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LEIGH v. ENGLE

June 15, 1989

CHARLES W. LEIGH and ERVIN F. DUSEK, for themselves and on behalf of all other participants, etc., Plaintiffs, GEORGE JOHNSON, ROBERT DAUMKE, HERIBERTO PIZARRO, ELEANOR MADSEN, KENNETH STROHM, and ERNEST ROLL, Intervening Plaintiffs,
v.
CLYDE WILLIAM ENGLE, RONALD ZUCKERMAN and NATHAN DARDICK, LIBCO CORPORATION, TELCO MARKETING SERVICES, INC., and TELVEST, INC., RELIABLE EMPLOYEES PROFIT SHARING PLAN TRUST, Defendants



The opinion of the court was delivered by: DUFF

 BRIAN BARNETT DUFF, UNITED STATES DISTRICT JUDGE

 The most recent of the appeals is over, and the judgment on the merits of this litigation is indisputably final. Now the "secondary litigation" begins: that over attorneys' fees. While the court wishes that this were the last opinion in this matter, history cautions the court against being too optimistic. *fn1"

 Nearly two years ago the court held that various parties were entitled to fees and costs as a matter of law. See Leigh v. Engle, 669 F. Supp. 1390, 1414-17 (N.D. Ill. 1987), aff'd 858 F.2d 361 (7th Cir. 1988), cert. denied sub nom. Estate of Johnson v. Engle, 489 U.S. 1078, 109 S. Ct. 1528, 103 L. Ed. 2d 833 (1989). Pursuant to this court's ruling, which recounts the facts of this case sufficiently, three petitions have been filed: one on behalf of National Boulevard Bank, the trustee of the Reliable Trust since February 5, 1979; a second on behalf of Nathan Dardick and Ronald Zuckerman, administrators of the Trust; *fn2" and a third from the intervening plaintiffs in this suit. Additionally, pursuant to this court's earlier conclusion that Libco Corporation, Clyde Engle, Telco Corporation, and Telvest Inc. must reimburse the Trust before payment of any attorneys' fees, see Leigh, 669 F. Supp. at 1415, the intervening plaintiffs have moved for a Rule to Show Cause to Dardick, National Boulevard, and counsel for the defendants as to why they have not so reimbursed the Trust.

 Reimbursement of the Reliable Trust

 The court will address the issue of reimbursement first. During the course of this litigation the Trust paid $ 160,877.97 to the firm of Sachnoff, Weaver, Rubenstein Ltd. for the benefit of Dardick, Zuckerman, Libco, Engle, Telco, and Telvest. Subsequently, Aetna Casualty and Surety Company of Illinois reimbursed the Trust for $ 71,351.28. Aetna made the payments under a fiduciary responsibility insurance policy purchased by the Trust, which named the Trust's fiduciaries as insureds.

 This leaves $ 89,526.89 in fees which the Trust paid to Sachnoff and for which no one has reimbursed the Trust. The problem with determining who should reimburse the Trust for this amount is that Sachnoff's services benefited six of the defendants. Two of these defendants prevailed on some of the issues which were tried in this case, which means that their amount of reimbursement ultimately should be lower than the other defendants'. Apparently Sachnoff's records do not permit clear calculation of how many hours it spent doing what, which complicates how to determine each defendant's reimbursement liability.

 There are two proposals for reimbursement, one from Libco and Engle, and the other from Dardick and Zuckerman. *fn3" Libco and Engle submit that Engle, Dardick, Zuckerman, and Aetna agreed to attribute one-third of the Sachnoff costs to Engle and the other two-thirds to Dardick and Zuckerman. Libco and Engle suggest that the court adopt this same division, then offset any fee amounts which the Trust owes to Dardick and Zuckerman against the amount of Dardick and Zuckerman's reimbursement to the Trust.

 Dardick and Zuckerman for their part propose that the court attribute 50% of the Sachnoff fees to the defense of Libco and Engle, and 50% to them. They likewise adopt the Libco/Engle suggestion that the court offset any fees owed to them against their amount of reimbursement, and propose that these fees be split according to the number of principal issues in the case, three. By this formula, Dardick and Zuckerman would end up reimbursing the Trust one-sixth of the Sachnoff fees, since 50% would be Libco and Engle's responsibility and since Dardick and Zuckerman prevailed on two of the three principal issues.

 The court will adopt Dardick and Zuckerman's reimbursement proposal, but only in part. Choosing between the two proposals is not easy, as none of the parties justified its proposed split between Libco/Engle and Dardick/Zuckerman. The parties' agreement with Aetna, for example, in no way binds this court, although it may result in litigation -- hopefully elsewhere -- as to who is contractually responsible for the Sachnoff fees. The split proposed by Dardick and Zuckerman, however, seems to mirror the reality of this litigation more accurately. As noted earlier, Sachnoff defended six persons and entities in this suit. Nevertheless, two of these entities, Telco and Telvest, were so closely aligned with Libco and Engle that this court will aggregate them with Libco and Engle for purposes of reimbursement. *fn4" Thus, 50% of the remaining Sachnoff fees should be borne by Libco and Engle, and the other 50% should be borne by Dardick and Zuckerman.

 This leaves the court with Dardick and Zuckerman's request for offset. As noted earlier, Dardick and Zuckerman seek to offset two-thirds of their reimbursement amount because they prevailed on two of the three principal claims in this case. Dardick and Zuckerman's suggestion that this court approximate the amount of the Sachnoff fees which the Trust properly should have paid on behalf of Dardick and Zuckerman according to a rough split of claims runs contrary to Hensley v. Eckerhart, 461 U.S. 424, 435-36, 76 L. Ed. 2d 40, 103 S. Ct. 1933 n.11, (1983), where the Court rejected "a mathematical approach comparing the total number of issues in the case with those actually prevailed upon." It also runs against this court's express holding in its earlier opinion:

 Leigh, 669 F. Supp. at 1415 (emphasis added). Much as the court would like to see things at an end, the court cannot conclude that Dardick and Zuckerman have carried their burden on this matter. Unless and until Dardick and Zuckerman justify their proposed allocation of fees, the court will not permit them to offset their share of the Sachnoff fees against their amount of reimbursement. *fn5"

 Since filing their first petition, Dardick and Zuckerman have advanced a separate ground for offset: the Trust owes them for fees incurred in this litigation following the Seventh Circuit's remand of this case in 1984. While they acknowledge that the court wished to settle the issue of reimbursement before moving on to attorneys' fees, see id., Dardick and Zuckerman contend that they have a right to retain Trust assets until the Trust pays amounts owed to them.

 For this proposition Dardick and Zuckerman direct the court to Austin W. Scott, 3 The Law of Trusts § 244.1 (1967). Dardick and Zuckerman's reliance on Scott's treatise is unavailing. Scott writes that "[a] trustee who is entitled to reimbursement . . . for expenses properly incurred in the administration of the trust cannot be compelled to surrender the trust property to the beneficiaries until his claim for reimbursement . . . has been satisfied." (emphasis added) As this court noted in its earlier opinion, the trustees in this case were Harris Bank and National Boulevard Bank; Dardick and Zuckerman were only administrators of the Trust's assets. See Leigh, 669 F. Supp. at 1407, 1393. Under Illinois law, *fn6" a trustee has responsibilities which are greater in many instances than those which even the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq. (1982), imposes. See generally Ill.Rev.Stat. ch. 17 paras. 1651 et seq. (Smith-Hurd Ann. 1981 and 1988 supp.). In return for imposing these equitable (now statutory) responsibilities upon trustees, the law historically has given trustees a security interest in the property of the trust. See Patterson v. Northern Trust Co., 286 Ill. 564, 567, 122 N.E. 55, 56 (1919); Kerner v. Peterson, 368 ...


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