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Barack Ferrazzano Kirschbaum Perlman & Nagelberg v. Loffredi

June 12, 2003


Appeal from the Circuit Court of Cook County. Honorable James F. Henry, Judge Presiding

The opinion of the court was delivered by: Justice Hartman


A collection action was brought by plaintiff law firm, Barack Ferrazzano Kirschbaum Perlman and Nagelberg (plaintiff), seeking to recover attorney fees and costs for services it rendered on behalf of defendants, Robert and Kevin Loffredi (defendants), in a National Association of Securities Dealers, Inc. (NASD) arbitration proceeding. The circuit court granted summary judgment in plaintiff's favor based on the doctrine of judicial estoppel. Defendants appeal on the ground that the court erred in applying judicial estoppel to the circumstances of this case. The facts set forth below emanate from the pleadings and affidavits filed in the circuit court proceedings. *fn1

Defendants were representatives of a broker registered with NASD. On July 28, 1999, Robert Loffredi retained plaintiff to provide legal services and represent defendants in an arbitration action before the NASD against James Dreher and Dreher & Associates (collectively Dreher) on the ground that Dreher terminated defendants' registration status as representatives with the NASD and conspired to steal defendants' customers from them, accounts valued at more than $6 million. Because of their perceived loss of customers, defendants asked plaintiff to seek emergency injunctive relief and monetary damages. Plaintiff alleged that defendants agreed to pay plaintiff's standard legal fees at an hourly rate to be charged monthly, as well as expenses. According to defendants' pleadings, however, Ray Rezner, one of plaintiff's partners, estimated for Robert that the fees and expenses to pursue the action would total between $25,000 and $30,000. Defendants denied that plaintiff disclosed to Robert plaintiff's hourly rates.

Plaintiff immediately began investigating defendants' claim by reviewing documents and interviewing witnesses. On August 3, 1999, plaintiff filed a statement of claim on behalf of defendants initiating an NASD arbitration action against Dreher and two former employees of Raymond Financial Group, Inc., a corporation in which Robert is sole shareholder. Plaintiff also moved on defendants' behalf for an immediate interim injunction, which it pursued with the NASD. Plaintiff drafted and filed a pre-hearing memorandum and prepared for the injunction hearing. At an evidentiary hearing on defendants' motion, which was held before an NASD arbitration panel, plaintiff examined and cross-examined various witnesses.

The NASD arbitration panel granted defendants an interim injunction. Defendants admittedly were "ecstatic" with the injunction because it required Dreher to transfer immediately Loffredi's customers to their new broker-dealer. Thereafter, plaintiff sent defendants separate bills, copies of which are contained in an exhibit attached to the complaint. Plaintiff's bills are dated August 26, 1999, September 21, 1999, October 21, 1999, November 19, 1999, December 21, 1999, January 25, 2000, February 25, 2000, and March 23, 2000. The bill sent in August 1999 reflected the sum of $16,870.05 in charges; the September 1999 bill for attorney fees showed a sum due of $83,999. Nothing in the record reveals defendants disputing or complaining about the sums showing as being owed and due after the bills were received, nor challenging the bills after their receipt as having exceeded the alleged estimate. No credits and payments were shown to have been made by defendants. Despite non-payment, plaintiff continued to represent defendants in settlement negotiations to resolve the remaining claims in the NASD proceeding. In May 2000, plaintiff withdrew as defendants' counsel for nonpayment of plaintiff's fees.

Defendants thereafter retained the law firm of Schuyler Roche & Swirner, P.C. (Schuyler) to appear on their behalf. The NASD arbitration continued after plaintiff's withdrawal, primarily to adjudicate defendants' claims for damages.

On June 12, 2000, plaintiff filed their initial complaint in the circuit court of Cook County to recover attorney fees and expenses totaling $124,628.36, later amending it to allege two counts each against Robert for breach of contract and quantum meruit. Attached to the amended complaint was the exhibit consisting of plaintiff's periodic billing for legal services rendered by plaintiff to defendants, plus costs and advances. The exhibits attached to both the original and the amended complaint detailed specific dates, hours, activities and identities of the attorneys and clients involved in the billing of fees. Plaintiff also alleged two counts claiming quantum meruit against Kevin.

Defendants filed their answer and affirmative defenses to plaintiff's amended complaint, denying the allegation that they agreed to pay plaintiff's standard hourly rate for its services. Defendants admitted receiving plaintiff's fee statements for services rendered and admitted never paying the bills. In an affirmative defense, defendants alleged that plaintiff may recover only the reasonable value of its services and that the legal fees sought by plaintiff were unreasonable in their totality. Defendants also asserted that plaintiff failed to disclose its hourly fee rates within a reasonable time after commencing its representation, citing Rule 1.5(b) of the Illinois Rules of Professional Conduct (134 Ill. 2d R. 1.5(b)). In addition, defendants denied that they owed plaintiff the amount sought because plaintiff failed to disclose in a timely manner that the fees and expenses incurred had exceeded greatly the original estimate of $25,000 to $30,000 for prosecution of the NASD case. Defendants generally denied that they never objected to any of the statements for legal services and expenses sent them; however, they made no claim that they objected to the fee amounts for having been redundant, unnecessary or inaccurate.

While the state court proceedings were pending, through Schuyler, defendants' other attorneys, defendants petitioned for attorney fees and costs in the NASD arbitration under the Uniform Deceptive Trade Practices Act (Act) (815 ILCS 510/1 et seq. (West 2000)). Defendants sought from Dreher reimbursement of all fees and expenses for both plaintiff and Schuyler which, they asserted, totaled $157,239.90. Defendants' NASD petition made no claim that plaintiff's fees and expenses did not represent the services rendered and expenses incurred, or that they were unnecessary, that they were redundant or otherwise inaccurate or were unreasonable in whole or in part. Paragraphs 7 and 8 of defendants' NASD fee petition are of particular importance, stating:

"7. Claimants [defendants here] were initially represented by the firm of Barack Ferrazzano Kirshbaum Perlman and Nagelberg ("BFKPN") [plaintiff here]. BFKPN prepared and filed the Statement of Claim and related papers in July and August 1999 and represented claimants at the interim injunctive hearing on August 24 and 25, 1999. BFKPN continued in its representation of claimants through May 10, 2000, at which time BFKPN withdrew.

8. Ray G. Rezner was the attorney principally responsible for claimants' representation by BFKPN. Attached as Exhibit A hereto are the Affidavit of Ray G. Rezner and the bills submitted by BFKPN to claimants in connection with this arbitration. These bills show that the total attorney's fees incurred by claimants for work performed by BFKPN in connection with this arbitration are $115,830.00. The costs were $8,639.36. Accordingly, total attorney's fees and costs for work performed by BFKPN are $124,469.36." (Emphasis added.)

Further, and notwithstanding their denial in the state court proceedings that they agreed to pay plaintiff's standard hourly rates and expenses, and their affirmative defense, defendants attached Rezner's affidavit to their NASD fee petition, which stated:

"6. Bills to claimants were prepared on the basis of the normal hourly rates charged by BFKPN for each attorney or paralegal who worked on this matter.

7. During the time that BFKPN represented claimants, my standard hourly rate was $390 per hour before October 1, 1999, and $420 per hour after October 1, 1999. The hourly rates of other billing professionals who have worked on this matter are as follows: W. Scott Porterfield - $300/hour before October 1, 1999, and $325/hour after October 1, 1999; Gayle Fisher - $195/hour before October 1, 1999, and $230/hour after October 1, 1999; Heather Green - $120/hour."

Attached to Rezner's affidavit were the same itemized bills detailing plaintiff's fees and expenses that defendants admitted they received in their pleadings.

On July 30, 2001, the NASD arbitration panel filed its written decision regarding defendants' case. No damages were awarded to defendants; however, the findings stated, "[i]n deciding to award attorneys' fees, the panel considered the arguments of the parties, as well as the pleadings[,] briefs and caselaw filed on their behalf, and determined that authority existed for an award of attorney's [sic] fees to [defendants]. [Dreher is] jointly and severally liable for and shall pay to the [defendants] the following attorneys' fees in the amount of $70,000.00." In ...

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