Court of Appeals of Illinois, First District, Sixth Division
Appeal from the Circuit Court of Cook County. No. 11 CH 34874 Honorable Mary Lane Mikva, Judge Presiding.
JUSTICE HALL delivered the judgment of the court, with opinion. Justices Gordon and Reyes concurred in the judgment and opinion.
¶ 1 Following a hearing, the arbitrator entered a final award of $628, 527.47 in favor of Walter Duemer and other named plaintiffs and against the defendant, Edward T. Joyce and Associates, P.C. The circuit court of Cook County granted the plaintiffs' petition to confirm the award and denied the defendant's request to vacate or modify the award. The defendant appeals.
¶ 2 On appeal, the defendant contends that the arbitration award must be vacated because the arbitrator exceeded his authority, and he refused to consider relevant evidence on the damages issue. The defendant further contends that the award of damages must be modified. For the reasons set forth below, we affirm the judgment of the circuit court.
¶ 3 BACKGROUND
¶ 4 I. Securities Case
¶ 5 On April 19, 2002, the plaintiffs, members of the FFR group,  and the defendant entered into a retainer agreement (the 2002 retainer agreement) whereby the defendant agreed to "provide professional legal services to the [plaintiffs] to investigate and prosecute any and all claims which the [plaintiffs] may have against Deloitte & Touche, Jeffries Company, EPS Solutions Corporation and Enterprise Profit Solutions Corporation (collectively 'EPS') and others in connection with the [plaintiffs'] purchase of EPS stock." The 2002 retainer agreement provided that "[t]he [defendant] *** shall diligently investigate and prosecute the Claims. The [defendant's] obligation under this Agreement terminates upon the final settlement of the Claims or the entry of a final judgment of award by a court or other duly constituted authority (including an arbitrator), whichever shall first occur."
¶ 6 In consideration for the 2002 retainer agreement, the defendant was to receive "a contingent fee equal to twenty-five (25) percent of any and all money or other benefits recovered on the Claims." The 2002 retainer agreement set forth a formula to determine the defendant's and the plaintiffs' shares of any recovery. The plaintiffs were responsible for specified costs and expenses incurred by the defendant, including the need to hire outside counsel for ministerial assistance or to act as local counsel. But the defendant "may, at its expense, associate with any other lawyers for the prosecution of the Claims." If the costs exceeded $150, 000, the plaintiffs were entitled to a credit against the contingency fee for the amount of costs in excess of $150, 000.
¶ 7 The 2002 retainer agreement also contained an arbitration clause. The clause provided in pertinent part as follows:
"All claims relating in any way to the interpretation or application of this Agreement or arising out of this Agreement shall be resolved by arbitration. The arbitrators will add their costs to their ruling and the party who does not prevail will pay all costs of arbitration."
Finally, the 2002 retainer agreement required the plaintiffs' approval of any settlement or compromise of their claims.
¶ 8 The defendant pursued and resolved successfully the plaintiffs' claims with the exception of the claim against Deloitte & Touche. The only unresolved claim under the 2002 retainer agreement was against EPS, which had been held in abeyance because EPS was insolvent. The defendant retained the law firm of Morgan Lewis as its insurance coverage consultant. Following arbitration proceedings, the arbitrators entered an award for the plaintiffs and against EPS. EPS's insurers refused to pay the award.
¶ 9 II. Insurance Coverage Case
¶ 10 In September 2007, Morgan Lewis filed suit on behalf of the plaintiffs against the insurers. The defendant informed the plaintiffs that its representation of them pursuant to the 2002 retainer agreement had ended and that it did not handle insurance coverage work. However, Morgan Lewis had requested that the defendant provide limited assistance with the suit against the insurers. The defendant proposed to the plaintiffs that for its participation, it would be entitled to an hourly fee, which would be deferred until a recovery was obtained; if there was no recovery, the defendant would waive its hourly fee. Plaintiff Duemer questioned the applicability of the 2002 retainer agreement to the insurance coverage case and discussed the matter with the defendant several times during 2008. Subsequently, a settlement between the plaintiffs and EPS's insurers was reached.
¶ 11 In a letter dated May 25, 2010, attorney Tracy Cowart of the law firm of Eggleston and Briscoe advised the defendant that the firm had been retained by the plaintiffs to pursue their claims against the defendant in connection with the insurance settlement proceeds. Attorney Cowart asserted that the defendant failed to follow the formula for calculating the fees contained in the 2002 retainer agreement and charged the plaintiffs hourly fees, local counsel fees and unlimited expenses. Despite its assertion that the 2002 retainer agreement did not apply to the insurance coverage case, the defendant also charged the plaintiffs a 25% contingent fee of the insurance settlement proceeds under that agreement. Attorney Cowart maintained that the defendant had wrongfully converted client trust funds, made misrepresentations and breached its fiduciary duty to the plaintiffs. In response to attorney Cowart's May 25, 2010 letter, the defendant filed a demand for arbitration with JAMS arbitration services.
¶ 12 III. Arbitration Proceedings
¶ 13 In their request for relief, the plaintiffs claimed that the defendant collected legal fees under the 2002 retainer agreement to which it was not entitled. They alleged causes of action for breach of fiduciary duty, conversion and breach of contract and requested attorney fees and costs incurred in pursuing their claims against the defendant. In its answer to the request for relief, the defendant denied the claims and alleged the affirmative defenses of performance of an oral retainer agreement, waiver and equitable estoppel. The defendant also filed a counterclaim asserting a claim for quantum meruit. Retired Justice Robert E. Rose (arbitrator Rose) was chosen to arbitrate the dispute. Over a three-day period in May 2011, arbitrator Rose conducted an evidentiary hearing. The evidence included testimony by eight witnesses and exhibits submitted by the parties. At the close of the evidentiary hearing, the parties submitted written closing arguments.
¶ 14 A. The Interim Award
¶ 15 On July 8, 2011, arbitrator Rose issued his interim award. Based on the evidence from the hearing, he made findings of fact and conclusions of law as set forth below.
¶ 16 Arbitrator Rose found that the pursuit of a bad-faith insurance coverage claim was not contemplated by the parties under the 2002 retainer agreement. In an August 3, 2007 memorandum, the defendant advised the plaintiffs that once the final order was issued in the EPS arbitration case, " 'we have to begin collection efforts against EPS's insurers. Toward that end, we have already retained insurance coverage experts on our clients' behalf to lead us through the process of fighting every coverage challenge the insurers may assert.' " In a conference call on August 9, 2007, the defendant explained that coverage counsel had been retained for the plaintiffs to assist in recovering from EPS's insurers. Several of the plaintiffs did not recall that the defendant explained that it would be assisting coverage counsel and the terms of its assistance. The parties stipulated that some but not all the plaintiffs participated in the conference call. On September 25, 2007, the law firm of Morgan Lewis filed suit on behalf of the plaintiffs and against EPS's insurers.
¶ 17 Arbitrator Rose found that the plaintiffs were unaware that the defendant had previously retained the Morgan Lewis firm to assist it in the arbitration proceeding against EPS. It was not until the January 30, 2008 memorandum from the defendant that the plaintiffs were informed in writing that (1) the defendant considered it had fulfilled its obligations under the 2002 retainer agreement, (2) Morgan Lewis was the lead counsel in the suit against the EPS insurers and working on an hourly basis, and (3) the defendant was charging the plaintiffs a contingent hourly fee for its work performed in connection with the insurance case.
¶ 18 1. Undue Influence
¶ 19 Based on the evidence, arbitrator Rose determined that the defendant had not overcome the presumption of undue influence that arose when an attorney benefitted from the modification of an existing fee agreement. The August 3, 2007 memorandum did not mention that the defendant considered its obligations under the 2002 retainer agreement to be completed or that it would be charging the plaintiffs an hourly fee in addition to its 25% interest in all funds recovered. The memorandum never made it clear to the plaintiffs that a new fee agreement was being reached and did not advise the plaintiffs that they could seek independent legal advice as to the proposed retainer agreement. A considerable number of the plaintiffs did not participate in the August 9, 2007 conference call, and the defendant failed to establish by a presumption of the evidence the content of the conference call. While the January 30, 2008 memorandum did advise the plaintiffs that the defendant considered the 2002 retainer agreement terminated, that it would be charging a contingent hourly fee, and that Morgan Lewis would be the lead counsel, it did not state that the plaintiff should get independent counsel or that the defendant would be collecting its contingent fee and hourly billings, if the insurance suit was successful. As a result, the consideration charged for the new agreement was more than it would have been had the plaintiffs obtained independent counsel.
¶ 20 Arbitrator Rose found that the plaintiffs were presented with the terms of the 2007 retainer agreement on a " 'take it or leave it' " basis and that there was no meeting of the minds as to the terms of the new retainer agreement. In addition, the new retainer agreement was not reduced to writing in violation of Rule 1.5(c) of the Illinois Rules of Professional Conduct (Ill. R. Prof. Conduct (2010) R. 1.5(c) (eff. Jan. 1, 2010)). He found that the January 30, 2008 memorandum was untimely and inadequate to serve as a written contingent fee request. Arbitrator Rose concluded that the new retainer agreement must be set aside.
¶ 21 2. The Defendant's Counterclaim
¶ 22 Arbitrator Rose found no evidence to support the defendant's claim that the plaintiffs had breached any of the agreements they entered into with the defendant or that there was a basis for a quantum meruit recovery. He also rejected the defendant's waiver and estoppel defenses, based on evidence that plaintiff Duemer and the defendant ...