Conney v. Quarles & Brady, LLP, 1-15-0505

• Court: Appellate Court of Illinois
• Writing for the Court: PRESIDING JUSTICE McBRIDE delivered the judgment of the court.
• Citation: Conney v. Quarles & Brady, LLP, 2016 IL App (1st) 150505-U, No. 1-15-0505 (Ill. App. Jun 30, 2016)
• Decision Date: 30 June 2016
• Docket Number: No. 1-15-0505,1-15-0505
• Parties: DAVID CONNEY, M.D., Petitioner-Appellee, v. QUARLES & BRADY, LLP, Respondent-Appellee.

2016 IL App (1st) 150505-U

DAVID CONNEY, M.D., Petitioner-Appellee, v. QUARLES & BRADY, LLP, Respondent-Appellee.

No. 1-15-0505

APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT FOURTH DIVISION

June 30, 2016

NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Cook County

13-CH-28184

Honorable Kathleen G. Kennedy, Judge Presiding

PRESIDING JUSTICE McBRIDE delivered the judgment of the court.

Justices Howse and Cobbs concurred in the judgment.

ORDER

¶ 1 Held: Where attorney and client agreed to arbitrate their fee dispute and that client had unlimited right to chose arbitrator, including certain individuals, and client then chose one of those individuals, federal act allowing vacatur of arbitration award on grounds of arbitrator partiality was not grounds for overturning award, and where arbitrator considered facts of alleged attorney malpractice but did not decide pending legal malpractice claim, federal act regarding scope of arbitrator's powers was not implicated.

¶ 2 David Conney, a former client of the Milwaukee, Wisconsin law offices of Quarles & Brady, LLP (Quarles), brought this action to confirm an arbitrator's decision that it was unreasonable of the firm to charge $1.1 million for representation in a suit to recover Conney's investment losses from The Northern Trust Company of Chicago (Northern Trust). In the confirmation action, Conney overcame the law firm's arguments that the award should be vacated pursuant to sections 10(a)(2) and 10(a)(4) of the Federal Arbitration Act because the arbitrator was partial to Conney and exceeded the scope of his powers. 9 USC § 10(a)(2), (a)(4) (2012) (FAA). The firm appeals.

¶ 3 In a motion ordered taken with the case, Conney contends a quote on page 6 of Quarles' reply brief should be stricken because it misstates the arbitrator's award. By contrasting Quarles' brief with the record of the award, Conney demonstrates that the six-word clause he finds objectionable was merely Quarles' summary of a very long and irrelevant portion of the arbitrator's decision. Furthermore, Quarles tells us that it made a typographical error in its placement of the concluding quotation mark, that the quotation mark belongs just before the clause, and that the firm's punctuation error does not affect its overall argument. We do not agree with Conney's contention that this is a "significant issue." Now that he has brought the error to our attention, we are capable of reading the reply brief as if it were correctly punctuated. We deny Conney's motion and proceed with the appeal.

¶ 4 Quarles represented Conney between 2003 and 2006 in two separate actions to terminate his trust relationship with Northern Trust and to recover $2.6 million in investment losses. The first action proceeded uneventfully and Conney made no issue of paying the firm's hourly fees totaling $87,622 for its prefiling assessment and for other work related to terminating the company's control over Conney's trust. However, as hourly fees added up during the second case, Conney questioned the adequacy of the law firm's pre-retention research and disclosures and its task management. For instance, in a letter written in July 2004 to Quarles attorney Michael H. Schaalman, Conney expressed displeasure with the lawyer's new estimate that instead of totaling $300,000 to $400,000 through trial, the firm's "legal fees could reach $1 million." Conney wrote that if he had been given this higher figure when he was evaluating the possibility of suing Northern Trust, he would not have hired Quarles and obligated himself to spend so much money on a suit in which the best possible outcome, if he prevailed, was an award of only $1.5 million. Just a year after hiring Quarles, Conney said "I feel blindsided and [I] have serious reservations about continuing with you."

¶ 5 In September 2005, when Conney's fee payments to Quarles totaled $531,909, and expenses were $47,672, Conney wrote two letters to Schaalman complaining about the ever increasing litigation budget. In the first letter, Conney complained that when Schaalman revised the budget in July 2005, Schaalman said, "I expect to stay within that budget," but was now estimating that Conney would be charged an additional $300,000 through trial and $100,000 more if there was an appeal. Conney emphasized, "From my perspective, this is an unsound business proposition." In the second letter that September, Conney compared specific estimated figures with actual billed amounts and questioned whether Schaalman was placing any restraint on his associates' billing entries. For instance, the firm's estimate for one task had been $25,000, but the invoiced amount was $93,664, and one attorney alone, Paul D. Bauer, was responsible for $68,730 of that total. Conney also complained that he was being informed only after the work had been done that the fees exceeded the budget. Conney said that when the fees exceeded the budget, they also exceeded his estimated net recovery; that the suit was apparently "an unwise business proposition;" and that he "fe[lt] trapped." Conney proposed that the firm cap its fees with the receipt of his September 2005 payment, negotiate an additional payment contingent on any recovery, and finalize this arrangement "quite soon."

¶ 6 In December 2005, Conney sent a similar letter in which he complained that the firm had no apparent incentive to keep within its budget and his expected net recovery figure. He again asked that the parties reach a fee cap and contingent fee agreement in order to "align [their] financial interests and strengthen [their] working relationship." Conney said that "if we continue on an hourly fee basis, I will likely recover little, or perhaps nothing, even if I prevail at trial" and that he was "[losing] enthusiasm for even going to trial." He proposed a contingent fee structure which capped his payments at $458,772 and expenses, and compensated the firm further only if it recovered more than $500,000 from Northern Trust. Conney proposed that Quarles receive an increasing contingent fee of at least 5% of any amount over $500,000, to as much as 20%, depending on the amount recovered. Conney also asked Schaalman to follow through on the attorney's assurance in September 2005 that "within days" Schaalman would finalize a written contingent fee proposal. Conney also said that he had retained a Wisconsin attorney to help resolve their fee problem and he asked Schaalman to communicate with that lawyer.

¶ 7 The parties negotiated for the next few months, during which Conney stopped making monthly payments and Quarles threatened to seek the court's leave to withdraw from the case. Conney responded that Quarles' withdrawal would prejudice him before Northern Trust and that bringing a new law firm "up to speed" on the case would only further increase his fees.

¶ 8 The negotiations led Schaalman to propose on March 21, 2006, that either (1) Conney agree to a $750,000 fee cap with a 25% contingency for the firm if a judgment against Northern Trust exceeded $750,000, or (2) that the parties "promptly proceed to binding arbitration to resolve this fee dispute." Schaalman also wrote, "We would be willing to give Dr. Conney the choice of an arbitrator including even the lawyers he has hired to assist us in prosecuting these claims, George Heisler, Michael Conway, and [Hanson] Reynolds, any one or them or all three. *** The decision of the arbitrator(s) would be final and non-appealable." Schaalman concluded, "[t]hese are the only two proposals we will now consider in maintaining the engagement for Dr. Conney." Conney chose arbitration. After some minor revision negotiated by phone, Conney and Quarles entered into a contract on April 6, 2006, which stated:

"Dr. David Conney and Quarles & Brady have agreed to binding arbitration with respect to any fee dispute arising out of Dr. Conney's lawsuit against The Northern Trust Company. That arbitration agreement is as follows: The parties agree to defer resolution of their fee dispute, if any, until after the Northern Trust litigation is settled or judgment is entered in the trial court. Dr. Conney has the right to choose the arbitrator(s), including without limitation, the lawyers who are fact or expert witnesses in the case, namely George Heisler, Michael Conway, and Hanson Reynolds, any one or combination of them. The decision of the arbitrator(s) is final and nonappealable.

As consideration for this arbitration agreement and subject to his right to arbitrate all past, current, and future legal fees, Dr. Conney agrees to pay [within 10 days] all outstanding fees and disbursements and that the fee arrangement remains as an hourly retention on a going-forward basis."

¶ 9 Schaalman executed the contract on Quarles' behalf. After signing the contract, Conney paid the $184,000 fees that were outstanding.

¶ 10 Conney's suit against Northern Trust was ultimately a failure. All but one of his claims were dismissed or resolved through summary judgment, and the one claim that was tried, a misrepresentation claim, was rejected by a jury. With new counsel, Conney filed an appeal in 2008, but then reached a settlement with Northern Trust.

¶ 11 In 2010 Conney filed suit against Quarles and attorneys Schaalman and Bauer in federal court in Milwaukee and then moved to stay the proceedings and compel arbitration. Conney alleged in his federal action that Quarles committed "professional negligence" and charged excessive fees when it (a) failed to timely plead a negligence count, which was subject to a much longer statute of limitations than the intentional tort (breach of fiduciary duty) count that Quarles pled, (b) charged fees for defending the timeliness of the tort claim and for seeking leave to amend with a negligence claim, which was a request that was denied as untimely, and (c) recommending...