Appeal from the Circuit Court of Cook County. No. 02 CH 13854 Honorable John K. Madden, Judge Presiding.
The opinion of the court was delivered by: Justice Smith
This case involves an appeal from the grant of a motion to disqualify counsel (see 166 Ill. 2d R. 306(a)(7)) in an action for equitable relief in matters relating to the estate of decedent Michael F. Gagliardo.
Upon Michael's death in May 2001, his sister, defendant Paulette Caffrey, became the sole trustee of a revocable trust that was the sole beneficiary of Michael's estate. Paulette was also appointed independent executor of Michael's estate. Michael's wife, plaintiff Margaret Gagliardo, and their two minor children, plaintiffs Michael E. Gagliardo and Catherine C. Gagliardo (the children), are the sole beneficiaries of the revocable trust. *fn1
After certain actions by Paulette, Margaret brought the underlying action for injunction, removal of trustee, accounting, and other equitable relief, naming Paulette in various capacities including as trustee, as executor, and individually. Paulette was represented in her individual capacity by attorney Christopher Matern. Margaret filed a motion to disqualify counsel, based on Matern's representation of Michael's estate. The circuit court granted the motion and disqualified Matern from representing Paulette individually.
Pursuant to Supreme Court Rule 306(a)(7) (166 Ill. 2d R. 306(a)(7)), Paulette petitioned this court for leave to appeal the disqualification, which was allowed. On appeal, Paulette contends the court improperly disqualified Matern because Margaret failed to establish either the existence of an attorney-client relationship between herself and Matern, or that such representation was substantially related to Matern's representation of Paulette individually. For the reasons that follow, we affirm the order disqualifying counsel.
Michael F. Gagliardo Estate
The following are undisputed facts concerning the underlying action, which involves Michael's complex estate.
Michael and Paulette worked for and owned equal interests in various Gagliardo family businesses. Of the numerous family businesses, the main one is a cooking oil packaging company, CFC, Inc., d/b/a Columbus Foods Company (CFC). Other businesses include related operating companies and real estate concerns. After Michael's death, Paulette has acted as president of CFC.
Michael and Paulette each controlled about one half (47.5%) of CFC, for a total of 95% between them, while their mother, Connie Gagliardo, controls 5% of CFC. Both Michael's and Paulette's 47.5% shares of CFC were divided again into two nearly equal shares, so that both Michael and Paulette would control approximately two quarter-shares of CFC each: a 24.5% share was held in a revocable trust and a 23% share was held in a special trust.
Michael and Paulette had complimentary estate plans. Both of them were trustees of their own revocable trusts (holding 24.5% of CFC), with the other named as successor trustee; they were also trustees of the other's special trust (holding 23% of CFC). Upon Michael's death, Paulette became trustee of Michael's revocable trust, whose beneficiaries are Margaret and the children; Paulette also continued as trustee of Michael's special trust, whose beneficiaries are the children.
Michael died in an accident while participating in an automobile race in Toronto, Ontario. The car Michael was driving was owned or leased by CFC. According to Margaret: after the accident, she and Paulette, on behalf of CFC, made an agreement (investigation agreement) to hire attorneys to investigate a potential wrongful death claim; according to their agreement, CFC would pay for the investigation and be reimbursed its costs in the event of a recovery; and CFC in fact did pay investigation costs from mid-2001 until May 2002.
Attorney Matern wrote a letter at Paulette's request to respond to a June 26, 2002, letter from one of the investigating attorneys. In the letter, Matern identified himself as counsel for both Paulette and the estate: "I represent Paulette Gagliardo personally and I am also special counsel to the Estate of Michael F. Gagliardo." The letter referenced a meeting the following day, which Matern, on the behalf of "my client the Estate," authorized that attorney to attend. It also informed him that "neither my client the Estate nor Paulette" would authorize any further investigation expenditure.
In July 2002, Matern wrote a second letter to the same attorney in which he referred to correspondence from another investigating law firm that sought instruction regarding a Canadian inquest into Michael's death. In that letter, Matern stated that his firm represented Paulette in her capacity as executor of the estate.
The underlying action began with Margaret's July 30, 2002, filing of the verified complaint. The complaint centers upon Paulette's alleged improper "attempt to purchase for herself a substantial portion of the Gagliardo family businesses" from the estate and her further attempt to force the sale at an "artificially low price." The allegations are based upon a May 2002 letter drafted by Steven Wolf, one of Matern's partners (in the firm Wolf, Moskowitz, Holland & Matern), announcing Paulette's intent to purchase interests in the various family businesses from the estate. In the complaint, Margaret alleges that Paulette breached her fiduciary duty as trustee in numerous ways; the proposed transactions between the estate and Paulette demonstrate a serious conflict of interest between Paulette's individual interests and her interests as trustee or ...