Sixteen Tons and What Do You Get?

A hearing board report from Illinois

Respondent represented Tom and Janet Rheinecker in a lawsuit seeking, in part, to obtain title to approximately 1.5 million tons of coal slurry left on their property after a mining operation. Respondent and the Rheineckers entered into a contingent fee agreement providing that Respondent was to receive a percentage of any monies the Rheineckers received as a result of gaining title to and selling the coal slurry. Following the settlement of the lawsuit, Respondent entered into additional agreements with the Rheineckers and a mining engineer related to the sale of the coal slurry.

The Administrator alleged that Respondent violated Illinois Rule of Professional Conduct 1.8(a) by entering into business transactions with the Rheineckers without obtaining their informed consent. At the close of the Administrator’s case-in-chief, Respondent moved for a directed finding. The Hearing Board granted Respondent’s motion and recommended that the charge of misconduct be dismissed.

As to the fee arrangement

Based on the language of Rule 1.8 and its comments, and the evidence presented, we find the Administrator did not establish a prima facie case that Rule 1.8 applied to the contingent fee agreement in this case. It is clear from the contingent fee agreement’s language that it was an ordinary fee arrangement, pursuant to which Respondent was entitled to a percentage of the proceeds from the sale of the coal slurry. The contingent fee agreement did not give Respondent an interest in the Rheineckers’ business, an interest in the coal slurry itself, or an interest in property other than that recovered through Respondent’s efforts in litigation. Consequently, the evidence before us was not sufficient to present a prima face case of a Rule 1.8(a) violation with respect to the contingent fee agreement.

And later agreement

When we consider all of the additional agreements, it is clear they were entered into for the purpose of facilitating the sale of the coal slurry, which was necessary under the contingent fee agreement in order for Respondent to collect his fees. The sale presented unique and complicated circumstances that were much different than a typical contingent fee case. Given these unique circumstances, as well as the fact that all of Respondent’s conduct was consistent with the contingent fee agreement and was done in an effort to carry out the terms of the contingent fee agreement, we find the Administrator did not meet his burden of proving by clear and convincing evidence that Respondent violated Rule 1.8 by entering into business transactions with the Rheineckers without providing appropriate disclosures and obtaining informed consent. Accordingly, we conclude that a motion for directed finding should be entered in Respondent’s favor and that the charge of misconduct against Respondent be dismissed.

(Mike Frisch)