Larry Karchmar, Ltd. v. Nevoral

707 N.E.2d 223, 302 Ill. App. 3d 951, 236 Ill. Dec. 378

• Court: Appellate Court of Illinois
• Decided: January 15, 1999
• Docket: 1-97-4645
• Status: Published

Opinion

PRESIDING JUSTICE CAMPBELL

delivered the opinion of the court:

Plaintiff Larry Karchmar, Ltd. (Karchmar) filed an action against defendants, Bernard R. Nevoral and Bernard R. Nevoral & Associate (Nevoral), for breach of fiduciary duty and tortious interference with economic advantage, in connection with an attorney fee-sharing agreement relevant to the representation of Ronald Marshall. 1 The trial court granted summary judgment in favor .of Nevoral on both claims, and Karchmar appealed. On appeal, Karchmar contends that genuine issues of material fact exist as to whether Nevoral breached a fiduciary duty owed to Karchmar. For the following reasons, we reverse and remand this matter to the trial court.

BACKGROUND

I. CHRONOLOGY

The record reveals the following relevant chronology of events:

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II. FACTS

In 1980, Ronald Marshall retained Karchmar to file a personal injury claim, after being rendered a quadriplegic in 1978 when a tractor-trailer he was driving turned over. On June 18, 1981, Marshall signed a written attorney agreement that allowed Karchmar:

“to engage the services of any attorney, as co-counsel, that he deems necessary or appropriate which has expertise in the field of products liability in order to assist him in the handling of my matter. That no additional fee shall be paid to Larry Karchmar or additional co-counsel except as provided herein.”

Karchmar subsequently referred the matter to Nevoral, after entering into an oral agreement to apportion legal fees on a 50/50 basis. In September 1988, Marshall recovered from one defendant, and Nevoral paid Karchmar $131,000.

In May 1989, Karchmar agreed to modify the oral agreement for joint representation at Nevoral’s request to a two-thirds/one-third fee agreement in favor of Nevoral. Nevoral reduced this modification to writing. In June 1989, a jury awarded Marshall a judgment in the amount of $8.2 million. The defendants appealed, and Marshall, Nevoral, Karchmar and James Ferrini of the law firm of Clausen Miller Gorman Caffrey and Witous (Clausen Miller), entered into an agreement to jointly represent Marshall on the appeal and divide the fees derived from a settlement or judgment. In June 1992, this court reversed the jury verdict and remanded Marshall’s case for a new trial. 2 In September 1992, Marshall engaged Clausen Miller to file a petition for leave to appeal in the Illinois Supreme Court. 3

Settlement discussions resumed around December 1992, and Marshall received an offer of just over $1 million, which he rejected. On February 5, 1993, Marshall signed a new engagement agreement with Nevoral, renouncing all prior fee agreements, as follows:

“The verdict of Eight Million two hundred thousand dollars in the matter entitled Ronald Marshall v. Taylor-Wharton, A Division of Harsco Corporation, having been reversed and remanded for new trial, /[sic] by the Appellate Court of Illinois, First District, Fifth Division, and the Illinois Supreme Court having denied the Petition for Leave to Appeal, it is UNDERSTOOD and AGREED as follows:

Since no monies were recovered from that verdict, all fee agreements predating this agreement are null and void and this agreement supersedes all others.”

The agreement further provided that Marshall would pay Nevoral 40% of any amount recovered and that any claims arising for fees and expenses incurred by Karchmar were “to be resolved by Nevoral and are not the responsibility of Ronald E Marshall.”

On March 3, 1993, Marshall’s case settled for $3,500,000. Nevoral received the entire attorney fee.

In October 1994, Karchmar filed an action for breach of contract and fiduciary duty against Nevoral to recover his share of the fees obtained in the settlement of March 1993. Karchmar later dropped his breach of contract claim.

In an affidavit dated December 10, 1994, Marshall stated: “On June 30, 1992, the judgment of the trial court was reversed by the First District Court of Appeals. At that time, I terminated any relationship with Larry Karchmar.”

At his discovery deposition, Marshall testified that he last spoke to Karchmar regarding his case in 1984 or 1985, that he did not communicate with Karchmar during the trial, and that Karchmar was not involved in the appeal. Marshall stated that after he learned that his case was reversed in 1992, he “was very perturbed and I fired all my lawyers.” Marshall admitted, however, that he never talked to Karchmar and did not remember whether or not he wrote Karchmar a letter. Subsequently, Nevoral called Marshall and suggested that he try to appeal to the Illinois Supreme Court, but Marshall stated that he never heard anything from Karchmar. Marshall then hired Nevoral and signed a new representation and fee agreement with him on February 5, 1993. Marshall stated that it was not his intent that Karchmar was to be paid any portion of any settlement obtained thereafter.

Karchmar testified that in July 1993, he heard from a third party that the case had settled and that he called Nevoral to inquire about the settlement and his fees. Nevoral responded, “[Y]ou don’t deserve any fee in this case. He fired you.” Karchmar responded that Marshall never informed him that he was fired and then the conversation “got a little heated.” Karchmar testified that he was never fired by Marshall, nor did he get any indication that Marshall was unhappy with his representation.

Nevoral testified that Marshall fired Karchmar. Nevoral stated that he thought he received a copy of “what looked like a letter with the signature of Ron Marshall,” which “basically said that Mr. Karchmar’s services were no longer needed or something like that and that he was to do nothing at all. He was fired or something. I don’t know the exact words.” Nevoral further testified he made no effort to modify or terminate his fee agreement with Karchmar, that he did not personally notify Karchmar of the termination, and that he had no knowledge whether Karchmar received the termination letter from Marshall.

Following a hearing on September 30, 1996, the trial court granted summary judgment in favor of Nevoral. Karchmar subsequently amended his complaint to add a count for tortious interference with prospective economic advantage and filed a motion to vacate the prior order of summary judgment. On November 19, 1997, the trial court entered an order denying both of Karchmar’s motions. This timely appeal followed.

OPINION

On appeal, Karchmar contends that the trial court erred in granting summary judgment in favor of Nevoral on Karchmar’s claims of breach of fiduciary duty and tortious interference with business contract.

In summary judgment cases, the reviewing court conducts a de novo review of the evidence. The reviewing court must construe all evidence strictly against the movant and liberally in favor of the non-moving party. Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165 Ill. 2d 107, 113, 649 N.E.2d 1323 (1995). 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). Although “the summary judgment procedure is to be encouraged as an aid in the expeditious disposition of a lawsuit [citation], it is a drastic means of disposing of litigation and therefore should be allowed only when the right of the moving party is clear and free from doubt. [Citations.]” Purtill v. Hess, 111 Ill. 2d 229, 240, 489 N.E.2d 867 (1986). 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).

Karchmar first contends that his agreement to share fees created a joint venture to represent Marshall and that this joint venture created a fiduciary duty between Karchmar and Nevoral.

An agreement between two attorneys to share fees creates a joint venture and therefore a fiduciary duty of honesty and good faith to disclose to each other all matters affecting their joint representation. Holstein v. Grossman, 246 Ill. App. 3d 719, 616 N.E.2d 1224 (1993). At a minimum, a fiduciary owes an obligation to deal honestly and fairly with his partner. Dowd & Dowd, Ltd. v. Gleason, 284 Ill. App. 3d 915, 672 N.E.2d 854 (1996), aff’d in part, rev’d in part & remanded, 181 Ill. 2d 460, 693 N.E.2d 358 (1998). This duty continues until the profits of the joint venture are distributed. Herst v. Chark, 219 Ill. App. 3d 690, 579 N.E.2d 990 (1991).

The relationship between joint venturers is governed by partnership law. When, for example, a partner leaves a firm, the partnership is automatically dissolved, but not terminated. 805 ILCS 205/29, 30 (West 1996). This state has recognized that pretermination solicitation of clients by members of an existing firm for the benefit of a new firm rises to a breach of fiduciary duty. Dowd, 181 Ill. 2d at 474, citing Vowell & Meehhiem, P.C. v. Beddow, Erben & Bowen, P.A., 679 So.2d 637, 639 (Ala. 1996), In re Silverberg, 81 A.D. 2d 640, 641, 438 N.Y.S.2d 143, 144 (1981). In Dowd, our supreme court set forth illustrations of a breach of fiduciary duty as follows:

“ ‘[S]ecretly attempting to lure firm, clients (even those the partner has brought into the firm and personally represented) to the new association, lying to clients about their rights with respect to the choice of counsel, lying to partners about plans to leave, and abandoning the firm on short notice (taking clients and files) would not be consistent with a partner’s fiduciary duties.’ ” Dowd, 181 Ill. 2d at 477-78, quoting Graubard Mollen Dannett & Horowitz v. Moskovitz, 86 N.Y. 2d 112, 120-21, 653 N.E.2d 1179, 1183-84, 629 N.Y.S.2d 1009, 1013-14 (1995).

In Dowd, the plaintiff, a law firm, brought an action against two of its former members and their new law firm for, inter alia, breach of fiduciary duty and tortious interference with contractual relations. The plaintiff alleged that the defendants conspired to improperly obtain a client from the firm for their new venture. The trial court denied the defendants’ motion for summary judgment on plaintiffs claim for breach of fiduciary duty, and certified a question of law to the appellate court. On appeal, this court held that plaintiff had stated a cause of action for breach of fiduciary duty, based on evidence of the defendants’ pretermination activities.

On farther appeal, our supreme court determined that unresolved factual questions remained as to whether the defendants obtained a certain client prior to their departure from the firm and remanded the case to the trial court to examine the factual disputes relevant to. the determination of whether the defendants breached their fiduciary duty. Dowd, 181 Ill. 2d at 477.

Karchmar argues that the trial court similarly erred in granting summary judgment in favor of Nevoral, in that the court failed to draw all reasonable inferences in his favor. Karchmar points to Nevoral’s deposition testimony that Marshall fired Karchmar after Marshall’s judgment was reversed on appeal. However, the record shows that in February 1993, approximately 60 days after denial of the petition for leave to appeal, Nevoral entered into a written agreement with Marshall for sole representation. Settlement followed shortly thereafter in March 1993. Karchmar argues that it is a reasonable inference that Nevoral and Marshall spoke about this new agreement prior to signing the written document and that Nevoral spoke to Marshall about Karchmar, especially in light of the fact that the fee agreement includes a provision for any claim that Karchmar may have for fees.

Nevoral responds that an attorney who is discharged prior to any settlement loses all rights to claim fees based upon any fee-sharing agreement. Anderson v. Anchor Organization for Health Maintenance, 274 Ill. App. 3d 1001, 654 N.E.2d 675 (1995); Hofreiter v. Leigh, 124 Ill. App. 3d 1052, 465 N.E.2d 110 (1984).

However, the record does not reveal that Nevoral’s right is clear and free from doubt, especially regarding Karchmar’s alleged “firing” by Marshall. As in Dowd, there appear to remain unresolved questions about the nature of the agreement of February 5, 1993, between Marshall and Nevoral, in light of the prior and long-standing agreement between Karchmar and Nevoral.

Karchmar further contends that the trial court erred in entering summary judgment in favor of Nevoral on his claim for tortious interference with prospective economic advantage.

An action for tortious interference with a contract terminable at will is classified as one for intentional interference with prospective economic advantage. See Fellhauer v. Geneva, 142 Ill. 2d 495, 510, 568 N.E.2d 870 (1991). To prevail in such an action, a plaintiff must plead and prove: “ ‘(1) his reasonable expectation of entering into a valid business relationship; (2) the defendant’s knowledge of the plaintiffs expectancy; (3) purposeful interference by the defendant that prevents the plaintiffs legitimate expectancy from ripening into a valid business relationship; and (4) damages to the plaintiff resulting from such interference.’ ” Anderson, 274 Ill. App. 3d at 1013, quoting Fellhauer, 142 Ill. 2d at 511. Nevoral disputed only the first and third elements of tortious interference.

Karchmar argues that he had a reasonable expectation to any fees recovered in connection with his representation of Marshall. The record shows that when Karchmar first contracted with Marshall, he filed a lawsuit, retained an expert, and initiated discovery. Karchmar participated directly in representation duties when Karchmar initially engaged Nevoral. 4

The record does not reveal that Karchmar ever withdrew his representation of Marshall, and there exists some doubt as to whether Karchmar was actually discharged by Marshall. In fact, in the record of the proceedings of November 9, 1997, the trial court admitted that a factual issue remains as to whether Karchmar and Marshall had a continuing relationship. Moreover, the timing of Nevoral’s new agreement with Marshall and the $3.5 million settlement may indicate a purposeful interference on Nevoral’s part. The record strongly suggests that Nevoral may have decided to reshuffle the deck effectively dealing Karchmar out of the case. In light of the unresolved facts, we find that entry of summary judgment in favor of Nevoral was improper. For these reasons, we therefore reverse the judgment of the trial court and remand this matter for a trial on the disputed issues.

Reversed and remanded.

BUCKLEY and ZWICK, JJ., concur.

1 Marshall is not a party to this appeal.

2 The details of Marshall’s action are reported in Marshall v. Taylor-Wharton Co., 234 Ill. App. 3d 596, 599 N.E.2d 1015 (1992).

3 The supreme court denied the petition for leave to appeal in December 1992. 147 Ill. 2d 628 (1992).

4 The fee-sharing agreement between Karchmar and Nevoral fully complied with Rule 1.5 of the Illinois Rules of Professional Conduct, which provides in pertinent part:

“(g) A division of fees shall be made in proportion to the services performed and responsibility assumed by each lawyer, except where the primary service performed by one lawyer is the referral of the client to another lawyer and

(1) the receiving lawyer 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

(2) the referring lawyer agrees to assume the same legal responsibility for the performance of the services in question as would a partner of the receiving lawyer.

***

(i) For purposes of Rule 1.5 ‘economic benefit’ shall include:

* * *

(3) an established practice of referrals to and from or from and to the receiving lawyer and the referring lawyer.” 134 Ill. 2d R. 1.5(g), (i).