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September 30, 1997


Appeal from the Circuit Court of Cook County. Honorable Edwin M. Berman, Judge Presiding.

Rehearing Denied November 4, 1997. Released for Publication November 26, 1997.

The Honorable Justice Rakowski delivered the opinion of the court. McNULTY, P.j., and Frossard, J., concur.

The opinion of the court was delivered by: Rakowski

The Honorable Justice RAKOWSKI delivered the opinion of the court:

This suit involves the liquidation of Pine Top Insurance Company (Pine Top) under the Illinois Insurance Code (215 ILCS 5/187 et seq. (West 1994)). The Director of Insurance (Director) as statutory liquidator (liquidator) appeals the trial court's February 5, 1996, order denying approval of a contingency fee to its counsel, Robinson Curley & Clayton, P.C. (Robinson). Because the trial court failed to conduct a reasonableness analysis in ascertaining whether to approve or disapprove the contingency fee agreement, we reverse and remand.


In 1986, Pine Top surrendered to the Illinois Department of Insurance (Department) for liquidation. A liquidator was appointed to marshall the company's assets and distribute them.

On June 20, 1988, the law firm retained by the liquidator, Sidley & Austin (Sidley), filed suit against various officers and directors of Pine Top for negligence and breach of duty (D&O litigation). It also filed suit against the auditing firm of Touche Ross & Co. (Touche) for professional malpractice (Touche litigation). The trial court, pursuant to section 202 of the Insurance Code (215 ILCS 5/202 (West 1994)), approved Sidley's rate of compensation at $125 per hour for attorneys and $45 per hour for paralegals, which is the current rate paid to senior outside counsel.

In 1990, Touche merged with Deloitte, Haskins & Sells, which created a conflict for Sidley. Accordingly, Sidley withdrew and Robinson was substituted in the Touche litigation only. Robinson's rate of compensation was approved at the same rate as Sidley's.

In December of 1990, Judge Gillis approved a rate increase for Sidley in the D&O litigation. The senior outside counsel rate was now $185 per hour for attorneys and $60 per hour for paralegals.

The Director and Robinson began discussing Robinson's fees in late 1991. The general counsel for the Department requested that Robinson submit a proposal. On December 30, 1991, Robinson proposed that its rate be increased to senior outside counsel rates effective January 1, 1991. The Director agreed to increase Robinson's rate, but the terms were left open.

In May of 1992, the Director requested another fee proposal. Robinson outlined three alternatives: (1) an increase to $185 and $60 per hour; (2) a lodestar approach that was similar to fee arrangements in other cases Robinson was handling for the Director; or (3) a reduced contingency fee. The Director chose the third alternative, believing Robinson would bear the risk of unsuccessful litigation. Robinson agreed and the Director stated he would seek approval at the close of the Touche litigation. At this time, however, no definitive terms were set.

In early to mid 1993, Robinson sought documentation of the fee agreement. At this time, the Director indicated it desired a cap. Robinson proposed, instead of a cap, a reduction in the contingency percentage in return for an immediate increase to the senior outside counsel rate. This proposal was to approximate the fees Robinson would have received from the inception of the Touche litigation if it had received senior outside rates the entire time. The Director agreed and the agreement was memorialized some two years later in a memorandum.

Late in 1993, an unsuccessful settlement conference was held in the Touche litigation. In October of 1994, the parties to the Touche litigation conducted a private mediation with a federal judge. However, no progress was made.

In June of 1995, as trial loomed near, Touche offered $9.5 million to settle, which the liquidator rejected. Since trial was close and presumably the conclusion of the Touche litigation, Robinson and the liquidator documented the final agreement on Robinson's fee. Robinson would receive the increased senior outside counsel rate retroactive to January 1, 1995, and there would be a floor of $10 million before the contingency fee kicked in.

At the end of June, the liquidator presented a petition to approve attorney fees to Judge Berman based on the parties' agreement. Judge Berman approved the rate increase to senior outside counsel, but retroactive only to May 1, 1995; he stated it was Robinson's fault for failing to seek an increase sooner. As to the contingency fee, the judge granted leave for the liquidator to withdraw its petition for approval.

The hearing on this petition was heated and confusing. The liquidator stated that the contingency agreement related to that period of time during which Robinson was being paid less than other outside senior counsel. According to the liquidator, when the issue of settlement arose, in particular the $9.5 million offer from Touche, Judge Berman, without basis or explanation, accused the liquidator of misleading him about the fee agreement.

Director Schact, in an attempt to clarify the negotiations and agreement, addressed the court. He stated he did not seek approval earlier because it was not the right time, the litigation was not progressing forward. Schact advised the judge that the $10 million cap was agreed to before Touche made its $9.5 million offer. The judge, however, found this arrangement inappropriate, believing that if Touche paid 1 cent over $10 million, Robinson would receive a "bonus." The judge stated that the liquidator should have sought approval of the fee agreement earlier in the proceedings.

Ms. Robinson also addressed the court. She stated that the contingency discussions began in December of 1991. She further stated that the parties agreed not to seek an increase in Robinson's rate but instead to seek a contingency fee at the close of the Touche litigation. Additionally, there was testimony that the $10 million cap was the amount that would bring Robinson's compensation in conformity with receipt of ...

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