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Adco Oil Company v. Michael J. Rovell
Citations: 357 F.3d 664; 2004 WL 193577Docket: 03-2575
Court: Court of Appeals for the Seventh Circuit; February 26, 2004; Federal Appellate Court
Adco Oil Company developed a method for enhancing natural gas recovery and assigned the related intellectual property to Hugoton Joint Venture 1986 (HJV) for a 20% share of returns exceeding $1.1 million. Adco hired attorney Guy Taylor to negotiate with Mobil Oil Company, alleging he mishandled the process and leaked confidential information. After pursuing litigation against Mobil and Taylor, HJV settled with Mobil for $250,000 and proceeded to trial against Taylor. A settlement was reached with Taylor before the jury verdict, limiting recovery to $850,000 despite a jury award of $120 million. Consequently, Adco received no distribution from HJV since total recoveries equaled $1.1 million. Adco then filed a malpractice claim against attorney Michael J. Rovell, arguing he failed to secure compensation for Adco from HJV's trial against Taylor. However, Rovell's ongoing federal bankruptcy proceedings complicated the malpractice suit, which was treated as an adversary action in bankruptcy. A key issue arose when Rovell did not timely notify his insurance carrier about the malpractice claim, prolonging litigation over the insurer's obligations. Ultimately, Bankruptcy Judge Ginsberg dismissed Adco's malpractice claim, determining that Adco lacked standing due to its assignment of claims to HJV. District Judge Moran affirmed this dismissal. However, the appellate court found that while Adco’s claim presented a controversy under Article III, the claim was derivative rather than direct, as Adco had assigned its interests to HJV. Since HJV did not generate sufficient recovery to trigger a payout to Adco and under Oklahoma law, a partner cannot litigate independently for partnership injuries, Adco was not entitled to recover against Rovell. Adco's attempt to independently recover from litigation concerning Mobil and Taylor is viewed as an effort to reverse its prior consent to assign rights to HJV during the Oklahoma case, thereby undermining HJV's control over the litigation. After transferring its intellectual property rights to HJV in exchange for a partnership interest, any potential injury from Taylor's actions is attributed to HJV, not Adco. Adco's belief in retaining a claim against Mobil and Taylor stems from a misunderstanding of direct versus derivative injuries. Furthermore, Adco's later attempt to reclaim its claim by contesting Rovell's authority to settle was rejected by both the trial court and the court of appeals, which upheld the validity of the assignment and ruled out Adco's independent claim. This ruling cannot be challenged in federal court, and Adco's arguments regarding retained interests and Rovell's duties are dismissed as improper collateral attacks. The Oklahoma courts determined that Adco's claims were fully transferred to HJV, and legal ethics do not require a lawyer to undermine such agreements. While HJV's potential grievances with Rovell are not addressed, Adco's interest in the matter is solely as an HJV partner, with its injury being derivative. HJV alone could pursue the partnership's interests, but the timeframe for doing so has lapsed. Adco is cautioned against re-filing its claim as a derivative action, as this could lead to sanctions for frivolous litigation. The court's decision is affirmed.