In re Pine Top Insurance Co.

Second Division
September 30, 1997

No. 1-96-0908

In re PINE TOP INSURANCE COMPANY ) Appeal from the
Mark Boozell, Director of ) the Circuit Court of
Insurance for the State of ) Cook County.
Illinois, in his capacity as )
Statutory Liquidator of Pine Top )
Insurance Company, )
)
Petitioner-Appellant, )
)
v. )
)
Estate of Pine Top Insurance )
Company, ) Honorable
) Edwin M. Berman,
Respondent-Appellee. ) Judge Presiding.

JUSTICE RAKOWSKI delivered the opinion of the court:

This suit involves the liquidation of Pine Top Insurance
Company (Pine Top) under the Illinois Insurance Code (215 ILCS
5/187 et seq. (West 1994)). The Director of Insurance (Director)
as statutory liquidator (liquidator) appeals the trial court's
February 5, 1996, order denying approval of a contingency fee to
its counsel, Robinson Curley & Clayton, P.C. (Robinson). Because
the trial court failed to conduct a reasonableness analysis in
ascertaining whether to approve or disapprove the contingency fee
agreement, we reverse and remand.
FACTS
In 1986, Pine Top surrendered to the Illinois Department of
Insurance (Department) for liquidation. A liquidator was
appointed to marshall the company's assets and distribute them.
On June 20, 1988, the law firm retained by the liquidator,
Sidley & Austin (Sidley), filed suit against various officers and
directors of Pine Top for negligence and breach of duty (D&O
litigation). It also filed suit against the auditing firm of
Touche Ross & Co. (Touche) for professional malpractice (Touche
litigation). The trial court, pursuant to section 202 of the
Insurance Code (215 ILCS 5/202 (West 1994)), approved Sidley's
rate of compensation at $125 per hour for attorneys and $45 per
hour for paralegals, which is the current rate paid to senior
outside counsel.
In 1990, Touche merged with Deloitte, Haskins & Sells, which
created a conflict for Sidley. Accordingly, Sidley withdrew and
Robinson was substituted in the Touche litigation only.
Robinson's rate of compensation was approved at the same rate as
Sidley's.
In December of 1990, Judge Gillis approved a rate increase
for Sidley in the D&O litigation. The senior outside counsel
rate was now $185 per hour for attorneys and $60 per hour for
paralegals.
The Director and Robinson began discussing Robinson's fees
in late 1991. The general counsel for the Department requested
that Robinson submit a proposal. On December 30, 1991, Robinson
proposed that its rate be increased to senior outside counsel
rates effective January 1, 1991. The Director agreed to increase
Robinson's rate, but the terms were left open.
In May of 1992, the Director requested another fee proposal.
Robinson outlined three alternatives: (1) an increase to $185 and
$60 per hour; (2) a lodestar approach that was similar to fee
arrangements in other cases Robinson was handling for the
Director; or (3) a reduced contingency fee. The Director chose
the third alternative, believing Robinson would bear the risk of
unsuccessful litigation. Robinson agreed and the Director stated
he would seek approval at the close of the Touche litigation. At
this time, however, no definitive terms were set.
In early to mid 1993, Robinson sought documentation of the
fee agreement. At this time, the Director indicated it desired a
cap. Robinson proposed, instead of a cap, a reduction in the
contingency percentage in return for an immediate increase to the
senior outside counsel rate. This proposal was to approximate
the fees Robinson would have received from the inception of the
Touche litigation if it had received senior outside rates the
entire time. The Director agreed and the agreement was
memorialized some two years later in a memorandum.
Late in 1993, an unsuccessful settlement conference was held
in the Touche litigation. In October of 1994, the parties to the
Touche litigation conducted a private mediation with a federal
judge. However, no progress was made.
In June of 1995, as trial loomed near, Touche offered $9.5
million to settle, which the liquidator rejected. Since trial
was close and presumably the conclusion of the Touche litigation,
Robinson and the liquidator documented the final agreement on
Robinson's fee. Robinson would receive the increased senior
outside counsel rate retroactive to January 1, 1995, and there
would be a floor of $10 million before the contingency fee kicked
in.
At the end of June, the liquidator presented a petition to
approve attorney fees to Judge Berman based on the parties'
agreement. Judge Berman approved the rate increase to senior
outside counsel, but retroactive only to May 1, 1995; he stated
it was Robinson's fault for failing to seek an increase sooner.
As to the contingency fee, the judge granted leave for the
liquidator to withdraw its petition for approval.
The hearing on this petition was heated and confusing. The
liquidator stated that the contingency agreement related to that
period of time during which Robinson was being paid less than
other outside senior counsel. According to the liquidator, when
the issue of settlement arose, in particular the $9.5 million
offer from Touche, Judge Berman, without basis or explanation,
accused the liquidator of misleading him about the fee agreement.
Director Schact, in an attempt to clarify the negotiations
and agreement, addressed the court. He stated he did not seek
approval earlier because it was not the right time, the
litigation was not progressing forward. Schact advised the judge
that the $10 million cap was agreed to before Touche made its
$9.5 million offer. The judge, however, found this arrangement
inappropriate, believing that if Touche paid 1 cent over $10
million, Robinson would receive a "bonus." The judge stated that
the liquidator should have sought approval of the fee agreement
earlier in the proceedings.
Ms. Robinson also addressed the court. She stated that the
contingency discussions began in December of 1991. She further
stated that the parties agreed not to seek an increase in
Robinson's rate but instead to seek a contingency fee at the
close of the Touche litigation. Additionally, there was
testimony that the $10 million cap was the amount that would
bring Robinson's compensation in conformity with receipt of
senior outside counsel rates from the inception of the Touche
litigation, e.g., it would not amount to a bonus.
Judge Berman stated he would approve a contingency
arrangement if it applied against the total recovery, the
percentage was lower than one-third, and fees already paid to
Robinson were deducted from the contingency fee amount. However,
Judge Berman seemed to state he would only approve such an
agreement upon verdict, not upon settlement of the case.
Subsequent to this hearing, the Director and Robinson
revised the fee agreement in accordance with what they believed
Judge Berman stated he would approve. They reduced the
percentage to 27.5% and capped the amount at a figure necessary
to raise Robinson's rate to equal that of rates for senior
outside counsel.
On July 17, 1995, Touche and the liquidator settled. Judge
Flanagan entered a good-faith finding and dismissed the suit
against Touche with prejudice. On August 17, 1995, Judge Berman
approved the settlement. During this hearing, Judge Berman again
raised the fee issue and stated that he would not give Robinson
one more dime.
On February 5, 1996, the liquidator filed a petition for
approval of the contingency fee agreement. It sought fees in the
amount of $1,133,587.50.[fn1] Judge Berman summarily denied
this petition and refused to listen to arguments.
ANALYSIS
A. JURISDICTION
We must first ascertain whether we have jurisdiction. The
liquidator contends we do, arguing that the plain language of
Supreme Court Rule 304(b)(2) (155 Ill. 2d R. 304(b)(2)), the
committee comments, and case law support such a finding. We
agree.
The plain language of Rule 304(b)(2) dictates this finding.
It states:
"(b) Judgments and Orders Appealable
Without Special Finding. The following
judgments and orders are appealable without
the finding required for appeals under
paragraph (a) of this rule:
***
(2) A judgment or order
entered in the administration of a
receivership, rehabilitation,
liquidation, or other similar
proceeding which finally determines
a right or status of a party and
which is not appealable under Rule
307(a)." 155 Ill. 2d R. 304(b)(2).
The liquidator is clearly a party to the liquidation proceeding.
The trial court's order denying the contingency fee to Robinson
finally determined the liquidator's status as to its liability
for payment of attorney fees. Accordingly, such an order falls
within the ambit of subparagraph (2). The drafters of the rule
clearly contemplated an appeal in this situation. The committee
comments state:
"Subparagraph (2) is comparable in scope
to subparagraph (1) [e.g., 'orders that are
final in character although entered in
comprehensive proceedings that include other
matters'] but excepts orders that are
appealable as interlocutory orders under Rule
307. Examples of orders covered by
subparagraph (2) are an order allowing or
disallowing a claim and an order for the
payment of fees." 155 Ill. 2d R. 304,
Committee Comments.
The order the liquidator is appealing from is an order denying
the "payment of fees." Accordingly, based on the committee's
intent in drafting this rule, such an order is appealable.
Case law further supports our decision. In particular is
Mar Cement, Inc. v. Diorio Builders, Inc., 153 Ill. App. 3d 798
(1987). In Mar Cement, a savings and loan dissolution case, the
court, in an order dated February 19, 1986, granted fees to the
receiver for all time periods prior to March 11, 1982. However,
it denied fees subsequent to that date. It continued the matter
for a prove up on the awarded fees. On March 20, 1986, the
liquidator filed a notice of appeal, seeking reversal of the
order denying fees subsequent to March 11, 1982. On March 24, it
filed a motion before the circuit court asking it to certify that
the order of February 19, 1986, was final and appealable. The
court stated that the February 19, 1986, order was final as to
the amount of fees prior to March 11, 1982, but that the order
was not appealable under Supreme Court Rule 304(b) or 307. The
appellate court declined jurisdiction, finding that the February
19, 1986, order was not final and appealable. The court quoted
both Rule 304(b)(2) and the committee comments. It then
concluded that "an order for the payment of receiver fees which
is final in character is appealable under Supreme Court Rule
304(b)(2)." Mar Cement, Inc., 153 Ill. App. 3d at 801. However,
the Mar Cement order was not final in character according to the
court. Although it was final as to fees prior to March 11, 1982,
it was not final as to fees generally. The court stated that the
test for finality is " 'whether the decree or order appealed from
determines the ultimate rights of the parties with respect to
distinct matters which have no bearing on other matters left for
further consideration.' " Mar Cement, Inc., 153 Ill. App. 3d at
802, quoting Hoier v. Kaplan, 313 Ill. 448, 450 (1924). In Mar
Cement, the issue of fees prior to March 11, 1982, was not
distinct from the issue of fees subsequent to that time; the
issue was fees generally. Since the amount of fees in general
was not finally determined, the appellate court lacked
jurisdiction over the appeal. Mar Cement, Inc., 153 Ill. App. 3d
at 802-03. In the instant case, unlike Mar Cement, the issue of
Robinson's fee was final. At the time of Judge Berman's order,
he left nothing to be determined at a future date.
Finally, logic and a review of article XIII of the Insurance
Code, entitled "Rehabilitation, Liquidation, Conservation and
Dissolution of Companies" (Liquidation Act) (215 ILCS 5/187 et
seq (West 1994)), demonstrate that to deny jurisdiction at this
time would not be prudent. Section 210 details the adjustment
and prioritization of claims to be made by the liquidator in
settling the estate. For the liquidator to complete this
function, he must know the amounts of both the claims and the
amounts the estate possesses from which the claims will be paid.
To know the amount available for distribution, the liquidator
necessarily needs to know the amount of fees to be paid to
counsel; amounts that will not be included in the estate. To
facilitate these determinations, the drafters of Rule 304
included subparagraph (b)(2) and indicated their intent that fee
disputes fall within the ambit of this paragraph. To hold
otherwise and order the liquidator to await conclusion of the
liquidation proceeding would frustrate the proceeding as well as
the purpose of Rule 304. Without a final determination now of
the validity of the court's order and, thus, the amount of fees
due Robinson, the liquidation proceeding may need to be reopened
in the future. If the liquidator is required to await conclusion
of the liquidation prior to asserting this appeal, and if he was
successful in a subsequent appeal on the fee issue, the
liquidation would need to be reopened to distribute or rather
"undistribute" claims already paid so that Robinson could then be
paid. This is not a logical result. Issues relevant to the
amount of the estate available for distribution should be
resolved promptly. Clearly, this was the intent when Rule
304(b)(2) was promulgated. The drafters viewed appeals on
amounts of claims and fees to be issues that were to be resolved
prior to final distribution, resolution of the liquidation, and
an order terminating the proceedings.
Based on the above, we conclude that jurisdictions lies with
this court.
B. DIRECTOR'S POWER--FEE AGREEMENT
The liquidator contends that the trial court erred in
summarily refusing to approve the contingency fee agreement
absent a reasonableness determination.
Section 202 governs the Director's retention of counsel. It
provides that the Director has authority to retain counsel and:
"The compensation of each special ***
attorney *** shall be fixed and paid by the
Director. The Director shall also have the
authority to retain and pay attorneys *** as
the Director may deem necessary and
appropriate. The Director shall fix the rate
of compensation of these attorneys ***
subject to the approval of the court." 215
ILCS 5/202 (West 1996).[fn2]
Research has found only one case interpreting this
provision, People ex rel. Baylor v. Multi-State Interinsurance
Exchange, 12 Ill. App. 3d 1058 (1973). In Baylor, the court
awarded counsel, retained by the Director to collect assessments
from policyholders, attorney fees in the amount of $200,194 based
on a theory of quantum meruit. The parties had a contingency fee
agreement between them in which the attorney was paid based on a
percentage of the assessments collected. Because the Director
believed the attorney improperly collected a large number of
assessments, he refused to pay. The trial court disagreed with
the Director and awarded fees. On appeal, the liquidator
contended that the trial court exceeded its statutory power in
awarding fees that were not first approved by the director. The
court, relying on People ex rel. v. Marquette National Fire
Insurance Co., 351 Ill. 516 (1933), stated that the award was
proper because although the Director has a statutory duty to set
the rate, the "court shall have a veto." Baylor, 12 Ill. App. 3d
at 1065. The court further stated: "[t]he Liquidator has the
power to fix compensation in the first instance, but his
determination is always subject to the supervisory power of the
court. Any other construction would give the Liquidator immunity
against any claim for attorney's fees which he refused to pay."
Baylor, 12 Ill. App. 3d at 1066.
By its holding, the Baylor court implied that the trial
court has a right to set fees on its own. However, instead of
explaining or expanding on the respective duties of the court and
the Director, the court simply made the above-quoted comments.
Thus, it is not particularly helpful.
The parties have not cited and independent research has not
located any cases directly on point. The crux of the issue
before us is the standard to apply, both by the trial court and
by a reviewing court, in evaluating the Director's decision on
the rates for counsel. For the following reasons, we determine
that the trial court must conduct a reasonableness analysis of
the Director's decision. Implicit in such an analysis is that
due consideration must be given to the Director's rate. The
standard on review is an abuse of discretion standard. We base
our holding on the standards employed in other areas of law where
fees are awarded.
In probate proceedings, the trial court must conduct a
reasonableness analysis prior to awarding or denying fees.
Reasonableness lies within the discretion of the trial court
based on the facts and circumstances of each case, and a
reviewing court will not disturb the trial court's finding
"absent manifest or palpable error, or an abuse of discretion."
Weiss v. Weiss, 113 Ill. App. 3d 793, 802, 803 (1983). See also
In re Estate of Dyniewicz, 271 Ill. App. 3d 616, 624-625 (1995).
Factors to be analyzed include the size of the estate, the work
done, the skill evidenced by the work, the time expended, the
success of the efforts, good faith, and the efficiency of
administration. In re Estate of Devoy, 231 Ill. App. 3d 883, 888
(1992).
Similarly, in "fee-shifting" agreement situations or where a
contract provision provides for fees, the trial court too must
conduct a reasonableness evaluation. It also makes its
reasonableness determination based on various factors and its
decision will not be disturbed unless there has been an abuse of
discretion. Heller Financial, Inc. v. Johns-Byrne Co., 264 Ill.
App. 3d 681, 690 (1994). Factors utilized in these cases
include: "the skill and standing of the attorneys employed, the
nature of the case, the novelty and difficulty of the issues
involved, the degree of responsibility required, the usual and
customary charge for the same or similar services in the
community, and whether there is a reasonable connection between
the fees charged and the litigation." Harris Trust & Savings
Bank v. American National Bank & Trust Co., 230 Ill. App. 3d 591,
595-96 (1992).
In class actions, reasonableness of the fee again is the
issue. First, the trial court looks to the "(1) the skill and
qualifications of the attorneys; (2) the nature of the services
performed; (3) the complexity of the undertaking; and, (4) the
hourly fee charged for similar services by attorneys with similar
skills and qualifications." Board of Commissioners of the
Bolingbrook Park District v. County of Will, 154 Ill. App. 3d
395, 398-99 (1987). The court may then consider a "lodestar"
request and increase the award it has made based on the above
factors by looking to two other factors: "(a) 'the contingent
nature of the undertaking' and (b) 'the benefits conferred upon
the class.' " Board of Commissioners, 154 Ill. App. 3d at 399.
Finally, the Rules of Professional Conduct outline factors
to be addressed in analyzing the reasonableness of counsel's fee.
They include:
"(1) the time and labor required, the
novelty and difficulty of the questions
involved, and the skill requisite to perform
the legal service properly;
(2) the likelihood, if apparent to the
client, that the acceptance of the particular
employment will preclude other employment by
the lawyer;
(3) the fee customarily charged in the
locality for similar legal services;
(4) the amount involved and the results
obtained;
(5) the time limitations imposed by the
client or by the circumstances;
(6) the nature and length of the
professional relationship with the client;
(7) the experience, reputation, and
ability of the lawyer or lawyers performing
the services; and
(8) whether the fee is fixed or
contingent." 134 Ill. 2d R. 1.5.
In Board of Commissioners, a class action suit, the
appellate court reversed the trial court's reduction and denial
of fees, finding that it failed to take into account all relevant
factors, in particular the "importance of the benefit to the
class." Board of Commissioners, 154 Ill. App. 3d at 399. In
Board of Commissioners, counsel for the class and the Will County
State's Attorney agreed upon the amount of fees class counsel
should receive following conclusion of the suit. Because a
member of the class objected, the trial court conducted a trial
on the matter. Ultimately, the trial court reduced the fees and
denied additional fees, finding that class counsel had been
sufficiently compensated in three related cases in different
counties involving the same issue. We reversed, holding that
although the trial court enjoys wide discretion in awarding fees,
that decision is:
"[P]redicated on the assumption that the
trial judge has carefully considered the
factors described above and that he has heard
testimony and examined statements prepared by
the attorneys substantiating the value of the
benefits received by the plaintiff class and
the hours extended by the attorneys on the
case. In class actions, the wide range of
discretion given to the trial court makes it
all the more important that the court clearly
set out the effect of each factor considered
in leading it to decrease the award and
relative weight it assigns to each factor in
reaching a final determination." Board of
Commissioners, 154 Ill. App. 3d at 400.
We concluded that, contrary to well-established law, the trial
court did not provide reasons and what specific factors justified
its reduction of hours and fees. Because of this, the trial
court's decision was unreasonable and we granted the amount of
fees originally agreed to between class counsel and the State's
Attorney. We stated: "[t]hat settlement was not collusive or
fraudulent and it was guided by judicial oversight. Due
consideration should be extended to the opinion and judgment of
the counsel who produced the original settlement figure." Board
of Commissioners, 154 Ill. App. 3d at 400-01.
We find this case instructive. First, it supports our
conclusion that the Director's decision on the rate of fees
should be accorded due consideration. Unlike the instant case,
the agreement in Board of Commissioners was accorded due
consideration despite the fact no statutory authorization existed
for the State's Attorney and class counsel to set the amount of
fees. More importantly, Board of Commissioners highlights the
importance of analyzing factors and setting forth what particular
elements are accorded more weight and why when reducing or
denying fees. The trial court's detailing of the factors and
justifications is even more compelling in liquidation proceedings
where the Director is statutorily given power to set counsel's
rate and the court decides the rate is inappropriate.
In the instant case, Judge Berman completely failed to
conduct a reasonableness analysis of the fee agreement set by the
Director. When the Director filed his petition for approval and
the court conducted a "hearing," all the court did was summarily
deny the petition without hearing argument and without
explanation. Based on this, we find the trial court abused its
discretion in denying fees to Robinson.
CONCLUSION
For the foregoing reasons, we reverse and remand to the
circuit court of Cook County for proceedings not inconsistent
with this decision.
Reversed and remanded with directions.
McNULTY, P.J., and FROSSARD, J., concur.
[fn1] Had the court approved this amount, Robinson would
have been paid a total of $4,739,507.50 for its participation in
the Touche litigation. Had it received senior outside rates
since the inception of its work for the liquidator, it would have
earned $4,897,005.
[fn2] Prior to August 1993, this provision provided: "the
Director shall have power to *** employ such *** attorneys as may
by him be deemed necessary ***. The compensation of every such
*** attorney shall be fixed, *** by the Director, all subject to
the approval of the court." 215 ILCS 5/202 (West 1992).