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Ferris, Thompson & Zweig, Ltd. v. Esposito

Supreme Court of Illinois

May 18, 2017

FERRIS, THOMPSON & ZWEIG, LTD., Appellee,
v.
ANTHONY ESPOSITO, Appellant.

          CHIEF JUSTICE KARMEIER delivered the judgment of the court, with opinion. Justices Freeman, Thomas, Kilbride, Garman, Burke, and Theis concurred in the judgment and opinion.

          OPINION

          KARMEIER CHIEF JUSTICE.

         ¶ 1 This appeal involves an action for breach of contract brought by one law firm against another after the defendant law firm refused to honor the fee-sharing provisions of the firms' joint client retainer agreements. A single question of law is presented: Are fee-sharing provisions in otherwise valid retainer agreements between clients and two separate law firms void and unenforceable if the primary service performed by one firm is the referral of the clients to the other but the agreements fail to specifically notify the clients that the lawyers in each firm have assumed joint financial responsibility for the representation?

         ¶ 2 Reversing the judgment of the circuit court of Lake County dismissing the plaintiff law firm's second amended complaint pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2014)), the appellate court answered that question in the negative, rejecting the defendant law firm's argument that the agreements' lack of an express statement that the attorneys assumed joint financial responsibility violated Rule 1.5(e) of the Illinois Rules of Professional Conduct of 2010 (eff. Jan. 1, 2010) and thereby rendered the agreements invalid. 2016 IL App (2d) 151148. In reaching this result, the court declined to follow the Appellate Court, First District's decision in Donald W. Fohrman & Associates, Ltd. v. Mark D. Alberts, P.C., 2014 IL App (1st) 123351, to the extent that case held that fee-referral agreements must expressly inform clients that the attorneys are assuming joint financial responsibility.

         ¶ 3 We allowed the defendant law firm's petition for leave to appeal in order to resolve the conflict between the appellate court's decision in this case and Fohrman. Ill. S.Ct. R. 315(a) (eff. Mar. 15, 2016). We also granted the Illinois Trial Lawyers Association leave to file a brief amicus curiae. Ill. S.Ct. R. 345 (eff. Sept. 20, 2010). For the reasons that follow, we affirm the judgment of the appellate court and remand the cause to the circuit court for further proceedings.

         ¶ 4 BACKGROUND

         ¶ 5 Our review in this appeal is guided by the procedural context from which it arose, a motion to dismiss under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)). Motions to dismiss under section 2-615 challenge the legal sufficiency of a complaint based on defects apparent on its face. When reviewing whether a motion to dismiss under section 2-615 should have been granted, we accept as true all well-pleaded facts and all reasonable inferences that may be drawn from those facts. The critical inquiry is whether the allegations of the complaint, when construed in the light most favorable to the plaintiff, are sufficient to establish a cause of action upon which relief may be granted. A cause of action should not be dismissed pursuant to section 2-615 unless it is clearly apparent that no set of facts can be proved that would entitle the plaintiff to recover. Kanerva v. Weems, 2014 IL 115811, ¶ 33. Whether the trial court erred in granting or denying a section 2-615 motion presents a question of law. Our review is therefore de novo. Imperial Apparel, Ltd. v. Cosmo's Designer Direct, Inc., 227 Ill.2d 381, 392 (2008).

         ¶ 6 The pleading at issue in this appeal is plaintiff's second amended complaint. That complaint contains 10 separate but similar counts alleging breach of written contracts for the division of attorney fees earned in representing clients with claims under the Workers' Compensation Act (820 ILCS 305/1 et seq. (West 2014)).[1]Attached to the complaint were copies of each of the retainer agreements signed by the various clients along with letters drafted by defendant and initialed by a representative of the plaintiff law firm confirming the terms of their respective obligations under each of the retainer agreements. Pursuant to section 2-606 of the Code of Civil Procedure (735 ILCS 5/2-606 (West 2014)), those exhibits constitute part of the pleadings and may be considered in evaluating whether the complaint is sufficient to withstand a motion to dismiss under section 2-615. Napleton v. Village of Hinsdale, 229 Ill.2d 296, 321 (2008).

         ¶ 7 According to the allegations of plaintiff's second amended complaint and the attached exhibits, plaintiff, Ferris, Thompson & Zweig, Ltd., is a Gurnee, Illinois, law firm. Between 2007 and 2010 it was retained by 10 clients to represent them on their Workers' Compensation Act claims. Plaintiff, in turn, contracted with the law offices of defendant, Anthony S. Esposito, for assistance in representing the clients before the Illinois Workers' Compensation Commission (Commission).

         ¶ 8 A letter of understanding was drafted by defendant for each of the 10 cases. Those letters confirmed that the cases had been referred to defendant by plaintiff, outlined the parties' respective responsibilities regarding representation of the clients, and specified that, among other things, the attorney fees obtained in each case would be split between plaintiff and defendant. Defendant would retain 55% of the fee plus reimbursement for costs his office had advanced. The remaining 45% of the fee would be paid to plaintiff. The letters of understanding further provided that the terms and conditions of the agreement between plaintiff and defendant were to be disclosed to the clients and were subject to the clients' approval and consent. As requested by defendant, a representative of the plaintiff law firm signed each of the letters of understanding to affirm that those letters properly stated "the essential terms and agreement reached between [the parties'] offices."

         ¶ 9 The terms and conditions of the referral agreements, including the provision for division of attorney fees, were disclosed to and approved by each of the 10 affected clients through written "attorney-client agreements."[2] When the client was more proficient in Spanish, the agreement was written in that language, but the substantive provisions were identical. The agreements began by specifying that plaintiff had contracted with defendant's law firm to pursue the client's workers' compensation claim. They then detailed the particular responsibilities plaintiff and defendant would assume with respect to the representation.

         ¶ 10 According to the agreements, plaintiff would do the following: (1) assist defendant with initial interviews and document preparation, (2) assist defendant with client contact and communication, (3) provide translation services, (4) represent the client in any related third-party action (with continued representation by defendant in certain circumstances), and (5) maintain a duplicate file containing any correspondence or filings associated with the client's claim. In return, plaintiff would be entitled to 45% of all attorney fees recovered on the claim.

         ¶ 11 The attorney-client agreements further provided that defendant would be responsible for (1) preparing any documents and obtaining all records necessary to disposing of the claim; (2) representing the client before the Workers' Compensation Commission[3] and conducting any investigations, negotiations, and processing necessary for concluding the claim; and (3) forwarding status reports to plaintiff at specified intervals or when significant developments occurred in connection with the claim. For these services, defendant was to receive 55% of all attorney fees recovered on the claim, plus reimbursement for costs advanced by defendant.

         ¶ 12 All 10 attorney-client agreements concluded with the statement "I understand and agree to the above terms and conditions" ("Yo entiendo y estoy de acuerdo con *** las condiciones escritos arriba" in the Spanish language versions) and were signed and dated by the client, by a representative of plaintiff, and by defendant.

         ¶ 13 According to plaintiff's second amended complaint, settlements were obtained for each of the 10 clients, yielding attorney fees ranging from $700 to $46, 000. The total fees for all 10 cases amounted to $109, 390.89. Under the terms of the attorney-client agreements, plaintiff was entitled to 45% of this sum. Defendant, however, refused to pay plaintiff its share of the fees. Plaintiff therefore sued defendant for breach of contract to recover the unpaid fees it was owed, plus prejudgment interest pursuant to the Interest Act (815 ILCS 205/0.01 et seq. (West 2010)).

         ¶ 14 Defendant moved to dismiss plaintiff's second amended complaint pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)). The sole basis for the motion was that the attorney-client agreements failed to comply with Rule 1.5(e) of the Illinois Rules of Professional Conduct of 2010 (eff. Jan. 1, 2010) and were therefore invalid because they failed to expressly state that the plaintiff assumed joint financial responsibility for representing the clients.

         ¶ 15 In response to defendant's motion, plaintiff did not dispute that where one lawyer refers a case to another not in the same firm and the primary service performed by the first lawyer is the referral, Rule 1.5(e) requires the attorneys to assume joint financial responsibility for the representation if they wish to retain the right to divide the fee. Although the agreements called for plaintiff to perform various services with respect to the cases, plaintiff likewise did not dispute the primary service it was to perform under each of the agreements was the referral to defendant and that, by entering into the agreement, it therefore assumed joint financial responsibility under Rule 1.5(e). Plaintiff contended, however, that nothing in the rule required that its assumption of joint financial responsibility be expressly stated in the attorneys' contracts with the clients. In plaintiff's view, the absence of such an express statement therefore did not render void and unenforceable what were otherwise proper agreements. Plaintiff further argued that defendant should be collaterally estopped from challenging the validity of the agreements based on failure to comply with Rule 1.5(e) because defendant had raised the identical argument in an earlier, related case, the circuit court had rejected it, and defendant then elected not to challenge the circuit court's ruling in an earlier appeal.

         ¶ 16 In a written order filed July 2, 2015, the circuit court granted defendant's motion to dismiss. The court rejected plaintiff's estoppel argument and concluded that the language of Rule 1.5(e) required the parties' agreements with their clients to include a provision expressly providing that each lawyer would assume joint financial responsibility for the representation. It based this interpretation of the rule on the Appellate Court, First District's opinion in Donald W. Fohrman & Associates, Ltd. v. Mark D. Alberts, P.C., 2014 IL App (1st) 123351, ¶¶ 36, 41, 55, which held (1) that referral agreements involving the division of fees between lawyers who are not in the same law firm are not enforceable unless they strictly comply with the provisions of Rule 1.5(e) and (2) that the requirement of strict compliance was not met in the matter before it where, among other things, the attorney-client agreements failed to provide that the lawyers had assumed joint financial responsibility for the matters. Because none of the 10 fee agreements at issue in this case specifically addressed the joint financial responsibility of the attorneys, the circuit court here held that the agreements were likewise fatally defective and that plaintiff's complaint must therefore be dismissed with prejudice.

         ¶ 17 Plaintiff appealed. The appellate court agreed with the holding in Fohrman that for a fee-sharing agreement to be enforceable, the attorneys involved in the agreement must strictly comply with Rule 1.5(e) of the Illinois Rules of Professional Conduct of 2010. 2016 IL App (2d) 151148, ¶ 11. Contrary to the Fohrman court, however, the appellate court rejected the view that strict compliance required referral agreements involving fee sharing to expressly provide that the lawyers assume joint financial responsibility. Id. ¶¶ 12-13. The lawyers did have to assume joint financial responsibility; there was no dispute about that. That they were doing so, however, did not need to be specifically laid out in their agreement with the client. Under the appellate court's reading of Rule 1.5(e), taking into account the rule's language (id.), committee comments (id. ¶ 14), and history (id. ¶¶ 15-18), "the only thing that the written referral agreement must contain is an express statement that the client agrees to the referral and the proportion of attorney fees that each attorney involved in the referral agreement will receive" (id. ¶ 13). Both requirements were satisfied in each of the 10 agreements at issue in this litigation. The appellate court therefore reversed the judgment of the circuit court granting defendant's motion to dismiss and remanded to the circuit court for further proceedings.

         ¶ 18 Defendant filed no brief when this matter was before the appellate court. Id. ¶ 7. After the appellate court ruled in favor of plaintiff, however, defendant petitioned for leave to appeal to our court. Ill. S.Ct. R. 315(a) (eff. Mar. 15, 2016). We allowed that petition. As noted at the outset of the opinion, we also granted the Illinois Trial Lawyers Association leave to file a brief amicus curiae. Ill. S.Ct. R. 345 (eff. Sept. 20, 2010).

         ¶ 19 ANALYSIS

         ¶ 20 As grounds for this appeal, defendant contends that the appellate court's construction of Rule 1.5(e) in this case was erroneous; that the interpretation of Rule 1.5(e) followed by the appellate court in Donald W. Fohrman & Associates, Ltd. v. Mark D. Alberts, P.C., 2014 IL App (1st) 123351, was the correct one; that under Fohrman, all 10 of the agreements involved in this case were invalid and unenforceable; and that the circuit court therefore properly dismissed plaintiff's cause of action in its entirety.

         ¶ 21 Rule 1.5(e) is part of the Rules of Professional Conduct of 2010, a comprehensive set of rules adopted in July 2009 and effective January 1, 2010, to replace the Illinois Rules of Professional Conduct. Because the Illinois Rules of Professional Conduct of 2010 are a component of the Illinois Supreme Court Rules, we interpret its provisions, including Rule 1.5(e), just as we would other supreme court rules. See, e.g., People v. Santiago, 236 Ill.2d 417, 428 (2010).

         ¶ 22 The applicable standards are well established. Illinois Supreme Court Rules are construed using the same principles that govern the interpretation of statutes. People v. Roberts, 214 Ill.2d 106, 116 (2005). When construing a rule of the supreme court, a court's primary goal is to ascertain and give effect to the intent of the drafters. The most reliable indicator of that intent is the language used, given its plain and ordinary meaning. In determining the plain meaning of the rule's terms, a court must consider the rule in its entirety, keeping in mind the subject it addresses and the apparent intent of the drafters in enacting it. Courts will also interpret the rule so that no part of it is rendered meaningless or superfluous and will ...


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