlement lawsuit, we and our clients would have something new to worry about. Those mixed emotions we get from settling a case would be even more mixed, and more – ahem – unsettled.
Turubchuk involved a very serious one car accident. One passenger died, and everyone else was hurt. The plaintiffs sued two construction companies that had repaved the road. The claim was that the construction companies created an unsafe condition, failed to erect appropriate barricades, and failed to warn of the dangers caused by the repaving. The plaintiffs settled with the construction companies for a million dollars. The plaintiffs signed a release, which included a standard non-reliance clause, in which the plaintiffs agreed that they were not relying on any statements by, among others, the parties’ attorneys.
End of story, right?
The plaintiffs filed a second lawsuit against the construction companies four years later. Why? According to plaintiffs, they settled the first lawsuit for a million dollars only because the construction companies disclosed a million dollars of insurance when, in reality, considerably more insurance was available. The plaintiffs contended that the inaccurate disclosure regarding the amount of insurance amounted to a discovery violation. There were some factual disputes about what had actually happened. For example, the defendants asserted that the plaintiffs made a million dollar demand (which was accepted) before the amount of insurance was discussed. Be that as it may, the issue in Turubchuk was whether the plaintiffs could file a claim against the construction companies for negligent misrepresentation based on the failure in the original, settled case to comply with Federal Rule of Civil Procedure 26, which sets forth discovery obligations.
The district court permitted this second lawsuit to proceed. Over seven years, the district court made many rulings, mostly against the defendants. Some of those rulings strike us as rather remarkable. Even putting aside the fundamental ruling that a new lawsuit could be filed because of an alleged discovery violation in an earlier, settled lawsuit, the district court issued rulings that were about as pro-plaintiff and anti-defendant as one could conceive. For example, the district judge did not give effect to the clear release, prevented a defense expert (a retired judge) from testifying about liability issues and the settlement value of the earlier case, permitted the plaintiffs to bring in the plaintiff lawyer in the earlier case to furnish “expert” testimony about the value of the earlier case, permitted that prior plaintiff lawyer to speculate as to the other side’s motives, while excluding evidence that that same plaintiff lawyer/expert had resigned his law license in lieu of disbarment for alleged acts of fraud. Whew! This is the sort of thing that makes defense hacks pessimistic about litigating in Illinois. Whether you’re in federal or state court in Illinois, the lower courts can be frightening places for corporate defendants. Sometimes you just have to hold on until you can get to the appellate courts, which are usually better. (Then again, the Bausch abomination did come out of the Seventh Circuit.).
That is what happened in Turubchuk. After pretty much everything went the plaintiffs’ way in the trial court and the jury awarded over eight million dollars, the defendants appealed to the Seventh Circuit. The issue was whether “a negligent misrepresentation claim under Illinois law can be predicated on an incomplete initial discovery disclosure under Rule 26.” That is a purely legal issue that the Seventh Circuit review de novo. The Seventh Circuit decided that such a claim should not proceed and that the district court got it wrong.
Negligence misrepresentation is an action in – duh – negligence. One of the first things we learned in law school is that a negligence cause of action requires a duty of care. What allegedly created the duty in Turubchuk requiring the defendants to make a complete disclosure of insurance? According to the plaintiffs and the district court, it was Federal Rule of Civil Procedure 26. That is – here comes another duh – a procedural rule. It is also federal. The Seventh Circuit could not find a single case in which a duty under state negligence law was premised on a Federal Rule of Civil Procedure.
That is hardly surprising. The Federal Rules of Civil Procedure were created pursuant to the Rules Enabling Act, which provided that the Federal Rules “Shall not abridge, enlarge, or modify any substantive right.” 28 U.S.C. Section 2072(b). The plaintiffs and the district court (in denying the defendants’ post-trial motions) rationalized the result below by saying that the plaintiffs’ case proceeded on a negligent misrepresentation claim, not a violation of Rule 26. But the plaintiffs grounded the misrepresentation in an alleged violation of Rule 26, and the district court instructed the jury that the violation of Rule 26 constituted a negligent misrepresentation. Astonishingly, the district court ruled that the only liability issue to be decided by the jury was whether the defense lawyer intended to induce the plaintiffs to settle when he sent the incomplete insurance disclosures.
There was so much wrong with the negligent misrepresentation claim. In the case below, “any duty was rooted in an incorrect source.” Contrary to the Rules Enabling Act, Rule 26 was being used to “enlarge” the plaintiffs’ substantive rights. There is no case “in which an Illinois negligent misrepresentation claim was used to attack an earlier federal judgment.” Even the Ninth Circuit held that alleged violation of discovery rules did not create a private right of action.
Here is how the Seventh Circuit summarized its rulings in Turubchuk. “Plaintiffs incorrectly based their negligent misrepresentation claim on Federal Rule of Civil Procedure 26. The district court also incorrectly found as a matter of law that all but one of that claim’s elements had been met. The evidentiary decisions reached on that element were an abuse of discretion, and viewing the trial evidence in a light most he verdict, the jury’s verdict must be reversed.”
With all of that, one (okay, we) would think that the Seventh Circuit would have granted the defendants’ request that judgment be entered as a matter of law in their favor. That is not what happened. Instead, the Seventh Circuit remanded to the district court for further proceedings consistent with the opinion.