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Linker v. Allstate Insurance Co.

July 22, 2003


Appeal from the Circuit Court of Cook County. Honorable Lester D. Foreman, Judge Presiding.

The opinion of the court was delivered by: Justice Burke


Plaintiffs Chris Linker, Richard Hughes, and the law firms representing them (the Attorneys) filed this appeal from orders of the circuit court denying their request for attorney fees under the common fund doctrine, denying their request for a preliminary injunction to escrow certain funds for fees, denying their motion to reconsider denial of their request for fees and request for escrow, and denying their motion to compel discovery. *fn1

Plaintiffs James Carson, John Chaney, Jay Flanagan, and Donald Jones (plaintiffs) appeal from an order of the circuit court granting defendants Allstate Insurance Company's and The Agent Transition Severance Plan's *fn2 motion to dismiss plaintiffs' putative class action complaint that alleged causes of action for breach of contract and common law fraud.

For the reasons set forth below, we affirm in part, reverse in part, and remand for further proceedings.


Plaintiffs were employed by defendant, as employees, rather than independent contractors, under various forms of employment contracts, including R830, R1500, and a "General Agent" contract, as agents who sold insurance policies. *fn3 Plaintiffs retired, some early, or terminated their employment with defendant prior to November 1, 1999. Plaintiffs filed the instant class action against defendant seeking damages for breach of contract (count I) and common law fraud (count II), contending that defendant coerced them and others similarly situated to retire from, terminate their employment, or convert to independent contractor status, at a time when defendant knew, but failed to disclose to them that, within a short period of time, it would offer lucrative severance benefits and conversion incentives to individuals who remained employed with defendant. *fn4 According to plaintiffs' complaint, defendant conceived a new business plan, as early as December 1998, whereby defendant's customers would purchase policies of insurance through independent contractors, call centers, or the Internet. As part of this plan, defendant would eliminate all of its employee-agents, such as plaintiffs. Plaintiffs alleged that to effectuate this plan, defendant pressured or intimidated as many employees as possible to retire, terminate their employment contracts, or convert to independent contractor status so as to prevent them from being eligible for the benefits of the program it would soon announce. According to plaintiffs' complaint, defendant held meetings with its agency managers as early as July 1999, and advised them of the incentives that were going to be offered to employees later that year. Plaintiffs further alleged that many of the employees, prior to retiring, terminating their employment, or converting to independent contractor status, inquired of the agency managers or human resource representatives as to whether they could sell their books of business or whether any other changes were under consideration. Most plaintiffs were told that no changes were being considered or known of, including being allowed to sell their books of business.

On November 10, 1999, after many employees had terminated their employment with defendant, defendant officially announced its new business plan and offered a severance plan and conversion incentives under its "Agent Transition Severance Plan" (Plan) to those employee-agents remaining with the company. Pursuant to the Plan, all employee employment contracts would terminate no later than June 30, 2000. For those employees who terminated their contracts, retired, or converted to independent contractor status between December 1, 1999, and June 30, 2000, the following options were offered. First, an employee could convert to independent contractor status under defendant's R3100S contract with certain other bonuses being given. Second, an employee could retire or terminate his or her relationship with defendant and either sell his or her books of business or select a severance program. Two severance plans were offered. The first was the base plan in which employees would receive 1 week of pay for each full year of service with defendant, up to 13 weeks, to be paid in 6 monthly installments. The second was the enhanced severance plan in which employees would receive 1 year's pay, to be paid in 24 monthly installments.

On January 11 and 14, 2000, plaintiffs' attorneys sent a demand letter to defendant, seeking the same benefits offered under the Plan for plaintiffs since the severance plan and conversion incentives were under consideration at the time plaintiffs had retired or left defendant's employ. Having received no response from defendant, plaintiffs filed their original class action complaint on April 20. The proposed class included all employee-agents who terminated their employment with defendant, in whatever manner, after December 1, 1998, and who were not offered benefits under the Plan. On May 15, defendant amended its Plan to include employees who had retired or terminated their employment subsequent to June 1, 1999. On May 18, defendant sent a letter to Linker, among others presumably, informing him of the amendment. Linker was advised that if he desired to receive the benefits, he was required to return a signed release to defendant by July 31.

On May 31, plaintiffs filed an emergency motion to compel defendant to provide the names of putative class members with whom defendant had been communicating in connection with the class action and with whom it had made settlement offers, and to permit plaintiffs' attorneys to initiate discovery so that they could properly advise their retained clients and other putative class members. In their motion, plaintiffs alleged that after the class action had been filed, but before the class was certified, defendant made attempts to settle with putative class members, including Linker and Hughes, without communicating with counsel. The trial court denied the motion on June 1. Thereafter, defendant filed a motion to dismiss the class action complaint. In the latter part of July, Linker and Hughes accepted defendant's settlement offer and both signed releases.

On August 1, plaintiffs filed an amended complaint. Carson, Chaney, Flanagan, and Jones were added as representative plaintiffs. The causes of action remained the same. However, The Agent Transition Severance Plan *fn5 was added as a party defendant and a cause of action based on a violation of ERISA (count III) was alleged against it and defendant. *fn6 On August 8, Linker, Hughes and their attorneys filed a motion for attorney fees pursuant to, inter alia, the common fund doctrine, and a motion for a preliminary injunction to escrow certain funds for fees. Defendants filed a memorandum in opposition to this motion. In addition, on September 15, defendants filed a motion to dismiss counts I and II of plaintiffs' amended class action complaint pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615 (West 1998)) and a motion to dismiss count III pursuant to section 2-619 of the Code (735 ILCS 5/2-619 (West 1998)). With respect to count I, defendants contended that plaintiffs failed to allege any specific contract provision that was breached and that Illinois does not recognize an independent cause of action for breach of the implied covenant of good faith in at-will employment contracts. With respect to count II, defendants contended that plaintiffs failed to plead with specificity and also failed to plead that defendant owed a special duty to plaintiffs to disclose its proposed Plan to its employees. Plaintiffs thereafter responded to defendants' motion and defendants replied.

On November 1, a hearing was held on plaintiffs' motion for fees. At the hearing, plaintiffs argued that there was a "pot of approximately $10 million" to be paid to 119 former employees. According to counsel, they believed that their demand letter to defendant and the filing of the class action lawsuit prompted defendant to amend its severance plan and to offer benefits to the additional 119 employees. Following the hearing, the trial court denied plaintiffs' motion for attorney fees and for a preliminary injunction.

On November 6, following arguments by counsel, the trial court granted defendants' motion to dismiss. First, the trial court concluded that all employees, including those employed under the R830 contracts, were at-will employees. The court further concluded that there was no independent cause of action for breach of the implied covenant of good faith. The court dismissed count I with prejudice because, given the facts of the case, it did not believe that plaintiffs could cure the defects. With respect to count II, the court dismissed this count without prejudice, finding that plaintiffs failed to plead with specificity and with particularity and also that they failed to plead any special duty on the part of defendant. Plaintiffs were given leave to file a second amended complaint.

On January 16, 2001, plaintiffs filed a motion to reconsider the denial of attorney fees and preliminary injunction, relying on a recent case issued by the Illinois Supreme Court. On March 16, after defendants had responded to plaintiffs' motion to reconsider, plaintiffs filed their reply to defendants' response to their motion to reconsider, asked the court to set a hearing date on the motion, and asked the court to compel discovery against defendant should the court grant the motion to reconsider. On May 14, because plaintiffs had failed to file a second amended complaint, defendants filed a motion for entry of an order dismissing the entire cause with prejudice. On May 21, the trial court denied plaintiffs' motion to reconsider, denied plaintiffs' motion to compel discovery, and granted defendants' motion to dismiss the entire cause with prejudice. This appeal followed.


I. Issues on Behalf of the Attorneys

The issues with respect to the Attorneys raise questions as to the propriety of the trial court's order denying their common fund claim, denying their motion to escrow, denying their motion for reconsideration, and denying their motion to compel discovery. The Attorneys argue that our standard of review on each of these issues is de novo because, although it is unclear from the record the specific bases for the trial court's decision on each motion, the trial court's rulings were made without an evidentiary hearing and it made no findings of fact. Defendants contend that the standard of review with respect to the request for fees is de novo, and that the standard of review with respect to the request to escrow fees and motion to compel discovery is based on an abuse of the trial court's discretion. Defendants do not set forth any standard for reviewing the trial court's motion for reconsideration.

A. Common Fund Doctrine

The Attorneys first contend that the trial court erred in declining to apply the common fund doctrine in the instant case. They rely extensively on a recent Illinois Supreme Court decision, Morris B. Chapman & Associates, Ltd. v. Kitzman, 193 Ill. 2d 560, 739 N.E.2d 1263 (2000), in support of their contention that the common fund doctrine has been revitalized and clearly would apply in the instant case.

Defendants respond, in general, that Chapman is not applicable to the instant case. They maintain that Chapman relaxed impediments to recovery of attorney fees only in certain cases and that the doctrine is still applicable only in exceptional cases. According to defendants, Chapman did not involve a class action and does not hold that in class actions all restrictions on the doctrine have been lifted. Defendants also argue that Chapman left untouched a long line of cases holding that the common fund doctrine is not applicable to putative class actions. Defendants also maintain that the Attorneys are misdirecting the doctrine because they are attempting to impose it against defendants, rather their clients--the proper parties.

The common fund doctrine allows an attorney "who creates, preserves, or increases the value of a fund in which others have an ownership interest to be reimbursed from that fund for litigation expenses incurred, including counsel fees." Chapman, 193 Ill. 2d at 572-73. The doctrine "rests upon the perception that persons who obtain the benefit of a lawsuit without contributing to its costs are unjustly enriched." Bishop v. Burgard, 198 Ill. 2d 495, 509, 764 N.E.2d 24 (2002). The basis for the court's authority to award fees under this doctrine is the power to do equity in a particular situation. Sprague v. Ticonic National Bank, 307 U.S. 161, 166, 83 L. Ed. 1184, 1188, 59 S. Ct. 777, 780 (1939). "To sustain a claim under the common fund doctrine, the attorney must show that (1) the fund was created as the result of legal services performed by the attorney, (2) the subrogee or claimant did not participate in the creation of the fund, and (3) the subrogee or claimant benefitted or will benefit from the fund that was created." Bishop, 198 Ill. 2d at 508. Whether the common fund doctrine applies to any particular case is a question of law which we review de novo. See Janes ex rel. Estate of Janes v. Western States Insurance Co., No. 5-99-0763, slip op. at 18 (August 31, 2001) (Goldenhersh, J., concurring in part and dissenting in part).

In Chapman, the wife of a deceased individual retained counsel (the plaintiff in Chapman) to file a wrongful death lawsuit in Missouri. After working on the case for three years, the plaintiff settled for $800,000 on behalf of the deceased heirs, including the wife and the deceased's parents (the defendants in Chapman). Chapman, 193 Ill. 2d at 562. Shortly before the hearing on the wife's petition to approve settlement in the wrongful death lawsuit, the defendants retained their own attorney, who intervened in the lawsuit. Following a hearing, the court awarded the wife 86% of the settlement and 14% to the defendants. The plaintiff was awarded a one-third attorney fee out of the wife's portion of the settlement. Chapman, 193 Ill. 2d at 562. Thereafter, the plaintiff filed a lawsuit against the defendants, seeking attorney fees out of the portion of the settlement awarded to them based on the common fund doctrine. Chapman, 193 Ill. 2d at 563. The trial court granted the defendants' motion to dismiss the common fund claim, concluding that it was inapplicable to the case before it. Chapman, 193 Ill. 2d at 564. The appellate court reversed. Morris B. Chapman v. Kitzman, 307 Ill. App. 3d 92, 716 N.E.2d 829 (1999).

On appeal to the supreme court, the Chapman court first determined that Illinois law with respect to the common fund doctrine, not Missouri law, applied. Chapman, 193 Ill. 2d at 567-72. The Chapman court then rejected the defendants' argument that the common fund doctrine was only applicable in class actions and insurance subrogation cases, finding that the doctrine was applicable to " 'many types of cases covering a large range of civil litigation.' [Citation.]" Chapman, 193 Ill. 2d at 573. The Chapman court next rejected the defendants' argument that a full segregated fund must be under the court's control (Chapman, 193 Ill. 2d at 574-75), relying on Sprague. The Chapman court concluded that "the doctrine may be applied where a fund, for all practical purposes, has been created for the benefit of others." Chapman, 193 Ill. 2d at 576. The Chapman court then distinguished three cases decided by this court in which we found in each case that the common fund doctrine was not applicable since the attorneys in those cases did not obtain any existing or identifiable monetary award for a class. Chapman, 193 Ill. 2d at 576-77. In contrast, the Chapman plaintiff had pursued the wrongful death case for three years and secured a settlement for all heirs, including the defendants. As a result of the plaintiff's work, the defendants were awarded $112,000. The Chapman court found that the settlement was a fund and that the plaintiff was entitled to attorney fees out of the ...

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