Schweihs v. Davis, Friedman, Zavett, Kane & MacRae

Citation: Not availableDocket: 1-01-3994 Rel

Court: Appellate Court of Illinois; November 2, 2003; Illinois; State Appellate Court

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In the case of Melinda Schweihs v. Davis, Friedman, Zavett, Kane and MacRae, and James L. Rubens, the Illinois courts dealt with ongoing litigation stemming from the divorce of Melinda and Daniel Schweihs, initiated in 1989. Melinda alleged malpractice against her divorce attorneys after they failed to file a timely notice of appeal regarding an order for attorney fees to be paid from the marital estate to her husband's attorneys. The trial court granted summary judgment in favor of Melinda's attorneys, concluding she would not have succeeded on appeal even if the notice had been timely filed. Melinda's subsequent appeal was partially successful; the court affirmed the judgment against her regarding the attorney fees but found sufficient evidence suggesting a possible breach of contract by her attorneys, which warrants further proceedings regarding the refund of fees she paid for the failed appeal.

The background details include a contentious divorce and related litigation involving Daniel's employment termination from Disciplined Investment Advisors (DIA) and his counterclaim against its directors. A court order from 1990 established a cap on attorney fees related to this litigation, indicating that fees should not exceed 33% of any recovery. Daniel later signed a contract with the law firm Spence, Moriarity, Schuster (SMS) for 40% of the gross recovery amount in his lawsuit against the directors. Melinda sought to compel Daniel to settle the lawsuit for the benefit of their children, leading to a court-mandated settlement of $4.7 million, which SMS subsequently claimed a percentage of as attorney fees.

The trial court evaluated a settlement's present value at $3,950,000 and determined Dan Schweihs lacked the authority to bind the marital estate to a 40-percent contingent fee contract, rendering it unenforceable. However, a contingent fee agreement of up to one-third of the gross settlement was deemed enforceable. The court clarified that while Dan could not bind the marital estate, he could bind himself. The attorneys were awarded one-third of the settlement's present value, with distributions of $128,232.92 to the attorney for the children, $67,054.63 to a previously discharged law firm, and $1,171,379.16 to SMS.

Melinda, represented by James Rubens from Davis, sought to appeal the fee award to SMS but the appeal was later dismissed for lack of jurisdiction due to a late notice of appeal. In 1999, Melinda filed a malpractice suit against Rubens, claiming that timely filing would have led to reduced fees from SMS. Rubens and Davis supported their motion for summary judgment with the appellate briefs from the dismissed appeal, which the trial court found would not have succeeded even if timely filed. The court concluded Melinda would have incurred the same fees regardless of the appeal's timeliness and thus did not suffer the claimed $26,000 in damages. The court granted summary judgment in favor of Rubens and Davis.

Melinda argued that if the appeal had been filed on time, the marital estate would not have been liable for SMS's fees, citing Rule 1.5(d) of the Rules of Professional Conduct, which restricts contingent fees in domestic relations matters. However, the rule does not universally prohibit contingent fee contracts related to dissolution proceedings, as demonstrated by precedents enforcing such contracts in cases involving child support and property modifications.

The client sued for the return of a contingent fee, claiming the contract violated the predecessor of Rule 1.5(d). The trial court ruled in favor of the client, ordering the attorney to return the fee. The appellate court affirmed this decision, emphasizing that the rule was designed to prevent attorneys from having financial incentives that could disrupt marital reconciliation in domestic relations cases. The court found that attorneys should not acquire contingent interests in cases involving the division of marital property, reinforcing that public policy strongly supports this prohibition.

However, the appellate court noted that in the specific case at hand, SMS did not influence the distribution of marital property during the dissolution proceeding, thus the contingent fee related to a separate lawsuit did not violate public policy. The court likened the situation to a personal injury claim during divorce proceedings, where the outcome affects the total marital estate but does not alter how the assets are divided between spouses.

The appellate court also addressed Melinda's objection regarding the trial court's alteration of the contingent fee from 40% to 33%. Generally, courts do not rewrite contracts, but they have the authority to prevent excessive attorney fees, even if a contract specifies such fees. The court's ability to reform contingent fee agreements was supported by precedent, as illustrated in the case of In re Estate of Sass, where a court adjusted an attorney's fee to what it deemed reasonable based on the work performed.

The appellate court upheld the trial court's decision to award half of the contingent fee stipulated in the contract, determining there was no abuse of discretion. The trial court recognized its authority to award fees below the contract amount and found the contingent fee contract unenforceable against the marital estate due to Melinda's lack of signature. It ruled that an agreed order permitted Daniel to bind the estate to a one-third contingent fee from the litigation proceeds while allowing him to choose a higher fee for himself. The court concluded that the contract between Daniel and SMS mandated payment of a one-third fee from the estate, despite Melinda’s claims of inconsistency regarding its enforceability.

Melinda argued that the appellate court would have reduced the fee to SMS based on a contract provision limiting the fee to amounts recovered by Daniel, excluding the marital estate. However, the court emphasized the need for holistic contract interpretation, revealing that Daniel specifically engaged SMS to maximize his recovery against the DIA directors, with the understanding that the fee was based on the total settlement amount rather than just Daniel's share in marital property distribution. The court indicated that interpreting the contract as Melinda suggested would contravene public policy by granting SMS a contingent interest in the division of marital property, which is prohibited under professional conduct rules.

The Illinois Supreme Court emphasizes the preference for contract interpretations that maintain enforceability over illegality. In this case, the trial court determined that a contingent fee agreement established attorney fees of 40% of the recovery from litigation, which is enforceable against Daniel. The court also held that the marital estate could be liable for one-third of a settlement under an agreed order. Melinda’s appeal was deemed unsuccessful regardless of its timeliness because she would not have prevailed on the merits. She claims a refund of $26,000 paid to attorney Davis for failing to file a timely appeal, which resulted in the loss of her right to contest a fee award. Similar cases (Ochoa and Levan) illustrate that clients are entitled to refunds when services do not fulfill the contract's purpose. The court acknowledged Melinda's complaint as a legal malpractice claim, stressing that such claims often stem from breaches of contractual duties. The court found that Melinda's facts support a breach of contract claim against Rubens and Davis, entitling her to a refund of the fees paid for the unfiled appeal. The decision was affirmed in part, reversed in part, and remanded for further proceedings.