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Donald W. Fohrman & Associates, Ltd. v. Marc D. Alberts, P.C.

Court of Appeals of Illinois, First District, Sixth Division

March 14, 2014

DONALD W. FOHRMAN AND ASSOCIATES, LTD., Plaintiff and Counterdefendant-Appellant,
v.
MARC D. ALBERTS, P.C., and MARC D. ALBERTS, Individually and as Agent of Marc D. Alberts, P.C., Defendants and Counterplaintiffs-Appellees (Smith and Alberts, a Partnership, Defendant, Marc D. Alberts, P.C., and Marc D. Alberts, Third-Party Plaintiffs, Donald W. Fohrman, Third-Party Defendant)

As Corrected.

Appeal from the Circuit Court of Cook County. No. 2011 CH 03229. Honorable Stuart E. Palmer and Thomas Allen, Judges Presiding.

Affirmed.

SYLLABUS

In an action alleging that defendant breached an oral agreement under which plaintiff law firm referred certain personal injury and medical malpractice cases to defendant and was to share the fees with defendant, the trial court properly dismissed plaintiff's amended complaint, since the complaint did not completely comply with the requirements of Rule 1.5(e) of the Illinois Rules of Professional Conduct and plaintiff failed to meet its own fiduciary duty to disclose the referral agreement to its clients; furthermore, summary judgment was properly entered for defendant on the issue of the unenforceability of plaintiff's attorney liens.

Robinson Shapiro & Schwartz, LLC (Anthony M. Sciara, of counsel), and Mark L. Karno & Associates (Mark L. Karno, of counsel), both of Chicago, for appellant.

Tabet DiVito & Rothstein LLC, of Chicago (Gino L. DiVito, Mark H. Horwitch, and John M. Fitzgerald, of counsel), for appellees.

PRESIDING JUSTICE ROCHFORD delivered the judgment of the court, with opinion. Justices Lampkin and Reyes concurred in the judgment and the opinion.

OPINION

ROCHFORD, PRESIDING JUSTICE

Page 808

[¶1] Plaintiff, Donald W. Fohrman & Associates, Ltd. (Fohrman), a law firm, brought this suit against defendants, Mark D. Alberts, P.C., and Marc D. Alberts, a lawyer, individually and as agent of Marc D. Alberts, P.C. (together Alberts), and others. The parties' dispute arose out of an oral agreement for sharing attorney fees based solely on referrals by Fohrman, but the corresponding attorney-client representation agreements did not strictly comply with Rule 1.5(e) of the Illinois Rules of Professional Conduct (Rules). Ill. R. Prof. Conduct (2010) R. 1.5(e) (eff. Jan. 1, 2010). Fohrman, in addition to bringing this action, also served notices of attorney liens as to certain referred cases. Alberts challenged the liens in a counterclaim and

Page 809

third-party action. After the circuit court dismissed all counts of Fohrman's amended complaint with prejudice, it entered summary judgment in favor of Alberts and against Fohrman on the declaratory count of their amended counterclaim/third-party action after finding the liens were unenforceable. We affirm.

[¶2] BACKGROUND

[¶3] On January 25, 2011, Fohrman filed its original complaint against Alberts. Fohrman, which specializes in workers' compensation litigation, alleged it entered into an oral referral fee agreement (referral agreement) in 2005 with Alberts, which specializes in personal injury litigation. Pursuant to the referral agreement, Fohrman was to refer clients with personal injury and medical malpractice cases to Alberts and receive 50% of any attorney fees obtained from the referred cases. Fohrman alleged that Alberts agreed to regularly report on the status of the referred cases and promptly pay Fohrman its share of any fees. The complaint asserted the referral agreement gave rise to a fiduciary duty which Alberts owed to Fohrman and Alberts breached this duty by failing to fulfill their responsibilities under the referral agreement. Fohrman alleged, " [i]n each and every [referred] matter, the clients executed an attorney client agreement which reflected that [Fohrman] *** was co-counsel and entitled to be compensated out of any recovery to be had." The complaint attached a sample copy of the attorney-client agreement. The complaint included four counts against Alberts: breach of fiduciary duty (count I); accounting (count II); breach of contract (count III); and fraud (count IV). Fohrman later added a fifth count entitled: " TRO/Preliminary Injunction/Appointment of a Receiver" (count V).

[¶4] Alberts moved to dismiss the complaint pursuant to section 2-615 of the Code of Civil Procedure (the Code). 735 ILCS 5/2-615 (West 2010). Alberts argued in part that the attorney-client agreement attached to the complaint did not comply with Rule 1.5(e) in that it did not inform the client: (1) the primary service performed by Fohrman was the referral of the matter to Alberts; (2) whether Fohrman and Alberts were assuming joint financial responsibility for the representation; and (3) how the fees were to split. On April 4, 2011, the circuit court dismissed Fohrman's breach of contract claim with prejudice because the attorney-client agreement did not comply with Rule 1.5(e).

[¶5] The circuit court also dismissed Fohrman's remaining claims ( i.e., breach of fiduciary duty, accounting, fraud, and " TRO/Preliminary Injunction/Appointment of a Receiver" ) without prejudice. The circuit court allowed Fohrman an opportunity to amend its complaint as to these counts " to see if [it] can plead [itself] within the confines of the exception [as to the requirement that a fee-sharing agreement strictly comply with the ethical rules] that was set forth in the Holstein [ Holstein v. Grossman, 246 Ill.App.3d 719, 616 N.E.2d 1224, 186 Ill.Dec. 592 (1993)] case."

[¶6] On May 11, 2011, Fohrman filed its amended complaint which repled claims for breach of fiduciary duty (count I), accounting (count II), and fraud (counts V and VI), and included three new causes of action: (1) unjust enrichment (count III); (2) promissory estoppel (count IV); and (3) tortious interference with prospective economic advantage (count VII). The amended complaint also added Martin A. Smith, P.C., and Smith & Alberts--a law partnership of which Martin A. Smith, P.C., and Marc D. Alberts, P.C., were the general partners--as defendants.

Page 810

[¶7] According to the amended complaint, in early 2004 (not 2005 as alleged in the original complaint), Fohrman began referring its clients with personal injury and medical malpractice cases to Smith & Alberts pursuant to the referral agreement which Fohrman's president, Donald Fohrman, on behalf of Fohrman, entered into with Marc D. Alberts, on behalf of Smith & Alberts. The terms of the referral agreement were alleged to be:

" FOHRMAN would refer his clients to SMITH & ALBERTS, A Partnership, and in exchange for the referral, SMITH & ALBERTS, A Partnership, acting through MARC D. ALBERTS, would assure that all of FOHRMAN's clients were properly represented in their bodily injury claims; further that the co-counsel arrangement would be properly disclosed to the clients in conformity with all applicable Supreme Court Rules governing attorney discipline; that FOHRMAN, would be sharing equal legal responsibility for the progress of client matters; that FOHRMAN would receive periodic updates as to the progress of his clients' cases ***; and that FOHRMAN would receive 50% of whatever attorney fees that were generated by any particular personal injury claim of any of his clients that he referred to MARC D. ALBERTS who at the time of their agreement was acting on behalf of SMITH & ALBERTS, A Partnership."

Fohrman alleged that by virtue of the referral agreement, Fohrman and Alberts and Smith & Alberts formed a joint venture and owed one another fiduciary duties. The amended complaint described different categories of referred cases and set forth the following history and time line relating to the parties' course of conduct.

[¶8] According to the amended complaint, Fohrman initially referred 21 clients to Smith & Alberts who each signed an attorney-client agreement retaining only Smith & Alberts, but also signed a fee-sharing disclosure form (category I). Fohrman does not claim any nonpayment of referral fees as to this category.

[¶9] Fohrman alleged that in February 2005, Smith & Alberts, through Marc D. Alberts, changed the form of the attorney-client agreement and stopped using the fee-sharing disclosure form. After February 2005, the attorney-client agreements now provided that the referred client retained both Smith & Alberts and Fohrman and agreed to pay the attorneys 33 1/3% of any recovery. Fohrman alleged that Marc D. Alberts " assured Donald W. Fohrman that the [new client agreements were] in full compliance with all applicable Supreme Court Rules regarding the disclosures of co-counsel arrangements to clients." There were 54 referred cases in this category II group.

[¶10] The amended complaint alleged that on March 17, 2006, Alberts " presumptively ended its partnership in Smith & Alberts," and Alberts then began using yet another form of attorney-client agreement which listed Marc D. Alberts, P.C., and Fohrman as the attorneys retained and that the attorneys would be paid 33 1/3% of any recovery. Fohrman alleged that 143 clients (category III) were referred to Alberts after March 17, 2006. Fohrman alleged Marc D. Alberts assured him the attorney-client agreements for category III cases complied with the applicable Rules. Alberts allegedly failed to disclose that in 2008, Martin Smith had filed a complaint against Alberts and Smith & Alberts which raised an issue about referral fees paid to Fohrman on cases where the clients had not been informed of the referral agreement and Fohrman had not provided legal services to the clients.

Page 811

[¶11] The amended complaint included two cases in category IV where referral fees had not been paid. In both cases, Fohrman had represented the clients in their workers' compensation claims, which were settled for $1 so that the clients' third-party liability claims could be resolved expeditiously. Fohrman received no compensation for its representation on the workers' compensation matters, but expected that its referral fees as to the third-party liability claims would be paid. The amended complaint also described cases in a category V, which included cases in categories II and III, where the clients had both workers' compensation claims and third-party claims arising out of the same incidents. Fohrman claimed referral fees as to the third-party claims. Finally, Fohrman, in the amended complaint, also sought referral fees for an action that Alberts had brought on behalf of a minor child. The suit was related to and arose out of the same incident involving a referred case brought on behalf of the mother of the minor, who was pregnant with the minor at that time.

[¶12] The amended complaint contended that in November 2010, Marc D. Alberts admitted to Donald W. Fohrman that " he had not been totally truthful with him" and that he had not completed any status reports.

[¶13] The amended complaint attached copies of the various attorney-client agreements for referred clients. Fohrman alleged that based on the listing of Fohrman and Alberts, it was " presumptive" that the contingency fee would be split on a " 50/50 basis," and both firms " were equally responsible to the client for the progress of the case, and subject to liability should either law firm commit any malpractice."

[¶14] According to the amended complaint, from 2004 to August 2010, pursuant to the referral agreement, Fohrman was paid $733,512.83 in fees on 87 referred cases. Fohrman claimed, however, that beginning in April 2009, it had not received its 50% share of the attorney fees on certain referred cases which had settled, or had been otherwise resolved, and was owed in excess of $100,000.

[¶15] The amended complaint did not allege that Fohrman had in fact assumed joint financial responsibility on the referred cases and did not allege any worked performed by Fohrman on the matters referred to defendants. The amended complaint alleged the equal split of the fees could be presumed, but did not allege the ...


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