Court Opinion

ID: 3146527
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:18:08.307009+00
Date Added: 2024-06-11T12:28:37.016140
License: Public Domain

SIXTH DIVISION
                                                                               September 28, 2007

No. 1-07-0441

PEDERSEN AND HOUPT, P.C.,                              )               Appeal from the
                                                       )               Circuit Court of
                         Plaintiff-Appellant,          )               Cook County, Illinois,
                                                       )               County Department,
v.                                                     )               Law Division.
                                                       )
SUMMIT REAL ESTATE GROUP, LLC,                         )
SUMMIT DEVELOPMENT GROUP, LLC,                         )               No. 06 L 8078
MAIN STREET VILLAGE WEST-PART 1,                       )
LLC, TIMOTHY TYNAN, TYNAN, LLC,                        )
DARRYL SCHULTE, JR., and SCHULTE, LLC,                 )               Honorable
                                                       )               Bill Taylor,
                         Defendants-Appellees.         )               Judge Presiding.

       JUSTICE JOSEPH GORDON delivered the opinion of the court:

       Plaintiff-appellant Pedersen & Houpt, P.C. (P&H), a law firm, brings this interlocutory

appeal pursuant to Illinois Supreme Court Rule 306(a)(7)1 from the trial court’s order

disqualifying it from representing itself in a lawsuit against its former clients for unpaid attorney

fees and costs. For the reasons that follow, we reverse the trial court’s order.

                                          I. BACKGROUND

       On August 1, 2006, P&H filed a complaint for recovery of legal fees owed by the

defendants for legal services performed on their behalf. The defendants named in the complaint

are Summit Real Estate Group, LLC (Summit RE); Summit Development Group, LLC (Summit

       1
           Permitting a party to seek leave to appeal “from an order of the circuit court granting a

motion to disqualify the attorney for any party.” 210 Ill. 2d R. 306(a)(7).
No. 1-07-0441

Development); Main Street Village West-Part 1 (Main Street West); Timothy Tynan (Tynan);

Tynan, LLC; Darryl Schulte, Jr. (Schulte); and Schulte, LLC. The underlying facts pertaining to

each of the counts, as alleged in the complaint, are as follows.

       P&H is an Illinois corporation registered to practice law in the State of Illinois, while

Summit RE, Summit Development, Tynan, LLC, and Schulte, LLC, are Illinois limited liability

corporations. The members of Summit Development are Tynan, Schulte, and four other

individuals not party to this lawsuit. The members of Summit RE are Tynan, LLC (whose only

member is Tynan), and Schulte, LLC (whose only member is Schulte). The members of Main

Street West are Tynan, LLC, Schulte, LLC, and JP Commercial Investments, LLC; the former

two parties collectively own a 50% share in the company.

       All of the defendants are real estate developers in the business of purchasing, developing,

selling, and/or leasing Illinois property. Both Summit Development and Summit RE were

involved in developing a parcel of land located in Orland Park, Illinois, and they retained P&H to

provide a variety of corporate and real estate legal services in connection with this enterprise from

2003–04 onward. Furthermore, P&H represented Summit RE in a breach of contract lawsuit in

which Summit RE was seeking to enforce an agreement it had made to purchase 12 acres of

Orland Park property. Main Street West also hired P&H for what P&H terms “LLC

Maintenance.” P&H states that it completed all services it was requested to perform by these

companies.

       The complaint further alleges that, due to the aforementioned litigation services provided

by P&H, Summit RE won specific performance of the land sale contract. As a result, it was able

to purchase three acres of the Orland Park property on August 22, 2005, and the remaining nine
No. 1-07-0441

acres on January 25, 2006. As soon as it acquired the property, Summit RE immediately

transferred it to Main Street West “for no or inadequate consideration”; as this was its only asset,

the company had no further means of paying creditors, including P&H. Summit RE later

dissolved on August 28, 2006. Summit Development also dissolved after distributing all its assets

to its members.

       P&H avers in its complaint that on January 17, 2006, before the Orland Park property had

been transferred to Main Street West, P&H had asserted an attorney’s lien on the property

pursuant to the Attorneys Lien Act (770 ILCS 5/1 (West 2006)) to cover payment of the fees that

Summit RE had incurred as a result of P&H’s litigation services. The complaint further avers that

sometime before January 25, 2006, defendants orally promised to pay all outstanding legal fees

that Summit RE owed to P&H; that they also promised that Tynan, Tynan, LLC, Schulte, and

Schulte, LLC, would pledge a 50% share in Main Street West to P&H in order to secure

payment; that P&H relied on these promises, to its detriment, by not enforcing its attorney’s lien

on the Orland Park property or preventing the conveyance of the property to Main Street West;

but that these promises were never kept. As a result, once Summit RE dissolved, P&H still had

not been compensated for the legal services it provided to Summit RE, and despite repeated

demands, it was unable to obtain payment of fees, for which purpose it filed the instant suit for

recovery.

       In counts I through XXXIII, P&H asserts multiple claims for breach of contract, quantum

meruit, and account stated against Summit RE, Summit Development, Main Street West, and

                                                -3-
No. 1-07-0441

Tynan for the legal fees incurred during P&H’s representation of the companies.2 In count

XXXV, P&H then seeks to pierce the corporate veil of Summit RE to hold Tynan, LLC, and

Schulte, LLC, liable for the legal debts that Summit RE has accrued to P&H. In support of this

claim, P&H alleges that Summit RE is a “mere facade of Tynan LLC and Schulte LLC” and that

there is “unity of interest and ownership” between the three parties. Similarly, in counts XXXVI

and XXXVII, P&H seeks to pierce the corporate veils of Tynan, LLC, and Schulte, LLC, to hold

Tynan and Schulte, respectively, responsible for the legal indebtedness of their companies, which

it also alleges are “mere facade[s].” In count XXXIV, it seeks to pierce the corporate veil of

Summit Development to hold Tynan and Schulte personally liable for outstanding attorney’s fees

incurred by Summit Development.

       P&H also seeks to enforce the attorney’s lien it allegedly placed on the Orland Park

property in the amount of its outstanding attorney fees against Summit RE and Main Street West

in count XXXIX. Their theory for liability against Main Street West is that the company took the

property subject to the lien, with full knowledge of it.

       In addition, P&H claims recovery of its legal fees under a theory of unjust enrichment

(count XL) and successor liability (count XXXVIII) against Main Street West. P&H avers that

Main Street West only acquired the property because of P&H’s representation of Summit RE and

would therefore be unjustly enriched if it was allowed to keep it without having to pay the

attorney’s fees incurred by Summit RE. Moreover, Main Street West assumed Summit RE’s

       2
           Tynan is included here because P&H alleges that Tynan personally hired P&H to

represent Summit RE and promised that the legal fees incurred would be paid.

                                                 -4-
No. 1-07-0441

liability to P&H, since the transfer of the Orland Park property was “intended to fraudulently

escape liability to its creditors, including P&H.” On a similar note, P&H is also pursuing a claim

of fraudulent conveyance (count XLI) against Summit RE and Main Street West, alleging that

Summit RE transferred the Orland Park property to Main Street West “with the intent to delay,

hinder, or defraud its creditors” in violation of the Uniform Fraudulent Transfer Act (740 ILCS

160/1 et seq. (West 2006)).

        Finally, P&H seeks recovery of its legal fees on theories of promissory estoppel (count

XLII) and fraudulent misrepresentation (count XLIV) against all defendants except Summit

Development, based on defendants’ alleged false promises to pay. Pursuant to those alleged

promises, in count XLIII, P&H also seeks an equitable lien against the 50% share that Tynan,

LLC, and Schulte, LLC, have in Main Street West, for the amount of legal fees owed to P&H by

Summit RE.

        In response to P&H’s complaint, defendants (except for Main Street West) moved to have

P&H disqualified from representing itself on grounds that it might improperly use client

confidences in violation of Rule 1.6 of the Illinois Supreme Court Rules of Professional Conduct

(210 Ill. 2d R. 1.6(a)). Defendants pointed out that P&H had received a wealth of confidential

information in the course of its representation of Summit Development and Summit RE that might

prove material to the instant lawsuit. P&H opposed the motion, arguing that it was allowed under

Rule 1.6(c)(3) to use confidential client information in a lawsuit to collect fees, and that all of its

claims were indeed related to fee collection. Defendants conceded that under the provisions of

Rule 1.6(c)(3), P&H could utilize such information in pursuit of its claims for breach of contract,

                                                  -5-
No. 1-07-0441

quantum meruit, and account stated; however, they argued that P&H’s other alleged causes of

action were an attempt to create new liabilities beyond the scope of its contractual relationship

with its clients, so use of client confidences to prove those claims was not permitted under the

Rules of Professional Conduct.

       After hearing the oral arguments of counsel, the trial court granted the defendants’ motion

and ordered P&H to find new counsel. It is from that order that P&H files this appeal.

                                          II. ANALYSIS

       A trial court’s decision to disqualify counsel will not be overturned on appeal absent an

abuse of discretion, which is defined as a ruling that no reasonable person would agree with.

Schwartz v. Cortelloni, 177 Ill. 2d 166, 176, 685 N.E.2d 871, 876 (1997); Skokie Gold Standard

Liquors, Inc. v. Joseph E. Seagram & Sons, Inc., 116 Ill. App. 3d 1043, 1053, 452 N.E.2d 804,

812 (1983). In assessing the decision of the court below, we are mindful that attorney

disqualification is generally considered a drastic measure, because it bars a party from retaining

the counsel of its choice and thus destroys the attorney-client relationship. Schwartz, 177 Ill. 2d at

178, 685 N.E.2d at 877; SK Handtool Corp. v. Dresser Industries, Inc., 246 Ill.App.3d 979, 989,

619 N.E.2d 1282, 1289 (1st Dist. 1993). Courts are therefore cautious about granting motions to

disqualify, lest they be used tactically as means of harassment. Schwartz, 177 Ill. 2d at 178, 685
N.E.2d at 877; SK Handtool Corp., 246 Ill. App. 3d at 989, 999, 619 N.E.2d at 1288–89, 1295

(noting that a party who attempts to use disqualification motions as a harassment tool may be

subject to sanctions). This concern must be balanced against the need to enforce the canons of

legal ethics, which are designed to protect the attorney-client relationship and maintain public

                                                 -6-
No. 1-07-0441

confidence in the integrity of the legal profession and the administration of justice. SK Handtool

Corp., 246 Ill. App. 3d at 989, 619 N.E.2d at 1289.

       Defendants’ motion seeking disqualification of P&H as counsel in representing itself in

this proceeding was predicated upon Rule 1.6(a) (210 Ill. 2d R. 1.6(a)), and it was on the basis of

this canon that the trial court entered its order of disqualification. Rule 1.6(a) provides the

general rule that “a lawyer shall not, during or after termination of the professional relationship

with the client, use or reveal a confidence or secret of the client known to the lawyer unless the

client consents after disclosure.” 210 Ill. 2d R. 1.6(a). P&H, on the other hand, contends that

this case is controlled by the exception contained in Rule 1.6(c), which states in relevant part, “A

lawyer may use or reveal *** (3) confidences or secrets necessary to establish or collect the

lawyer’s fee.” 210 Ill. 2d R. 1.6(c)(3). P&H also contends that its right to proceed as its own

counsel in this suit is protected by implication under Rule 3.7(a), which provides:

                “A lawyer shall not accept or continue employment in contemplated or pending

       litigation if the lawyer knows or reasonably should know that the lawyer may be called as

       a witness on behalf of the client, except that the lawyer may undertake the employment

       and may testify:

                                                 ***

                       (3) if the testimony will relate to the nature and value of legal services

                rendered in the case by the lawyer or the firm to the client[.]” 134 Ill. 2d R.

                3.7(a)(3).

It is the scope of these exceptions, as applied to the allegations in P&H’s complaint, that is in

                                                 -7-
No. 1-07-0441

dispute between the parties here.3 The parties agree that P&H acquired confidential information

during the course of its representation of Summit RE and Summit Development. Defendants,

       3
           We note that the central question involving the operative scope of the exception under

Rule 1.6(c)(3) is not the extent to which a lawyer may act as counsel on his own behalf in

pursuing a claim for legal fees, but rather is the right of a lawyer to pursue his legal fees, whether

he represents himself or retains outside counsel to do so on his behalf. Even if an attorney

retained outside counsel to pursue his claim for legal fees, he would still possess the same

confidential information gleaned through his relationship with his former clients, which he could

then impart to any such outside counsel. Thus, the true question to be resolved is the extent to

which an attorney can utilize client confidences, whether acting on behalf of himself or through

outside counsel whom he chooses to retain for that purpose.

       Arguably, therefore, disqualification of the right of an attorney to act as his own counsel in

the pursuit of legal fees would be inappropriate, since it would not resolve the question of the

extent to which he might utilize the confidences of his client to which he would still be privy if he

were only the plaintiff and someone else was hired to represent him. Thus, the distinction

between himself as a party and himself as an attorney is only a mere formalism leading to no

substantive distinction. We need not, however, here resolve the question whether Rule 1.6 should

lead to disqualification of a lawyer representing himself in suing his client, because we have

determined, as shall be fully set forth in the ensuing text, that the entire lawsuit brought by P&H

properly falls under the exception in Rule 1.6(c)(3) and consequently may be maintained by P&H

whether as a party alone or as both party and counsel on its own behalf.

                                                  -8-
No. 1-07-0441

however, contend that the exceptions to confidentiality of client information in Rule 1.6(c)(3) and

by implication in Rule 3.7(a)(3) only apply to P&H’s breach of contract, quantum meruit, and

account stated claims, which seek simple collection of fees due and owing. P&H, on the other

hand, urges that all of its alleged causes of action fall under the broad language of Rule 1.6(c)(3).

       In weighing the contentions of the parties, we do not interpret the meaning and scope of

Rule 1.6(c)(3) in a vacuum; rather, we look to the purpose behind the exception. P&H argues

that an overly narrow reading would be fundamentally unfair, since it would adversely affect

lawyers’ abilities to collect fees by depriving them of crucial evidence. Indeed, concerns about

fairness to attorneys with meritorious claims against clients feature prominently in courts’

interpretation of the confidentiality requirements of the rules of legal ethics. Thus, our courts

have said that lawyers may use client confidences in litigation “where such a disclosure becomes

necessary for the protection and preservation of the attorney’s own rights inter se.” Sokol v.

Mortimer, 81 Ill. App. 2d 55, 65, 225 N.E.2d 496, 501 (1967). Confidentiality is not intended to

be used as a sword by clients in such situations.

       With these considerations in mind, we move to examine the particular causes of action

that defendants claim fall outside the scope of Rule 1.6(c)(3). Defendants contend, with extended

discussion, that the words “establish” and “collect” as deployed in Rule 1.6(c)(3) (210 Ill. 2d R.

1.6(c)(3)) should be construed narrowly to apply only to claims designed “to fix or prove the

amount of fees owed [and] obtain payment of that sum.” They extrapolate this definition in an

attempt to limit the exception to collection actions predicated on breach of contract, quantum

meruit, and account stated. Any other actions, they assert, are “entirely new theor[ies] of liability

                                                    -9-
No. 1-07-0441

against new parties” in which confidentiality requirements still apply with full force.

        P&H urges us to look beyond the labels given to its various causes of action to see the

substance behind its legal theories: namely, that the defendants have deliberately taken steps to

avoid liability to P&H for the legal services that it has rendered to them, and P&H has employed

these multiple causes of action to countermand defendants’ alleged efforts to evade payment of

their indebtedness to their attorneys for legal fees. If attorneys’ rights under Rule 1.6(c)(3) to

breach client confidentiality were limited only to simple actions for breach of contract, quantum

meruit, or account stated, they would have no recourse to recover fees in cases where clients

employed fraudulent transfers and conveyances or other devices to divest themselves of their

assets. According to the allegations that P&H makes in its complaint, it would be unable to

collect its fees merely by asserting claims for breach of contract, quantum meruit, and account

stated against the parties it directly contracted with, since the real parties in interest – the ghosts

inside the machine, as it were – have moved their assets away from those original companies.

Rather, in order to actually “obtain payment of that sum” instead of winning a meaningless

judgment against the dissolved and asset-less Summit Development and Summit RE, P&H is

required to use additional legal theories to pursue its remedies. To require disqualification in such

situations would be unnecessary and would unfairly restrict and obstruct the retrieval of fees from

unscrupulous clients. Indeed, it would reward the kind of fraudulent conduct that P&H alleges

Tynan and Schulte engaged in. Such use of other legal theories still fits within the definition of

the phrase “to establish or collect,” so long as the use of these theories is deployed solely for the

purpose of retrieving fees and costs, not to establish other items of damage.

                                                  -10-
No. 1-07-0441

        The monetary values sought by P&H in the various claims also support the conclusion

that P&H is not going beyond fee collection in the disputed claims. The sum total of the breach

of contract claims against Summit RE, Main Street West, and Tynan is $305,467.61; this is also

the exact amount that P&H seeks against defendants in each of counts XXXV through XXXVIII

and XL through XLIV of the complaint. As for the other causes of action that are disputed by

defendants, the amount sought in count XXXIV – where P&H is seeking to pierce the corporate

veil of Summit Development to hold Tynan, LLC, and Schulte, LLC, liable for its debts – is

exactly the same as the amount of P&H’s breach of contract claim against Summit Development.

And finally, count XXXIX deals with the attorney’s lien that P&H placed upon the Orland Park

property when it was owned by Summit RE, and it is this same lien that P&H is trying to enforce

against Main Street West. These synchronized dollar amounts demonstrate that P&H is not using

counts XXXIV through XLIV to expand liability beyond that which it alleges in its breach of

contract, quantum meruit, and account stated claims; rather, it is using these later claims as

alternative means of recovering the same amount.

        Thus, each of the counts in the complaint seeks only to recover legal fees, under whatever

theory is effective to implement their recovery, and is therefore well within the scope and latitude

of Rule 1.6(c)(3). Consequently, we must conclude that the trial court abused its discretion in

disqualifying these attorneys from representing themselves in pursuing this action for fee recovery

explicitly authorized under the rules of legal ethics.

        Order reversed and case remanded for proceedings not inconsistent with this opinion.

        McBRIDE, P.J., and O’MALLEY, J., concur.

                                                 -11-