February 2016 • Volume 104 • Number 2 • Page 12
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Court requires divorce lawyers to give earned fees to opposing counsel
In In re Squire, the appellate court expanded the reach of the IMDMA's "leveling the playing field" provision by requiring a spouse's attorney to disgorge already earned fees to the other side.
For nearly 20 years, "leveling the playing field" has been part of the Illinois Marriage and Dissolution of Marriage Act. The provision was intended to bridge the gap between divorcing spouses of varying income levels, allowing the one party to seek attorney's fees from the other. The idea was to keep moneyed spouses from unleashing a "deluge of legal proceedings against their economically disadvantaged spouses in hopes of gaining a swift - and often unfair - conclusion to the proceedings," says Michele M. Jochner, a partner at Schiller DuCanto & Fleck LLP.
Recently, the Illinois Appellate Court expanded the reach of the IMDMA's leveling law in In re Squire, 2015 IL App (2d) 150271. The Squire court ruled that the law required a spouse's attorney to disgorge fees already earned to help cover the other spouse's attorney's fees.
In Squire, the divorcing husband earned a six-figure salary, but his expenses outweighed his income - he was making monthly plan payments in a bankruptcy. His spouse was unemployed, but had borrowed a large sum of money from her parents to pay her lawyers.
The trial court ordered the wife's lawyers to disgorge half of the funds they earned to the husband's attorneys. The Stogsdill Law Firm, P.C., which represented the wife, argued that since its retainer was already earned and deposited into its general account, it could not be required to disgorge the fees.
The trial court cited the Illinois Supreme Court's ruling in In re Marriage of Earlywine, 2013 IL 114779, for the proposition that it did not matter that Stogsdill had already earned the fees or that the source of the fees was something other than the marital estate. The court looked to section 501(c-1)(3) of the IMDMA, which allows a trial court to enter an order allocating "available" funds for each party's counsel, "including retainers or interim payments, or both, previously paid, in a manner that achieves substantial parity between the parties."
The Squire court observed that the Act had been interpreted in Earlywine to attach to advance-payment retainers, regardless of the source of the funds. Stogsdill argued that an advance-payment retainer was an accounting device designed to shield client funds from creditors, while its retainer was earned by the performance of legal services.
Noting that Earlywine held that a broad construction of the leveling law was necessary to effectuate its purpose, the Squire court determined that accepting Stogsdill's interpretation of the Act would "completely frustrate the purpose of the statute." Squire at ¶¶ 20-21. By exempting earned funds, it would allow a financially advantaged spouse to "file voluminous pleadings and motions early in the case, thus 'earning' the retainer, while leaving the other spouse to respond to a mountain of paperwork with little chance of obtaining the resources to do so properly." Id. at ¶ 21.
Stogsdill argued that the funds were no longer available because they were earned. The court looked again to Earlywine, noting that the funds in Earlywine were also property of the law firm, located in its general account. "From this, it is clear that 'available' as used in the statute simply means that the funds exist somewhere." Id. at ¶ 22. The disgorgement order was upheld by a unanimous panel.
Hard facts, bad law?
Eric Frobish, a partner at Cortina, Mueller & Frobish, P.C., is not surprised by the decision, but thinks that Squire is an example of "the age-old adage that 'hard facts make bad law.'" Based on the facts presented in the opinion, it would appear that the husband was in a better position to pay his attorneys over time, regardless of the bankruptcy, he says. Frobish finds that while Squire may get the law right, "it will invariably be used and cited to support all kinds of ridiculous positions and arguments in leveling hearings going forward."
Jochner points out, however, that reading any limitations into the Act's language "not specifically expressed by the General Assembly would violate a cardinal principle of statutory construction."
Both agree that no "available" fees are exempt from the reach of the leveling statute. They also agree that the Squire approach to leveling could create problems for smaller or cash-strapped law firms that spend money as quickly as it comes in.
Jochner anticipates that additional case law or legislative guidance will be necessary to determine what "available" means in this context. She says that attorneys worried about being forced to disgorge might want to charge a retainer amount that is "higher than usual" or use a guaranty arrangement under which payment is not immediately made.
Frobish thinks that charging a higher amount might increase the likelihood that your client will have to contribute fees to the other side. He is unsure how attorneys can protect themselves, but believes that clients should be told that all fees are "theoretically fair game" for disgorgement going forward.