Dowling v. Chicago Options Associates, Inc. ( 2006 )

SECOND DIVISION
MARCH 31, 2006
No. 1-05-1426
BRIAN DOWLING, ) Appeal from the
) Circuit Court of
Plaintiff-Appellee and ) Cook County.
Judgment Creditor, )
)
v. )
) No. 96 CH 4430
CHICAGO OPTIONS ASSOCIATES, INC., and )
MICHAEL E. DAVIS, )
)
Defendants )
)
(Supplementary Proceedings Against DLA ) The Honorable,
Piper, Rudnick, Gray, Cary, (US), LLP, ) Mary Anne Mason,
) Judge Presiding.
Third-Party Citation Respondent )
and Appellant). )
PRESIDING JUSTICE GARCIA delivered the opinion of the court.
This appeal comes to us from supplementary proceedings
instituted by the plaintiff, Brian Dowling, against DLA Piper,
Rudnick, Gray and Cary, LLP (Piper Rudnick). Dowling instituted
the supplementary proceedings to enforce judgments entered
against Piper Rudnick's client, Michael Davis, which totaled
$817,830.45. On appeal, Piper Rudnick argues that the circuit
court exceeded its authority when it ordered Piper Rudnick to
turn over the retainer funds deposited by Davis in anticipation
of legal services.
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BACKGROUND
In May and October 2002, the circuit court entered judgments
totaling $817,830.45, in favor of Dowling and against Davis.
These judgments became final and enforceable on February 28,
2003.
On February 26, 2003, Piper Rudnick began its representation
of Davis and his wife and an engagement letter was signed,
stating in pertinent part:
"Re: Client Engagement; 308813-000020
Dear Michael and Emily:
We are pleased to have the opportunity
to represent you regarding your purchase of a
home in Florida and to give you general
advice regarding asset protection.
* * *
We customarily send monthly invoices for
services rendered and other charges incurred
for your account during the previous month.
The monthly invoice details the work
performed and the types of charges incurred.
Payment will be due thirty (30) days after
the date of our invoice. ***
You have authorized us to allocate
$100,000 of the cash on hand as a retainer.
These funds will be applied toward payment of
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the final monthly invoice containing entries
with respect to the above-referenced matter
and will be subject to repayment by us if the
amount of our fees for work done and costs
incurred that remain unpaid do not equal the
amount of the retainer then held by us.
Under such circumstances, the balance of the
retainer would then be returned to you when
our representation of you on this matter
ceases.
* * *
Finally, I remind you that we are taking
very aggressive positions to attempt to
protect your assets and satisfy your related
concerns. These positions are likely to be
attacked in litigation in Florida or
Illinois. While we believe that our advice
will, more likely than not, be upheld in
court, given the animosity between you and
the judgment creditor, litigation is a
virtual certainty."
On March 19, 2003, Davis and his wife transferred
$100,094.72 to Piper Rudnick from their Bank of America bank
account (the March 2003 retainer funds). Between March 19, 2003,
and July 10, 2003, Piper Rudnick applied $12,518.19 of the March
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2003 retainer funds to bill numbers 1358074, 1365234, 1384802,
and 1395768. These bills covered work Piper Rudnick performed in
connection with the purchase of Davis's home in Florida.
In September 2003, Dowling instituted supplementary
proceedings against Davis and issued citations to discover assets
and turnover orders to third parties. On October 17, 2003,
Dowling issued a citation to discover assets to "Piper Rudnick
LLP Trust." The citation was based on a document received by
Dowling's attorneys from North Shore Community Bank and Trust
Company (North Shore Bank). The document identified a wire
transfer, dated February 18, 2003, which showed $1,580,506.86,
flowing from an account held by "Michael Davis, a.k.a. 4637 Manor
LLC" to "Piper Rudnick LLP Trust" account number 1405360564. A
note written by Dowling's attorney to Piper Rudnick on October
28, 2003, stated that, "[t]his appears to be a transfer of funds
made by Michael E. Davis to a bank in Florida with the intent of
avoiding payment of our judgment." On November 10, 2003, Piper
Rudnick applied $9,496.71 of the March 2003 retainer funds to
bill number 1439429, for services provided in connection with
Dowling's supplementary proceedings.
On November 20, 2003, attorney Gerald B. Lurie (Attorney
Lurie) of Piper Rudnick appeared in response to Dowling's motion
and represented that Piper Rudnick was holding no funds in its
trust account for Davis. There is no transcript from the
November 2003 hearing; however, there is a written order
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reflecting that the circuit court denied Dowling's motion as
moot, stating: "(2) [The] plaintiff's motion for turnover order
directed to Piper Rudnick LLP is denied as moot, on Piper Rudnick
LLP's representation that it holds no money in its trust account
belonging to Davis."
On November 21, 2003, Attorney Lurie delivered records
reflecting activity on Davis's Bank of America account from which
the March 2003 retainer funds had been paid to Piper Rudnick. On
December 3, 2003, Piper Rudnick applied $19,699.08 of the March
2003 retainer funds balance to bill number 1452051, dated
December 3, 2003, for services provided to resist Dowling's
efforts to reach Davis's assets.
On December 9, 2003, Davis appeared for his citation
examination. During Davis's examination, Dowling's attorney and
Davis's attorney discussed the March 2003 retainer funds that had
been paid to Piper Rudnick. Dowling's attorney opined that
Attorney Lurie had made a misrepresentation to the circuit court
in November 2003, when he asserted that Piper Rudnick held no
money in its trust account for Davis. Dowling's attorney opined
that the available balance of the retainer as of October 27,
2003, the date Dowling issued a citation to discover assets to
Piper Rudnick, should have been disclosed pursuant to the
citation. Davis's attorney maintained that the remaining
retainer funds were not Davis's property. In pertinent part, the
conversation between Dowling's attorney, Daniel J. Voelker
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(Attorney Voelker), and Attorney Lurie was as follows:
"[Attorney Voelker]: I guess I am
confused because your [Davis's] lawyers have
gone on record and said they do not hold any
money as a retainer for you, but you're
saying they do?
[Attorney Lurie]: Well, wait a minute.
[Attorney Voelker]: That is what your
letter said to me. That is what you
represented to the Court. That you...
[Attorney Lurie]: I said we didn't hold
any money that was owing to Mr. Davis.
[Attorney Voelker]: We asked for a
turnover of any money you have on retainer.
[Attorney Lurie]: No.
[Attorney Voelker]: Yeah, we did. I'm
sure we did.
[Attorney Lurie]: No, you did not. Any
money on retainer is all we...
[Attorney Voelker]: We have a major
problem here.
[Attorney Lurie]: We may have a
disagreement.
[Attorney Voelker]: I think you have
misrepresented your situation to the Court.
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[Attorney Lurie]: I said we were not
holding any funds that were due to Mr. Davis.
[Attorney Voelker]: If it is a retainer
and it isn't earned it is due to him. It is
an advanced retainer. It is our money.
[Attorney Lurie]: I don't think so.
[Attorney Voelker]: So we'll resolve
that issue.
[Attorney Lurie]: I agree, but don't say
I misrepresented...
[Attorney Voelker]: I think you did. I
have a right to my opinion. I think you did.
[Attorney Lurie]: You sure do.
[Attorney Voelker]: We'll take immediate
action on it.
* * *
[Attorney Lurie]: You said that I told
the Court we weren't holding any money on
retainer. Your motion for a turnover order
in your citation were in issue to Piper
Rudnick's trust account. We have no money in
a trust account for Mr. Davis. Our trust
account was cleared of any funds owed to Mr.
Davis in March. The money that we are
holding as a retainer that is held in our
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account is not segregated...
[Attorney Voelker]: You tell that story
to the judge. If you look at the citation...
[Attorney Lurie]: Fine. I just want to
make it clear to you.
[Attorney Voelker]: Well, I think the
judge is who you are going to have to make it
clear to. Because we are going to make a
motion for contempt.
[Attorney Lurie]: Well, what a surprise.
[Attorney Voelker]: Well, I would think
it would be a surprise."
In 2004, Piper Rudnick applied the March 2003 retainer funds
to bill numbers 1461259 ($44,224.11), 1471321 ($5,781.75),
1479806 ($3,241.24), 1490054 ($5,133.64) issued between January
and April 2004. The referenced bills were for services provided
to Davis to resist Dowling's efforts to reach Davis's assets. At
this point, the $100,094.72 retainer was exhausted.
On June 8, 2004, the citation to discover assets pending
against Davis since September 2003 was dismissed. The circuit
court, however, gave Dowling leave to issue a second citation to
Davis. On June 8, 2004, Davis's wife transferred $50,000 to
Piper Rudnick (the June 2004 retainer funds). On June 25, 2004,
Dowling served Davis with second citation to discover assets.
Between June and August 2004, Piper Rudnick applied the June 2004
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retainer funds to bill numbers 1490054 ($8,525.12), 1503908
($6,467.61), 1514487 ($6,467.61), 1524795 ($12,433.37), and
1535567 ($5,044.39). Again, Piper Rudnick asserts that these
bills were for services provided in connection with Dowling's
collection efforts. On August 6, 2004, Dowling also served Piper
Rudnick with a second citation to discover assets.
On February 14, 2005, Dowling presented a motion to turn
over assets requesting that Piper Rudnick be required to pay him
$137,576.53, comprised of the $87,576.53 balance that remained on
the March 2003 retainer funds as of October 27, 2003, and the
June 2004 retainer funds forwarded to Piper Rudnick from Davis's
wife. In his motion and reply, Dowling based his argument, at
least partially, on Piper Rudnick's system of identifying the
projects it was working on for Davis. Dowling argued that Piper
Rudnick's engagement letter to Davis called for a $100,000
retainer for client and matter numbers "308813-000020" dealing
with the "purchase of a home in Florida" and "general advice
regarding asset protection." Dowling maintained that beginning
in November 2003, Piper Rudnick began referring to work done for
Davis as client and matter numbers "308813-000001." Dowling
averred that the assignment of a new matter number to Piper
Rudnick's work concerned its efforts to represent Davis in the
supplementary proceedings instituted by Dowling and, thus, were
outside the scope of work as outlined in the engagement letter.
As such, Dowling maintained that the March 2003 retainer funds
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should not have been used to cover fees from work that was not
outlined in the engagement letter, and should have been
identified by Piper Rudnick to the circuit court as funds due
Davis. Dowling asked for relief based on sections 2-1402(c)(1),
(c)(3), (c)(4), (c)(5), and (f)(1) 1 of the Illinois Code of Civil
Procedure. 735 ILCS 5/2-1402(c)(1), (c)(3), (c)(4), (c)(5),
(f)(1) (West 2002).
On March 6, 2005, Piper Rudnick answered Dowling's motion
1
In his reply motion to the circuit court, Dowling
incorrectly identified section 2-1402(f)(1) as 2-1402(d)(1). Cf.
735 ILCS 5/2-1402(d), (f)(1) (West 2002). However, it is clear
from the context of the motion that Dowling's argument was based
on section 2-1402(f)(1).
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denying that the $87,576.53 balance was Davis's property, and
alternatively asserting that the retainer funds were exempt from
judgment because the funds were transferred from a bank account
held by Davis and his wife as tenants by the entirety. Piper
Rudnick maintained that it had not violated any court orders or
statutory restraints in accepting and applying the June 2004
retainer funds because they were received from Davis's wife after
the supplementary proceedings instituted in September 2003
against Davis had been dismissed, and before a second citation
was issued. In a supplementary answer, Piper Rudnick maintained
that the initial client and matter numbers were assigned to
"general" matters, and the designation of a new matter number in
November 2003 specifically related to work on the supplementary
proceedings issued against Davis. Piper Rudnick also asserted an
affirmative defense, that even if the March 2003 and June 2004
retainer funds were not the property of Piper Rudnick, then they
were the property of Davis and his wife as tenants by the
entireties, and were therefore exempt from the claims of a
creditor of one, but not both, of them.
On April 18, 2005, the circuit court heard argument on
Dowling's motion and Piper Rudnick was ordered to turn over
$137,576.53 to Dowling. The circuit court's order did not
specify on what ground it was granting relief. This appeal
followed.
ANALYSIS
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I. Standard Of Review
We must first address the parties' disagreement concerning
our standard of review.
Piper Rudnick contends that because the circuit court
conducted no evidentiary hearing and made no findings of fact,
and because we are required to interpret section 2-1402 (735 ILCS
5/2-1402 (West 2002)), we should review this issue de novo. In
support of its position, Piper Rudnick provides citation to
Northwest Diversified, Inc. v. Mauer, 341 Ill. App. 3d 27, 791
N.E.2d 1162 (2003), and Itasca Bank & Trust Co. v. Thorleif
Larsen & Son, Inc., 352 Ill. App. 3d. 262, 815 N.E.2d 1259(2004). Conversely, Dowling relies on Gonzalez v. Profile
Sanding Equipment, Inc., 333 Ill. App. 3d 680, 776 N.E.2d 667(2002), and asserts that a circuit court's section 2-1402 rulings
"are discretionary and should not be overturned absent an abuse
of discretion."
The Gonzales court was asked to determine whether a trial
court erred when it denied a plaintiff creditor's request that a
defendant debtor turn over a potential cause of action against
the attorney representing him in an underlying proceeding from
which the plaintiff creditor received a judgment. Gonzalez, 333
Ill. App. 3d at 685. In determining the proper standard of
review, the Gonzales court agreed with the defendant debtor that
the legislature's use of the word "may" in section 2-1402
indicated that the legislature intended "'to vest the trial court
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with discretion in awarding relief.'" Gonzalez, 333 Ill. App 3d
at 692, quoting Buckner v. Causey, 311 Ill. App. 3d 139, 150, 724
N.E.2d 95 (1999). The Gonzalez court went on to cite additional
authority that the standard of review of a turnover order under
section 2-1402 is an abuse of discretion. We agree: "[w]e are
bound by this precedent and reject [the contrary] argument on
this issue." Gonzalez, 333 Ill. App. 3d at 693.
In this case we are asked to determine whether the circuit
court had the authority under section 2-1402 to enter a turnover
order requiring Piper Rudnick to disgorge itself of the balance
of the March 2003 and June 2004 retainer funds paid by Davis. To
make this determination, we must first consider whether section
2-1402 authorized the circuit court to reach the March 2003 and
June 2004 retainer funds given to Piper Rudnick by Davis. This
first consideration requires that we interpret section 2-1402,
and our review is de novo. Itasca Bank, 352 Ill. App. 3d at 265(whether section 2-1402 gives a court the authority to order a
judgment debtor to resign his country club membership is a
question of statutory construction that is reviewed de novo). If
we find that section 2-1402 allows the circuit court to reach the
retainer funds, we must then determine whether the circuit court
abused its discretion in doing so. Gonzalez, 333 Ill. App. 3d at
693.
II. March 2003 and June 2004 Retainer Funds
Piper Rudnick admits that section 2-1402(c)(3) allows the
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circuit court to compel a third party to deliver assets belonging
to a judgment debtor; however, Piper Rudnick encourages us to
focus on the fact that the assets must belong to the judgment
debtor. 735 ILCS 5/2-1402(c)(3) (West 2002). Piper Rudnick
primarily argues that even if it had divulged it was holding the
March 2003 retainer funds, the circuit court could not have
ordered a turnover because those funds did not belong to Davis,
the judgment debtor, but to Piper Rudnick. Piper Rudnick
contends that, based on the parties' contract, i.e., the
engagement letter, the only way that Davis could have collected
the balance of the retainer funds was if he terminated Piper
Rudnick's representation. We note that Piper Rudnick does not
provide reference to any case citation or supreme court rule to
support its claim. Instead, Davis states that "Illinois courts
have held that section 2-1402 itself imposes limitations upon a
trial court's authority to order relief" and provides citations
to support that contention.
In Itasca Bank, an underlying judgment was entered against
Mark Larsen. During proceedings on a citation to discover
assets, Itasca Bank learned that Larsen had a membership at the
Medinah Country Club (the club). Itasca Bank motioned the trial
court to order Larsen to turn over his membership interest in the
club, but the trial court denied the motion. Itasca Bank then
filed a second motion for turnover requesting that the trial
court order Larsen to sell his interest in the club and turn over
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the resulting profit to Itasca Bank, the trial court again denied
the motion. Itasca Bank then filed a third motion and asked the
trial court to order Larsen to resign his membership at the club
and allow it to be sold. At the hearing on Itasca Bank's third
motion, Larsen admitted that resignation of the membership would
yield about $17,000, less any amount he owed the club.
Nonetheless, the trial court denied the motion finding that it
would be an impermissible expansion of section 2-1402. Itasca
Bank, 352 Ill. App. 3d at 264.
On appeal, Itasca Bank argued that the trial court erred in
concluding that section 2-1402 did not give it the power to reach
Larsen's membership interest in the club. The Itasca Bank court
noted that no provision in section 2-1402 explicitly authorized
an order that would have required Larsen to resign his membership
in the club, and commented that "[t]his may mean that the
membership, despite not being in the category of assets
explicitly exempted from the satisfaction of judgments, is
nevertheless beyond [the] plaintiff's reach." Itasca Bank, 352
Ill. App. 3d at 266. The court in Itasca Bank then clarified
that although the powers in section 2-1402 had been interpreted
expansively, the statute could not be interpreted to allow the
trial court to take on powers not listed. The Itasca Bank court
then affirmed the trial court's denial of Itasca Bank's motion
for turnover, finding that the trial court had no authority to
direct Larsen's assets or contract rights in favor of Itasca
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Bank. Itasca Bank, 352 Ill. App. 3d at 266-68.
Similarly, in Business Service Bureau, Inc. v. Martin, 306
Ill. App. 3d 907, 911, 715 N.E.2d 764 (1999), the appellate court
found that a trial court's order requiring an unemployed judgment
debtor to search for a job and keep a record of his efforts was
not authorized by section 2-1402. The appellate court agreed
that it was required to liberally construe the language of the
supplementary proceeding provisions, but found that under the
"clear and unambiguous language" of the statute, no provision for
creating or ordering the creation of assets existed. Business
Service Bureau, 306 Ill. App. 3d at 910.
We find neither Itasca Bank nor Business Service Bureau
provides any support for Piper Rudnick's argument in this case.
In Itasca Bank, the asset being sought, Larsen's membership in
the club, had terms and conditions attached to it which the trial
court, in its discretion, determined made the asset difficult, if
not impossible, to turn over for liquidation. In Business
Service Bureau, the trial court had ordered the debtor to perform
an action, i.e., to search for employment that would generate
income and allow the creditor to claim a portion of its judgment,
which the statute clearly did not allow. Here, the asset sought
for turnover, retainer funds, was readily accessibly because it
was a cash asset held in an account by Piper Rudnick and, as of
October 2003, partially unearned. The only issue in this case is
whether the unearned retainer funds belonged to Piper Rudnick or
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Davis.
In response to Piper Rudnick's arguments, Dowling contends
that because the March 2003 retainer fees were unearned, the
funds belonged to Davis and he could recoup them without
affecting Piper Rudnick's representation. Dowling emphasizes
that the parties' engagement letter stated that it was customary
for Piper Rudnick to send monthly service invoices to its clients
which the clients would then pay by cash or check. In its reply
brief, Piper Rudnick gives no credence to Dowling's suggestion
that if Davis requested a refund of the retainers' balance, it
would not have signaled the end of Piper Rudnick's
representation. In fact, in response to Dowling's suggestion,
Piper Rudnick commented in a footnote, "[i]f Dowling is serious
about this argument *** [he] displays considerable naivete about
the economics of a law firm's taking on the representation of a
judgment debtor."
We find Piper Rudnick's argument regarding the ownership of
th retainer funds to be disingenuous. In response to Dowling's
initial citation to discover assets, Piper Rudnick answered that
it was not holding any money belonging to Davis. Piper Rudnick
had, as evidenced by the wire transfer from North Shore Bank,
accepted money from Davis and Manor LLC that was subsequently
used to purchase Davis's home in Florida. Later, Davis
transferred the March 2003 retainer funds to Piper Rudnick, and
when Dowling issued the citation to Piper Rudnick, the March 2003
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fees were partially unearned. On Piper Rudnick's representation
that it was not holding Davis's money, the circuit court
dismissed the citation against Piper Rudnick as moot. Now, Piper
Rudnick asserts that it did not divulge it was holding the March
2003 retainer fund because
"[it] was not holding, nor had it ever held,
any portion of the $100,094.72 retainer it
received from Davis *** in its clients' fund
account. To the contrary, the retainer was
always held in [Piper Rudnick's] general
account."
The account in which Piper Rudnick placed Davis's May 2003
retainer funds is not determinative of Piper Rudnick's obligation
to disclose that it held these funds. In November 2003, Piper
Rudnick should have told the circuit court about the March 2003
retainer funds, thereby allowing the circuit court to determine
whether these funds could be ordered for turnover. Instead,
Piper Rudnick represented that it held no money in its trust
account belonging to Davis, and the circuit court dismissed
Dowling's turnover order as "moot." When, in December 2003, the
issue reemerged regarding what funds belonging to Davis were held
by Piper Rudnick, motions were filed and arguments were again
held. The result, the April 2005 order by the circuit court
instructing Piper Rudnick to turn over $137,576.53 to Dowling.
This amount represented the balance of the March 2003 retainer
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funds, and the June 2004 retainer funds that were transferred to
Piper Rudnick after the circuit court had dismissed the citations
issued against Piper Rudnick and Davis. We find the trial court
did not abuse its discretion and are unpersuaded by Piper
Rudnick's unsupported argument that the unearned retainer funds
did not belong to Davis.
CONCLUSION
For the foregoing reasons, the decision of the circuit court
is affirmed.
Affirmed.
WOLFSON, J., concurs.
HALL, J., dissents.
JUSTICE HALL, dissenting:
I disagree with the majority's determination that the funds
held by Piper Rudnick belonged to Mr. Davis and were subject to a
turnover order. The majority overlooks the role of the
"retainer" in the relationship of the attorney and client.
A "retainer" is defined as both "[a] client's authorization
for a lawyer to act in a case" and a "fee paid to a lawyer to
secure legal representation." Black's Law Dictionary 1317 (7th
ed. 1999). "A retainer is the act of a client employing an
attorney; it also denotes the fee paid by the client when he
retains the attorney to act for him." Carter & Grimsley v. Omni
Trading, Inc., 306 Ill. App. 3d 1127, 1130, 716 N.E.2d 320(1999). Thus, a retainer is more than a sum of money from which
a law firm draws down its fees. It establishes the employment of
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the attorney by the client.
According to the engagement letter, Mr. Davis and his wife
paid Piper Rudnick a $100,000 retainer. The fact that Piper
Rudnick could satisfy its fees as earned from this fund does not
diminish the fact that the existence of the retainer and various
deposits to it signified the relationship of client and attorney
between Mr. Davis and his wife and Piper Rudnick. As such it was
the property of Piper Rudnick, subject to the provision that at
the end of the representation, any remaining balance would be
refunded to Mr. Davis and his wife.
The majority states that the "account in which Piper Rudnick
placed Davis's May 2003 retainer funds is not determinative of
Piper Rudnick's obligation to disclose that it held these funds."
Slip op. at 17-18. Again, I disagree.
Rule 1.15 of the Rule of Professional Conduct provides
"lawyer shall hold property of clients or third parties that is
in a lawyer's possession in connection with a representation
separate from the lawyer's own property." 188 Ill. 2d R.
1.15(a). In the absence of any contention that Piper Rudnick
violated the Rules of Professional Conduct by not retaining these
funds in a separate account, the fact that they were held in
Piper Rudnick's general account establishes that the funds were
Piper Rudnick's, subject to reimbursement to the client in the
event funds were remaining at the end of the representation.
The majority's decision in this case will have a chilling
effect on a person's ability to obtain legal counsel, if
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retainers paid to law firms to establish the attorney-client
relationship were subject to turnover orders as in this case.
Under the decision in this case, where a judgment debtor seeks
legal representation in a citation to discover assets proceeding
and pays the firm a retainer, the law firm may lose the retainer
even before it can commence work on the case. As a practical
matter, law firms will be reluctant, understandably, to take on
representation of such individuals, thus depriving them of legal
representation.
I would conclude that as the funds were the property of
Piper Rudnick, Piper Rudnick was correct when it informed the
court that it was not holding any funds belonging to Mr. Davis.
As a result, the circuit court abused its discretion in ordering
Piper Rudnick to turn over the $137,576.53 to Mr. Dowling.
Therefore, I respectfully dissent.
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