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Horwitz v. Holabird & Root

May 20, 2004

[5] TEM HORWITZ ET AL., APPELLEES,
v.
HOLABIRD & ROOT ET AL., APPELLANTS.



[6] The opinion of the court was delivered by: Justice Kilbride

[7]  Docket No. 89351-Agenda 31-September 2000.

[8]  Plaintiffs, Tem Horwitz and Horwitz Matthews, Inc. (collectively, Horwitz Matthews), filed a six-count complaint in the circuit court of Cook County against the law firm of Sabo & Zahn (the firm) and its clients, defendants Holabird & Root, Jeffrey Case, Gerald Horn, and James Baird (collectively, Holabird & Root), alleging, inter alia, tortious interference with business relationships. Sabo & Zahn is not involved in this appeal, and only count VI is at issue here. Count VI sought relief against Holabird & Root as a principal who acted by and through its attorneys, Sabo & Zahn.

[9]  The trial court granted summary judgment in favor of Holabird & Root, ruling as a matter of law that Holabird & Root could not be liable for its attorneys' actions. Horwitz Matthews appealed and the appellate court reversed and remanded, with one justice dissenting. 312 Ill. App. 3d 192. We granted Holabird & Root's petition for leave to appeal. 177 Ill. 2d R. 315. We now must decide whether, and if so when, a client may be held vicariously liable for an attorney's allegedly intentional tortious conduct.

[10]   BACKGROUND

[11]   Holabird & Root is a general partnership in the architectural business. Case, Horn, and Baird are its partners. Holabird & Root retained Sabo & Zahn to collect a debt incurred by Horwitz Matthews for architectural services. Horwitz Matthews is an Illinois corporation that develops real estate with private investors. In the course of representing Holabird & Root, Sabo & Zahn obtained a judgment against Horwitz Matthews.

[12]   In response to a citation to discover assets, Horwitz Mathews provided Sabo & Zahn with various tax returns. According to uncontradicted deposition testimony, this tax information was the subject of a confidentiality agreement. Specifically, Sabo & Zahn agreed not to disclose the tax information to anyone outside its law firm. Through discovery, Sabo & Zahn also learned the identity of several business associates and investors of Horwitz Matthews. Sabo & Zahn contacted at least 40 of these business associates and investors by letter, informing them that on its tax returns Horwitz Matthews had apportioned itself a greater percentage than it was entitled of the partnership business. The letters also stated that the partnership's tax filing showed the investors' share of the loss was underreported. The letters were on the firm's stationery and stated, "we represent Holabird & Root who have a judgment against Horwitz Matthews."

[13]   Horwitz Matthews filed a six-count complaint against Sabo & Zahn and Holabird & Root. The trial court dismissed counts I through IV, sounding in defamation and levied at both Sabo & Zahn and Holabird & Root. Count V sought relief solely against Sabo & Zahn. Count VI sought relief for tortious interference with business relationships solely against Holabird & Root as a principal acting by and through its attorneys, Sabo & Zahn.

[14]   The trial court granted Holabird & Root's subsequent motion for summary judgment on count VI and ruled as a matter of law that Holabird & Root could not be held liable for its attorneys' actions. Horwitz Matthews appealed. In reversing the grant of summary judgment in favor of Holabird & Root, the appellate court held that the attorney-client relationship in this case was one governed by the laws of agency with Holabird & Root as the principal and Sabo & Zahn as the agent. 312 Ill. App. 3d at 195-96. The appellate court reasoned that, although attorneys are independent contractors of their clients regarding their physical activities (Washington v. Caseyville Health Care Ass'n, 284 Ill. App. 3d 97, 101 (1996)), there were no allegations of "any physical activities undertaken by Sabo & Zahn; therefore, [Sabo & Zahn] would not be an independent contractor in its relationship with the Holabird & Root defendants." 312 Ill. App. 3d at 196. According to the appellate court, Sabo & Zahn's misconduct could be attributed to Holabird & Root under the law of agency, binding principals by their chosen agents' deeds. 312 Ill. App. 3d at 195-96; see Diersen v. Chicago Car Exchange, 110 F.3d 481 (7th Cir. 1997).

[15]   The appellate court also found that a genuine issue of material fact existed concerning whether Sabo & Zahn acted within the scope of its authority in sending the letters to the various business partners of Holabird & Root. 312 Ill. App. 3d at 196-97. In support of this conclusion, the appellate court relied on the discovery depositions of Werner Sabo and James Zahn. Each stated that the firm was performing a task it had been hired to accomplish. The appellate court also relied on defendant James W. Baird's discovery deposition statement that the letters sent by Sabo & Zahn indicated to him that the law firm was pursuing the fee in an "aggressive way" and that the firm was "serving them as their clients."

[16]   Finally, the appellate court held that a genuine issue of material fact existed as to whether Holabird & Root ratified Sabo & Zahn's misconduct. According to the appellate court,

[17]  
"It is not clear from the record when the Holabird & Root defendants became aware of the letters, and when they did, if they ever disapproved of the letters being mailed or if by their silence and conduct they approved the letters. Whether the Holabird & Root defendants' actions or lack thereof constituted a ratification is a question of fact." 312 Ill. App. 3d at 197.

[18]   Given the appellate court's opinion that there were genuine issues of material fact, the appellate court remanded the cause for further proceedings.

[19]   In dissent, Presiding Justice Hoffman stated that the decision was flawed. 312 Ill. App. 3d at 198 (Hoffman, P.J., dissenting). The dissent concluded that, in cases involving an attorney pursuing a claim without further direction, the attorney should be held to be an independent contractor. 312 Ill. App. 3d at 198-99 (Hoffman, P.J., dissenting). According to the dissent, since Sabo & Zahn was an independent contractor, Holabird & Root could not be held vicariously liable for its allegedly tortious conduct. The dissent reasoned that there was no vicarious liability primarily because an employer has no "right to control the manner of doing the work" performed by the independent contractor. See Hartley v. Red Ball Transit Co., 344 Ill. 534, 538-39 (1931).

[20]   According to the dissent, even if Sabo & Zahn is deemed to be Holabird & Root's agent, summary judgment was appropriately granted to Holabird & Root because Sabo & Zahn acted outside the scope of its authority. 312 Ill. App. 3d at 199 (Hoffman, P.J., dissenting). The dissent reasoned:

[21]  
"[T]he general retention of an attorney to do all things necessary to pursue a claim should, as a matter of law, be interpreted as authorizing the attorney only to do all things legal and proper to pursue the claim and should not be construed, without more, as giving the attorney direction or permission to commit a tortious act. Where there is no evidence that the client expressly or impliedly authorized, directed, knew of, or ratified the alleged tortious conduct of its attorney, it should not be presumed that, merely because the parties stand in the relationship of attorney-client, the client intended or authorized the tortious conduct or that the conduct was within the scope of the attorney's duties." 312 Ill. App. 3d at 199-200 (Hoffman, P.J., dissenting).

[22]   Concerning the propriety of summary judgment, the dissent further stated:

[23]  
"In this case, there is no evidence that the alleged tortious content of the letters sent to the business associates and investors of Horwitz Matthews was ordered or directed by Holabird & Root, nor do I believe that there is any evidentiary material in the record that creates a genuine issue of fact on the question of whether the Holabird & Root defendants knew of the contents of the letters before they were sent by Sabo & Zahn. [Jeffrey] Case and [James] Baird, both Holabird & Root partners, denied seeing the letters before they were sent. Their testimony constitutes the only competent evidentiary material of record on the issue since, as the appellate court points out, the most that Sabo & Zahn is able to say is that no one at the firm can recall whether the letters were shown to anyone at Holabird & Root before they were sent." 312 Ill. App. 3d at 199 (Hoffman, P.J., dissenting).

[24]   Holabird & Root now appeals.

[25]   ANALYSIS

[26]   Summary judgment is appropriate when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 2000); Gilbert v. Sycamore Municipal Hospital, 156 Ill. 2d 511, 517-18 (1993). Summary judgment should not be granted unless the right of the moving party is clear and free from doubt. Purtill v. Hess, 111 Ill. 2d 229, 240 (1986). While the nonmoving party in a summary judgment motion is not required to prove his or her case, the non-movant must present a factual basis arguably entitling that party to a judgment. Michigan Avenue National Bank v. County of Cook, 191 Ill. 2d 493, 517-18 (2000). We review de novo all cases involving summary judgment. Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165 Ill. 2d 107, 113 (1995).

[27]   Holabird & Root's arguments on appeal essentially follow the reasoning expressed in Presiding Justice Hoffman's dissent. Initially, Holabird & Root maintains that the specific factual situation in this case is one of first impression for this court. Accordingly, Holabird & Root contends that the cases cited by Horwitz Matthews and the appellate court are inapposite and do not control the disposition.

[28]   As we stated in Gomien v. Wear-Ever Aluminum, Inc., 50 Ill. 2d 19 (1971):

[29]  
"Generally, it is the law that a master is liable for the acts of his servant committed within the scope of his employment; that a principal is liable for the acts of his agent performed within the scope of the agency; but neither is liable for the acts of an independent contractor unless the act or omission causing harm was pursuant to the order or direction of the principal or employer, or unless under certain circumstances, the principal or employer failed to exercise reasonable care in selecting a careful and competent contractor." Gomien, 50 Ill. 2d at 21.

[30]   In the attorney-client relationship, clients are generally bound by their attorneys' acts or omissions during the course of the legal representation that fall within the apparent scope of their attorneys' authority. See, e.g., Webster v. Hartman, 195 Ill. 2d 426, 433 n.1 (2001) ("this court has long held that counsel must possess express consent or authorization to compromise or settle a case"). Moreover, the attorney-client relationship is a fiduciary relationship. See, e.g., In re Imming, 131 Ill. 2d 239, 252-53 (1989); In re Schuyler, 91 Ill. 2d 6, 11 (1982). As fiduciaries, attorneys owe to their clients "the basic obligations of agency: loyalty and obedience." Restatement (Second) of Agency §14N, Comment a, at 80 (1958). Nonetheless, this case does not involve an attorney's duty to a client, but rather an attorney's duty to a third party. Thus, Holabird & Root has accurately pointed out that there is no Illinois decision addressing whether clients may be held liable for their attorneys' alleged intentional torts against a third party undertaken without the direction or knowledge of the client.

[31]   In Flight Kitchen, Inc. v. Chicago Seven-Up Bottling Co., 22 Ill. App. 3d 558 (1974), heavily relied upon by Horwitz Mathews, the plaintiff filed an action to recover damages allegedly suffered by reason of an averred trespass to its property by the defendant's attorney. In enforcing a judgment rendered on behalf of the plaintiff against a third party, the attorney wrongfully directed the sheriff to levy against the property of an innocent third party. The client was fully aware of the levy against the wrong party. In fact, the client executed a bond to institute the levy proceeding. Thus, the misconduct engaged in by the attorney was committed with the full knowledge and direction of the client. Flight Kitchen, 22 Ill. App. 3d at 563. That is not the case here. A factual scenario more clearly on point was presented in a case cited by Holabird & Root, In re Berry Publishing Services, Inc., 231 B.R. 676 (Bankr. N.D. Ill. 1999).

[32]   In Berry, a party attempted to purchase a bankruptcy debtor's interest in certain assets at a court-approved sale. The purchaser later commenced a cause of action against the bankruptcy trustee and the trustee's attorney, alleging tortious interference with the purchaser's contracts or prospective business relationships. The claims stemmed from a letter sent by the trustee's attorney without the knowledge of the trustee to several of the purchaser's clients, opining that the purchaser had not actually acquired the assets at issue. In addition to recovery against the trustee's attorney, the purchaser also sought recovery against the trustee premised upon an agency law theory of vicarious liability. The bankruptcy court held that the purchaser could not recover from the trustee on such a theory. Berry, 231 B.R. at 682.

[33]   Applying Illinois law, the court held that a principal is not liable for an agent's torts, provided the agent is not an employee of the principal. Berry, 231 B.R. at 682, citing Anderson v. Marathon Petroleum Co., 801 F.2d 936, 938 (7th Cir. 1986), citing Gomien, 50 Ill. 2d at 21. According to the Berry court, although the attorney-client relationship is governed by agency principles, the attorney is considered a classic independent contractor. Berry, 231 B.R. at 682, citing Hoffman & Morton Co. v. American Insurance Co., 35 Ill. App. 2d 97, 102-03 (1962). The Berry court specifically relied on the following passage of the Seventh Circuit's opinion in Anderson:

[34]  
" `The reason for distinguishing the independent contractor from the employee is that, by definition of the relationship between a principal and an independent contractor, the principal does not supervise the details of the independent contractor's work and therefore is not in a good position to prevent negligent performance, whereas the essence of the contractual relationship known as employment is that the employee surrenders to the employer the right to direct the details of his work, in exchange for receiving a wage. The independent contractor commits himself to providing a specified output, and the principal monitors the contractor's performance not by monitoring inputs-i.e., supervising the contractor-but by inspecting the contractually specified output to make sure it conforms to the specifications.' " Berry, 231 B.R. at 682, quoting Anderson, 801 F.2d at 938.

[35]   The Berry court concluded that there was no authority to depart from this rule in cases concerning an attorney-client relationship. Berry, 231 B.R. at 681.

[36]   The courts of our sister states are, however, divided on the issue of imposing vicarious liability for the actions of attorneys. In some jurisdictions, the courts find no vicarious liability. See Baldasarre v. Butler, 132 N.J. 278, 625 A.2d 458 (1993) (an innocent client should not be held vicariously liable for the wrongful conduct of his or her attorney if the client does not direct, advise, consent to or participate in the attorney's improper conduct); Lynn v. Superior Court, 180 Cal. App. 3d 346, 225 Cal. Rptr. 427 (1986); Plant v. Trust Co. of Columbus, 168 Ga. App. 909, 310 S.E.2d 745 (1983); see also Aetna Casualty & Surety Co. v. Protective National Insurance Co., 631 So. 2d 305 (Fla. App. 1993) (an insurance company is not vicariously liable for the malpractice of the attorney it selects to defend the insured); Brown v. Lumbermens Mutual Casualty Co., 90 N.C. App. 464, 369 S.E.2d 367 (1988), aff'd, 326 N.C. 387, 390 S.E.2d 150 (1990) (since attorneys employed by insurance company were independent contractors, their negligence, was not imputable to insurance company); Feliberty v. Damon, 72 N.Y.2d 112, 120, 527 N.E.2d 261, 265, 531 N.Y.S.2d 778, 782 (1988) (vicarious liability produces an untenable result where on the one hand a party is prohibited from conducting the litigation or controlling the decisions of the attorney and on the other hand that party is charged with responsibility for the lawyer's day-to-day independent professional judgments). Other jurisdictions impose vicariously liability, holding the attorney-client relationship is a principal-agent relationship. See Stumpf v. Continental Casualty Co., 102 Or. App. 302, 794 P.2d 1228 (1990); Southwestern Bell Telephone Co. v. Wilson, 768 S.W.2d 755 (Tex. Ct. App. 1988) (but see Bradt v. West, 892 S.W.2d 56, 76-77 (Tex. Ct. App. 1994) (client not automatically liable for tortious conduct of attorney)); Peterson v. Worthen Bank & Trust Co., N.A., 296 Ark. 201, 753 S.W.2d 278 (1988); United Farm Bureau Mutual Insurance Co. v. Groen, 486 N.E.2d 571 (Ind. App. 1985); Continental Insurance Co. v. Bayless & Roberts, Inc., 608 P.2d 281 (Alaska 1980); Nyer v. Carter, 367 A.2d 1375 (Me. 1977).

[37]   After careful consideration of this conflicting authority, we conclude that when, as here, an attorney acts pursuant to the exercise of independent professional judgment, he or she acts presumptively as an independent contractor whose intentional misconduct may generally not be imputed to the client, subject to factual exceptions. See Lynn, 180 Cal. App. 3d at 348-49, 225 Cal. Rptr. at 429. Individuals more often than not seek the assistance of an attorney because they are unfamiliar with the law and unable to perform the work themselves. See slip op. at 25 (McMorrow, C.J., dissenting, joined by Garman, J.). Therefore, an attorney usually pursues a client's legal rights without specific direction from the client, using independent professional judgment to determine the manner and form of the work.

[38]   An independent contractor is defined by the level of control over the manner of work performance. Hartley v. Red Ball Transit Co., 344 Ill. 534, 539 (1931).

[39]  
"An independent contractor is one who undertakes to produce a given result but in the actual execution of the work is not under the orders or control of the person for whom he does the work but may use his own discretion in things not specified *** [and] without his being subject to the orders of the [person for whom the work is done] in respect to the details of the work." Hartley, 344 Ill. at 539.

[40]   That someone is an independent contractor does not bar the attachment of vicarious liability for her actions if she is also an agent. See Petrovich v. Share Health Plan of Illinois, Inc., 188 Ill. 2d 17, 31 (1999) ("[a]s a general rule, no vicarious liability exists for the actions of independent contractors. Vicarious liability may nevertheless be imposed for the actions of independent contractors where an agency relationship is established"). A person may be both an independent contractor and an agent with the authority both to control the details of the work and also "the power to act for and to bind the principal in business negotiations within the scope of [the] agency." See Hoffman & Morton Co. v. American Insurance Co., 35 Ill. App. 2d 97, 103 (1962). As a general rule, attorneys fit squarely within this category. Nonetheless, when attorneys act pursuant to the exercise of independent professional judgment, they possess such considerable autonomy over the details and manner of performing their work that they are presumptively independent contractors for purposes of imposing vicarious liability. Accordingly, where a plaintiff seeks to hold a client vicariously liable for the attorney's allegedly intentional tortious conduct, a plaintiff must prove facts demonstrating either that the client specifically directed, controlled, or authorized the attorney's precise method of performing the work or that the client subsequently ratified acts performed in the exercise of the attorney's independent judgment. If there is no evidence that the client directed, controlled, authorized, or ratified the attorney's allegedly tortious conduct, no vicarious liability can attach.

[41]   Here, the record contains no evidence that the content of the allegedly tortious letters was directed, controlled, or authorized by Holabird & Root. Nor is there any evidentiary material in the record creating a genuine issue of fact on the question of whether Holabird & Root knew of the contents of the letters before they were sent by Sabo & Zahn. The evidence deposition testimony relied on by the appellate court does not raise a question concerning this issue. That Sabo & Zahn believed that the firm was performing the task it had been hired to accomplish does not address the issue of whether Holabird & Root knew of the letters or the letters' content. Similarly, James W. Baird's statements that the letters indicated that the law firm was pursuing the fee in an "aggressive way" and that the firm was "serving them as their clients" does not contradict his testimony that he was unaware of the letters until after the letters were sent. The only evidence in the record concerning the contents of the letters is deposition testimony indicating that Sabo & Zahn agreed not to disclose the tax information to anyone outside its law firm. Accordingly, there was no question of fact raised as to whether Holabird & Root authorized, directed, or controlled the content of the letters.

[42]   Turning to the parties' final argument, ratification of an unauthorized act is tantamount to an original authorization and confirms what was originally unauthorized. Jones v. Beker, 260 Ill. App. 3d 481, 485 (1994). The principle behind the doctrine of ratification is that the person ratifying secures a benefit through the actions of another who is acting on his behalf with apparent or implied authority. Swader v. Golden Rule Insurance Co., 203 Ill. App. 3d 697, 704-05 (1990). If there is no benefit, ratification will not be implied. Jones, 260 Ill. App. 3d at 485; see also Stathis v. Geldermann, Inc., 295 Ill. App. 3d 844, 858 (1998) (ratification may be inferred from surrounding circumstances, including long-term acquiescence, after notice, to the benefits of an allegedly unauthorized transaction). The record in this case is devoid of any suggestion that could support an inference Holabird & Root benefitted in any way from Sabo & Zahn's alleged interference with the business relationships of Horwitz Matthews. Without a question of fact concerning whether Holabird & Root derived a benefit from the allegedly tortious letters, there could be no ratification and summary judgment was appropriately granted to Holabird & Root.

[43]   In rendering our holding, we acknowledge that attorneys remain bound by strong ethical obligations to their clients and that the attorney-client relationship is fiduciary in nature. As a fiduciary relationship, there are a myriad of circumstances where attorneys act as agents for their clients. The situation at hand is simply not one of them. We further ...


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