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CHILDS v. NATIONAL BANK OF AUSTIN

United States District Court, Northern District of Illinois, E.D


November 22, 1983

DORIS FULLER CHILDS, ELEANOR FULLER PARSON, NATALIE STOCKING, PRISCILLA PARSON AND KATHERINE MARRS, BENEFICIARIES OF THE JUDSON M. FULLER TRUST, PLAINTIFFS,
v.
NATIONAL BANK OF AUSTIN, AN ILLINOIS CORPORATION AND TRUSTEE OF THE JUDSON M. FULLER TRUST; CAREY, FILTER & WHITE, A PARTNERSHIP; ROBERT F. CAREY, AN INDIVIDUAL PARTNER; THOMAS F. CAREY, AN INDIVIDUAL PARTNER; EDWARD M. WHITE, AN INDIVIDUAL PARTNER; EDMUND P. BOLAND, AN INDIVIDUAL PARTNER; ANTHONY CAREY, AN INDIVIDUAL PARTNER; AND PATRICK S. FILTER, AN INDIVIDUAL PARTNER AND CHAIRMAN OF THE BOARD OF NATIONAL BANK OF AUSTIN AND THE HARRINGTON AND KING PERFORATING COMPANY, INC., DEFENDANTS.

The opinion of the court was delivered by: Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiffs Doris Fuller Childs, Eleanor Fuller Parson, Natalie Stocking, Priscilla Parson and Katherine Marrs sued Patrick S. Filter ("Filter"), the National Bank of Austin as trustee of the Judson M. Fuller Trust ("Austin") and Carey, Filter & White, a law firm, seeking removal of Austin as trustee, removal of Filter as Chairman of the Board of the Harrington & King Perforating Company, recovery of fees paid to Austin as trustee, recovery of fees paid to Filter as Chairman of the Board and recovery of retainer fees to the law firm. The district court entered judgment in favor of defendants, Childs v. National Bank of Austin, 499 F. Supp. 1096 (N.D.Ill. 1980). On appeal, the Seventh Circuit affirmed in part and reversed in part, 658 F.2d 487 (7th Cir. 1981). The Court affirmed the district court in all respects with the exception of its finding that Filter need not account to the Judson M. Fuller Trust for the salary he received as Chairman of the Board of Harrington & King. The case was remanded to the district court.

On March 31, 1982, the district court entered judgment against Filter in the amount of $137,779.50 plus interest. The Court ordered Filter to deposit the funds with the Clerk of Court on October 29, 1982, holding that the deposit would constitute satisfaction of judgment, and ordering the parties to submit proposed disbursement orders. Presently before the Court are the parties' memoranda concerning disbursement of the judgment fund, plaintiffs' counsels' ("petitioners") motion for leave to file a petition to enforce an attorneys' lien and plaintiffs' motion for attorneys' fees. For reasons set forth below, petitioners' motion is denied, plaintiffs' motion is granted and the judgment fund is distributed as set forth in this opinion.

Petitioners' Attorneys' Lien

Petitioners seek leave to file a petition to enforce an attorneys' lien. Petitioners would satisfy their lien out of the funds deposited by Filter with this Court. Austin maintains that petitioners cannot file their petition pursuant to the Illinois Attorneys' Lien Act, Ill.Rev.Stat. ch. 13 § 14.

According to ch. 13 § 14,

    Attorneys at law shall have a lien upon all
  claims, demands and causes of action, including
  all claims for unliquidated damages, which may be
  placed in their hands by their clients for suit
  or collection, or upon which suit or action has
  been instituted, for the amount of any fee which
  may have been agreed upon by and between

  such attorneys and their clients, or, in the
  absence of such agreement, for a reasonable fee,
  for the services of such attorneys rendered or to
  be rendered for their clients on account of such
  suits, claims, demands or causes of action. To
  enforce such lien, such attorneys shall serve
  notice in writing, which service may be made by
  registered or certified mail, upon the party
  against whom their clients may have such suits,
  claims or causes of action, claiming such lien
  and stating therein the interest they have in
  such suits, claims, demands or causes of action.
  Such lien shall attach to any verdict, judgment
  or order entered and to any money or property
  which may be recovered, on account of such suits,
  claims, demands or causes of action, from and
  after the time of service of the notice. On
  petition filed by such attorneys or their clients
  any court of competent jurisdiction shall, on not
  less than 5 days' notice to the adverse party,
  adjudicate the rights of the parties and enforce
  such lien.

The Seventh Circuit has held that federal district courts have jurisdiction to entertain attorneys' fee issues pursuant to the lien created by ch. 13 § 14, because if the original action has a proper basis for federal jurisdiction, any recovery realized by the suit creates an attachable interest upon which an attorney may assert a fee claim. Clarion Corp. v. American Home Products Corp., 464 F.2d 444, 445 (7th Cir. 1972). Thus, in Clarion, the Court affirmed enforcement of an attorneys' lien brought by plaintiff's counsel against the plaintiff. The Clarion recovery was a settlement plaintiff accepted from the defendant. And in Peresipka v. Elgin, Joliet & Eastern Ry. Co., 231 F.2d 268 (7th Cir. 1956), the Court held that an intervening attorney asserting an attorneys' lien became a joint claimant and acquired an interest in any judgment rendered in favor of the plaintiff. In so holding, the Court quoted as follows from Baker v. Baker, 258 Ill. 418, 421, 101 N.E. 587, 588 (1913):

  By serving the notice claiming a lien the
  attorney in effect becomes a joint claimant with
  his client in any judgment or decree that may be
  rendered or in the proceeds of any settlement
  that may be made by the client, and to the extent
  of the amount of his fee has the same interest in
  such proceeds, judgment or decree as his client
  and is entitled to his pro rata share thereof. In
  short, when the notice claiming a lien is served on
  the defendant or debtor under this statute it has
  the effect of an assignment of an interest in any
  judgment or decree that may be rendered or in the
  proceeds of any settlement that may be made by the
  client, and is such an assignment that the
  defendant or debtor is bound to respect. This
  creates a new and a substantial right in favor of
  the attorney and divests the client of substantial
  rights that he theretofore possessed.

We believe that the above cases are inapposite to the instant matter. Although petitioners' clients are trust beneficiaries of the Judson M. Fuller Trust, neither the remaindermen to the trust, nor the other income beneficiaries of the trust have been joined as parties to this lawsuit. The money deposited with the Court by Filter, however, must be accounted to the trust, according to the Seventh Circuit. Childs v. National Bank of Austin, 658 F.2d 487, 491-93 (7th Cir. 1981). Therefore, petitioners' clients do not themselves have any attachable interest upon which petitioners may assert their claim for fees. Plaintiffs lack the authority to bind the trustee or the additional trust beneficiaries to the agreement they entered into with petitioners. Mercer v. Chicago Ry. Co., 174 Ill. App. 234, 237-38 (1st Dist. 1912). As a result, petitioners' motion for leave to file their petition to enforce their attorneys' lien must be denied.

Plaintiffs' Alternative Motion for Attorneys' Fees

As an alternative to petitioners' motion to enforce their attorneys' lien, plaintiffs have moved for an award of attorneys' fees. Plaintiffs invoke a doctrine known as the "trust benefit exception," and claim that they are entitled to fees because their attorneys' services in the present litigation benefitted the trust. Austin insists that in Illinois, attorneys' fees are generally not awarded absent a statute or agreement to the contrary. Moreover, it argues that the trust benefit exception does not apply, since plaintiffs' suit to remove it as trustee was unsuccessful, and since any "benefit" would be conferred only upon the petitioners and not the trust.

In Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 the Supreme Court cited the general rule that

  where one of many parties having a common
  interest in a trust fund, at his own expense
  takes proper proceedings to save it from
  destruction and to restore it to the purposes of
  the trust, he is entitled to reimbursement,
  either out of the fund itself, or by proportional
  contribution from those who accept the benefit of
  his efforts.

Id. at 533, 26 L.Ed. 1157. This rule has been adopted in Illinois. First National Bank v. LaSalle-Wacker Building Corp., 280 Ill. App. 188, 197 (1st Dist. 1935); see also State Life Insurance Co. v. Board of Education, 401 Ill. 252, 258, 81 N.E.2d 877, 880-81 (1948).

We believe that the instant case falls under the trust benefit exception.*fn1 While plaintiffs were unsuccessful in removing Austin as trustee, they undoubtedly obtained a money judgment in favor of the trust. The Seventh Circuit, moreover, issued a warning to Austin concerning Filter's involvement in the trust management:

    We do not intend to imply in this Opinion that
  we approve of the type of tightly intertwined
  control presented by the circumstances of this
  case. Nor do we intend, however, to imply that
  the defendants have acted in bad faith.
  Harrington and King certainly has not suffered
  under the arrangement. Nevertheless the
  arrangement raises serious questions concerning
  the appearance of improprieties, the existence of
  which is met with strong disapproval in the rules
  governing conflicts of interest. "Unquestionably,
  trustees are `obligated to act with the highest
  degree of fidelity and with utmost good faith
  toward the beneficiaries.'" Tankersley [v.
  Albright], 374 F. Supp. [538] at 543 (quoting
  Wallace v. Maloody, 4 Ill.2d 86, 94,
  122 N.E.2d 275, 279 (1954)).

Childs, 658 F.2d at 494. Attorneys' fees have been allowed from a trust notwithstanding a failure to remove a trustee, where as a result of a lawsuit the trustee discontinued certain management practices. In re Freeman's Trust, 247 Minn. 50, 75 N.W.2d 906, 911 (Minn. 1956). We believe that plaintiffs' recovery of Filter's salary for the trust constitutes a benefit to the trust as a whole. Accordingly, plaintiffs' motion for attorneys' fees in the sum of $105,000 is granted. This amount shall be disbursed to petitioners out of the judgment fund presently deposited with the Court.

    Disbursement of the Judgment Fund and Austin's Claim for
                      Attorneys' Fees*fn2

In its memorandum in support of a proposed judgment order, Austin asserts that the fund deposited by Filter with the Court should be credited to the trust as corpus and not as income. Austin as trustee, moreover, claims that it is entitled to $28,921.25 attorneys' fees for defending against the plaintiffs' lawsuit, and that the fees should come from trust income rather than from corpus. Plaintiffs respond that any sum paid to the trust should be distributed to trust beneficiaries as income. They further maintain that Austin is not entitled to attorneys' fees.

In Illinois, where a beneficiary brings a groundless suit against a trustee, the trustee's attorneys' fees and expenses are to be paid out of the complaining beneficiary's share in the trust estate, and not charged against the estate generally. Patterson v. Northern Trust Co., 286 Ill. 564, 567, 122 N.E. 55, 56 (1919); see also Templeton v. Continental Illinois National Bank & Trust Co., 429 F. Supp. 1294, 1304 (N.D.Ill. 1977). We do not believe, however, that plaintiffs' suit was groundless, and we decline to award Austin the attorneys' fees it seeks.

The Illinois Principal and Income Act provides little guidance for resolving the distribution of the remaining $39,981.78, despite the definitions of principal and income which it contains.*fn3 The Act does, however, provide that the intent of the settlor should govern the ascertainment of income and principal. Ill.Rev.Stat. ch. 30 § 503. Judson M. Fuller's Trust instrument provided that shares of stock in Harrington and King would constitute the sole trust property, to be managed for the benefit of his children and their heirs. The trustee is to disburse all income to the trust beneficiaries.*fn4 This indeed suggests, as plaintiffs maintain, Judson M. Fuller's intent that funds which might come into the trust, such as the judgment against Filter, be passed on to the beneficiaries as income. This conclusion is supported by a provision of the trust instrument which provided that cash received upon the sale of the trust property should be distributed to the beneficiaries.*fn5 We therefore believe that the remaining sum of $39,981.78 should be distributed by the trustee as income.

Accordingly, petitioner's motion for leave to file a petition to enforce an attorneys' lien is denied; plaintiffs' motion for attorneys' fees is granted. No attorneys' fees are awarded to Austin, and the remaining funds on deposit with the Court are to be distributed as income. It is so ordered.


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