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Sharp  Thinking

No. 202         Perspectives on Developments in the Law from Sharp-Hundley, P.C.          November 2021

 Court Limits Fiduciary Duty In Lawyer Context

By John T. Hundley, Sharp Thinking Editor

A lawyer who functioned as president of a small law firm, who did not own a stake in the firm but was married to its sole owner, and who did not perform any legal services for a particular client, did not owe that client a fiduciary duty with respect to funds deposited in the firm’s Interest on Lawyer Trust Accounts (IOLTA) account, a panel of the Appellate Court’s Second District has held.

In Khoury v. Niew, 2021 IL App (2d) 200388, the panel reversed a judgment on the above facts where plaintiffs contended that the husband owed them a fiduciary duty to safeguard their funds in the firm’s IOLTA account, in essence holding that because the husband performed no legal work for the client, the client was a nonclient as to him despite the firm’s small size and his role as its president, in which he had supervision over the IOLTA account.

“[A]ttorneys owe a fiduciary duty to nonclients only in the most limited of circumstances,” the panel stated.  “The traditional, general rule is that an attorney is liable only to his client, not to third persons.  *** [The husband] was not holding plaintiffs’ funds.  He did not accept their funds into the IOLTA account.   He was not their attorney, and he was not the Firm.  *** [T]he trial court went too far in reasoning, without qualification, that every attorney at a firm has a fiduciary duty to all the firm’s clients.”

The panel rejected an argument that the Illinois Rules of Professional Conduct should be dispositive.  “Conflicts of interest, which are governed by the Rules, should not be the basis for imposing a fiduciary duty, which carries with it obligations such that, when it is breached, the fiduciary is exposed to civil liability.”  (See also next item in this issue of Sharp Thinking.)

Moreover, it said “a fiduciary duty imposes affirmative obligations on an individual attorney’s representation of their [sic] client, and such obligations are not ordinarily imputed to other attorneys at the firm.  *** [O]nly that client’s attorney ordinarily owes the client a fiduciary duty.”

Dealing with the fact the lawyers were married, the panel said “it is foolish to presume that one spouse knows what the other is thinking at all times.”

The panel reversed the judgment as to the husband.  It did not upset the judgment as to the wife and the firm.

Khoury is likely to be a controversial decision – unpopular with the plaintiffs’ bar, more popular with defendants’, particularly in big firms, where the obligations of individual attorneys not working on a given client’s matters have long been murky.  We think Khoury was incorrectly decided.  Time will tell whether other courts will follow its lead.

IRPC Violation No Basis For Court Judgment

A violation of the Illinois Rules of Professional Conduct “should not itself give rise to a cause of action against a lawyer, nor should it create a presumption in such a case that a legal duty has been breached,” a panel in the Appellate Court’s Second District held recently.

Ruling in In re Estate of Weber, 2021 IL App (2d) 200354, the panel reversed in part a trial court that had ordered disgorgement of $16,313 in attorney fees and forfeiture of $125,472 of owed but unpaid fees.

In Weber, a law firm represented a client in marriage dissolution proceedings.  After the client terminated the representation, the firm petitioned the court for its fees.  The client then died.

Her representative argued that the firm should forfeit its fees because it worked under a conflict of interest in representing both the decedent and her caregiver, who allegedly exercised undue influence.  See Illinois Rule of Professional Conduct 1.7.  The trial court agreed.

However, quoting the Rules’ Scope ¶ 16, the appellate panel said the rules “simply provide a framework for the ethical practice of law.”   It said they “do not establish a separate duty or cause of action” or warrant any non-disciplinary remedy.

Because the trial court had applied the rules as the touchstone for forfeiture of the fees, it erred, the panel ruled.  The panel reversed that portion of the decision.

“Actual Innocence” Rule Does Not Apply In Fee Dispute

The general rule that a criminal defendant who sues his attorney for malpractice must plead and prove his actual innocence does not apply when the former criminal defendant sues the former attorney for pre-trial withdrawal in a fee dispute, a panel of the Appellate Court’s Second District held recently.

In Rojo v. Tunick, 2021 IL App (2d) 200191, the lawyer had agreed to represent the client in the criminal case for a flat $10,000 fee but then withdrew pre-trial when relations deteriorated.  He failed to refund any portion of the fee paid, and the client had to hire a new lawyer.  The client alleged that in withdrawing before the case was completed, the lawyer breached his fiduciary duty, but the client did not allege his actual innocence.

The Appellate Court held that the absence of an actual-innocence allegation barred a legal-malpractice claim that the lawyer’s deficient performance led to the client’s conviction.  However, it said, “the absence of an actual-innocence allegation did not bar the legal-malpractice claim seeking reimbursement of fees.  That claim, unlike the deficient-performance claim, did not blame [the lawyer] for plaintiff’s conviction.”

The court also held that the fee dispute claim was not barred by the two-year statute of limitations for legal malpractice (735 ILCS 5/13-214.3(b)).  It said key facts were in dispute, and it suggested that the ten-year statute for written contracts applied to the alleged breach of the retainer agreement.