Sufrin v. Hosier

• Decision Date: 27 October 1997
• Docket Number: 97-1241,Nos. 97-1132,s. 97-1132
• Citation: 128 F.3d 594
• Parties: Barry W. SUFRIN, Plaintiff-Appellee, Cross-Appellant, v. Gerald D. HOSIER, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 594

128 F.3d 594

Barry W. SUFRIN, Plaintiff-Appellee, Cross-Appellant, v. Gerald D. HOSIER, Defendant-Appellant, Cross-Appellee.

Nos. 97-1132, 97-1241.

United States Court of Appeals Seventh Circuit.

Argued Sept. 25, 1997.

Decided Oct. 27, 1997.

Robert E. Shapiro, Ray G. Rezner (argued), Barack, Ferrazzano, Kirschbaum & Perlman, Chicago, IL, for Plaintiff-Appellee, Cross-Appellant.

Paul K. Vickrey, Raymond P. Niro, John C. Janka (argued), Patrick Francis Solon, Niro, Scavone, Haller & Niro, Chicago, IL, for Defendant-Appellant in No. 97-1132.

Paul K. Vickrey, Raymond P. Niro, John C. Janka (argued), Timothy J. Haller, Raymond P. Niro, Jr., Niro, Scavone, Haller & Niro, Chicago, IL, for Defendant-Appellee in No. 97-1241.

Before POSNER, Chief Judge, and BAUER and EVANS, Circuit Judges.

POSNER, Chief Judge.

We have for decision an appeal and a cross-appeal from a split decision in a bitter dispute between two former law partners, Gerald Hosier and Barry Sufrin, patent lawyers who between 1984 and 1989 practiced law as Hosier & Sufrin, Ltd. In 1986 the firm was retained to handle a patent claim of Telesonics Systems Inc. on a contingent-fee basis. The following year Hosier, the more senior of the two lawyers and the one who had "landed" Telesonics as a client, negotiated a lucrative settlement that promised Telesonics tens of millions of dollars of patent-licensing fees. Hosier informed Sufrin that Sufrin would receive 1 percent of the amount of the settlement.

To minimize income tax, the owners of Telesonics created a limited partnership, Telesonics Systems, to receive and distribute the proceeds of the settlement. The limited partnership drew up a written plan of distribution under which the proceeds, as they were received from the patent licensees, would be divided in specified percentages among the partners in the limited partnership and the lawyers. The plan stated that Sufrin would get 1 percent of the proceeds and Hosier 38.5 percent. When the law firm broke up, Hosier claimed that Sufrin owed him some $100,000 as his share of the costs incident to the breakup, and when Sufrin refused to pay, Hosier told Telesonics Systems (the limited partnership) to withhold further payment of Sufrin's 1 percent share of the licensing revenues because Sufrin wasn't entitled to it. Afraid of taking sides in the dispute, and no doubt reassured by Hosier's promise to indemnify it should it be sued by Sufrin, Telesonics Systems placed the revenues allocable to Sufrin in escrow. Sufrin's first claim in this suit is that Hosier's action constituted tortious interference with Sufrin's contract with the limited partnership. The jury agreed and awarded Sufrin $419,000 in compensatory damages (the amount in escrow, plus interest) and an equal amount in punitive damages. Hosier's appeal is from the judgment for Sufrin on this claim.

Before the firm broke up it had been retained by the well-known inventor Lemelson (who has just died) to prosecute, on a contingent-fee basis, claims of patent infringement against a number of major companies. When the firm broke up, Hosier took Lemelson's business with him. The claims proved to be immensely lucrative, although the lucre did not begin to flow until years after Hosier & Sufrin, Ltd. had dissolved. Sufrin's second claim against Hosier, based on the written agreement specifying the compensation of the partners (we'll call this the "partnership agreement"), is to roughly a third of the contingent fees generated by the Lemelson retention. So huge are those fees that if Sufrin prevailed Hosier would owe him more than $70 million. The jury, however, gave judgment for Hosier on this claim, precipitating the cross-appeal.

The two claims are related in the following way: Hosier argues that Sufrin had no contract with Telesonics because Sufrin's 1 percent interest in the settlement was a "gift" from Hosier because (Hosier contends) the partnership agreement did not entitle Sufrin to any share of the contingent fees that the firm obtained. We shall see that Hosier is right about the agreement, although, as we are about to see, it doesn't follow that there was no contract between Sufrin and Telesonics. Still, there is tension between Sufrin's two claims, the Telesonics claim and the Lemelson claim. For if Sufrin was entitled to a third of the law firm's contingent fees (the Lemelson claim), why was he content with a measly 2.5 percent of the contingent fee in the Telesonics matter? (Sufrin's 1 percent of the licensing fees was approximately 2.5 percent of the total contingent fee to which Hosier & Sufrin, Ltd. was entitled by its contract with the Telesonics corporation.) Sufrin's answer, which must not have persuaded the jury, is that Hosier may have been retained by Telesonics before the formation of the law firm and that Sufrin accepted a mere 1 percent of the Telesonics settlement to avoid having to litigate the issue whether Telesonics was the firm's client or Hosier's.

It may seem curious that Sufrin should have conceded, as he has, that if he had no contract with Telesonics, he cannot prevail on his claim of tortious interference. The tort is not limited to interfering with a contract. As usually formulated, in Illinois (whose law governs the substantive issues in this diversity suit) as elsewhere, the tort consists either of interfering with an existing contract or interfering with a prospective advantage, that is, with the plaintiff's reasonable expectation of entering into a relation formally or informally contractual. See Fellhauer v. City of Geneva, 142 Ill.2d 495, 154 Ill.Dec. 649, 656-57, 568 N.E.2d 870, 877-78 (1991); Dowd & Dowd, Ltd. v. Gleason, 284 Ill.App.3d 915, 220 Ill.Dec. 37, 48, 672 N.E.2d 854, 865 (1996), appeal allowed, 171 Ill.2d 564, 222 Ill.Dec. 430, 677 N.E.2d 964 (1997).

Although Sufrin was not in the negotiation or expectancy stage of his relation with Telesonics, the cases protect the expectation of the continuation of an advantageous relation even if, as in Fellhauer, a case involving employment at will, the victim of the interference has no contractual entitlement to the continuation. And while it is true that if Hosier is right, and Sufrin had no contract with Telesonics, Hosier is probably also right that Telesonics was merely the conduit for a gift from Hosier to Sufrin, the Illinois courts have provided relief against tortious interference with the expectation of a bequest, In re Estate of Roeseler, 287 Ill.App.3d 1003, 223 Ill.Dec. 208, 221, 679 N.E.2d 393, 406 (1997); Nemeth v. Banhalmi, 99 Ill.App.3d 493, 55 Ill.Dec. 14, 17-18, 425 N.E.2d 1187, 1190-91 (1981), and a bequest is a type of gift, and the secondary authorities agree that tortious interference with a gift is actionable. Restatement (Second) of Torts § 774B (1979); W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 130, p. 1007 (5th ed.1984). Sufrin may have been worried that if he acknowledged even the possibility that he had had no entitlement to any part of the contingent fee in the Telesonics matter, it would have fatally undermined the credibility of his claim to a much larger share of the Lemelson fees. At all events, with Sufrin for whatever reason having confined his tort claim to interference with a contract, see Resudek v. Sberna, 132 Ill.App.3d 783, 87 Ill.Dec. 663, 668, 477 N.E.2d 789, 794 (1985), we must decide whether Sufrin had a contract with Telesonics.

He did. Even if the 1 percent was a pure gift by Hosier to Sufrin, it became a contractual entitlement of Sufrin against Telesonics with which Hosier interfered. The Telesonics corporation had a contractual obligation, running to Hosier & Sufrin, Ltd., to pay the contingent fee that the firm had earned by its representation of the corporation. The obligation ran to the law firm, whatever arrangements the partners may have had for divvying up the spoils. The firm surrendered its undoubted contractual right in exchange for the agreement of the Telesonics partnership to distribute the contingent fees in a specified manner that included Sufrin's 1 percent. It was as if Hosier had through sheer love deposited money in a joint bank account in his and Sufrin's names; the bank would be contractually obligated to Sufrin to honor Sufrin's draws against the account, regardless of whether Sufrin had given Hosier consideration for opening the joint account. Landretto v. First Trust & Savings Bank, 333 Ill. 442, 164 N.E. 836 (1928); Speasl v. National Bank, 37 Ill.App.2d 384, 186 N.E.2d 84, 86 (1962); Copeland v. Peachtree Bank & Trust Co., 150 Ga.App. 262, 257 S.E.2d 353 (1979). In technical legal terms, Hosier and Sufrin were third-party beneficiaries of the contract between Hosier & Sufrin, Ltd. and Telesonics Systems Inc., because the intention of the parties to the contract was to confer a legally enforceable right or benefit on the two lawyers. XL Disposal Corp. v. John Sexton Contractors Co., 168 Ill.2d 355, 213 Ill.Dec. 665, 669, 659 N.E.2d 1312, 1316 (1995); MBD Enterprises, Inc. v. American National Bank, 275 Ill.App.3d 164, 211 Ill.Dec. 678, 655 N.E.2d 1061 (1995); Paukovitz v. Imperial Homes, Inc., 271 Ill.App.3d 1037, 208 Ill.Dec. 417, 419, 649 N.E.2d 473, 475 (1995); Vidimos, Inc. v. Laser Lab Ltd., 99 F.3d 217, 219-20 (7th Cir.1996) (Michigan law). To see how clear this intention was, just imagine how Hosier would have squawked if Telesonics had used the logic of his argument as grounds for denying that it had any contractual obligation to pay him his 38.5 percent of the licensing fees. If Hosier was a third-party beneficiary of the law firm's contract with Telesonics Systems, so was Sufrin, regardless of the origin of his entitlement.

Hosier argues that under Illinois law it is impossible to interfere tortiously with a contract to which you are a party, and Hosier was a party to the distribution agreement. He is right that if you break a contract, you cannot be sued for tortiously...