Timothy Whelan Law Associates v. Kruppe

• Decision Date: 31 March 2011
• Docket Number: No. 2–09–1234.,2–09–1234.
• Citation: 947 N.E.2d 366,409 Ill.App.3d 359,349 Ill.Dec. 729
• Parties: TIMOTHY WHELAN LAW ASSOCIATES, LTD., Plaintiff and Counterdefendant–Appellee and Cross–Appellant,v.Frank KRUPPE, Jr., Defendant and Counterplaintiff–Appellant and Cross–Appellee.
• Court: United States Appellate Court of Illinois

409 Ill.App.3d 359
947 N.E.2d 366
349 Ill.Dec. 729

TIMOTHY WHELAN LAW ASSOCIATES, LTD., Plaintiff and Counterdefendant–Appellee and Cross–Appellant,
v.
Frank KRUPPE, Jr., Defendant and Counterplaintiff–Appellant and Cross–Appellee.

No. 2–09–1234.

Appellate Court of Illinois, Second District.

March 31, 2011.

[947 N.E.2d 369]

Ronald J. Broida, Joseph K. Nichele, Broida & Associates, Ltd., Naperville, for Frank Kruppe Jr.George A. Thomas, Teresa L. Einarson, Thomas & Einarson, Ltd., West Chicago, for Timothy Whelan Law Associates, Ltd.

[349 Ill.Dec. 732 , 409 Ill.App.3d 360] OPINION Justice HUDSON delivered the judgment of the court, with opinion.

Plaintiff, Timothy Whelan Law Associates, Ltd., filed a breach-of-contract action against defendant, Frank Kruppe, Jr., attempting to collect fees allegedly due for its representation of defendant. Following a jury trial, judgment was entered in favor of plaintiff for $30,339.14, and the trial court subsequently awarded plaintiff an additional $19,660.86, for a total award of $50,000. Defendant now appeals, raising a number of issues. First, defendant argues that a provision in the contract, which allowed plaintiff to collect attorney fees incurred in collecting earlier attorney fees, was against public policy. Second, defendant alleges error in the trial court's decision to dismiss his counterclaims for malpractice and breach of contract. Third, defendant complains of a number of evidentiary rulings by the trial court. Fourth, he contends that the jury's verdict is contrary to the manifest weight of the evidence. Plaintiff has also filed a cross-appeal, in which it asserts that the trial court erred in determining that its authority to [409 Ill.App.3d 361] enter an award in favor of plaintiff

[349 Ill.Dec. 733 , 947 N.E.2d 370]

was limited by supreme court and local rule to $50,000. For the reasons that follow, we reverse and remand for a new trial. A number of issues, though not dispositive of this appeal, are likely to recur following remand, so we will address them here.

Plaintiff's representation of defendant primarily concerned shareholder litigation stemming from defendant's involvement in two corporations, Shank Screw Products, Inc., and the Cyrus Shank Company. Defendant owned 22% of the corporations, his brother Robert also owned 22%, and 56% was held by a trust. Defendant and his brother became involved in a dispute over control of the corporations. Plaintiff represented defendant with respect to this dispute. On plaintiff's advice, another attorney, Bill Churney, was retained to assist plaintiff with certain aspects of the case. Defendant terminated plaintiff on December 21, 2006, informing him that Churney would be taking over the case. A dispute over attorney fees owed to plaintiff developed, and this action ensued. As the issues are largely discrete, we will discuss additional evidence as it pertains to them. We now turn to the merits of the parties' various contentions.

I. WHETHER THE PARTIES' FEE AGREEMENT WAS AGAINST PUBLIC POLICY

Defendant first contends that a provision in the fee agreement between him and plaintiff violated public policy. Specifically, defendant complains of the following provision: “In the even [ sic ] it becomes necessary to bring a collection proceeding against you for nonpayment of fees and costs, I may include reasonable attorney fees and cost [ sic ] in those proceedings.” In this case, the jury first awarded plaintiff $30,339.14, and the trial court then awarded plaintiff an additional $19,660.86 based upon this provision.

Whether a provision of a contract violates public policy is a question of law subject to de novo review. In re Marriage of Rife, 376 Ill.App.3d 1050, 1054, 316 Ill.Dec. 53, 878 N.E.2d 775 (2007). When the resolution of an issue turns upon public policy, it is not the role of a court to make policy; rather, the court must ascertain the public policy of this state with reference to the Illinois Constitution, statutes, and long-standing case law. In re Estate of Feinberg, 235 Ill.2d 256, 265, 335 Ill.Dec. 863, 919 N.E.2d 888 (2009). Defendant believes he has found such a manifestation of public policy in Lustig v. Horn, 315 Ill.App.3d 319, 247 Ill.Dec. 558, 732 N.E.2d 613 (2000).

In Lustig, as in this case, an attorney sued his former client to recover attorney fees from an earlier representation as well as the fees and costs of the collection proceeding. The retainer agreement between the parties included the following provision: “[I]n the event of default [409 Ill.App.3d 362] in payment Client will pay reasonable attorney's fees and costs incurred in collecting said amount which may be due.” (Emphasis and internal quotation marks omitted.) Lustig, 315 Ill.App.3d at 321, 247 Ill.Dec. 558, 732 N.E.2d 613. Defendant relies primarily on the following passage from Lustig, 315 Ill.App.3d at 327, 247 Ill.Dec. 558, 732 N.E.2d 613:

“An attorney should not place himself in the position where he may be required to choose between conflicting duties or where he must reconcile conflicting interests rather than protect fully the rights of his client. [Citations.] In the instant case, paragraph 3 of the retainer agreement anticipates suit against and recovery of additional fees from a client should that client fail to pay the bill within the time required.

[349 Ill.Dec. 734 , 947 N.E.2d 371]

As evidenced from Lustig's conduct, paragraph 3 gives rise to substantial fees for vigorous prosecution of the attorney's own client. As Horn aptly points out, this provision very well could be used to silence a client's complaint about fees, resulting from the client's fear of his attorney's retaliation for nonpayment of even unreasonable fees. Such a provision is not necessary to protect the attorney's interests; on the contrary, it merely serves to silence a client should that client protest the amount billed.”

As defendant further points out, the Lustig court also commented that “such a provision clearly is unfair and potentially violative of the Rules of Professional Conduct barring an attorney from representing a client if such representation may be limited by the attorney's own interest.” Lustig, 315 Ill.App.3d at 327, 247 Ill.Dec. 558, 732 N.E.2d 613. While this passage, read in isolation, would seem to stand for the proposition that an attorney may never collect fees or costs when prosecuting an action for earlier fees and costs arising out of the representation of a client, a full reading of Lustig reveals several significant and relevant differences between it and the present case.

Notably, by the time the client in Lustig signed the retainer agreement, an attorney-client relationship already existed between the parties. Lustig, 315 Ill.App.3d at 322, 247 Ill.Dec. 558, 732 N.E.2d 613. Under such circumstances, the potential for overreaching on the part of an attorney is much greater than before the relationship commences, when the client is free to simply walk away. See Lustig, 315 Ill.App.3d at 326, 247 Ill.Dec. 558, 732 N.E.2d 613. Because an attorney-client relationship is fiduciary ( Lustig, 315 Ill.App.3d at 325–26, 247 Ill.Dec. 558, 732 N.E.2d 613), the Lustig court emphasized that “[p]articular attention will be given to contracts made or changed after the relationship of attorney and client has been established” ( Lustig, 315 Ill.App.3d at 326, 247 Ill.Dec. 558, 732 N.E.2d 613). Indeed, “[a] presumption of undue influence arises when an attorney enters into a transaction with his client during the existence of the fiduciary relationship.” Lustig, 315 Ill.App.3d at 326, 247 Ill.Dec. 558, 732 N.E.2d 613. The burden is on the attorney to rebut this presumption by clear and convincing [409 Ill.App.3d 363] evidence. Lustig, 315 Ill.App.3d at 326, 247 Ill.Dec. 558, 732 N.E.2d 613 (citing Franciscan Sisters Health Care Corp. v. Dean, 95 Ill.2d 452, 464–65, 69 Ill.Dec. 960, 448 N.E.2d 872 (1983)). To rebut this presumption, the Lustig court continued, the attorney would have to show that “(1) he made a full and fair disclosure to [his client] of all the material facts affecting the transaction and (2) the transaction was fair.” Lustig, 315 Ill.App.3d at 327, 247 Ill.Dec. 558, 732 N.E.2d 613. Initially, the court noted that there was little evidence indicating that the attorney explained the implications of the provision at issue in that case to his client. Lustig, 315 Ill.App.3d at 327, 247 Ill.Dec. 558, 732 N.E.2d 613. Subsequently, the court held that the transaction could not be deemed fair, and, in support, it set forth the paragraph upon which defendant here relies (which we set forth above).

Thus, it is abundantly clear that the matter upon which defendant relies was part of the Lustig court's determination that the attorney failed to rebut the presumption of undue influence that arose because he represented the client when the agreement was consummated. That is not the case here. Defendant asserts that the Lustig court never expressly limited its holding to the facts of that case. While true, as we read Lustig, it is not possible to divorce the paragraph upon which defendant relies from the discussion of undue

[349 Ill.Dec. 735 , 947 N.E.2d 372]

influence. Thus, we reject defendant's characterization of and reliance upon Lustig as establishing a per se rule against a fee agreement containing a provision like the one at issue in the present case. We conclude that there is no such general proscription. Accordingly, at least to the extent that plaintiff is represented by outside counsel (see In re Marriage of Tantiwongse, 371 Ill.App.3d 1161, 1164–65, 309 Ill.Dec. 291, 863 N.E.2d 1188 (2007) (holding that attorneys do not incur fees when they represent themselves)), we perceive no per se public policy that would void the provision in the fee agreement regarding the recovery of fees.

II. WHETHER THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTERCLAIMS

Defendant next argues that the trial court should not have...