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Malkin v. Court of Cook County

November 10, 1998

JEANNE R. MALKIN, PETITIONER-APPELLEE, CROSS-APPELLANT, APPEAL FROM THE CIRCUIT
v.
COURT OF COOK COUNTY. JUDD D. MALKIN, RESPONDENT. HONORABLE RICHARD S. KELLY, JUDGE PRESIDING. PRETZEL & STOUFFER, CHARTERED, RESPONDENT-APPELLANT, CROSS-APPELLEE.



The opinion of the court was delivered by: Justice Gordon

Pretzel & Stouffer, Chartered (hereinafter referred to as Pretzel Stouffer), the respondent, appeals from the trial court's vacatur of a portion of the judgment entered on March 23, 1994 awarding them fees for their representation of Jeanne R. Malkin, the petitioner, in her marriage dissolution action against Judd D. Malkin. During dissolution proceedings, Malkin *fn1 waived her right to a fee hearing under section 508 of the Illinois Marriage and Dissolution of Marriage Act (750 ILCS 5/508 (West 1992)) (hereinafter referred to as "section 508"). One year later, she petitioned the circuit court to vacate a portion of the judgment, pursuant to section 2-1401 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-1401 (West 1994)) (hereinafter referred to as "section 2-1401"), alleging that the fees were excessive and that her waiver of the hearing on those fees was the result of undue influence and breach of fiduciary duty by her attorney, Gemma Allen of Pretzel Stouffer. After extensive hearing on the petition, the trial court granted petitioner's section 2-1401 petition. While finding that Malkin's waiver was not the result of undue influence, the court nevertheless vacated the portion of the dissolution judgment awarding fees to Pretzel Stouffer and to various professionals retained by that firm on behalf of Malkin. The court found Malkin's waiver to be ineffective because some of the fees were unreasonable or were not supported by billing statements. Pretzel Stouffer appeals from that order pursuant to Supreme Court Rule 304(b)(3) (155 Ill. 2d R. 304(b)(3)). Malkin cross-appeals from the trial court's denial of her petition relative to the fees of one of the professionals retained by Pretzel Stouffer, Marjorie O'Connell.

On appeal, Pretzel Stouffer argues that the trial court erred in granting section 2-1401 relief because: (1) Malkin presented no facts that were unknown to the circuit court when it rendered the dissolution of marriage judgment; (2) Malkin failed to establish due diligence; and (3) Malkin failed to establish that Pretzel Stouffer's fees were unreasonable. In her cross-appeal, Malkin argues that the trial court erred in failing to vacate the fee award of $163,000 to Marjorie O'Connell, a divorce tax specialist, hired by Pretzel Stouffer.

BACKGROUND FACTS

A. Malkin's Section 2-1401 Petition

In her section 2-1401 petition, filed on March 23, 1995, Malkin sought to vacate the portion of the judgment relating to attorney fees and costs. Judd Malkin was to pay $1,550,000 of those fees, and Malkin was to pay the balance. Malkin's petition alleged that the fees were not properly determined to be owed and were the result of an "extraordinarily outrageous breach of fiduciary duty" to Malkin by Pretzel Stouffer attorney Gemma Allen. She alleged that Allen engaged in manipulative conduct designed to take advantage of her by persuading her that Allen was her friend. She described the close, personal relationship that developed between herself and Allen from the time she retained Pretzel Stouffer until November 1994. Malkin alleged that subsequent to the entry of the dissolution judgment, Allen became "very cold and distant."

Malkin further alleged that she was not afforded her right to a section 508 hearing on attorney fees prior to entry of the dissolution judgment. She alleged that she had not been properly advised of her right to contest the issue of attorney fees or to seek independent legal advice. She also alleged that Pretzel Stouffer was not entitled to attorney fees because it did not file or present the court with a petition for fees detailing the services that it rendered. She alleged that the fees of Pretzel Stouffer were "outrageously excessive"; that Pretzel Stouffer's entries were nonspecific, vague, duplicative and lacking of the necessary requirements. She also alleged that Pretzel Stouffer did not give her detailed reports of the costs incurred for the services of the professionals it hired on her behalf.

Malkin further alleged that her agreement regarding payment of attorney fees to Pretzel Stouffer was entered into as a result of coercion, fraud, duress, undue influence and breach of fiduciary duty. In her prayer for relief, Malkin asked the court to conduct a hearing as to the reasonableness of the total fees charged and costs incurred by Pretzel Stouffer. She asked that she be awarded any moneys paid to Pretzel Stouffer for fees found to be excessive or unreasonable. *fn2

B. Section 2-1401 Hearing

The evidence at the section 2-1401 hearing showed that Malkin's lead counsel at Pretzel Stouffer was Gemma Allen. Allen was assisted by Pretzel attorneys Ronald Ladden and William White. In addition, Allen hired three outside attorneys: Margorie O'Connell, a Washington D.C. tax attorney; Richard Devine; and Raymond Simon, a political lobbyist and Allen's brother-in-law. Allen hired the accounting firm of Ostrow, Reisin, Berk & Abrams, Ltd. (ORBA) *fn3 to analyze and value the marital estate, primarily Judd Malkin's financial assets and interests. She also hired Dennis Hegarty, her brother-in-law who was a certified public accountant. Allen later hired Scott Schaffer of the accounting firm of Markowitz, Schaffer and Israel to replace Hegarty in formulating and reviewing financial discovery. (Hegarty died during the early pendency of the case.) During settlement negotiations in the dissolution action, Pretzel Stouffer negotiated reductions in the fees of some of these professionals. The final fee total of $2,740,000 was allocated as follows: Pretzel Stouffer - $1,541,000; ORBA - $760,000 (reduced from $1.19 million); O'Connell - $163,000 (reduced from $173,000); Simon - $25,000; Devine - $10,000; Schaffer - $188,000; Hegarty - $18,000; and Schiller, DuCanto & Fleck - $35,000 (reduced from $57,000) for legal services rendered prior to Malkin's retention of Pretzel Stouffer. *fn4

1. Testimony of Malkin

At the section 2-1401 hearing, Malkin testified regarding her close relationship with Allen that began when Allen undertook her representation in June 1990. She testified that she "totally trusted and adored" Allen and that she had a "sister-like relationship" with Allen. She introduced letters and notes sent by Allen to her which she testified solidified their friendship. Malkin testified to their daily telephone calls to each other, the numerous charitable benefits they attended together, and the numerous vacations they took together, many at Malkin's expense. Malkin gave Allen keys to her homes in Winnetka and Aspen. According to Malkin, Allen was her "conduit for all information" regarding the dissolution proceeding. Allen forwarded correspondence, pleadings, and briefs to Malkin but without explanation. Malkin testified that she also received periodic billing statements from Pretzel Stouffer which contained narrative descriptions of the work it performed on Malkin's behalf. Malkin stated that she merely glanced at these mailings and "filed them away" without reading them. She stated that she never questioned Pretzel's bills, even though she found them difficult to understand, stating, "I trusted Gemma to oversee everything. She had my proxy. I trusted her." She stated that at no time prior to the March 23, 1994 prove-up hearing in the dissolution proceeding was she aware that Pretzel Stouffer had questions regarding bills from ORBA, Marjorie O'Connell or Dick Devine. She did not recall ever having received invoices or billings or work product from ORBA or Devine.

Malkin testified on cross-examination regarding her March 1994 knowledge of and satisfaction with the marital settlement agreement between Judd Malkin and herself. She admitted that, prior to the prove-up hearing, she had reviewed the calculations and consulted with her professional advisors, including Allen, Ladden, White, Schaffer, and her adult children, two of whom were attorneys, and was convinced that the settlement agreement would be appropriate to accept. She also admitted that sometime after March 19 but before March 23, 1994 she met with Allen and White at the offices of Pretzel Stouffer to review specific questions that would be asked of her at the prove-up hearing in the dissolution proceeding. She stated that she was advised that she was entitled to a hearing with respect to the reasonableness and necessity of fees and costs incurred and that she was entitled to the benefit of independent counsel. Malkin stated that during the prove-up hearing she indicated in answering questions put to her by Allen and/or Judd Malkin's attorney that she conferred on several occasions with Allen and other attorneys and professionals regarding the meaning and effect of the marital settlement agreement; that she was entering into the agreement freely, willingly and with full knowledge of its terms; that she had not been coerced into signing the agreement; that she was satisfied with the terms of the agreement; and that she was "very much" satisfied with the representation she received. She testified at the section 2-1401 hearing that her answers to the prove-up questions regarding her waiver were the truth.

The transcript of the prove-up hearing, which was introduced into evidence at the section 2-1401 hearing, showed that Malkin was asked the following questions by Allen and gave the following responses:

"Q:[Y]ou are aware that pursuant to the agreement, you are responsible for a portion of your fees and costs incurred in this matter after contribution by Judd which is set forth in the amounts and terms in detail in the Settlement Agreement? A:Yes.

Q:And have I advised you that pursuant to Section 508 of the Illinois Marriage and Dissolution of Marriage Act, you would be entitled to a hearing with respect to the reasonableness and necessity of fees and costs incurred and you are entitled to the benefit of independent counsel in those proceedings? A:Yes, you have.

Q:And at this juncture, you are not requesting a hearing on the fees incurred on your behalf and those issues have been settled; ...


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