Davies v. Grauer

THIRD DIVISION
AUGUST 27, 1997

No. 1-96-1523

WILLIAM T. DAVIES, ) APPEAL FROM THE
) CIRCUIT COURT OF
Plaintiff-Appellant, ) COOK COUNTY
)
v. )
) No. 95 L 11403
PAUL W. GRAUER, d/b/a Paul W. Grauer )
and Associates, Attorneys at Law, ) THE
HONORABLE
) DAVID LICHTENSTEIN,
Defendant-Appellee. ) JUDGE PRESIDING.

PRESIDING JUSTICE COUSINS delivered the opinion of the

court:

Plaintiff, attorney William T. Davies (Davies), filed suit
against defendant, attorney Paul W. Grauer (Grauer), seeking one-
half of the attorney fees Grauer received in connection with two
oral joint venture agreements between Davies and Grauer. Grauer
moved for summary judgment pursuant to section 2-1005 of the Code
of Civil Procedure (735 ILCS 5/2-1005 (West 1992)), on the ground
that the oral joint venture agreements were unenforceable.
Grauer argued that the two oral joint venture agreements violated
Rule 2-107 of the Illinois Code of Professional Responsibility,
entitled "Division of Fees Among Lawyers." The trial court
granted Grauer's motion for summary judgment, from which Davies
appeals.
We reverse and remand.

BACKGROUND

Davies is an attorney licensed to practice in the State of
Illinois. As a sole practitioner, Davies' general practice
includes divorce, real estate and criminal cases, with 20% of his
practice devoted to personal injury matters. In 1985, Davies and
Grauer entered into two oral joint venture agreements to
represent Norman Rosser and John Metz in their respective
personal injury suits.
The Rosser Case
In August of 1984, Norman Rosser (Rosser), a client of
Davies for many years, contacted Davies regarding the death of
Rosser's wife. On July 31, 1984, Evelyn Rosser was killed when
she was struck by her own automobile. Davies consulted with
Rosser about the possibility of a product liability suit. Davies
informed Rosser that, if there was a case, Davies would represent
him for a one-third contingent fee. Davies also informed Rosser
that he would bring in another attorney with an engineering
background to work on the case and that Davies and the other
attorney would split the attorney fees from the one-third
contingent fee. Prior to Grauer's involvement, Davies expended
approximately 100 hours on the case and hired an engineer to
investigate the cause of the accident.
On or about August 1, 1985, Davies spoke with Grauer about
the case. Prior to that date, Davies had never referred a case
to Grauer, nor had the two worked together as associates or
partners in the same law firm. In his amended complaint, Davies
alleged that he and Grauer entered into an oral joint venture
agreement, subject to the client's approval. Davies and Grauer
were to split the attorney fees equally, with Davies'
contribution being the exploratory work he completed prior to
Grauer's involvement in the case and the referral of the case and
Grauer's contribution being the filing of the case and either
settling or taking the matter to trial. In his deposition,
Davies also alleged that he and Grauer agreed that Davies' name
would appear on all documentation in the case. However, none of
the pleadings filed included Davies as counsel of record. In his
answer to Davies' amended complaint, Grauer denied the specifics
of the agreement alleged by Davies. However, in his motion for
summary judgment, Grauer admitted that, on or about August 1,
1985, Davies and Grauer entered into an oral joint venture
agreement whereby Davies referred the Rosser case to Grauer to be
handled on a contingent fee basis with the fee to be divided
equally between Davies and Grauer. Grauer also admitted in his
motion for summary judgment that he was to draft the written fee
agreement to be signed by Rosser consenting to the referral and
the division of fees. Rosser confirmed Grauer's admission by
stating in his affidavit that "Davies told me that Grauer would
make out the fee arrangement."
On August 27, 1985, Rosser and Grauer signed a contingent
fee agreement whereby Rosser retained Grauer to represent him
regarding the accident. The contingent fee agreement made no
reference to Davies nor did it contain any reference to a
division of fees between Davies and Grauer. On September 20,
1985, Davies sent Grauer a letter requesting acknowledgment of
their joint venture agreement. Grauer never returned an
acknowledgment of the agreement. In his deposition, when asked
why he never asked Grauer about acknowledgement of the agreement
Davies said, "It just never entered my mind that he would not
honor the agreement."
Over the next eight years, Davies was kept informed of case
developments. Davies also met with Rosser periodically to
discuss the case. Davies called Rosser on or about June 1, 1993,
to discuss the status of the case. During this conversation,
Rosser informed Davies that the case had been settled "some time
ago" for $953,000. Grauer received attorney fees in the amount
of $317,666.68. On July 22, 1993, Rosser signed a letter drafted
by Grauer and addressed to Davies. The letter included the
statement, "I understand that you will pay attorney Bill Davies
for any services that he has performed out of your attorney
fees." On July 24, 1993, Grauer sent Davies a check for attorney
fees in the amount of $27,600. Davies never negotiated the
check. On March 23, 1995, Davies filed a first amended complaint
against Grauer alleging, inter alia, that: (1) Grauer breached
his fiduciary relationship with Davies under the joint venture
agreement and (2) Grauer converted the balance of attorney fees
allegedly due Davies to his own use.
The Metz Case
On August 29, 1986, John Metz (Metz), was involved in an
automobile accident. Metz's mother called Davies the day the
accident occurred to discuss legal representation. Davies had
been the Metzes' family attorney for many years. In October of
1986, Davies and Grauer discussed the referral of the Metz case
to Grauer. Davies and Grauer entered into an oral joint venture
agreement on the same terms as in the Rosser case. In his
affidavit, Metz stated that he understood that Davies and Grauer
were to split any attorney fees equally. Metz signed a
contingent fee agreement with Grauer. The contingent fee
agreement did not refer to Davies, nor did it mention a division
of fees between Davies and Grauer. However, in his affidavit,
Metz stated that the contract said "Paul Grauer & Associates" and
he assumed that "associates" included Davies.
In 1994, the Metz case was settled for $55,000. Grauer
received attorney fees in the amount of $18,333.33. Davies
received no part of the attorney fees. When Davies informed Metz
that he did not receive his half of the attorney fees, Metz sent
a letter to Grauer demanding that he pay Davies his half. Metz
stated in his letter, "[w]hen you first took my case, Mr. Davies
was my lawyer and he and you were to share in the case all fees
equally." Davies never received any portion of the fee.
Davies filed a first amended complaint on March 23, 1995,
that included attorney fees involved in the Metz case and further
alleged breach of fiduciary duty, conversion of attorney fees,
and willful and wanton misconduct calculated to misrepresent,
deceive and defraud Davies and unjustly enrich Grauer.
Grauer filed a motion for summary judgment on January 5,
1996. After a hearing, the trial court granted Grauer's motion
for summary judgment. The trial court found that Davies could
not prevail on his breach of fiduciary duty and punitive damages
claims because to allow recovery would violate public policy
relating to attorney-client contingency agreements. Davies
appeals.
We reverse and remand.

ANALYSIS
Davies first contends that the trial court erred in granting
summary judgment to Grauer because the two oral joint venture
agreements were not unenforceable as a matter of public policy.
In summary judgment cases, the reviewing court conducts a de
novo review of the evidence. Espinoza v. Elgin, Joliet & Eastern
Ry. Co., 165 Ill. 2d 107, 113, 649 N.E.2d 1323 (1995). The
reviewing court must construe all evidence strictly against the
movant and liberally in favor of the nonmoving party. Espinoza,
165 Ill. 2d 107 at 113. If reasonable persons could draw
different inferences from undisputed facts, summary judgment
should be denied. Smith v. Armor Plus Co., 248 Ill. App. 3d 831,
617 N.E.2d 1346 (1993). Thus, summary judgment is proper if and
only if pleadings, depositions, admissions, affidavits, and other
relevant matters on file show that there is no genuine issue of
material fact and that the movant is entitled to judgment as a
matter of law. Smith v. Tri-R Vending, 249 Ill. App. 3d 654, 619 N.E.2d 172 (1993).
The Illinois Code of Professional Responsibility Rule 2-107
governs fee-splitting agreements among lawyers. 107 Ill. 2d R.
2-107. Rule 2-107 provides 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 services 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 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 ***." 107 Ill. 2d R. 107.
The purpose of Rule 2-107 is to preserve the fiduciary
relationship between a client and his attorney through disclosure
of fee-sharing arrangements, thereby leading to greater
accountability. Grauer mistakenly relies on Holstein v. Grossman,
246 Ill. App. 3d 719, 725, 616 N.E.2d 1224 (1993), to support his
contention that the two oral joint venture agreements are
unenforceable because they violate Rule 2-107. In Holstein, the
court squarely addressed Rule 2-107 and its application to oral
fee-splitting agreements. We distinguish the facts in Holstein
from the instant case.
In Holstein, plaintiff-attorney Holstein allegedly entered
into an oral fee-referral agreement with defendant attorney
Grossman. Holstein and Grossman agreed that Holstein was to
refer personal injury cases in exchange for a one-half share of
attorney fees. Holstein drafted a model attorney-client
contract, which disclosed the referral to Grossman, the division
of responsibility between Holstein and Grossman and the division
of fees. However, Grossman never used the attorney-client
contract drafted by Holstein. Clients referred by Holstein to
Grossman signed a standard contract with Grossman containing no
disclosures regarding the arrangement between Holstein and
Grossman. Grossman moved for summary judgment, asserting that
the alleged fee-referral arrangement violated Rule 2-107 and
therefore the arrangement was illegal and unenforceable. This
court held that an intra-attorney fee-sharing agreement that is
primarily based on a client referral is unenforceable as a matter
of public policy where the undisputed facts show that the
referred client never consented in writing to the attorneys'
arrangement. Holstein, 246 Ill. App. 3d at 725. The court
further held that there was no substantial compliance with Rule
2-107 because there was no written consent. Holstein, 246 Ill.
App. 3d at 736. The referred clients had no knowledge of the fee
referral arrangement between Holstein and Grossman.
Grauer also mistakenly relies on Anderson v. Anchor
Organization for Health Maintenance, 274 Ill. App. 3d 1001, 1011,
654 N.E.2d 275 (1995). In Anderson, Rose Marie Anderson and
Frank Anderson engaged Joan Schiller Travis, an attorney, to
represent them as an attorney in a medical malpractice action.
Then, Travis contacted attorney Kenneth C. Chessick and, without
the written consent of the Andersons, retained Chessick as
cocounsel. Travis and Chessick orally agreed to divide equally
the fees and costs. Both Travis and Chessick rendered legal
services and advanced costs in furtherance of plaintiffs' action.
Approximately five years after the medical malpractice
action had been filed by Chessick and Travis, the plaintiffs
wrote letters to Travis discharging her as their attorney and
stating that Chessick would act as their attorney. In Anderson,
the court held that plaintiffs never consented in writing to the
employment by Travis of the other attorney and, as a consequence,
Travis' fee-sharing agreement with Chessick was unenforceable.
Anderson 274 Ill. App. 3d at 1011. In our view, Anderson is more
analogous to Holstein than to the instant case and facts in both
Holstein and Anderson are dissimilar to the facts in the instant
case.
An instructive case is Phillips v. Joyce, 169 Ill. App. 3d
520, 523 N.E.2d 933 (1988). In Phillips, the court, in upholding
a fee-splitting agreement, made an extensive analysis of the
development of Disciplinary Rule 2-107 of the Illinois Code of
Professional Responsibility, entitled "Division of Fees Among
Lawyers." 107 Ill. 2d R. 2-107. In deciding the case, the
Phillips court wrote:
"To determine which agreements violate the canons of
ethics, then, we must consider the underlying policy
considerations and the harm to be avoided by the particular
disciplinary rule.
Disciplinary Rule 2-107 aims to preserve the fiduciary
relationship between a client and his attorney through
disclosure of fee-sharing arrangements, thereby leading to
greater accountability. In addition, the rule contains a
proportionality concept, which can be viewed as protecting
the client from unearned or excessive fees. Requiring a
relationship between the fee claimed and services or
responsibility assumed also ensures that the attorney will
have the incentive to use his best efforts to resolve the
case. [Citation.]
It is readily apparent that DR 2-107 mandates disclosure
to the client whenever his attorney enters into an agreement
with another attorney to share fees and responsibility for
the legal matters entrusted to the first attorney. Hence,
the client's right to be represented by the attorney of his
choosing is preserved. No attorney whom the client has not
retained will be entitled to payment from the client via a
secret deal with the client's attorney. Instead, the client
must consent in writing to the shared fee and shared
responsibility.
***
We believe, however, that a standard of substantial
compliance is preferable because it comports with practical
realities. In fact, such a standard is consonant with the
Illinois Supreme Court's opinion in Kravis v. Smith Marine,
Inc. and other cases that have considered the scope of the
disclosure requirement. One court, faced with a similar
question involving the disclosure of a fee-sharing agreement
to a client, found that the client presumably knew of the
arrangement, if not the details, stating, 'This method of
dealing admittedly may not strictly comport with the
guidelines of section DR 2-107 of the Code of Professional
Responsibility, but it certainly does not fall far from this
section's ethical parameters.' Carter v. Katz, Shandell,
Katz and Erasmous (1983), 465 N.Y.S.2d 991, 997, 120 Misc.
2d 1009, 1015 (construing ABA version of the disciplinary
rule)." Phillips, 169 Ill. App. 3d at 529-31. [Emphasis
omitted.]

In the instant case, we believe that the admitted facts
establish that the disclosures made to Rosser and Metz constitute
substantial compliance with Rule 2-107. Such a standard of
substantial compliance is consonant with Phillips, 169 Ill. App.
3d 520, 523 N.E.2d 933, and also with the Illinois Supreme
Court's opinion in Kravis v. Smith Marine, Inc., 60 Ill. 2d 141,
324 N.E.2d 417 (1975).
In the instant case, oral disclosures were made to both
Rosser and Metz regarding the fee-sharing arrangement between
Davies and Grauer. Further, both Rosser and Metz retained Davies
as their attorney, not Grauer, in the first instance. In Metz's
sworn affidavit, he stated that he knew Davies and Grauer were to
split the attorney fees equally and that, when he signed the
contingent fee agreement, he thought Davies was included because
he assumed the word "associates" in "Paul Grauer & Associates"
included Davies. Rosser, in his sworn affidavit, also admitted to
knowing that Davies and Grauer would split the fees. We believe
both Rosser and Metz had sufficient information regarding the
fee-sharing agreement between Davies and Grauer to be fully
protected under Disciplinary Rule 2-107 and that the aims of
Disciplinary Rule 2-107 have been fulfilled.
However, in our view, even were we to hold that the oral
joint venture agreements were not in substantial compliance with
Disciplinary Rule 2-107, we believe that the trial court erred in
dismissing the first amended complaint against Davies. Although
the general rule is that a fee-splitting agreement between
attorneys is unenforceable, summary judgment should not be
entered in this case because there are genuine issues of material
fact as to whether Grauer breached his fiduciary duty to honor
the joint venture agreement with Davies.
In the case sub judice, Davies' primary contention is that
Grauer breached his fiduciary duty to him by not honoring the two
oral joint venture agreements. The trial court granted Grauer's
motion for summary judgment because the court found the oral
joint venture agreements to be per se violative of public policy.
See Holstein, 246 Ill. App. 3d at 735; Phillips, 169 Ill. App. 3d
at 532. In our view, the trial court erred.
We disagree with the trial court's failure to address
Davies' claim for breach of fiduciary duty because oral joint
venture agreements are not per se violative of public policy. See
Holstein, 246 Ill. App. 3d at 735; Phillips, 169 Ill. App. 3d at
532. Actions for breach of fiduciary duty are not contract
actions. This distinction, we believe, requires that our
paramount concern becomes the effect such agreements have on the
attorneys involved. Holstein, 246 Ill. App. 3d at 740. When
clients are fully protected through full or substantial
compliance with Disciplinary Rule 2-107, the rule "'should not be
too readily construed as a license for attorneys to break a
promise, go back on their word, or decline to fulfill an
obligation, in the name of legal ethics.'" Phillips, 169 Ill.
App. 3d at 535, quoting Baron v. Mullinax, Wells, Mauzy & Baub,
Inc., 623 S.W.2d 457, 462 (Tex. App. 1981). "If an attorney uses
his own illegal conduct as an excuse for breaching his contract,
he not only violates a disciplinary rule (for which separate
sanctions may be imposed in the appropriate forum) but he also
commits a second wrong, dishonoring his contractual promise."
Phillips, 169 Ill. App. 3d at 535 n.10.
In our view, Illinois public policy cannot reward Grauer's
alleged misconduct in this case. Both Rosser and Metz affirmed
that they had retained Davies and that they knew that Davies and
Grauer would split the attorney fees. Grauer admitted for the
purpose of his summary judgment motion that he entered into both
oral joint venture agreements and that he was to draft the
attorney-client agreement disclosing joint representation.
However, Grauer admitted that he failed to draft the agreement.
Grauer further admitted that he did not include Davies in the
attorney-client agreements that Rosser and Metz signed, which he
was required to do under the oral fee-sharing agreement.
Accordingly, in the instant case, Grauer cannot invoke
Disciplinary Rule 2-107 as a shield against living up to an
allegedly substantively unobjectionable contractual arrangement
with Davies. See Freeman v. Mayer, 95 F.3d 569, 575 (7th Cir.
1996).
For the foregoing reasons, the judgment of the circuit court
of Cook County is reversed and remanded for further proceedings
consistent with this opinion.
Reversed and remanded.
LEAVITT and CAHILL, JJ., concur.