First National Bank v. Malpractice Research, Inc. ( 1997 )

First National Bank v. Malpractice Research, Inc.,

              Docket No. 82787--Agenda 28--September 1997.

   FIRST NATIONAL BANK OF SPRINGFIELD, Guardian of the Estate of Christy L.

   Mollet, a Minor, et al., Appellants, v. MALPRACTICE RESEARCH, INC., d/b/a The

            Medical Quality Foundation, et al., Appellees.

                   Opinion filed December 18, 1997.

         JUSTICE MILLER delivered the opinion of the court:

         The plaintiffs bring this appeal from a decision of the appellate court

   determining that the defendants were entitled to recover the contingent fee specified in a

   contract entered into by the parties. 285 Ill. App. 3d 440. Under the terms of the

   agreement, the defendants were to attempt to provide the plaintiffs with expert witnesses

   and were to be available as consultants in a medical malpractice action previously filed by

   the plaintiffs. The circuit court of Montgomery County had reached the opposite

   conclusion, finding that the contract was void as contrary to public policy. The trial court

   had awarded the defendants $14,975 in damages, however, on a quantum meruit basis for

   work they performed under the contract. At issue in this appeal is whether the parties'

   contingent-fee contract is void and unenforceable and, if so, whether the defendants may

   instead recover damages on a theory of quantum meruit. We now reverse the judgment of

   the appellate court and affirm in part and reverse in part the judgment of the circuit court.

         The procedural history of this case is uncomplicated. The plaintiffs, Christy

   L. Mollet, a minor, and her parents, Michael and Janice Mollet, retained attorney Douglas

   Marti for the purpose of pursuing a medical malpractice action arising from injuries

   Christy sustained at or around the time of her birth. Marti subsequently filed an action on

   the plaintiffs' behalf in the circuit court of Montgomery County. At Marti's suggestion,

   in 1983 the Mollets entered into a contract with the defendants, Malpractice Research, Inc.,

   d/b/a the Medical Quality Foundation, and its founder and head, H. Barry Jacobs, M.D.

   (collectively, the Foundation). Under the agreement, which bore the title "Contract to

   Defray Costs of Litigation," the Foundation was to attempt to locate and retain expert

   witnesses in behalf of the Mollets in their malpractice action. Dr. Jacobs was also to make

   himself available to plaintiffs' counsel for the purpose of answering medical questions and

   to otherwise act as a consultant in the case. The contract required the Mollets to pay the

   Foundation a contingent fee of 20% of any recovery they achieved in the underlying

   malpractice action; the contract further specified $10,000 as liquidated damages in the

   event that the plaintiffs failed to honor the terms of the agreement. Also, the contract

   required the plaintiffs to pay the fees of the experts retained by the Foundation. Unlike the

   Foundation, however, the experts were to be paid a flat rate of compensation, with their

   fees dependent on the amount of time spent on the case. The contract did not restrict the

   plaintiffs in finding and retaining expert witnesses on their own.

         Because Christy Mollet was a minor, the Foundation later asked the

   plaintiffs to obtain court approval of the contract. In their petition to the court, the

   plaintiffs asserted that they had "insufficient financial resources with which to properly

   prepare their case without entering into the attached contract." The circuit court of

   Montgomery County approved the parties' contract on January 3, 1986, in an uncontested

   proceeding.

         At some point in 1986, after the contract was approved, the Mollets' original

   attorney, Douglas Marti, referred the case to another lawyer, John Hefner. Hefner later

   obtained a voluntary dismissal of the Mollets' original action (see Ill. Rev. Stat. 1985, ch.

   110, par. 2--1009), and he subsequently filed a new action in the circuit court of

   Montgomery County, naming additional parties as defendants. At various times the

   Foundation tried to contact Hefner, both by letter and telephone, to offer assistance and

   to check on the progress of the case. Hefner ignored the Foundation's attempts to reach

   him. Represented by Hefner, the Mollets eventually settled their malpractice claims for a

   total of $500,000, and the terms of the settlement were approved in an order entered June

   12, 1991, in the circuit court of Montgomery County. The Mollets then commenced the

   present action for a declaratory judgment, requesting a determination of their obligations

   under the contract with the Foundation.

         The Foundation entered a special and limited appearance, seeking to enforce

   a forum selection clause in the contract that required that any action relating to the parties'

   agreement be brought in the circuit court of Fairfax County, Virginia. The judge ruled that

   the forum selection clause was invalid because the contract itself was void as contrary to

   public policy. The Foundation later filed a counterclaim, seeking in count I a total of

   $110,000 in damages, representing 20% of the Mollets' $500,000 recovery in the

   underlying medical malpractice action, plus $10,000 in liquidated damages. In count II of

   the counterclaim, the Foundation alternatively sought damages from the plaintiffs on a

   theory of quantum meruit.

         The Mollets moved for summary judgment on both counts of the

   Foundation's counterclaim. The trial judge, who was different from the judge who had

   previously ruled on the Foundation's special and limited appearance, entered summary

   judgment in the Mollets' favor on count I, finding persuasive the earlier determination that

   the contract was void as contrary to public policy. The trial judge denied the Mollets'

   motion for summary judgment on count II, however, rejecting their argument that the

   invalidity of the contract precluded the Foundation from pursuing a quantum meruit theory

   of recovery. The matter then proceeded to a bench trial on count II. Because attorney

   Hefner was to appear as a witness, he withdrew from his representation of the Mollets and

   new counsel appeared on their behalf. Following testimony by Dr. Jacobs, Mr. and Mrs.

   Mollet, and Hefner, the trial judge awarded the Foundation $14,975 in damages, plus costs.

         The Foundation appealed from the order granting the Mollets summary

   judgment on count I of the counterclaim, and the Mollets filed a cross-appeal from the

   judgment in favor of the Foundation on count II. The appellate court concluded that the

   contract between the Mollets and the Foundation was enforceable and did not violate

   public policy. 285 Ill. App. 3d 440. The appellate court thus held that the Foundation was

   entitled to a fee of $100,000, representing 20% of the $500,000 settlement achieved by the

   Mollets in the malpractice action. The appellate court also concluded that the Foundation

   could not recover liquidated damages in this case, citing Telenois, Inc. v. Village of

   Schaumburg, 256 Ill. App. 3d 897, 902 (1993). Having permitted the Foundation to

   recover on count I of its counterclaim, the appellate court found it unnecessary to address

   count II and accordingly vacated that part of the circuit court judgment. We allowed the

   Mollets' petition for leave to appeal. 166 Ill. 2d R. 315(a). We also granted leave to

   amicus curiae, the Illinois State Bar Association, to submit a brief in support of the

   plaintiffs. 155 Ill. 2d R. 345. We now reverse the judgment of the appellate court and

   affirm in part and reverse in part the judgment of the circuit court of Montgomery County.

         The question before us in this case is whether contingent fees may be paid

   to persons who obtain expert witnesses in behalf of parties to litigation. If contingent fees

   may not be paid, then we must decide whether the Foundation is entitled to recover on a

   theory of quantum meruit.

         As a preliminary matter, we reject the defendants' suggestion that we apply

   Virginia law in determining the validity of the parties' contract. One cannot rely on foreign

   law to enforce a contract that is illegal in the forum, and Illinois has the stronger interest

   in the outcome of the controversy. See Maher & Associates, Inc. v. Quality Cabinets, 267

   Ill. App. 3d 69 (1994). We must therefore determine whether, under the law of our state,

   the contingent fee contract is valid.

         Courts in other states are divided on the question, with some jurisdictions

   finding contracts like this one to be violative of public policy (see Dupree v. Malpractice

   Research, Inc., 179 Mich. App. 254, 445 N.W.2d 498 (1989); Polo v. Gotchel, 225 N.J.

   Super. 429, 542 A.2d 947 (1987)) and other jurisdictions upholding them (see Ojeda v.

   Sharp Cabrillo Hospital, 8 Cal. App. 4th 1, 10 Cal. Rptr. 230 (1992); Schackow v.

   Medical-Legal Consulting Service, Inc., 46 Md. App. 179, 416 A.2d 1303 (1980)). The

   Foundation notes that contracts like the one at issue here have been approved in

   uncontested trial court proceedings in Illinois and elsewhere.

         The power to declare a private contract void as contrary to public policy

   will be used sparingly. Describing the considerations that come into play in such a

   determination, this court has previously stated:

              "In considering whether any contract is against public policy it

                  should be remembered that it is to the interests of the public that

                  persons should not be unnecessarily restricted in their freedom to

                  make their own contracts. Agreements are not held to be void, as

                  being contrary to public policy, unless they be clearly contrary to

                  what the constitution, the statutes or the decisions of the courts have

                  declared to be the public policy or unless they be manifestly

                  injurious to the public welfare." Schumann-Heink v. Folsom, 328 Ill.

                  321, 330 (1927).

         We believe that Illinois case law demonstrates that the present agreement

   is void as contrary to the public policy of this state. In Gillett v. Board of Supervisors, 67

   Ill. 256 (1873), this court strongly condemned the use of contingent fee contracts for

   witness finders. Gillett involved an agreement under which a county, which was seeking

   to challenge the results of a special election, agreed to compensate the plaintiff for

   obtaining witnesses to testify that illegal votes had been cast in the disputed election. The

   agreement called for the county to pay the plaintiff a certain sum depending on the number

   of illegal votes established by the evidence, and an additional amount of $1,200 if the

   county prevailed in the dispute. In disapproving the contract, the court recognized that

   there was no evidence "of any corrupt means, or any corrupt design" on the part of the

   county. Gillett, 67 Ill. at 261. The court continued:

                   "But the contracts, themselves, are pernicious in their nature.

                  They created a powerful pecuniary inducement on the part of the

                  agents so employed, that testimony should be given of certain facts,

                  and that a particular result of the suit should be had. A strong

                  temptation was held out to them to make use of improper means to

                  procure the needful testimony, and to secure the desired result of the

                  suit. The nature of the agreement was such as to encourage attempts

                  to suborn witnesses, to tamper with jurors, and to make use of other

                  `base appliances' in order to secure the necessary results which were

                  to bring to these agents their stipulated compensation.

                   The tendency of such arrangements must be to taint with

                  corruption the atmosphere of courts, and to pervert the course of

                  justice. A pure administration of justice is of vital public concern.

                  It tends to evil consequences that any such venal agency, as is

                  constituted by these contracts, should have a part in the conduct of

                  judicial proceedings where the attainment of right and justice is the

                  end." Gillett, 67 Ill. at 261.

         The Gillett court concluded its discussion with this prophetic warning:

                   "Should contracts of this character receive countenance, we

                  might, among the multiplying forms of agency of the time, have to

                  witness the scandalous spectacle of a class of agents holding

                  themselves out to the public as professional procurers of desired

                  testimony for litigants in court, for pay, contingent upon success in

                  their suits." Gillett, 67 Ill. at 261.

         A later case, Goodrich v. Tenney, 144 Ill. 422 (1893), addressed a similar

   question. In Goodrich, Tenney, an attorney, had agreed to pay Goodrich 25% of what

   Tenney was able to collect in a lawsuit seeking to invalidate a debtor's transfers of

   property to others. Under the agreement, Goodrich was to obtain affidavits and witnesses

   supporting Tenney's contention that the transfers were invalid. The court held that the

   parties' agreement violated public policy:

                   "The English reports, as well as American, abound with

                  cases holding that contracts are illegal when founded upon a

                  consideration, contra bonos mores, or against the principles of

                  sound public policy, or founded in fraud, or in contravention of the

                  provisions of some statute [citation]; and we need not review the

                  cases illustrating the application of the rule. *** In Gillett v. Logan

                  County, supra, the contracts were to pay for procuring testimony

                  showing that a certain number of votes cast at an election were

                  illegal, and we said that: `On account of their corrupting tendency

                  we must hold them to be void as inconsistent with public policy.'

                  It was also there said, in effect, that such contracts created a

                  powerful inducement to make use of improper means to procure the

                  testimony contracted for, to secure the desired result; that they led

                  to the subornation of witnesses, to taint with corruption the

                  atmosphere of courts and to pervert the course of justice." Goodrich,

                  144 Ill. at 428-29.

   The court in Goodrich allowed that testimony obtained pursuant to the contract might be

   truthful, yet the court did not believe that its truthfulness would be sufficient to save the

   contract:

              "If transactions of this kind should receive sanction, and contracts

                  based upon them be enforced, the suborner of perjury would become

                  a potent, if not a necessary, factor in litigation. The fact that

                  purchase was made in good faith would be no protection to the

                  buyer; premium would be offered to the dishonest and unscrupulous,

                  and would result in the perversion of justice and bringing its

                  administration into deserved disrepute. It is not enough that the

                  parties may have intended no wrong, or that the testimony produced

                  in the case may have been true, it is the tendency of such contracts

                  to the perversion of justice, that renders them illegal." Goodrich,

                  144 Ill. at 431.

         We believe that problems like the ones identified in Gillett and Goodrich

   also afflict the Foundation's agreement with the Mollets, for the parties' contract in this

   case contains the same financial incentives that might improperly guide the choice of

   witnesses. See O'Hara v. Ahlgren, Blumenfeld & Kempster, 127 Ill. 2d 333, 342-43 (1989)

   (invalidating fee-splitting agreement between attorney's widow and law firm). The

   Foundation, however, argues that the present agreement is much different from the

   agreements found invalid in Gillett and Goodrich. The Foundation notes that the present

   contract involves expert witnesses rather than fact or occurrence witnesses. The Foundation

   also observes that the contracts at issue in Gillett and Goodrich called for testimony of an

   express nature to support the underlying cause of action; in the present case, in contrast,

   the Foundation makes no guarantee of what the experts it locates might say in their

   testimony. The Foundation further notes that its employees, who stand to benefit from the

   bargained-for contingent fee, do not testify, while the experts it retains, and who do testify,

   are compensated at a flat rate.

         We find the asserted distinctions to be unpersuasive. We believe that the

   same evils identified by the court many years ago in Gillett and Goodrich operate here.

   A witness finder of the type used in this case has the same incentive to locate a person

   who will maximize the finder's own recovery and not simply serve as a reliable witness,

   a practice Gillett and Goodrich decried. The involvement of an expert witness, as in this

   case, rather than an occurrence witness, as in Gillett and Goodrich, does not alter the

   analysis: the same improper motivation to the finder may be present with either type of

   witness. We realize, as the Foundation emphasizes, that the contingent fee required by the

   present contract is not paid to the expert witnesses located by the Foundation. The same

   arrangement was present in Gillett and Goodrich, however, and those cases still found the

   contingent fee agreements to be invalid. Moreover, unlike attorneys, who may be paid on

   a contingent-fee basis, witness finders operate outside the supervision of the courts and are

   not restricted by any ethical or statutory limitations on the amounts of their fees. We

   believe that the contract at issue here falls squarely within the prohibition previously

   recognized by this court in Gillett and Goodrich and thus violates public policy.

         Further support for our conclusion that the parties' contract violates public

   policy may be found in an ethics opinion promulgated in 1986 by amicus curiae Illinois

   State Bar Association. See ISBA Op. No. 86--3 (July 7, 1986). The opinion addresses a

   question related to the one involved in the present appeal--whether an attorney may

   recommend that a client contract, on a contingent-fee basis, with a witness finder for the

   services of an expert witness. Like Rule 3.3(a)(15) of the current Rules of Professional

   Conduct (134 Ill. 2d R. 3.3(a)(15)), former Rule 7--109 of the Code of Professional

   Responsibility prohibited the payment of a contingent fee directly to a witness. The ethics

   opinion stated:

                   "Therefore, the ultimate question presented in this instance

                  is the propriety of entering into such a contingent fee arrangement

                  with a finder agency. Whether the attorney contracts himself or

                  acquiesces in his client doing so does not change our analysis, nor

                  does the `insulation' differential that the finder agency's fee is

                  contingent whereas the expert witness' fee is a fixed amount.

                   The basis substance of the arrangement, no matter how

                  cloaked, is the outcome of the case. If very favorable, the finder's

                  fee is enlarged; if unfavorable, the fee diminishes. The outcome, of

                  course, is dependent, to a degree in each instance, on the testimony

                  of the expert witness. In some instances the outcome could be

                  wholly dependent on the expert's testimony."

   The bar committee concluded that the arrangement was an invalid attempt to circumvent

   the rule barring the payment of contingent fees to witnesses. To be sure, opinions of the

   organized bar are merely advisory and are not binding on the courts. Still, we find the

   advisory opinion to provide further support for our determination that the subject contract

   is void as contrary to public policy.

         As a final matter, we disagree with the Foundation's contention that the

   Mollets are now estopped from challenging the validity of the contract, or that laches

   precludes the grant of any relief to the Mollets. The Mollets are not equitably estopped

   from challenging the validity of the contract, for "a party to a contract which is contrary

   to public policy is not precluded from raising its illegality as a defense." O'Hara v.

   Ahlgren, Blumenfeld & Kempster, 127 Ill. 2d 333, 349 (1989). Nor do we believe that

   laches is applicable here. "Laches is an equitable principle which bars recovery by a

   litigant whose unreasonable delay in bringing an action for relief prejudices the rights of

   the other party." People ex rel. Daley v. Strayhorn, 121 Ill. 2d 470, 482 (1988). The

   Mollets filed their complaint for declaratory relief immediately after they settled their

   medical malpractice action, and thus we do not believe that they delayed unreasonably in

   seeking a determination of their obligations under the challenged contract. Initiating the

   declaratory judgment action before the settlement of the malpractice claims would have

   been premature, for their potential liability under the contingent fee contract could not have

   been known prior to that time.

         Having determined that the parties' contract is unenforceable, we must next

   decide whether the Foundation is entitled to recover damages on a quantum meruit theory.

   Quantum meruit means, literally, " `as much as he deserves.' " Romanek-Golub & Co. v.

   Anvan Hotel Corp., 168 Ill. App. 3d 1031, 1041 (1988). The trial court awarded the

   Foundation damages of $14,975, plus costs, on the Foundation's quantum meruit claim.

   A party seeking recovery on a quantum meruit theory must demonstrate the performance

   of services by the party, the conferral of the benefit of those services on the party from

   whom recovery is sought, and the unjustness of the latter party's retention of the benefit

   in the absence of any compensation. See In re Estate of Callahan, 144 Ill. 2d 32, 40

   (1991). The Mollets contend that the Foundation has failed to show any of the elements

   it is required to establish in support of a quantum meruit claim. In addition, the Mollets

   maintain that the invalidity of the underlying contract precludes the Foundation from

   pursuing recovery on a quantum meruit basis.

         As a preliminary matter, we agree with the Mollets that the Foundation

   failed to show that its activities conferred any benefit on them, and thus we believe that

   the trial judge's finding in favor of the Foundation is against the manifest weight of the

   evidence. At trial on count II of the Foundation's counterclaim, Dr. Barry Jacobs, head of

   the Foundation, testified regarding the work performed by the Foundation on behalf of the

   Mollets under the terms of the agreement. According to this testimony, the Foundation

   located a number of expert witnesses for the plaintiffs' original counsel, examined medical

   records, and prepared reports. John Hefner, the Mollets' second attorney in the malpractice

   action, also testified, stating that he did not rely on the experts or reports or anything else

   provided by the Foundation. Hefner also explained that he reviewed deposition testimony

   provided by experts retained in this case by the Foundation and did not believe that the

   individuals would have been good witnesses. The Foundation's counsel asserted at trial

   that the Foundation's work kept the case alive until new counsel entered his appearance.

   The Foundation did not show the progress of the medical malpractice litigation, however,

   or the stage to which it had proceeded when the Mollets obtained a voluntary dismissal

   of the suit. In sum, all the Foundation's work preceded Hefner's arrival; Hefner's

   testimony shows, however, that he did not make use of the Foundation's efforts. Because

   the Foundation has failed to show that its activities conferred any benefit on the Mollets,

   its quantum meruit claim necessarily fails. See Bank of Alton v. Bowman, 198 Ill. App. 3d

   329, 331 (1990).

         More generally, we also believe that the invalidity of the contract now

   precludes the Foundation from obtaining relief on a quantum meruit theory for work it

   performed in furtherance of the agreement. See Licciardi v. Collins, 180 Ill. App. 3d 1051,

   1062-63 (1989); Leoris v. Dicks, 150 Ill. App. 3d 350, 354 (1986). Dupree v. Malpractice

   Research, Inc., 179 Mich. App. 254, 445 N.W.2d 498 (1989), involving the same

   defendants as those here, similarly refused to allow recovery on a quantum meruit basis,

   once it decided that the contract violated public policy.

         For the reasons stated, the judgment of the appellate court is reversed, and

   the judgment of the circuit court of Montgomery County is affirmed in part and reversed

   in part.

   Appellate court judgment reversed;

                             circuit court judgment affirmed in part

                                                 and reversed in part.