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Timothy Whelan Law Associates, Ltd v. Frank Kruppe

March 31, 2011

TIMOTHY WHELAN LAW ASSOCIATES, LTD.,
PLAINTIFF AND COUNTERDEFENDANT- APPELLEE AND CROSS-APPELLANT,
v.
FRANK KRUPPE, JR., DEFENDANT AND COUNTERPLAINTIFF- APPELLANT AND CROSS-APPELLEE.



Appeal from the Circuit Court of Du Page County. No. 09-AR-182 Honorable Bruce R. Kelsey, Judge, Presiding.

The opinion of the court was delivered by: Justice Hudson

JUSTICE HUDSON delivered the judgment of the court, with opinion. Justices Hutchinson and Zenoff concurred in the judgment and opinion.

OPINION

Plaintiff, Timothy Whelan Law Associates, Ltd., filed a breach-of-contract action against defendant, Frank Kruppe, Jr., attempting to collect fees allegedly due for its representation of defendant. Following a jury trial, judgment was entered in favor of plaintiff for $30,339.14, and the trial court subsequently awarded plaintiff an additional $19,660.86, for a total award of $50,000. Defendant now appeals, raising a number of issues. First, defendant argues that a provision in the contract, which allowed plaintiff to collect attorney fees incurred in collecting earlier attorney fees, was against public policy. Second, defendant alleges error in the trial court's decision to dismiss his counterclaims for malpractice and breach of contract. Third, defendant complains of a number of evidentiary rulings by the trial court. Fourth, he contends that the jury's verdict is contrary to the manifest weight of the evidence. Plaintiff has also filed a cross-appeal, in which it asserts that the trial court erred in determining that its authority to enter an award in favor of plaintiff was limited by supreme court and local rule to $50,000. For the reasons that follow, we reverse and remand for a new trial. A number of issues, though not dispositive of this appeal, are likely to recur following remand, so we will address them here.

Plaintiff's representation of defendant primarily concerned shareholder litigation stemming from defendant's involvement in two corporations, Shank Screw Products, Inc., and the Cyrus Shank Company. Defendant owned 22% of the corporations, his brother Robert also owned 22%, and 56% was held by a trust. Defendant and his brother became involved in a dispute over control of the corporations. Plaintiff represented defendant with respect to this dispute. On plaintiff's advice, another attorney, Bill Churney, was retained to assist plaintiff with certain aspects of the case. Defendant terminated plaintiff on December 21, 2006, informing him that Churney would be taking over the case. A dispute over attorney fees owed to plaintiff developed, and this action ensued. As the issues are largely discrete, we will discuss additional evidence as it pertains to them. We now turn to the merits of the parties' various contentions.

I. WHETHER THE PARTIES' FEE AGREEMENT WAS AGAINST PUBLIC POLICY

Defendant first contends that a provision in the fee agreement between him and plaintiff violated public policy. Specifically, defendant complains of the following provision: "In the even [sic] it becomes necessary to bring a collection proceeding against you for nonpayment of fees and costs, I may include reasonable attorney fees and cost [sic] in those proceedings." In this case, the jury first awarded plaintiff $30,339.14, and the trial court then awarded plaintiff an additional $19,660.86 based upon this provision.

Whether a provision of a contract violates public policy is a question of law subject to de novo review. In re Marriage of Rife, 376 Ill. App. 3d 1050, 1054 (2007). When the resolution of an issue turns upon public policy, it is not the role of a court to make policy; rather, the court must ascertain the public policy of this state with reference to the Illinois Constitution, statutes, and long-standing case law. In re Estate of Feinberg, 235 Ill. App. 3d 256, 265 (2009). Defendant believes he has found such a manifestation of public policy in Lustig v. Horn, 315 Ill. App. 3d 319 (2000).

In Lustig, as in this case, an attorney sued his former client to recover attorney fees from an earlier representation as well as the fees and costs of the collection proceeding. The retainer agreement between the parties included the following provision: "[I]n the event of default in payment Client will pay reasonable attorney's fees and costs incurred in collecting said amount which may be due." (Emphasis and internal quotation marks omitted.) Lustig, 315 Ill. App. 3d at 321. Defendant relies primarily on the following passage from Lustig, 315 Ill. App. 3d at 327:

"An attorney should not place himself in the position where he may be required to choose between conflicting duties or where he must reconcile conflicting interests rather than protect fully the rights of his client. [Citations.] In the instant case, paragraph 3 of the retainer agreement anticipates suit against and recovery of additional fees from a client should that client fail to pay the bill within the time required. As evidenced from Lustig's conduct, paragraph 3 gives rise to substantial fees for vigorous prosecution of the attorney's own client. As Horn aptly points out, this provision very well could be used to silence a client's complaint about fees, resulting from the client's fear of his attorney's retaliation for nonpayment of even unreasonable fees. Such a provision is not necessary to protect the attorney's interests; on the contrary, it merely serves to silence a client should that client protest the amount billed."

As defendant further points out, the Lustig court also commented that "such a provision clearly is unfair and potentially violative of the Rules of Professional Conduct barring an attorney from representing a client if such representation may be limited by the attorney's own interest." Lustig, 315 Ill. App. 3d at 327. While this passage, read in isolation, would seem to stand for the proposition that an attorney may never collect fees or costs when prosecuting an action for earlier fees and costs arising out of the representation of a client, a full reading of Lustig reveals several significant and relevant differences between it and the present case.

Notably, by the time the client in Lustig signed the retainer agreement, an attorney-client relationship already existed between the parties. Lustig, 315 Ill. App. 3d at 322. Under such circumstances, the potential for overreaching on the part of an attorney is much greater than before the relationship commences, when the client is free to simply walk away. See Lustig, 315 Ill. App. 3d at 326.Because an attorney-client relationship is fiduciary (Lustig, 315 Ill. App. 3d at 325-26), the Lustig court emphasized that "[p]articular attention will be given to contracts made or changed after the relationship of attorney and client has been established" (Lustig, 315 Ill. App. 3d at 326). Indeed, "[a] presumption of undue influence arises when an attorney enters into a transaction with his client during the existence of the fiduciary relationship." Lustig, 315 Ill. App. 3d at 326. The burden is on the attorney to rebut this presumption by clear and convincing evidence. Lustig, 315 Ill. App. 3d at 326 (citing Franciscan Sisters Health Care Corp. v. Dean, 95 Ill. 2d 452, 464-65 (1983)). To rebut this presumption, the Lustig court continued, the attorney would have to show that "(1) he made a full and fair disclosure to [his client] of all the material facts affecting the transaction and (2) the transaction was fair." Lustig, 315 Ill. App. 3d at 327. Initially, the court noted that there was little evidence indicating that the attorney explained the implications of the provision at issue in that case to his client. Lustig, 315 Ill. App. 3d at 327. Subsequently, the court held that the transaction could not be deemed fair, and, in support, it set forth the paragraph upon which defendant here relies (which we set forth above).

Thus, it is abundantly clear that the matter upon which defendant relies was part of the Lustig court's determination that the attorney failed to rebut the presumption of undue influence that arose because he represented the client when the agreement was consummated. That is not the case here. Defendant asserts that the Lustig court never expressly limited its holding to the facts of that case. While true, as we read Lustig, it is not possible to divorce the paragraph upon which defendant relies from the discussion of undue influence. Thus, we reject defendant's characterization of and reliance upon Lustig as establishing a per se rule against a fee agreement containing a provision like the one at issue in the present case. We conclude that there is no such general proscription. Accordingly, at least to the extent that plaintiff is represented by outside counsel (see In re Marriage of Tantiwongse, 371 Ill. App. 3d 1161, 1164-65 (2007) (holding that attorneys do not incur fees when they represent themselves)), we perceive no per se public policy that would void the provision in the fee agreement regarding the recovery of fees.

II. WHETHER THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTERCLAIMS

Defendant next argues that the trial court should not have dismissed his counterclaims for failing to state a claim. See 735 ILCS 5/2-615 (West 2006). We review de novo a trial court's dismissal of a claim. Westfield Insurance Co. v. Birkey's Farm Store, Inc., 399 Ill. App. 3d 219, 231 (2010). To set forth an action for legal malpractice, a plaintiff must plead: "(1) the existence of an attorney-client relationship which establishes a duty on the part of the attorney; (2) a negligent act or omission constituting a breach of that duty; (3) proximate cause establishing that 'but for' the attorney's negligence, the plaintiff would have prevailed in the underlying action; and (4) damages." Ignarski v. Norbut, 271 Ill. App. 3d 522, 525 (1995). Initially, we note that, after setting forth a number of potential breaches of duty, defendant simply states that "[t]he facts are self evident" and that his allegations are "sufficient to establish a breach of duty." On appeal, however, the appellant bears the burden of supporting his contentions with citations to relevant authority. See Ill. S. Ct. R. 341(h)(7) (eff. May 1, 2007). The absence of such citations to authority would be enough to resolve this issue against defendant. See People v. Universal Public Transportation, Inc., 401 Ill. App. 3d 179, 197-98 (2010).

Moreover, defendant's allegations regarding proximate cause are insufficient. Defendant's allegations concern plaintiff's purported failure to adequately oppose the issuance of a temporary restraining order (TRO), which, defendant claims, allowed two employees to misappropriate funds. The TRO prevented defendant from exercising control over the two corporations, which, presumably, would have placed him in a position to prevent the alleged theft. Regarding proximate cause, defendant simply alleged that but for plaintiff's negligence the TRO would not have been issued and that defendant was forced to pay another attorney to have the TRO dissolved. What is missing is any explanation of how plaintiff would have successfully opposed the issuance of the TRO. The mere fact that plaintiff neglected to file a response to the petition for the TRO would have caused damages to defendant only if some meritorious response was possible. See Governmental Interinsurance Exchange v. Judge, 221 Ill. 2d 195, 221 (2006) ("[H]ad defendants perfected the appeal in the underlying case, the appellate court would not have reversed the judgment based on section 3-104; and, therefore, defendants' negligence in failing to perfect the appeal was not the proximate cause of plaintiff's injury."); Claire Associates v. Pontikes, 151 Ill. App. 3d 116, 122 (1986) ("In the terms chosen by the litigants herein, a legal-malpractice claim is a 'case within a case.' This is because of the damages element of the action; no malpractice exists unless counsel's negligence has resulted in the loss of an underlying cause of action or the loss of a meritorious defense if the attorney was defending in the underlying suit.").

We further note that, before this court, defendant argues that "it is also clear from the Amended Counterclaim [sic] that [plaintiff] probably could not have succeeded in the temporary restraining order hearing because no answer was filed." It is not enough to plead that plaintiff could not succeed in defending against the TRO absent an answer. The mere filing of an answer would not have guaranteed success. A cause of action for legal malpractice requires that defendant "would have prevailed in the underlying action." (Emphasis added.) Ignarski, 271 Ill. App. 3d at 525. Thus, defendant needed to plead that plaintiff would have been able to successfully oppose the TRO if it had filed an answer, not simply that it could not succeed without filing one. As defendant failed to adequately plead proximate cause, we find that the trial court's decision to dismiss his claim for legal malpractice was not error.

As for the breach-of-contract claim, defendant was required to plead the existence of a contract; that he performed his obligation under the contract; a breach by plaintiff; and damages. International Supply Co. v. Campbell, 391 Ill. App. 3d 439, 450 (2009). Moreover, it has been held that, "[t]o state a sufficient cause of action for legal malpractice in tort or contract, the plaintiff must plead facts establishing that the breach was the proximate cause of the alleged damages." Radtke v. Murphy, 312 Ill. App. 3d 657, 665 (2000). This is because legal-malpractice claims blur the distinction between tort and contract. See Collins v. Reynard, 154 Ill. 2d 48, 50 (1992). Thus, defendant's contract claim fails for the same reason his tort claim did-failure to adequately allege proximate cause.

Defendant offers no sustained argument regarding the dismissal of his affirmative defenses; accordingly, we will not address this issue. See Obert v. Saville, 253 Ill. App. 3d 677, 682 (1993) ("A reviewing court is entitled to have issues clearly defined with pertinent authority cited and cohesive arguments presented [citation], and it is not a repository into which an appellant may foist the burden of argument and research ***."). Having rejected defendant's arguments regarding his counterclaims and affirmative defenses, we now proceed to his next argument.

III. EVIDENTIARY RULINGS

Defendant next complains of several of the trial court's evidentiary rulings. He argues that the trial court's erroneous evidentiary rulings resulted in the jury's verdict being contrary to the manifest weight of the evidence. However, evidentiary errors are generally remedied by ordering a new trial. See, e.g., Bargman v. Economics Laboratory, Inc., 181 Ill. App. 3d 1023, 1034 (1989). We will not strike any improperly admitted evidence, reweigh the balance of the evidence, and render a decision. Evidentiary rulings are reviewed for an abuse of the trial court's discretion. See, e.g., Matthews v. Aganad, 394 Ill. App. 3d 591, 597 (2009). Hence, we will examine defendant's arguments, but we deem the proper remedy, should a remedy be necessary, to be a new trial. Defendant identifies five potential errors: (1) the admission of undisclosed opinion testimony; (2) the admission of evidence that defendant failed to pay on professional contracts unrelated to this case; (3) the exclusion of his testimony that time plaintiff billed for various services was excessive; (4) the admission of evidence that plaintiff represented defendant in a criminal matter; and (5) the admission of evidence concerning the gross sales of the two corporations. We will address these in turn.

A. Undisclosed Opinion Testimony

Defendant argues that the trial court erred in permitting Timothy Whelan and Gary Fernandez to testify regarding the reasonableness of plaintiff's fees. Fernandez is an accountant and attorney who shares office space with plaintiff. ...


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