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

Illinois Official Reports
Appellate Court
Donald W. Fohrman & Associates, Ltd. v. Marc D. Alberts, P.C.,
2014 IL App (1st) 123351Appellate Court DONALD W. FOHRMAN AND ASSOCIATES, LTD., Plaintiff and
Caption 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; and Donald W. Fohrman, Third-Party
Defendant).
District & No. First District, Sixth Division
Docket Nos. 1-12-3351, 1-13-0692 cons.
Filed March 14, 2014
Held In an action alleging that defendant breached an oral agreement under
(Note: This syllabus which plaintiff law firm referred certain personal injury and medical
constitutes no part of the malpractice cases to defendant and was to share the fees with
opinion of the court but defendant, the trial court properly dismissed plaintiff’s amended
has been prepared by the complaint, since the complaint did not completely comply with the
Reporter of Decisions requirements of Rule 1.5(e) of the Illinois Rules of Professional
for the convenience of Conduct and plaintiff failed to meet its own fiduciary duty to disclose
the reader.) 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.
Decision Under Appeal from the Circuit Court of Cook County, No. 2011-CH-03229;
Review the Hon. Stuart E. Palmer and the Hon. Thomas Allen, Judges,
presiding.
Judgment Affirmed.
Counsel on Robinson Shapiro & Schwartz, LLC (Anthony M. Sciara, of counsel),
Appeal 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.
Panel PRESIDING JUSTICE ROCHFORD delivered the judgment of the
court, with opinion.
Justices Lampkin and Reyes concurred in the judgment and the
opinion.
OPINION
¶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
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
-2-
(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 (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 & AlbertsBa law partnership of which
Martin A. Smith, P.C., and Marc D. Alberts, P.C., were the general partnersBas defendants.
¶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.
-3-
¶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• % 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• % 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.
¶ 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
-4-
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 work 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 clients actually knew or were told the fees were to be
equally shared.
¶ 16 On June 10, 2011, Alberts and Smith & Alberts (collectively, defendants) moved to
dismiss the amended complaint pursuant to section 2-615 of the Code. 735 ILCS 5/2-615
(West 2010). Defendants argued, as they did in the prior motion to dismiss, the attorney-client
agreements attached to the amended complaint did not comply with Rule 1.5(e). In opposition
to the motion, Fohrman argued the attorney-client agreements “substantially complied” with
Rule 1.5(e) and, therefore, under Holstein, the referral agreement was enforceable. Fohrman
also argued the referral agreement should be enforced due to Alberts’ inequitable conduct.
¶ 17 On July 26, 2011, after a hearing, the circuit court entered an order that dismissed with
prejudice count III (unjust enrichment), count IV (promissory estoppel), count V (fraud), count
VI (fraud), and count VII (tortious interference with prospective economic advantage) of the
amended complaint.
¶ 18 The circuit court denied the motion to dismiss the breach of fiduciary duty claim (count I)
and the corresponding accounting claim (count II), finding that Fohrman adequately pled
claims within the parameters of Holstein, but acknowledged it was a “close call.”
¶ 19 On July 26, 2011, pursuant to a stipulation, the suit was dismissed against Martin A. Smith,
P.C.
¶ 20 On September 14, 2011, defendants filed an answer and affirmative defenses as to counts I
and II, and Alberts filed a counterclaim against Fohrman, and a third-party complaint against
Donald W. Fohrman. In the answer, defendants denied there was a referral agreement and
denied Marc D. Alberts had assured Donald W. Fohrman the attorney-client agreements were
in full compliance with the ethical rules. The affirmative defenses (in pari delicto, unclean
hands, breach of fiduciary duty, and ratification) asserted Fohrman was fully aware of the
contents of the attorney-client agreements and failed to inform its clients of the referral
agreement and obtain its clients’ consent to the referral agreement. Alberts’ amended
seven-count counterclaim/third-party action included a declaratory count (count VI). In that
count, Alberts alleged that based on the referral agreement, Fohrman served notices of attorney
liens in several of the pending referred cases where Alberts was counsel of record. Alberts
sought the following relief: (1) a declaration that the attorney liens were invalid; and (2) an
order requiring Fohrman to withdraw its attorney liens in those cases.
¶ 21 On April 27, 2012, defendants moved to dismiss the amended complaint’s remaining
claimsBbreach of fiduciary duty and accounting–pursuant to section 2-619(a)(9) of the Code
(735 ILCS 5/2-619(a)(9) (West 2010)), on the basis that affirmative matter established that the
use of the noncompliant attorney-client agreements was fully disclosed to Fohrman.
Defendants further argued the Holstein exception to the general rule barring claims for fees
based on a fee-sharing agreement that is not disclosed to a client in strict compliance with Rule
1.5(e) was not applicable.
-5-
¶ 22 In support of their motion, defendants relied on an affidavit of Donald W. Fohrman, which
had been filed during the proceedings. In the affidavit, Donald W. Fohrman admitted Marc D.
Alberts had provided him “at different times” copies of the attorney-client agreements for
“each” referred case. Attached to the affidavit were examples of the attorney-client agreements
signed by the clients that Fohrman referred to defendants. Throughout the affidavit, Donald W.
Fohrman refers to the referred clients as “my clients.” Additionally, defendants asserted that
during discovery, Fohrman produced all of the attorney-client agreements and the
accompanying transmittal letters from Marc D. Alberts that Fohrman had received from 2005
to 2010. Defendants argued that unlike in Holstein, Fohrman had notice of “the noncompliant
Attorney-Client Agreements and *** allowed them to be used.”
¶ 23 In its opposition to the section 2-619(a)(9) motion, Fohrman argued the attorney-client
agreements “substantially complied” with Rule 1.5(e) and, thus, its claims for referral fees
were well made. Fohrman also argued its claims for referral fees should stand because Marc D.
Alberts had acted nefariously and had “assured” Donald Fohrman that the attorney-client
agreements complied with Rule 1.5(e).
¶ 24 On September 19, 2012, the circuit court granted defendants’ section 2-619(a)(9) motion
and dismissed with prejudice the amended complaint’s remaining claims for breach of
fiduciary duty and accounting.
¶ 25 On November 1, 2012, Alberts moved for partial summary judgment on count VI of the
amended counterclaim/third-party action. Alberts argued that because Fohrman’s attorney
liens were based on the attorney-client agreements that did not comply with Rule 1.5(e),
Fohrman had no legal basis for the recovery of fees in any of the cases in which it asserted
liens. Before the hearing on the motion for summary judgment, the other counts of the
amended counterclaim/third-party complaint, by stipulation, were dismissed. On February 4,
2013, the circuit court granted summary judgment against Fohrman and Donald Fohrman on
count VI of the amended counterclaim/third-party action and declared the liens at issue were
invalid and ordered Fohrman to withdraw its liens within 30 days. Fohrman then appealed.
¶ 26 The appeal is from: (1) the order dismissing with prejudice counts III through VII of the
amended complaint under section 2-615; (2) the order dismissing with prejudice counts I and II
of the amended complaint under section 2-619; and (3) the order granting summary judgment
on count VI of the amended counterclaim/third-party action. Fohrman, on appeal, has not
challenged the circuit court’s dismissal of the breach of contract claim in the original
complaint with prejudice.
¶ 27 A section 2-615 motion to dismiss attacks the legal sufficiency of a complaint and raises a
question as to whether the complaint states a cause of action upon which relief may be granted.
735 ILCS 5/2-615 (West 2010). In ruling upon a section 2-615 motion to dismiss, a court must
decide whether the allegations of the complaint, when viewed in the light most favorable to the
plaintiff, are sufficient to state a claim upon which relief may be granted. Givot v. Orr, 321 Ill.
App. 3d 78, 84 (2001). In making this determination, a court accepts all well-pleaded facts and
all reasonable inferences that may be drawn from those facts as true. Time Savers, Inc. v.
LaSalle Bank, N.A., 371 Ill. App. 3d 759, 767 (2007).
¶ 28 A section 2-619 motion to dismiss admits the legal sufficiency of the complaint, but raises
defects, defenses, or other affirmative matters that avoid the legal effect or defeat a claim.
Borowiec v. Gateway 2000, Inc., 209 Ill. 2d 376, 383 (2004). In reviewing a grant of a section
2-619 motion to dismiss, we accept as true all well-pleaded facts in the complaint, draw all
-6-
reasonable inferences from those facts in the plaintiff’s favor, and interpret all pleadings and
supporting documents in the light most favorable to the plaintiff. Capeheart v. Terrell, 2013 IL
App (1st) 122517, ¶ 11.
¶ 29 Summary judgment is properly entered where the pleadings, depositions, admissions and
affidavits, viewed in the light most favorable to the nonmovant, show that no genuine issue of
material fact exists and the moving party is entitled to judgment as a matter of law. 735 ILCS
5/2-1005(c) (West 2010). Our review of an order granting summary judgment and orders
granting a section 2-619 or section 2-615 motion is de novo. Schultz v. Illinois Farmers
Insurance Co., 237 Ill. 2d 391, 399-400 (2010); Van Meter v. Darien Park District, 207 Ill. 2d
359, 368 (2003); Flournoy v. Ameritech, 351 Ill. App. 3d 583, 586 (2004).
¶ 30 On appeal, Fohrman argues the circuit court erred in dismissing the entire amended
complaint and entering summary judgment against it as to the enforceability of the attorney
liens by “ignor[ing] the continuing vitality of the substantial compliance doctrine.” Put another
way, Fohrman believes its liens and claims for the recovery of referral fees are viable when
there has been substantial compliance with Rule 1.5(e). Fohrman further argues that the circuit
court misapplied the Holstein holding when it dismissed the fiduciary duty and accounting
claims. Defendants argue the circuit court correctly required strict compliance with Rule 1.5(e)
when it dismissed the amended complaint and granted summary judgment as to the liens.
Defendants further argue the circuit court properly dismissed the breach of fiduciary and
accounting claims pursuant to Holstein where Fohrman was fully aware of the use of the
noncompliant attorney-client agreements.
¶ 31 The questions presented require an analysis of the ethical rules pertaining to fee-sharing
agreements based solely on referrals. Prior to the adoption of Rule 2-107 of the Illinois Code of
Professional Responsibility (Ill. S. Ct. Code of Prof. Res. R. 2-107 (eff. July 1, 1980)),
fee-sharing agreements based solely on the referral of clients were prohibited. 1 Albert Brooks
1
Rule 2-107 provided in pertinent part:
“(a) A lawyer shall not divide a fee for legal services with another lawyer who is not a
partner in or associate of his law firm, unless
(1) the client consents in a writing signed by him to employment of the other lawyer,
which writing shall fully disclose (a) that a division of fees will be made, (b) the basis upon
which the division will be made, including the economic benefit to be received by the other
lawyer as a result of the division, and (c) the responsibility to be assumed by the other
lawyer for performance of the legal services in question;
(2) the division is made in proportion to the services performed and responsibility
assumed by each, except where the primary service performed by one lawyer is the referral
of the client to another lawyer and (a) the receiving lawyer fully discloses that the referring
lawyer has received or will receive economic benefit from the referral and the extent and
basis of such economic benefit and (b) the referring lawyer agrees to assume the same legal
responsibility for the performance of the services in question as if he were a partner of the
receiving lawyer; and
***
(4) For purposes of this rule, ‘economic benefit’ shall include (a) the amount of
participation in the fee received with regard to the particular matter; (b) any other form of
remuneration passing to the referring lawyer from the receiving lawyer, whether or not
with regard to the particular matter; and (c) an established practice of referrals to and from
or from and to the receiving lawyer and the referring lawyer.” Ill. S. Ct. Code of Prof. Res.
-7-
Friedman, Ltd. v. Malevitis, 304 Ill. App. 3d 979, 985 (1999). Such agreements were
considered to be contrary to public policy and disfavored. See Corti v. Fleisher, 93 Ill. App. 3d
517 (1981) (referral agreements considered not to be in the best interests of the client). Rule
2-107 allowed such agreements, but provided “safeguards designed to protect the client.”
Friedman, 304 Ill. App. 3d at 985. The Illinois Code of Professional Responsibility was
repealed and replaced with the Illinois Rules of Professional Conduct (the Rules) in 1990.
Davies v. Grauer, 291 Ill. App. 3d 863, 864 n.1 (1997). Safeguards as to referral agreements
continue to exist under the current ethical rules. Friedman, 304 Ill. App. 3d at 985.
¶ 32 We must consider the referral agreement and attorney-client agreements here under the
applicable rules as they currently exist. See Ill. R. Prof. Conduct (2010) R. 1 et seq. (eff. Jan. 1,
2010); see also Paul B. Episcope, Ltd. v. Law Offices of Campbell & Di Vincenzo, 373 Ill. App.
3d 384, 394 (2007) (a “supreme court rule is applied retroactively, even though it was different
from its predecessor rule” (citing Dowd & Dowd, Ltd. v. Gleason, 181 Ill. 2d 460, 481
(1998))).
¶ 33 Rule 1.5 governs the propriety of attorney-fee agreements. The provisions of Rule 1.5
“operate with the force and effect of law.” Romanek v. Connelly, 324 Ill. App. 3d 393, 399
(2001). “Contracts between lawyers that violate Rule 1.5 are against public policy and cannot
be enforced.” Richards v. SSM Health Care, Inc., 311 Ill. App. 3d 560, 564 (2000). See also In
re Vrdolyak, 137 Ill. 2d 407, 422 (1990) (where the supreme court held the disciplinary code
“as a binding body of disciplinary rules, has, sub silentio, overruled prior judicial decisions
which conflict with its mandates and proscriptions”).
¶ 34 Rule 1.5(e) 2 applies to agreements for the division of fees between lawyers who are not in
the same firm, and states:
“(e) A division of a fee between lawyers who are not in the same firm may be made
only if:
(1) the division is in proportion to the services performed by each lawyer, or if
the primary service performed by one lawyer is the referral of the client to another
lawyer and each lawyer assumes joint financial responsibility for the
representation;
(2) the client agrees to the arrangement, including the share each lawyer will
receive, and the agreement is confirmed in writing; and
(3) the total fee is reasonable.” Ill. R. Prof. Conduct (2010) R. 1.5(e) (eff. Jan. 1,
2010).
Rule 1.5(e), therefore, allows “lawyers to divide a fee either on the basis of the proportion of
services they render or, where the primary service performed by one lawyer is the referral of
the client to another lawyer, if each lawyer assumes financial responsibility for the
representation as a whole.” Ill. R. Prof. Conduct (2010) R. 1.5(e), Committee Comments (eff.
Jan. 1, 2010). “Joint financial responsibility for the representation entails financial
responsibility for the representation as if the lawyers were associated in a general partnership.”
R. 2-107 (eff. July 1, 1980).
2
Rule 2-107 was recodified in 1990 as Rule 1.5(f) (Ill. R. Prof. Conduct (2010) R. 1.5(f) (eff. Jan. 1,
1990)), which was then recodified as Rule 1.5(e) (Ill. R. Prof. Conduct (2010) R. 1.5(e) (eff. Jan. 1,
2010)).
-8-
Id. (citing In re Storment, 203 Ill. 2d 378 (2002)). The client must agree to the fee division and
the “agreement must be confirmed in writing.” Ill. R. Prof. Conduct (2010) R. 1.5(e),
Committee Comments (eff. Jan. 1, 2010).
¶ 35 Rule 1.5 “embod[ies] this state’s public policy of placing the rights of clients above and
beyond any lawyer’s remedies in seeking to enforce fee-sharing arrangements.” Romanek, 324
Ill. App. 3d at 399; Richards, 311 Ill. App. 3d at 564 (The requirements of Rule 1.5 are
“designed to protect the client.”). This public policy embodies an understanding “that the
client’s rights rather than the lawyers’ remedies have always been this state’s greatest
concern.” Friedman, 304 Ill. App. 3d at 985. “While the [Rules of Professional Conduct]
expressly approve[ ] of fee-sharing agreements where the primary service performed by one
lawyer is the referral of the client to another lawyer [citation], such arrangements cannot rest
on the referral alone. Most importantly, the referring attorney must assume ‘the same legal
responsibility for the performance of the services in question as would a partner of the
receiving lawyer.’ [Citation.]” Romanek, 324 Ill. App. 3d at 403; Storment, 203 Ill. 2d at 398(The court said, as to then-Rule 1.5(f): “The writing must not only authorize a division of fees,
but also set out the basis for the division, including the respective responsibility to be assumed
and economic benefit to be received by the other lawyer.”).
¶ 36 As discussed, Fohrman does not appeal from the dismissal of its claim that Alberts
breached the referral agreement. Fohrman acknowledges the relevant attorney-client
agreements at issue that are attached to the amended complaint do not strictly comply with
Rule 1.5(e). The agreements stated that the clients had retained Fohrman and Alberts or Smith
& Alberts. The attorney-client agreements did not set forth how the attorney fees would be
split or shared by the firms and, thus, there was no written confirmation of the fee-sharing
arrangement. Further, the attorney-client agreements did not provide that each firm had
assumed joint financial responsibility for the matters. The referral agreement is the basis for all
of the claims of the amended complaint that were dismissed–unjust enrichment, promissory
estoppel, fraud, tortious interference, breach of fiduciary duty, and accounting–and the basis of
the attorney liens that were found to be unenforceable. Fohrman’s opening brief presents
arguments only as to upholding the referral agreements in seeking reversal of the circuit
court’s orders.
¶ 37 Specifically, Fohrman argues that because the parties were engaged in a joint venture,
substantial compliance with Rule 1.5(e) is sufficient to support its causes of action and notices
of liens. In taking this position, Fohrman relies on Phillips v. Joyce, 169 Ill. App. 3d 520(1988), and Davies. In Phillips, the plaintiff attorney agreed to stay a state suit brought on
behalf of a group of injured persons so that a federal class action suit based on the same facts
could proceed. Id. at 523. The plaintiff alleged that he and the defendant, the lead attorney for
the federal class, agreed to a joint venture where they would equally share both the work and
any fees in pursuit of the federal action. By letter signed by the defendant, all class clients were
informed of the joint representation and the need to sign new contingent fee agreements. Id.
The plaintiff obtained the signatures of his clients, the state court litigants, on new
attorney-client agreements. The defendant, however, prepared and sent to all members of the
federal class a new fee agreement that referred only to the defendant as the attorney. Id. at
523-24. The defendant pursued the federal litigation without dividing the work equally with
the plaintiff. Id. at 523. At the end of the litigation, the federal court awarded attorney fees to
the plaintiff and the defendant according to the time and expense each firm had expended and
-9-
not equally as anticipated in the parties’ oral agreement. Id. at 524. The plaintiff sought to
recover additional fees in a suit for a constructive trust and accounting based on the oral
fee-sharing agreement. Id. The defendant argued the fee agreement violated Rule 2-107, the
precursor of Rule 1.5, and the case was dismissed. Id. The appellate court reversed the
dismissal, finding “a standard of substantial compliance [with Rule 2-107] is preferable
because it comports with practical realities.” Id. at 531. The appellate court found the plaintiff
there had pled a sufficient breach of contract action and the oral fee-sharing agreement was not
per se “violative of the Code.” Id. at 532-33. In reversing and remanding the matter, the
appellate court noted there may be other defenses to the recovery of the plaintiff’s fees and the
issue of whether the defendant could be estopped from using the disciplinary rules to avoid
payment, was not on appeal and not resolved. Id. at 535.
¶ 38 In Davies, the plaintiff and the defendant agreed orally to jointly represent two clients in
their respective personal injury suits and equally split any contingency fees. Davies, 291 Ill.
App. 3d at 865. The clients signed contingent fee agreements with the defendant. Id. at 866-67.
The agreements did not refer to the plaintiff, nor to any agreement as to the division of fees. Id.
at 867. The plaintiff filed suit seeking one-half of the attorney fees that the defendant received
as contingency fees in the referred matters alleging, in part, a breach of fiduciary duty. Id. The
trial court granted the defendant’s motion for summary judgment, finding public policy
prohibited the plaintiff’s recovery. Id. In reversing the summary judgment, the appellate court
cited Phillips’ conclusion that a standard of substantial compliance with Rule 2-107 is
preferable because it comports with practical realities. Id. at 870. The record showed both
clients were informed of the fee-sharing agreements and knew the fees would be split equally.
Id. at 870-71. The appellate court found the “aims of [Rule 2-107 had] been fulfilled.” Id. at
871. The appellate court also found the oral fee-sharing agreement was not per se violative of
public policy when the claim is a breach of a fiduciary duty arising out of a joint venture and
there has been “full or substantial compliance” with the ethical rules. Id. The defendant
admitted, for purposes of the summary judgment, he had agreed to split the fees and to draft the
attorney-client agreement to include the plaintiff. Id. at 872.
¶ 39 We make the following observations as to Phillips and Davies. First, of course, these cases
interpreted Rule 2-107 and Rule 1.5(e) applies here. Second, this case is factually distinct from
Phillips and Davies For example, in Phillips, the defendant admitted that he had agreed to the
fee-sharing arrangement and to drafting a compliant agreement. Defendants here have not
made such admissions. In Davies, the evidence showed the clients had been informed about the
arrangement and division of fees. Again, there is no such evidence in the instant case. Finally,
and most importantly, we observe these decisions turn on a concept of “practical realities.” It is
our understanding that the fee-sharing provisions of the Rules are not guide posts, but
mandatory. See, e.g., Storment, 203 Ill. 2d at 398. The “practical realities” concept is contrary
to this principle and the public policy of protecting the clients which is behind the Rules.
¶ 40 Defendants argue the substantial compliance standard of Phillips and Davies as to Rule
2-107 no longer applies and there must be strict compliance with Rule 1.5(e) to sustain any
claim for referral fees. Defendants cite In re Spak, 188 Ill. 2d 53 (1999) (finding requirements
of then-Rule 1.5(c) as to contingency fee agreements contains no exception and rejecting
argument the rule was not violated where client knew of fee arrangement from the outset and
confirmed the terms in writing before the fees were received), and Storment (violation of the
mandatory requirement of then-Rule 1.5(f) of a writing as to fee sharing was not “technical”
- 10 -
where both attorneys were to be compensated). Fohrman does not dispute these cases require
strict compliance with the relevant ethical rules, but contends the holdings have limited
relevancy because the Rules were analyzed in the context of attorney disciplinary proceedings.
We disagree.
¶ 41 Fohrman’s argument ignores that the Rules have the force of law. Romanek, 324 Ill. App.
3d at 399. Furthermore, this court has looked to both the language of the Rules and holdings in
disciplinary cases when construing and determining the enforceability of fee arrangements.
See, e.g., Guerrant v. Roth, 334 Ill. App. 3d 259, 272 (2002) (where the court stated that
then-Rule 1.5(c) set forth mandatory requirements for contingency agreements and, thus,
“under Illinois law, there can be no resort to the ‘implied promise’ ” to pay costs not set forth in
the contingency agreement). Finally, as defendants argue, Thompson v. Hiter, 356 Ill. App. 3d
574, 590 (2005) (where the court looked to Spak), and Episcope, 373 Ill. App. 3d at 392 (where
the court looked to Storment), which are not disciplinary cases, hold that strict compliance with
the applicable provisions of the Rules is required for any claim seeking fees under a
fee-sharing agreement to be successful.
¶ 42 In Thompson, the fee dispute was between a law firm and its former employee, a lawyer.
The former employee’s oral employment contract with the firm provided the firm would
receive two-thirds of any fees generated on cases that the former employee brought to the firm
during his employment. Thompson, 356 Ill. App. 3d at 576. Christine Thompson signed a
contingency fee agreement with the firm and the former employee as to her wrongful death
action. Id. The contingency fee agreement with the client did not disclose the oral fee-sharing
arrangement between the firm and its former employee and, thus, did not comply with the
then-applicable provisions of Rule 1.5(f). Id. at 590. After the former employee left the firm,
Thompson discharged the firm only. Id. at 576. Upon resolution of the wrongful death action,
the former employee filed a petition to adjudicate the firm’s attorney lien. Id. at 577. The trial
court found there was no joint venture and the firm, which had been discharged, was entitled
only to a quantum meruit fee recovery. Id. at 580. The appellate court found that the firm and
the former employee had been involved in a joint venture as to the representation of
Thompson, but this did not mean the firm was entitled to fees pursuant to the oral employment
agreement after it was discharged by Thompson. Id. at 589. The appellate court, citing Spak,
held that strict compliance with then-Rule 1.5(f) was required, stating: “The Rules of
Professional Conduct apply to all claims for fee sharing, regardless of whether the claim is
asserted against the client or another attorney.” Id. at 590 (citing Hofreiter v. Leigh, 124 Ill.
App. 3d 1052, 1055 (1984)). The oral agreement was found to be unenforceable because the
firm and the former employee had failed to comply with Rule 1.5(f) by not disclosing its terms
and obtaining Thompson’s consent thereto. Id. at 589-90.
¶ 43 At issue in Episcope was a joint representation agreement signed by both attorneys, the
plaintiff and the defendant, and the client. Episcope, 373 Ill. App. 3d at 385. The client
representation agreement listed the plaintiff and the defendant, and provided for a 33a%
contingency fee, but did not state how these fees would be split or set forth the division of the
lawyers’ responsibilities. Id. at 386. The lawyers had an oral agreement which provided that
the plaintiff would receive one-third of the contingency fee. Id. at 387. The plaintiff later
sought to recover fees from the defendant in an action claiming a joint undertaking and
claiming the defendant had breached a fiduciary duty. Id. The trial court granted summary
judgment in favor of the defendant finding that the representation agreement failed to comply
- 11 -
with Rule 1.5(f) then in effect. Id. at 388-89. Citing Thompson, the appellate court affirmed the
grant of summary judgment because the applicable ethical rule was violated and rejected the
plaintiff’s argument that strict compliance with the rule was unnecessary in a breach of
fiduciary duty action. Id. at 392-94. In affirming summary judgment, the appellate court
recognized both that “[a]ttorneys should act reasonably toward each other,” and that the
plaintiff had advanced equitable arguments for the payment of fees, but concluded that there
was no legal basis for requiring the defendant to pay the plaintiff a share of the resulting fees.
Id. at 396.
¶ 44 Our readings of Storment, Spak, Thompson, and Episcope lead to conclusions that Rule
1.5(e) requires strict compliance and, in the absence of strict compliance with Rule 1.5(e),
Fohrman may not recover for referral fees. See generally Baer v. First Options of Chicago,
Inc., 72 F.3d 1294 (7th Cir. 1995) (under Illinois ethical law, fee-sharing agreements will be
enforced only where written requirements of ethical rules are met); Kaplan v. Pavalon &
Gifford, 12 F.3d 87, 92 (7th Cir. 1993) (“In Illinois, a fee-sharing agreement between attorneys
for referrals, which is neither in writing nor signed by the client, is unenforceable as a matter of
public policy.”).
¶ 45 We disagree with Fohrman that our strict compliance with the ethical rules standard is
contrary to Daniel v. Aon Corp., 2011 IL App (1st) 101508. The plaintiff in that case sought
additional fees in relation to a class action based on a fee-sharing agreement. Id. ¶ 1. The
appellate court affirmed summary judgment in favor of the defendants because the fee-sharing
agreement did not comply with Rule 1.5(e). Id. ¶ 22. In affirming, the appellate court rejected
the plaintiff’s argument, pursuant to Phillips, that where there is a joint venture and the
fee-sharing agreement is silent as to the percentage of division of fees, it is presumed the fees
are allocated equally. Id. ¶ 25. The appellate court further held the fee-sharing agreement failed
to comply with Rule 1.5(e) and it would “not condone the violation and use the agreement as a
basis of recovery [of fees] for [the] plaintiff.” Id. Daniel is consistent with our conclusions that
strict compliance with Rule 1.5(e) is required and the circuit court’s rulings were proper.
¶ 46 We also disagree with Fohrman that Holstein advocates for the use of a substantial
compliance standard here. The Holstein plaintiff alleged an oral referral fee agreement with the
defendants for an equal share of any fees derived from referred personal injury cases. Holstein,
246 Ill. App. 3d at 722. During the formation of the oral fee agreement, the parties reviewed
Rule 2-107 and agreed that the defendants would disclose in writing the fee arrangement to the
referred clients in compliance with Rule 2-107. Id. The plaintiff drafted a “model” attorney
client-agreement which the defendants were “bound” to use. Id. The defendants instead used
their standard contingency fee agreement which did not disclose the fee-sharing agreement. Id.
at 723. The plaintiff referred 10 clients to the defendants, but referral fees were not paid on 5 of
those matters, including a suit filed on behalf of Danny Flynn. Id. at 723-24. The plaintiff
sought the unpaid referral fees by filing suit against the defendants which alleged a breach of
contract count and a breach of a fiduciary duty arising out of a joint venture count. Id.
¶ 47 The defendants moved for summary judgment on both counts arguing the alleged fee
referral agreement violated Rule 2-107. Id. at 723. The defendants argued the plaintiff himself
violated Rule 2-107 because the plaintiff did not have an attorney-client relationship with the
referred clients and never disclosed the fee-sharing agreement prior to the referrals. Id. In the
alternative, the defendants argued, if the plaintiff had an attorney-client relationship with the
referred clients, the plaintiff had a nondelegable duty to disclose the agreement to his clients.
- 12 -
Id. at 723-24. The plaintiff moved for summary judgment on the joint venture/breach of
fiduciary duty count arguing the defendants acted contrary to their fee sharing agreement and
violated Rule 2-107 by using the noncomplying contingency fee agreements. Id. at 724. In his
deposition, the plaintiff did not recall speaking with Flynn, but recalled informing Flynn’s
family of the fee arrangement. Id. However, the defendants submitted Flynn’s affidavit, which
stated the plaintiff had not informed him of the fee-sharing agreement. Id. at 744. The plaintiff
had only a general recollection of speaking to the other four referred clients at issue and
informing them of the agreement. Id. at 724. The circuit court granted the defendants’ motion
for summary judgment on both counts and denied the plaintiff’s motion for summary judgment
on the fiduciary duty count after finding the fee-sharing agreement violated Rule 2-107 and
public policy. Id. at 725.
¶ 48 On appeal, the appellate court first affirmed the granting of summary judgment in favor of
the defendants on the breach of contract count because the referred clients did not consent in
writing to the referral fee agreement as required by Rule 2-107. Id. at 734-35. In so deciding,
the appellate court declined to follow Phillips finding Phillips factually distinguishable
because the clients in Phillips had agreed in writing to the joint representation. Id. at 736. The
appellate court rejected the plaintiff’s argument that the defendants should be estopped from
asserting the unenforceability of the agreement under Rule 2-107 because the defendants’
conduct resulted in the noncompliance with the rule. Id. at 736-37. The appellate court said it
would not enforce a fee agreement which contravenes public policy, stating: “Our paramount
concern must be the effect these fee-sharing agreements have on the clients, not the attorneys
involved. ‘It does not matter whose ox is gored.’ ” Id. at 737 (quoting Schniederjon v. Krupa,
162 Ill. App. 3d 192, 195 (1987)).
¶ 49 We similarly have found the referral agreement at hand to be unenforceable because the
attorney-client agreements did not strictly comply with Rule 1.5(e). Because the enforcement
of the referral agreement would be contrary to the public policy embodied in Rule 1.5(e) we, as
did the Holstein court, reject an argument that the referral agreement should be enforced
because of defendants’ alleged “nefarious” conduct. See also Episcope, 373 Ill. App. 3d at 396.
In doing so, we do not condone any alleged misconduct or encourage unfairness in
relationships between attorneys. We uphold the Rules’ interest in protecting clients above the
interests of attorneys in recovering fees.
¶ 50 The appellate court in Holstein, however, reversed the summary judgment entered against
the plaintiff on the joint venture count. Holstein, 246 Ill. App. 3d at 741. The appellate court
first found an issue of material fact existed as to the existence of a joint venture. Id. at 739. The
appellate court also found if a joint venture existed, the fee-sharing agreement, which gave rise
to the joint venture as alleged, was not unenforceable on public policy grounds. Id. at 740. The
plaintiff had alleged the fee-sharing agreement was made after reviewing Rule 2-107 and after
the defendants agreed to full compliance with the rule and to use the model retainer contract.
Id. at 722-23. The joint venture, as alleged in the amended complaint, envisioned compliance
with the applicable ethical rules, therefore, a breach of fiduciary duty claim could lie. Id. at
742.
¶ 51 In a supplemental opinion on denial of rehearing, the appellate court made clear that its
decision as to the joint venture count was based on the plain language of Rule 2-107 which did
not require a referring attorney to have an attorney-client relationship with the referred client
- 13 -
prior to the referral and does not require the referring attorney to obtain the necessary written
disclosures prior to the referral. Id. at 741.
¶ 52 However, in its supplemental opinion, the appellate court found the plaintiff could not
recover referral fees under any theory, including a joint venture, if the plaintiff had breached
his own fiduciary duty to fully disclose to a client the existence of a fee-sharing agreement. Id.
at 743. The Holstein court said this duty arises both from the ethical rules, and common law.
Id. (citing Schneiderjon, 162 Ill. App. 3d at 195). The plaintiff had alleged he had an
attorney-client relationship with the referred clients. Id. at 742. The appellate court, thus,
concluded:
“We agree with defendants’ assertion that Schniederjon acts to bar plaintiff’s
recovery where plaintiff has failed to make full disclosure of his fee-referral agreement
to his own clients. We will not aid an attorney in recovering a referral fee where that
attorney has himself breached his fiduciary duty to the referred client. This is so
whether the referring attorney seeks recovery of a portion of the fee itself or whether
the fee sought is labelled a ‘profit’ of a claimed ‘joint venture.’ ” Id. at 743.
The appellate court found a material issue of fact existed only as to whether Flynn had been
informed of the fee-sharing agreement. Id. at 744-45. As to the other clients, the plaintiff failed
as a matter of law to show he notified them of the fee agreement and, therefore, based on his
own breach of fiduciary duty, could not recover fees. Id. at 745.
¶ 53 In finding a question of fact existed as to the sustainability of the joint venture claim as to
Flynn only, the appellate court said the joint venture envisioned full compliance with Rule
2-107 and an action was alleged because the plain language of Rule 2-107 did not require a
client to be informed of the fee agreement before a referral was made. Id. at 741. It appears the
appellate court relied on the language of Rule 2-107 which stated the “receiving” lawyer must
fully disclose to the client that the referring attorney “has received or will receive economic
benefit from the referral.” (Emphasis added.) Id. (citing Ill. S. Ct. Code of Prof. Res. R.
2-107(a)(2) (eff. July 1, 1980)). That language is not present in Rule 1.5(e). Rule 1.5(e) does
not place the responsibility of disclosure solely on the receiving attorney, and provides the
disclosure must be made that the referring attorney will receive the fee.
¶ 54 It is arguable that the holding in Holstein, as to joint venture claims, no longer has vitality
in that it was grounded on the plain language of Rule 2-107 not present in Rule 1.5(e).
Moreover, we believe the Holstein ruling creating the limited “exception” for certain joint
venture claims is inconsistent with its decision on the breach-of-contract count and its refusal
to enforce an agreement which violates public policy. The holding on the joint-venture count
also seems inconsistent with the later holdings in Spak, Storment, Episcope, and Thompson, as
discussed above.
¶ 55 Even if this limited “exception” to the standard of strict compliance with the Rules
continued to have a foundation, we would not apply the Holstein “exception” here. The
amended complaint shows the existence of an attorney-client relationship between Fohrman
and the referred clients (as does the affidavit of Donald W. Fohrman) and, therefore, Fohrman
would have had a duty to ensure its clients were fully informed of the referral agreement.
Fohrman does not allege fulfillment of its fiduciary duty in this regard. Further, Fohrman had
notice of the noncompliant attorney-client agreements and allowed them to be used in
contravention of Rule 1.5(e) and its common law fiduciary duty. Finally, we would not find
there was substantial compliance with Rule 1.5(e) in this case where the attorney-client
- 14 -
agreements did not inform the clients of the fee-sharing arrangement based on referrals, the
exact split in fees, and that Fohrman and defendants had assumed equal financial
responsibility. In so concluding, we reject Fohrman’s argument that an equal split of
responsibilities and fees must be presumed because the attorney-client agreements listed both
attorneys. See Daniel, 2011 IL App (1st) 101508, ¶ 25. We certainly do not conclude that the
clients would have just “presumed” such an arrangement when signing the attorney-client
agreements as that would be contrary to the policy (protection of clients’ interests) and strict
requirements of Rule 1.5 that the client must be informed of the fee arrangements, fee split, and
equal sharing of responsibility.
¶ 56 Because there was not complete compliance with Rule 1.5(e), and Fohrman failed to meet
its own fiduciary duty of disclosing the referral agreement, we find the circuit court properly
dismissed the amended complaint with prejudice and granted summary judgment in favor of
Alberts as to the unenforceability of the attorney liens. Based on our decision, we need not
address the other arguments raised by the parties.
¶ 57 Affirmed.
- 15 -