APPEAL from the Circuit Court of Cook County; the Hon. JOSEPH
WOSIK, Judge, presiding.
MR. JUSTICE LORENZ DELIVERED THE OPINION OF THE COURT:
This appeal arises from an action brought by plaintiff Corti, an attorney, against defendants Karlin and Fleisher (K & F), his ex-employer law firm, and Richard S. Fleisher (Fleisher), the managing partner of the firm, based upon a written employment agreement existing between them. His three-count complaint sought the following: (1) a physical transfer of certain personal injury files referred indirectly by him to defendants along with an account of all fees generated with respect to those files subsequent to the termination of his employment; (2) a constructive trust for plaintiff's benefit on any future fees flowing from those files; and (3) an order appointing an auditor to ascertain the net profits of defendants in order to verify plaintiff's share of profits earned prior to his termination. Defendants filed a motion to dismiss alleging that the contract sued upon was "against public policy, null, void and unenforceable." On January 11, 1979, the trial court dismissed plaintiff's complaint with prejudice for its failure to state a cause of action. From this order, plaintiff now appeals.
He raises the following issues for review: (1) whether the provisions of the employment agreement upon which plaintiff's complaint were premised were void as contrary to public policy; and (2) whether the trial court erred in denying plaintiff's motion to strike defendants' motion to dismiss the complaint.
Count I of the complaint, in the nature of a declaratory judgment and accounting, stated that plaintiff was formerly employed by K & F, a partnership engaged in the practice of law. Fleisher was in control of the daily operations of K & F. Plaintiff began his employment with K & F in 1968 as a law clerk while he attended law school and continued to 1971 when he was hired, upon his graduation, as an attorney. Pursuant to an oral employment agreement extending between 1971 and June of 1976, plaintiff was to receive a weekly salary and a percentage of fees generated by cases he referred directly or indirectly (through reference lawyers secured by him) to K & F.
On December 21, 1977, a written employment agreement, retroactive to June 1, 1976, was entered into between plaintiff and defendants, which provided, in pertinent part, as follows: that the agreement was terminable at will upon written notice; that plaintiff was entitled to the greater of a yearly salary of $50,000 in 1976 and $55,000 in 1977 and years thereafter, or 20% of the firm's net profits; that upon termination of the employment agreement, all files that were directly or indirectly referred to the firm by plaintiff were to become the sole and absolute property of plaintiff and that any future fees derived therefrom were to be remitted to plaintiff.
In July of 1976, plaintiff became acquainted with a neighbor named Jason Mitan, an attorney. Due to the "business promotional campaign" of plaintiff, Mitan referred approximately 100 personal injury cases to K & F from July of 1976 to April of 1978.
The employment agreement between plaintiff and defendant was terminated on April 29, 1978.
On about May 9, 1978, Fleisher informed plaintiff that Mitan had issued written directions to Fleisher to maintain personal custody and control of any files referred by Mitan. Accordingly, defendant deemed the employment agreement with plaintiff as it related to those files to be "of no consequence and not operative," and refused to transfer the files to plaintiff or share in any fees resulting therefrom.
Count I concluded by praying for a declaration of the following: that Mitan was a reference lawyer secured by plaintiff; that cases retained by K & F which were referred to them by Mitan during the time of plaintiff's employment were "Corti files"; that Mitan had no standing to interfere with the contract rights of plaintiff and/or that Mitan is estopped from such interference; that K & F shall deliver all "Corti files" to plaintiff; and that any fees generated and received by K & F from those files shall be paid to plaintiff. Plaintiff also prayed for an accounting to be made as to the receipts and disbursements with respect to "Corti files" retained by K & F after plaintiff's termination of employment.
Count II sought the imposition of a constructive trust on funds deriving from the files in question. This was based upon defendants' abuse of the confidential relationship between them and plaintiff in unjustly retaining the "Corti files" "entrusted" to K & F under the employment agreement, and refusing to compensate plaintiff for the "wrongful, unfair and inequitable misappropriation of his files." Count II concluded by praying that the "Corti files" be held in trust by defendants for plaintiff's benefit and that defendants pay plaintiff fees derived from those files.
Count III, entitled "declaratory judgment and accounting," alleged that on June 6, 1978, plaintiff received from defendants, pursuant to the agreement between the parties, the accounting of the net profits of K & F during the period of January 1, 1978, through April 30, 1978. The employment contract additionally provided that an accounting was to be made within 30 days after the termination of plaintiff's employment. If a difference of opinion arose, an independent certified public accountant, acceptable to both parties, would make a determination of the net profits which would be conclusive on both parties.
On August 14, 1978, plaintiff informed defendant that he found their accounting unacceptable and requested his right to an audit. Plaintiff offered the names of three certified public accountants to K & F for their approval.
K & F rejected these names and submitted the names of three certified public accounting firms. These choices were "unacceptable to Corti because of his understanding that he had the right to choose the Certified Public Accountant subject to Karlin and Fleisher's reasonable review of his selection." In conclusion, plaintiff prayed for a declaration of the following: that he had the right pursuant to the employment agreement to choose the certified public accountant to conduct the audit of defendants subject to the latters' reasonable review of his selection; that defendants unreasonably rejected plaintiff's choice; and that the court select one of plaintiff's accountants or another accountant.
Plaintiff contends that the employment agreement existing between him and defendants was legally and ethically proper, and that the complaint upon which it was based was therefore improperly dismissed.
Count I of plaintiff's complaint specifically sought to enforce paragraph 15 of the employment agreement which provided:
"In the event this Agreement is terminated * * * all open files which are at such time the property of Employer [K & F], shall remain its sole and absolute property. However, at said time, all open files referred to Employer by Corti, or reference lawyers secured by Corti (referred to herein as `Corti files') shall become the sole and absolute property of Corti. It is the intent of the parties hereto that the owner of each file * * * shall be entitled to all fees received subsequent to the date of termination of this agreement. * * * Upon payment by Corti of such costs, expenses and advances relating to Corti files, employee shall then deliver all Corti files to Corti * * *."
Our determination of the propriety of this contractual provision compels us to decide two separate questions: (1) can an attorney lawfully enter in an agreement with his employer-law firm which provides that upon termination of employment, the attorney shall receive files of clients that he "indirectly" referred to the firm without the client's consent, and (2) can the attorney pursuant to that agreement claim all fees generated from those files in the absence of performing legal services or assuming responsibility for handling those matters? Resolution of these questions requires an application of case law and ethical provisions dealing with the attorney-client relationship to the allegations of the complaint and the agreement at issue.
• 1 With regard to the first question, it must initially be noted that plaintiff's complaint does not allege that an attorney-client relationship existed between plaintiff and the clients whose files he sought, or that those clients consented to plaintiff's "ownership" of their files. In essence, then, the plaintiff's and defendants' agreement provided for the transfer of files from defendants to plaintiff upon the latter's termination of employment without the permission of the clients. We find the agreement to be void and contrary to public policy in that it deprived the clients of their right to be represented by counsel of their own choice.
• 2, 3 The relationship of attorney and client is a contractual one. (Zych v. Jones (1980), 84 Ill. App.3d 647, 406 N.E.2d 70.) It is only created by a retainer or an offer to retain or a fee paid. (De Wolf v. Strader (1861), 26 Ill. 225.) It cannot be created by the attorney alone or by an attorney and a third party who has no authority to act. (Greer v. Ludwick (1968), 100 Ill. App.2d 27, 241 N.E.2d 4.) According to the allegations of the instant complaint, the clients referred to as the "Corti files" shared the attorney-client relationship only with Mitan, the referring attorney and K & F, plaintiff's employer. While Mitan referred these clients to K & F as a result of plaintiff's "business promotional campaign," the complaint is devoid of any averment that plaintiff had any contact with those clients or had any agreement to represent them or that they had consented to representation by him. Plaintiff's argument that he was "cloaked with the shawl of the attorney-client relationship" by virtue of his employment with defendants is without merit. It is fundamental that the employment of one member of a law firm is the employment of all whether all are specially consulted or not, except where there is a special understanding to the contrary. (Smith v. Brittenham (1884), 109 Ill. 540.) This principle, however, typically finds its application in situations concerning the authority of a member of a law firm to represent a client or to contract with the client on the firm's behalf. (See 7A C.J.S. Attorney & Client § 169.) Plaintiff cites no cases where the concept has been extended to circumstances such as these, where an employee of a firm, instead of asserting his authority to act for the clients as a representative of the firm, attempts to create an attorney-client relationship between the clients and him alone, and to depart from the firm with the clients' files without their consent to the newly created relationship. We believe that no such authority exists.
It is a basic tenet of law that a fiduciary relationship exists between an attorney and his client (Turner v. Black (1960), 19 Ill.2d 296, 166 N.E.2d 588), and all transactions growing out of such a relationship are subject to the closest scrutiny. (Gaffney v. Harmon (1950), 405 Ill. 273, 90 N.E.2d 785; Hamilton v. Grady (1942), 314 Ill. App. 568, 41 N.E.2d 968 (abstract).) The courts> of Illinois have given particular attention to contracts made or changed after the relationship of attorney and client has been established; it is generally held that such contracts are presumptively fraudulent. (Miller v. Solomon (1964), 49 Ill. App.2d 156, 199 N.E.2d 660; Jordan v. The Ray Schools-Chicago, Inc. (1964), 49 Ill. App.2d 1, 199 N.E.2d 827.) The burden of proof is upon the attorney to show the fairness of the agreement, the utmost good faith, complete disclosure on his part and a full understanding of all the facts and legal consequences on the part of the client. Rose v. Frailey (1957), 10 Ill.2d 514, 140 N.E.2d 711; Bounougias v. Peters (1964), 49 Ill. App.2d 138, 198 N.E.2d 142; Goranson v. Solomonson (1940), 304 Ill. App. 80, 25 N.E.2d 930.
Having failed to allege that the clients were aware of and consented to the agreement awarding their files to plaintiff, or that an attorney-client relationship ever existed between them, plaintiff cannot now stake claim to them as a merchant might regard goods or chattels.
Although Illinois courts> have not been confronted with a problem of this precise nature, those of other jurisdictions have commented on the unique relationship existing between the attorney and client and the attendant responsibilities ...