Episcope, Ltd. v. Law Offices of Campbell and Di Vincenzo

• Decision Date: 13 February 2007
• Docket Number: No. 1-05-2329.,1-05-2329.
• Citation: 869 N.E.2d 784,373 Ill. App.3d 384
• Parties: PAUL B. EPISCOPE, LTD., an Illinois Professional Corporation; Paul B. episcope, Individually; and John C. Erb, Individually, Plaintiffs-Appellants, v. LAW OFFICES OF CAMPBELL AND DI VINCENZO, a Partnership; Richard P. Campbell, Individually; and Anthony S. Di Vincenzo, Individually, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

869 N.E.2d 784

373 Ill. App.3d 384

PAUL B. EPISCOPE, LTD., an Illinois Professional Corporation; Paul B. episcope, Individually; and John C. Erb, Individually, Plaintiffs-Appellants, v. LAW OFFICES OF CAMPBELL AND DI VINCENZO, a Partnership; Richard P. Campbell, Individually; and Anthony S. Di Vincenzo, Individually, Defendants-Appellees.

No. 1-05-2329.

Appellate Court of Illinois, First District, First Division.

February 13, 2007.

Rehearing Denied May 18, 2007.

As Modified Upon Denial of Rehearing May 29, 2007.

Michael J. Polelle, (Michael J. Polelle, of counsel), John N. Hourihane (John N. Hourihane, of counsel), Chicago, for Appellants.

Freeman, Freeman & Salzman, P.C., Chicago, (Lee A. Freeman, Jr., of counsel), for Appellee.

MODIFIED OPINION UPON DENIAL OF PETITION FOR REHEARING

Justice ROBERT E. GORDON delivered the opinion of the court:

The plaintiffs, attorneys Paul Episcope and John Erb and the Episcope law firm, sued defendant attorneys to recover fees under a fee-splitting agreement. Plaintiffs allege in their complaint that their representation agreement (agreement) with defendants, Anthony Di Vincenzo and Richard Campbell and their law partnership, and the parties' mutual client, Havoco of America, Ltd. (client), applies to more than one case. The lawyers agreed in writing to represent the client jointly and split fees orally in the client's federal lawsuit for fraud and conspiracy against Elmer Hill, Hill's company, Hilco, Inc. (Hilco), and Sumitomo Shoji American, Inc. (Sumitomo), and for breach of contract against Sumitomo. The damages claimed were the loss of a multimillion dollar contract. The parties had substituted for the original attorneys who had filed the action but the defendants actually handled the case.

After a judgment of $15 million against Hill was upheld on appeal, defendants filed a separate lawsuit on behalf of the same client against the original attorneys for legal malpractice. Plaintiffs were not a party to the new representation agreement with the client as to the legal malpractice suit, which was settled for $8 million prior to trial. Plaintiffs claim that the original representation contract to represent the client (and split fees) extends to the legal malpractice action.

In defendants' first motion for summary judgment, defendants argued that the legal malpractice case was separate from the parties' fee agreement in the first case. That motion was denied. In a second motion for summary judgment, defendants contended that any representation agreement concerning the legal malpractice case is void and unenforceable under the fee sharing requirements in Rules 1.5(f)(2) and (3) of the Illinois Code of Professional Conduct. 134 Ill.2d Rs. 1.5(f)(2), (f)(3). The trial court granted this motion. Plaintiffs appeal from the court's granting of summary judgment. For the reasons set forth below, we affirm.

BACKGROUND

In June 1988, Barry Vandermeulen, the chairman of the board of Havoco, had concerns about his company's lawsuit for fraud, conspiracy and breach of contract and contacted his friend, plaintiff Episcope, for consultation. His original attorneys, Freeman, Alkins and Coleman (Freeman Firm), had filed the federal action in 1981 and had withdrawn from the case. Vandermeulen wanted plaintiffs Episcope and Erb to take the case over. Instead, Episcope recommended defendants Campbell and Di Vincenzo, who took over the case, and plaintiffs Episcope and Erb also filed their appearance at the direction of the client, but the legal work was performed only by Campbell and Di Vincenzo.

The parties and the client, by Vandermeulen, signed a joint representation agreement on July 5, 1988. The document was titled "Representation Agreement." In the agreement it states: "Paul B. Episcope, Ltd., and Campbell & Di Vincenzo agree to represent Havoco," and Havoco "agrees to retain" these same lawyers, "this being the complete agreement among them."

The representation agreement states nothing about how legal fees or the responsibilities for the performance of the legal services were divided between the lawyers. It provides that, "In the event a monetary recovery is obtained by way of judgment, settlement or otherwise, Paul B. Episcope, Ltd., and Campbell & Di Vincenzo shall receive 33-1/3% of the Net Recovery as a contingent fee. Net recovery is the total recovery, including any award of attorney's fees or expenses, less all expenses and disbursements that you [Havoco] have paid."

The caption of the agreement (at the left margin directly underneath the title) lists the "Client" and, under that, the "Matter." The "Client" is "Havoco of America, Ltd., a Delaware Corporation." The "Matter" is Havoco's federal case against Hill and Hilco: "Havoco of America, Ltd. a Delaware corporation v. Elmer C. Hill, Hilco, Inc., a Tennessee Corporation," and Sumitomo. After this follows the case number of the pending federal action, "Civil Action No. 81 C 419."

Defendants tried the case with a jury. In early 1989, before trial, the federal district court judge dismissed all of Havoco's tort claims against Sumitomo as barred by the statute of limitations and only the contract claim remained. The Freeman Firm had added Sumitomo as a party defendant in November 1981, which was barred by the statute of limitations. At trial, Hilco was granted a directed verdict in its favor, and the jury found in favor of Sumitomo on the contract claim. The jury did render a verdict for $15 million on the remaining tort claim against Hill personally.

Hill filed for bankruptcy prior to the 7th Circuit affirming the judgment. The client was only able to collect $219,000 on the judgment. Defendants received a third of that amount for fees and paid Episcope a third of what they received under an oral understanding concerning their fee splitting agreement.

Vandermeulen desired to file a legal malpractice action against the Freeman Firm for its failure to add Sumitomo as a party defendant within the statute of limitations. Initially he asked the parties to do so, but both defendants and plaintiffs declined. Plaintiffs claim they urged defendants to take the case and delivered them research on the issues. Plaintiffs were unable to show anything more that would indicate that they were representing the interests of the client.

However, defendants did later accept the legal malpractice case. Plaintiffs claim they were "unaware" of the representation agreement in the legal malpractice case signed on February 2, 1993, and the fact that they were not included. Additionally, plaintiffs were unaware of a settlement proposal on September 8, 1993, and of the legal malpractice suit that was filed on November 10, 1993. On June 4, 1997, Erb telephoned Di Vincenzo to obtain an "update" and was told that the case was settled for $8 million in 1996. Di Vincenzo refused to discuss fee sharing.

Plaintiffs then brought this action, alleging breach of a fiduciary duty and seeking a third of the fees received from the settlement. Their claim relies on the initial representation agreement. They claim it reflects the parties' joint undertaking of representation and fee sharing, consistent with an oral agreement. They claim that the legal malpractice case is part of the same representation as that contained in the original representation agreement, only directed against a different defendant and as a result the defendants have a duty to share the fees.

Defendants in their motion for summary judgment argue the representation agreement of February 2, 1993, must be construed as a separate action. They further claim contracts, especially integrated contracts, are confined to their specific terms and point out that the initial agreement was specifically limited to the parties' representation of the client in Havoco v. Elmer Hill, Hilco, Inc., and Sumitomo, 81 C 419.

The plaintiffs advocate an expansive construction. They claim that the legal malpractice litigation was part of the "legal dispute as a whole." As Episcope characterized it, the suit was just another way to collect the judgment in the underlying case. Plaintiffs argue the parties' oral understanding reflected this broader interpretation. The trial court denied the first motion for summary judgment without written comment.

Defendants then brought their second motion for summary judgment relying on Rule 1.5(f) of the Illinois Rules of Professional Conduct (134 Ill.2d R. 1.5(f)). In that motion they attacked the very validity of the written agreement of July 5, 1988. Rule 1.5(f) requires a lawyer dividing a fee with another lawyer from a different firm to have the client's signed, written consent to the other lawyer's employment. Defendants emphasized that under Rule 1.5(f)(2) the writing must disclose the basis for the division of fees, including the economic benefit to the other lawyer as a result of the division. Defendants also cited Rule 1.5(f)(3) that the writing must disclose the responsibility to be assumed by the attorney for the performance of the legal services.

Plaintiffs responded that the signed writing is sufficient to prove their case, even under Rule 1.5(f), if supplemented with the oral agreement providing them with a third of the fees. They argue, alternatively, that the representation agreement could be read (excising the oral agreement) with implied joint ventures principles of equal profits, providing them a 50/50 split of fees. Thirdly, they advanced the claim there was a breach of duty in defendants' failure to include the prior oral understanding in the written agreement. Plaintiffs' counsel argues that the oral provision for the fees "should have been included by Mr. Di Vincenzo in the written agreement." Those arguments are contained in an affidavit in response to the second motion for summary judgment. In that affidavit plaintiffs aver that plaintiffs "inadvertently overlooked the fact that a specific division of fees between the lawyers was not...