Illinois Board Rejects Unreasonable Fee Allegations

The Illinois Review Board has found no misconduct and recommended dismissal of ethics charges against an attorney, one of two reports issued on Wednesday that overturn hearing committee findings of misconduct

Respondent’s two-attorney law firm represented Alzine Davis in a lawsuit against her fellow shareholders in a corporation. The lawsuit alleged the shareholders misused corporate assets and engaged in other wrongdoing that deprived Ms. Davis of her corporate interests. Ms. Davis won a verdict and judgment against the defendants, which they appealed. While the appeal was pending, the corporation sold real estate, and Respondent’s law firm took 40 percent of Ms. Davis’ portion of the sale proceeds pursuant to a contingent-fee agreement between Respondent’s firm and Ms. Davis that covered the firm’s work on the appeal. The case ultimately settled, and, per the contingent-fee agreement, Respondent’s firm received 40 percent of the settlement proceeds.

Sometime after the litigation settled, Ms. Davis complained to the ARDC that Respondent’s firm was not entitled to receive 40 percent of the real estate sale proceeds. The ARDC investigated and charged Respondent in a one-count complaint with violating various Rules of Professional Conduct, arising out of the fees Respondent’s firm charged Ms. Davis. The Hearing Board found only one rule violation, holding that Respondent’s taking 40 percent of the real estate sale proceeds constituted an unreasonable fee, in violation of Rule 1.5(a). It recommended that Respondent be suspended from the practice of law for four months and until she makes restitution of $102,563.26 to Ms. Davis. Respondent filed exceptions challenging the Hearing Board’s finding that she collected an unreasonable fee from Ms. Davis and recommendation of suspension and restitution.

For the reasons explained below, we reverse the Hearing Board’s finding of misconduct and conclude that Respondent did not collect an unreasonable fee and therefore did not violate Rule 1.5(a). Because that was the only misconduct found by the Hearing Board, we recommend the case be dismissed.

The key issue involves interpretation of fee agreements

We find persuasive Respondent’s arguments that the 2005 and 2008 fee agreements allowed fees based on proceeds from the sale of corporate properties, and therefore that the fee that Ms. Davis paid based on the proceeds from 5850 South King Drive was not unreasonable.

Respondent argues that the sale proceeds were “recovered” by Cook Revak because, but for Cook Revak’s representation, Ms. Davis would not have received the sale proceeds that she did. Therefore, the firm was entitled to 40 percent of the sale proceeds under the 2008 fee agreement. She further contends that the fee agreements required Cook Revak to pursue two separate recoveries: (1) monies or properties due her as a shareholder, and (2) damages for corporate mismanagement and wrongful taking of corporate funds. Because both the sale proceeds and damages were elements of Davis’ recovery, Respondent argues, her firm was entitled to fees based on both amounts.

We find that the evidence produced by the parties before the Hearing Board supports Respondent’s reading of the 2008 fee agreement…

Cumulatively, th[e] evidence supports our determination that CCC’s properties, and Ms. Davis’ rights with respect to the properties, formed the crux of her claims against her co-shareholders; that the term “monies or property due her as a shareholder” in the fee agreement necessarily envisioned and included the recovery of income from corporate real estate to which Ms. Davis was entitled; and therefore that, as a matter of law, the fee agreements permitted fees to be based upon the proceeds of the sale of corporate real estate, as long as those proceeds were recovered or obtained by Respondent’s firm.

On this last point, we are persuaded by Respondent’s argument in her briefs and at oral argument that, but for her firm’s efforts and advocacy on behalf of Ms. Davis, there would be no proceeds from the sale of corporate real estate on which to base fees, because until she succeeded in her litigation against her co-shareholders, Ms. Davis was utterly deprived of any rights or interests she had in the corporate properties.

The board rejected two prior cases that the Administrator argued support a finding of an excessive fee

we find, as a matter of law, that the 2008 fee agreement permitted Respondent’s firm to collect a fee based on the sale proceeds of 5850 South King Drive, and therefore that she did not collect an unreasonable fee from Ms. Davis in violation of Rule 1.5(a). Because that was the only misconduct found by the Hearing Board, we recommend the case be dismissed.

(Mike Frisch)