Baer v. First Options of Chicago, Inc.

• Decision Date: 27 December 1995
• Docket Number: No. 95-1409,95-1409
• Citation: 72 F.3d 1294
• Parties: Colleen BAER, Plaintiff, v. FIRST OPTIONS OF CHICAGO, INCORPORATED, Defendant. Appeal of DAVIS, MINER, BARNHILL & GALLAND, P.C., Appellant, v. James R. ANTONIONO, Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1294

72 F.3d 1294

Colleen BAER, Plaintiff, v. FIRST OPTIONS OF CHICAGO, INCORPORATED, Defendant.

Appeal of DAVIS, MINER, BARNHILL & GALLAND, P.C., Appellant, v. James R. ANTONIONO, Appellee.

No. 95-1409.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 28, 1995.

Decided Dec. 27, 1995.

Paul Strauss, John F. Belcaster (argued), Davis, Miner, Barnhill & Galland, Chicago, IL, for Davis, Miner, Barnhill & Galland.

George N. Vurdelja, Jr. (argued), Vurdelja & Heaphy, Chicago, IL, for James R. Antoniono.

Before WOOD, Jr., COFFEY and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

Attorneys James Antoniono and Paul Strauss dispute the ownership of over $42,000 in attorney's fees earned during their representation of a Title VII plaintiff. The district court, in its approval of a settlement in the underlying Title VII litigation, ordered that the contested fees be deposited with the clerk of the court pending resolution of this dispute. The matter was referred to a magistrate judge who conducted a hearing and recommended that the fees be awarded to Mr. Strauss. The district court did not accept the magistrate's recommendation and instead awarded the fees to Mr. Antoniono. This appeal followed. For the reasons set forth in this opinion, we affirm the judgment of the district court.

I BACKGROUND

A. Facts

This dispute arose out of a Title VII lawsuit brought by Colleen Baer against her employer. Ms. Baer originally was represented in her suit by a Chicago law firm, but she was not satisfied with the representation and sought the advice of another attorney. She contacted James Antoniono, an attorney practicing in Pennsylvania, with whom she and her sister had worked in prior, unrelated litigation. Mr. Antoniono's areas of practice are personal injury, real estate, wills and estates, and some criminal work. He did not have experience in Title VII litigation and thus offered to assist Ms. Baer in finding another attorney.

His search led to Mr. Strauss, a partner at the Chicago law firm of Davis, Miner, Barnhill & Galland ("Davis Miner"), who was experienced in litigating claims such as Ms. Baer's. After an initial meeting with Ms. Baer and Mr. Antoniono, Mr. Strauss agreed to handle Ms. Baer's case.

The three then negotiated a retainer agreement in early 1991. The agreement first set out a contingency fee arrangement between Ms. Baer and her attorneys. Second, the agreement permitted the attorneys to seek a statutory fee multiplier--an additional amount over and above their fees calculated on an hourly rate basis. Third, the agreement set out a "fee-sharing" arrangement between Mr. Strauss and Mr. Antoniono. Although it was understood that Mr. Strauss would do most of the work, Mr. Antoniono was to be compensated for his referral through the fee-sharing arrangement. The arrangement provided that Mr. Antoniono would receive 10% of the first $100,000 recovered in fees and 40% of any amount recovered in excess of $100,000. Pursuant to the Illinois Rules of Professional Conduct, the fee-sharing agreement was put in writing and Ms. Baer gave her written consent to its terms. The agreement was signed by Ms. Baer, Mr. Antoniono and Mr. Strauss in February 1991.

Ms. Baer's case settled in early 1994. During the course of the litigation and settlement, however, a dispute arose between Mr. Antoniono and Mr. Strauss concerning the fees to which each was entitled. The settlement agreement, negotiated by Mr. Strauss on behalf of Ms. Baer, recognized the dispute. Under its terms, the fees for each attorney were calculated by multiplying the number of hours worked by the hourly rate of each. ¹ Mr. Antoniono received the full calculated amount of his fees. Davis Miner received all but $50,000 of its calculated fees. In its order approving the settlement and dismissing the case with prejudice, the district court directed that this disputed amount, $50,000, be paid into an escrow account held by the clerk of the court. The amount was subsequently reduced to $42,341. The court then referred the matter to the magistrate judge for resolution.

The magistrate judge held an evidentiary hearing at which both Mr. Antoniono and Mr. Strauss testified and the contours of their dispute unfolded. Mr. Strauss testified that, as Ms. Baer's case progressed toward trial, he had become convinced that her claim was not worth as much as her original estimates.

In fact, he had concluded that she could not prevail on her original damage theory under Title VII. As a result, he came to believe the recovery would be far less than originally predicted; he also testified that he had thought there was a possibility that she might not recover anything at all.

In November 1992, Mr. Strauss, Mr. Antoniono and Ms. Baer met in Chicago to discuss the case. Mr. Strauss believed that Ms. Baer and Mr. Antoniono were being unrealistically optimistic about the possible recovery. Mr. Strauss accordingly told Mr. Antoniono that he did not think that their original fee-sharing agreement was fair, given the lessened prospect of recovery. At that point, testified Mr. Strauss, Mr. Antoniono stated that he did not think it appropriate to discuss fees, and both attorneys exchanged heated comments.

Mr. Strauss testified that he had explained to Mr. Antoniono that the original fee-sharing agreement was premised on the assumption of a high damage award. With a much lower recovery and the fee-sharing agreement, his firm faced the prospect of recovering far less than its usual hourly rate. ² Mr. Strauss testified that Mr. Antoniono agreed that, instead of the original fee-sharing agreement, each attorney would receive his hours times his hourly rate. Mr. Antoniono testified, however, that he never agreed to change the fee-sharing agreement; in fact, he stated that he made it "crystal clear" to Mr. Strauss that he would not change the terms of their original contract. Tr. at 76-77.

The magistrate judge concluded that the fee-sharing agreement, which the Illinois Rules of Professional Conduct required to be in writing, could be rescinded orally. The magistrate judge found that the parties had agreed orally to rescind the original fee-sharing arrangement and instead had agreed that each would receive compensation for the hours each worked. The magistrate judge therefore recommended that the escrow amount be awarded to Davis Miner.

The district court reviewed the magistrate's report and recommendation de novo, pursuant to Federal Rule of Civil Procedure 72(b). It also reviewed the transcript of the evidentiary hearing and Mr. Antoniono's objections to the magistrate judge's findings. It then determined that Illinois law permitted mutual rescission of a contract, but that the rescission had to be clearly evidenced by the party's conduct. Because it found that Mr. Antoniono did not expressly agree to rescind the written fee-sharing agreement and that his conduct did not clearly evidence his agreement to do so, it held that the fee-sharing agreement had not been rescinded. Finding that there was no clear evidence of rescission, the court awarded the disputed fees to Mr. Antoniono under the terms of the original fee-sharing agreement. The district court never addressed the issue of whether, under Illinois law, a modification or rescission of the fee-sharing agreement had to be in writing.

B. Contentions of the Parties

Davis Miner claims that the district court's decision should be reversed. First, it submits that the district court wrongly rejected the credibility findings of the magistrate judge; due process requires, it submits, that the district court rehear the testimony of the witnesses before it rejects the magistrate's credibility findings. Davis Miner also submits that Mr. Antoniono is bound by his oral promise to rescind the original fee-sharing agreement and to accept instead his usual hourly rate. The policy concerns that require that fee-sharing agreements be in writing are not present when a fee-sharing arrangement is terminated. Thus the oral rescission of the In response, Mr. Antoniono submits that the district court did not reject the credibility findings of the magistrate judge. Rather than choose to believe one witness and disbelieve the other, the district court instead accepted the undisputed evidence presented by both parties and concluded that, under the law of Illinois, there was no clear evidence of rescission. Mr. Antoniono also claims that any rescission or modification of the fee-sharing arrangement must have been in writing; an oral rescission or modification would not have been valid under Illinois law. Therefore, even if Davis Miner's characterization is correct and the parties agreed to rescind the original fee-sharing arrangement, the remaining agreement, which established the contingency fee arrangement, should still have been in writing.

agreement should be given effect and the fees awarded to Davis Miner.

II DISCUSSION

A. Jurisdiction

We turn first to the issue of jurisdiction. Although neither of the parties has contested the exercise of jurisdiction, "federal judges must respect the limits on their adjudicatory power even if all litigants are content with the decision." Myers v. County of Lake, Ind., 30 F.3d 847, 849 (7th Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 666, 130 L.Ed.2d 600 (1994).

The original parties to the underlying litigation are not involved in this dispute; First Options of Chicago and Continental Bank have settled Ms. Baer's claims against them. Remaining before this court are two of the attorneys in the underlying litigation; at issue is the proper distribution of fees for their representation of Ms. Baer. Under these circumstances, the district court's jurisdiction cannot be predicated on the presence of a federal question; the parties' claim is governed by Illinois law. See 28 U.S.C. Sec. 1331. Nor can the district court's jurisdiction be rooted in its diversity jurisdiction; although the...