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Fiorito v. Jones





Appeal from the Circuit Court of Cook County, the Hon. F. Emmett Morrissey, Judge, presiding.


The defendant, Theodore Jones, Director of Revenue for the State of Illinois (State), appeals from the orders of the circuit court of Cook County which awarded final attorney and trustee fees in this, a taxpayer class action suit. The case has pended in the circuit court for more than 10 years and has been appealed on three previous occasions. The instant appeal was transferred to this court pursuant to Supreme Court Rule 302(b) (58 Ill.2d R. 302(b)).

On July 25, 1967, plaintiff, Phyllis Fiorito, by her attorneys, David P. Schippers and Samuel J. Betar, instituted suit on behalf of herself and all others engaged in the business of graphic arts, challenging the constitutionality of the 1967 amendments to the Service Use Tax Act and the Service Occupation Tax Act (Ill. Rev. Stat. 1967, ch. 120, pars. 439.32, 439.33, 439.102, 439.103). The complaint sought an injunction against the Director of Revenue enjoining the collection of taxes thereunder.

The 1967 amendments increased the service occupation and use tax rates, but narrowed the class of individuals subject to the tax. The amendments imposed taxes on the gross receipts of only four groups of business entities, i.e., businesses which (1) sold specially made tools or equipment; (2) provided graphic art and related services; (3) repaired, renovated and reconditioned tangible personal property; or (4) sold prescription drugs or medicines. On July 27, 1967, a temporary injunction was issued ordering the State to impound all taxes collected pursuant to the amendments and to hold such taxes in a separate fund pending final disposition of the case.

Shortly thereafter, S. Hersenson and Carol Grier, by their respective attorneys, Louis W. Schlifkin and Edward A. Berman, intervened in the suit, individually and as representatives of all buyers who purchased goods and services from servicemen enumerated in the acts. They alleged that their class was a proper and necessary party to the action inasmuch as members of their class actually bore the burden of the challenged taxes.

On November 15, 1967, Robert H. Kochman and Tool Equipment Research N Design, Inc., by their attorneys, James C. Renzino and Samuel H. Solomon, intervened. Kochman represented the class of businesses which repaired tangible personal property, and Tool Research represented the class of businesses which sold specially made tools and equipment. These parties took the position that each of the four classes taxed under the amended acts had to be represented in the class action.

The final party granted leave to intervene was R. Bertram Cooke. Cooke, through his attorney, Stanley W. Cooke of the law firm of Payne & Cooke, represented those who purchased from servicemen and who, in addition to having paid the State tax, had paid a corresponding tax under the municipal and county service occupation tax acts (Ill. Rev. Stat. 1967, ch. 24, par. 8-11-5, and ch. 34, par. 409.2). The latter two acts had not been challenged by the original complaint, although the taxes collected pursuant thereto were being held in the protest fund.

On December 6, 1967, the trial court's final decree ruled the 1967 amendments invalid and a permanent injunction was entered enjoining the defendant from collecting the taxes thereunder. On appeal, three associations of tool and die makers (associations), represented by the law firm of DeFrees and Fiske, were granted leave to appear and file a brief as amici curiae. (The associations were also permitted to file an amici curiae brief in a later appeal.) On March 28, 1968, this court affirmed the trial court's judgment and ordered refunds to all class members who actually bore the burden of the tax.

On January 30, 1969, the American National Bank and Trust Company of Chicago (trustee) was appointed to act as the fiduciary and depository of the protest fund and to assist in the administration of the refund program, subject to the trial court's orders. The trustee received from the Treasurer of the State of Illinois approximately $34 million. Two million dollars of that amount was the statutory interest accrued to the date of payment, and another $10 million represented the tax due the State under the pre-1967 tax acts. Attorneys Cornelius J. Harrington and John P. Sullivan (trustee's attorneys) were thereafter appointed to serve as legal counsel to the trustee.

Excluding the report of proceedings, papers concerning the verification and payment of claims constitute approximately two-thirds of the 3,664-page common law record of this case. The trustee processed nearly 46,000 claims involving more than 400,000 transactions. Through its attorneys, the trustee filed 418 petitions seeking instructions from the court as to the payment or denial of claims. Many of the claims were disallowed, and some were contested, thereby necessitating further hearings. At a minimum, more than 80 separate court hearings were conducted.

Approximately $7 million was refunded to the class members. All valid claims submitted were paid in full along with statutory interest accrued to the date of payment. By virtue of the trustee's prudent investment and management skills, and despite the payment of $26 million to the State during the interim, the protest fund earned over $10 million, thereby bringing the total fund to more than $44.5 million.

At various times following this court's decision in Fiorito v. Jones (1968), 39 Ill.2d 531, plaintiffs' attorneys filed petitions seeking interim fees. These petitions outlined the history of the case to date, described the attorneys' roles, and discussed the significance of their participation in the prosecution of the matter.

The attorneys for amici curiae also filed a petition in the trial court, said petition entitled "suggestions of Amici Curiae concerning their contribution to the resolution of the issues in this case." The petition alleged that, at the time amici were allowed to file their original brief, they informed this court that they would not petition the trial court for fees in the event of a favorable decision but would accept any compensation the trial court saw fit to award them for their contribution. The amici attorneys, therefore, outlined for the trial court the significance of their participation.

The trustee and its attorneys filed their first petition for fees in December of 1971. This petition set forth the accomplishments of the trustee and its attorneys and the total number of hours expended by the trustee's attorneys. The petition requested an interim trustee fee for services performed to date and a reasonable fee for the trustee's attorneys.

Following a December 22, 1971, hearing, the trial court entered its first order awarding interim fees to the plaintiffs' attorneys, the trustee and its attorneys, and the attorneys for amici curiae.

At this hearing, attorneys for amici curiae indicated to the court that they had received a retainer fee of $5,000 from their clients. The trial court awarded the amici attorneys an interim fee of $60,000, less the amount they had received from their clients. None of the parties objected.

A second interim fee award was made to the trustee on December 22, 1972. On June 21, 1974, interim fees were again awarded to all parties, including amici curiae. The final interim fee award was made on December 12, 1975, at which time no additional fees were awarded to the attorneys for amici curiae. At no time did the State object to the amount of the interim fees awarded.

On December 29, 1975, amici curiae filed a petition requesting additional interim fees. The State filed an answer opposing the petition and argued, among other things, that the request for additional fees was excessive, that the attorneys had been adequately paid by both their clients and the court, and that the attorneys had filed no appearance in the case and represented no named party in the case. The attorneys for amici filed a reply to the State's answer and also amended their petition by setting forth the approximate number of hours expended on the case. The trial court did not award further interim fees to the amici.

The total amount of interim fees awarded were as follows: Schippers and Betar, $1,025,000; Schlifkin and Berman, $1,025,000; Payne and Cooke, $290,000; Renzino and Solomon, $225,000; trustee, $975,000; trustee's attorneys, $760,000; DeFrees and Fiske (amici curiae), $75,000.

During November of 1976, the trial court conducted a series of hearings on the parties' petitions for final fees. In their joint petition, which was later introduced into evidence, Schippers and Betar and Schlifkin and Berman summarized the history of the case, the complexities and difficulties encountered, and the benefits bestowed upon the class members. The petition also set forth and discussed a number of factors to be considered by the court in making its award. The other two groups of attorneys also filed petitions.

The trustee and its attorneys also petitioned for final fees. Their petitions recapitulated the problems of administering the fund and in refunding the claims. The trustee's attorneys estimated that they had expended 9,865 hours in their representation of the trustee. The trustee requested $500,000 as a final fee, and its attorneys requested a reasonable final fee plus costs.

The State filed an answer opposing the further award of attorneys' fees, but did not specifically object to the payment of further fees to the trustee. The State's answer asserted that the additional requests by the attorneys were excessive, extravagant, and not justified by the circumstances of the case. The State argued that the attorneys had ...

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