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Dowd & Dowd v. Gleason

March 27, 1998

DOWD & DOWD, LTD., APPELLEE AND CROSS-APPELLANT,
v.
NANCY J. GLEASON ET AL., APPELLANTS AND CROSS-APPELLEES.



The opinion of the court was delivered by: Justice Miller

The plaintiff, Dowd & Dowd, Ltd., a law firm, brought this action against two of its former members, Nancy J. Gleason and Douglas G. Shreffler, and the law firm that they formed, Gleason, McGuire & Shreffler, following their departure from Dowd & Dowd. The plaintiff sought imposition of a constructive trust on the new firm's fee income, an accounting, and compensatory and punitive damages for breach of fiduciary duty, breach of contract, and other theories of recovery. Gleason and Shreffler filed a counterclaim, seeking amounts due under a stock repurchase agreement and sanctions. The parties submitted cross-motions for summary judgment. The trial Judge denied the defendants' request for sanctions and denied the defendants' motion for summary judgment on the part of the plaintiff's second-amended complaint that sought recovery for breach of fiduciary duty; with regard to that count, the trial Judge certified a question of law. The trial Judge otherwise ruled in favor of the defendants on the issues then contested. The plaintiff appealed, and the appellate court affirmed in part and reversed in part. 284 Ill. App. 3d 915. We allowed the defendants' petition for leave to appeal (166 Ill. 2d R. 315(a)), and the plaintiff additionally raises here several issues decided adversely to it by the appellate court (155 Ill. 2d R. 318(a)).

Because of the procedural posture of this case, the summary of relevant facts must be derived from the pleadings, depositions, and affidavits on file. These facts are fully summarized in the appellate court opinion and will receive only brief restatement here.

The law firm of Dowd & Dowd was organized as a professional corporation. Ownership of the firm consisted of 72 shares, which were divided in the following manner: Michael Dowd, 35 shares; Nancy Gleason, 10 shares; Kenneth Gurber 10 shares; Robert Yelton III, 10 shares; and Douglas Shreffler, 7 shares. Dowd, however, had obtained from each of the other owners a proxy giving him the right to vote one of that person's shares, and therefore Dowd effectively controlled a total of 39 shares, while the four other owners together controlled a total of 33 shares.

The firm's principal client prior to the split up was Northbrook Excess and Surplus Insurance Company, a subsidiary of the Allstate Insurance Company. Billings to that client were more than $6 million in 1990, representing about 58% of Dowd & Dowd's total revenue for that year. The work for Allstate mainly involved environmental coverage.

By November or December 1990, the members who were planning to leave the Dowd firm had obtained office space, furniture, telephones, and other equipment preparatory to their departure. They had also presented their business plan to Harris Bank, which had approved a line of credit for the new firm, to be known as Gleason, McGuire & Shreffler.

On December 31, Gleason and Shreffler resigned from Dowd & Dowd, delivering the news to Dowd in person at his home. Later that day they went to Allstate's offices, and there they talked to two executives, Lynn Crim and George Riley; Crim was vice-president of Allstate's claims department, and Riley was director of the company's environmental claims department. Crim and Riley had authority to choose counsel to represent Allstate, and at the meeting on December 31 Gleason and Shreffler obtained from them responsibility for handling Allstate's cases that were currently with Dowd & Dowd. In the weeks that followed, the new firm of Gleason, McGuire & Shreffler hired a number of persons previously employed at Dowd & Dowd, including associate lawyers and office personnel.

The plaintiff sought recovery from the defendants on a variety of theories, and the defendants filed a counterclaim. The plaintiff's second-amended complaint comprised seven counts. Count I was against Gleason and Shreffler individually for breach of fiduciary duty. Count II was against Gleason and Shreffler for breach of contract-the employment agreements signed by Gleason and Shreffler. Count II alleged several distinct breaches by the defendants, including their failure to provide 90 days' notice of their departure, as required by the agreement, their subsequent solicitation of Dowd & Dowd clients, prohibited by the non-competition provision in the agreement, and their subsequent solicitation of Dowd & Dowd personnel, also prohibited by the agreement. Count III was against Gleason, Shreffler, and their new firm, Gleason, McGuire & Shreffler, and alleged tortious interference with contractual relations, based on their subsequently obtaining Allstate as a client. Counts IV and V, which are not at issue in this appeal, sought recovery from Gleason, Shreffler, and their new firm on theories of tortious interference with contractual relations for hiring Dowd personnel and obtaining Dowd clients. Count VI, brought against Gleason, Shreffler, and their new firm, alleged civil conspiracy. Count VII, not at issue in this appeal, sought recovery from Gleason, Shreffler, and their new firm on a theory of willful and wanton misconduct. The defendants answered the second-amended complaint, alleged a number of affirmative defenses, and filed a five-count counterclaim.

The parties later filed cross-motions for summary judgment. The parties submitted extensive evidence in support of their respective motions, including affidavits, transcripts of depositions, and other documents. The plaintiffs attempted to show that the defendants, prior to their departure from the Dowd firm, had engaged in extensive preparations for establishing their new firm. We have already noted some of the steps taken by the defendants. The plaintiff also submitted evidence to show that the defendants, while still employed by the Dowd firm, had obtained a federal employer identification number and had discussed their new venture with members of the Dowd & Dowd staff.

After protracted proceedings, the trial Judge entered an order that granted the following relief: summary Judgement in favor of the firm Gleason, McGuire & Shreffler on counts III (interference with prospective advantage), VI (civil conspiracy), and VII (willful and wanton conduct) of the plaintiff's second-amended complaint; summary judgment in favor of Gleason and Shreffler on counts II (breach of contract) and III (tortious interference with prospective economic advantage) of the second-amended complaint; and denial of defendants' motion for sanctions. The Judge denied Gleason and Shreffler's motion for summary Judgement on count I (breach of fiduciary duty) and certified a question of law, pursuant to Supreme Court Rule 308(a) (155 Ill. 2d R. 308(a)), regarding that count. The Judge also entered Judgement in favor of Gleason for $100,000 and in favor of Shreffler for $70,000 on the part of the defendants' counterclaim seeking compensation for a breach of a share repurchase agreement in their employment contracts.

The appellate court accepted the question of law certified by the trial court. Separately, the plaintiff appealed the portions of the judgment adverse to it, and the defendant appealed the denial of sanctions. As to the certified question, the appellate court concluded that the plaintiff had stated a cause of action for breach of fiduciary duty, based on evidence of the defendants' pretermination activities. With respect to the other issues that the parties raise before this court, the appellate court upheld the dismissal of count VI, which seeks recovery against the new firm on a conspiracy theory; reinstated count III, seeking recovery on a theory of tortious interference with prospective economic advantage; reinstated the portion of the count II seeking recovery on a breach of contract theory for the defendants' failure to provide written notice of their departure from the Dowd firm; affirmed the trial court's grant of summary Judgement to the defendants on the portion of count II seeking recovery on a breach of contract theory for soliciting clients after termination of their employment; and denied the defendant's requests for sanctions. We allowed the defendants' petition for leave to appeal. 166 Ill. 2d R. 315(a). Pursuant to Rule 318, the plaintiff also raises several issues decided against it by the appellate court. 155 Ill. 2d R. 318. We granted leave to the Illinois State Bar Association to submit a brief as amicus curiae in support of the defendants. 155 Ill. 2d R. 345. For the reasons set out below, we now affirm in part and reverse in part the judgments of the appellate and circuit courts, and we remand the cause to the circuit court of Cook County for further proceedings.

I.

The trial Judge certified the following question of law, pursuant to Supreme Court Rule 308 (155 Ill. 2d R. 308):

"Whether the plaintiff law firm, a professional corporation, has a cause of action for breach of fiduciary duties against its former Officers or Directors who:

a. Departed the plaintiff firm without notice to the other Officers or Directors;

b. Had accomplished substantial planning of their departure before leaving; and planned to solicit business or clients of Dowd and Dowd;

c. Had made substantial arrangements, in terms of new office space, telephones, equipment, obtaining a federal employer identification number, etc., without knowledge of the Officers or Directors;

d. Where more than one Officer or Director, and other support staff, left simultaneously, from the Plaintiff firm;

e. But, where there is no evidence that legal clients or legal business were solicited or sought before the departure. On the other hand, where there is no evidence that the defendants, departing Officers and Directors[,] solicited clients or sought the firm's legal business before departing, should the claim of plaintiff, a professional corporation[,] be dismissed (the Court certifies subparagraph e above over Plaintiff's objection as to the question of the existence of solicitation)."

Count I of the second-amended complaint forms the basis for the certified question, which asks us to assume the existence of certain facts. Although the matter is framed as a question of law, we believe that any answer here would be advisory and provisional, for the ultimate disposition of count I will depend on the resolution of a host of factual predicates. For proof that factual issues remain, we need look no further than the trial Judge's ruling on the defendants' motion for summary Judgement on this count: in denying the motion, the trial Judge stated that issues of material fact remained, which precluded entry of summary judgment. The Judge observed that at some point departing partners are duty-bound to disclose their plans to leave a firm; the judge noted a number of factual questions, such as the number of predeparture meetings by the departing members, the number of persons leaving the firm, and the taking of firm documents, as bearing on this issue.

Moreover, the circumstances mentioned in the certified question do not represent the full range of allegations underlying the count, even though the certified question was seemingly designed to incorporate the various allegations of this part of the complaint. Although the question assumes the answers to certain allegations, it omits others. For example, the question notes that more than one person left the firm, without specifying how many did so. Elsewhere, the question states that "substantial planning" occurred prior to the defendants' departure from the firm, but left unspecified are the types of things that the defendants did in preparing for their new venture. The parties sharply dispute many of these matters, and it is apparent that a number of unresolved variables are at work in this case, making resolution of the certified question meaningless at this point in the proceedings. Thus, given the provisional nature of the inquiry, the importance of the issue involved, and the absence of a fully developed factual record, we do not believe that it is necessary or advisable for us to attempt to provide an answer to the question framed by the trial Judge.

Still, it is appropriate here to set out, in a general way, some of the relevant ethical guideposts. In the proceedings below, Judge Gillis observed that it is difficult to locate the "fence," or dividing line, between permissible and impermissible conduct in these circumstances. We agree with the trial Judge's assessment that these boundaries cannot be drawn with mathematical precision. The New York Court of Appeals aptly summed up the state of the law in this area when it observed, "It is unquestionably difficult to draw hard lines defining lawyers' fiduciary duty to partners and their fiduciary duty to clients." Graubard Mollen Dannett & Horowitz v. Moskovitz, 86 N.Y.2d 112, 119, 653 N.E.2d 1179, 1183, 629 N.Y.S.2d 1009, 1013 (1995).

Lawyers who are preparing to leave a law firm face a dilemma, caught between the fiduciary obligations they owe the other members of their firm, on one hand, and the duty of being able to adequately represent clients who choose to follow them to their new place of employment, on the other hand. As a practical matter, then, cases have recognized that some preliminary preparations by lawyers who are leaving a firm must be allowed, and that it is appropriate for lawyers in these circumstances to make arrangements, prior to their departure, to obtain new office space, equipment, and other materials necessary for the practice of law. Bray v. Squires, 702 S.W.2d 266, 702 (Tex. Ct. App. 1985); see also Restatement (Second) of Agency §393, Comment e (1958) (recognizing that agent may make certain preparations for own venture prior to termination of agency). Discussing a similar question, the Supreme Court of Massachusetts stated, in Meehan v. Shaughnessy, 404 Mass. 419, 435, 535 N.E.2d 1255, 1264 (1989):

"Here, the Judge found that Meehan and Boyle made certain logistical arrangements for the establishment of MBC [i.e., the new firm]. These arrangements included executing a lease for MBC's office, preparing lists of clients expected to leave Parker Coulter for MBC, and obtaining financing on the basis of these lists. We believe these logistical arrangements to establish a physical plant for the new firm were permissible ***, especially in light of the attorneys' obligation to represent adequately any clients who might continue to retain them on their departure from Parker Coulter."

For the reasons mentioned, we do not believe that lawyers are necessarily bound by the same fiduciary constraints that apply to nonlawyer officers and directors who are seeking to leave positions in commercial entities. See Veco Corp. v. Babcock, 243 Ill. App. 3d 153, 160-61 (1993); Preferred Meal Systems, Inc. v. Guse, 199 Ill. App. 3d 710, 724-25 (1990).

One of the major questions underlying the present action is whether the defendants solicited the Allstate business for their new firm before they left Dowd & Dowd. The question certified by the trial Judge assumes that no pretermination solicitation occurred; the final order entered by the Judge, which contains the certified question and rulings on the other counts, includes a finding that there is "no credible or admissible evidence that defendants solicited the Allstate account prior to December 31, 1990," the date of their departure from the Dowd firm. The plaintiff contends that the evidence demonstrates that the defendants engaged in pretermination solicitation, while the defendants argue that there is no competent evidence of pretermination solicitation. Strictly speaking, the Judge's finding is not before us. As noted previously, the certified question arises from count I, on which the trial Judge denied the defendants' motion for summary judgment. The denial of a motion for summary Judgement is not a final judgment (Pagano v. Occidental Chemical Corp., 257 Ill. App. 3d 905, 909 (1994)), for it does not terminate the litigation on that part of the complaint (see In re Marriage of Verdung, 126 Ill. 2d 542, 553 (1989)), and therefore an order denying summary Judgement is not by itself appealable. The issue before us concerning count I is ...


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