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To disgorge or not to disgorge? That is the question
On September 20, 2017, the Illinois Supreme Court will hear oral argument on the issue of whether or not funds already paid to and earned by a divorce attorney are “available” to a court to be allocated in an interim attorney fee award pursuant to 750 ILCS 5/501 (c-1). If the Supreme Court answers in the affirmative, trial courts would be able order one divorce attorney to pay the other divorce attorney earned and paid fees during the pendency of the dissolution proceeding.
The trial court could only order this relief after the finding that neither litigant has the financial ability to pay, and only in pre-decree divorce matters as attorney fees in parentage cases and post-decree matters are governed by Section 508 of the Illinois Marriage and Dissolution of Marriage Act. The Illinois Supreme Court will hopefully resolve the split in the Appellate Court Districts regarding this issue. The case that is set for oral argument is In Re the Marriage of Christine Goesel and Andrew Goesel (Laura A. Holwell, contemnor-appellee) coming out of the Third District Appellate court.
The predecessor case to Goesel is In re the Marriage of Earlywine, 2013 IL 117779 (2013) ¶ 29, where the Supreme Court held that funds belonging to an attorney, but subject to reimbursement, may be disgorged, such as advanced retainers. This case is relied heavily on by the Appellant/Wife in Goesel as described below.
Under Section 501(c-1) of the Illinois Marriage and Dissolution of Marriage Act, the court may assess an interim fee award while a dissolution case is pending for fees, whether already incurred or soon to be incurred. This is the statute that “levels the playing field” between parties going through a divorce to allow each party to “patriciate adequately in the litigation” where it is shown “that one party can pay fees and the other party cannot.” See 750 ILCS 5/501(c-1)(3); In Re Marriage of Nash, 2012 IL App (1st) 113724, ¶ 5. The 1997 amendment to the Illinois Marriage and Dissolution of Marriage Act attempted to correct the occurrence of an economically advantaged spouse utilizing his or her access to income or assets as a tool in making it difficult for the disadvantaged spouse to retain counsel or otherwise participate in the litigation. In re the Marriage of Earlywine, 2013 IL 117779 (2013), ¶ 26.
Section 501(c-1) of the Illinois Marriage and Dissolution of Marriage Act provides two methods for obtaining interim fees during the pendency of a dissolution proceeding. First, the court can order that fees be advanced from one party to the other if “the party from whom attorney’s fees and costs are sought has the financial ability to pay reasonable amounts and that the party seeking attorney’s fees and costs lack sufficient access to assets or income to pay reasonable amounts.” See 750 ILCS 5/501(c-1)(3); In re the Marriage of Beyer, 324 Ill. App. 3d 305, 320 (1st Dist. 2001). “At an interim fee hearing in a pre-decree dissolution marriage case, a court is simply looking at the value and accessibility of the assets and income in each party’s name or under their control.” Amici Brief filed in In re Marriage Goesel, Case No. 122046, P. 4.
Second, the court can allocate “available” funds to the party seeking the award. For this second option to apply, the court must find that “both parties lack financial ability or access to assets or income for reasonable attorney’s fees and costs.” In Re Marriage of Nash, 2012 IL App (1st) 113724, ¶ 18. The issue before the Illinois Supreme Court in Goesel is in the context of an interim fee award when both parties lack financial ability or access to assets or income to pay attorney’s fees. Note, however, that one of the Appellee/Contemnor’s arguments in Goesel is that the Third District erred when it found that the parties in Goesel had the inability to pay their attorney’s fees.
The split in the Appellate Court Districts makes Goesel ripe to be decided by the Illinois Supreme Court. The Third District in Goesel agreed with the First District in In Re Marriage of Altman, 2016 IL App (1st) 143076, that a court cannot order an attorney to pay his or her earned fees to the other attorney in the matter, regardless of the litigants’ inability to pay. In addition, the Goesel court held that fees not yet earned at the time the attorney is given notice of the interim fee petition are available for purposes of Section 501(c-1)(3). See Goesel, 2017 IL App (3d) 150101, ¶ 23.
The First District in Altman held that the legislature’s use of the phrase “available funds” in the interim fee awards indicates that only funds which are available to the attorney or the parties are accessible to be disgorged, “whether in the form of a retainer or interim payments.” In Re Marriage of Altman, 2016 IL App (1st) 143076 ¶ 33. The first district reasoned that “it seems to us a tortured reading of the statute to say that even though the firm has earned the fees, paid itself (as it was entitled to), and used to pay salaries, overhead and litigation expenses for such items as experts and court reporters, it can nonetheless be required to refund those fees, not its client, but to a third party.” Id.
The holdings in Goesel and Altman contrast with the Second District Appellate Court’s decision in In re Marriage of Squire, 2015 IL App (2d) 150271. Specifically, the Squire court held that the Earlywine decision suggests that the term “available” as set forth in the statute “simply means that the funds exist someone.” Earlywine, 2013 IL 117779 (2013) ¶ 22. The Squire court reasoned that holding otherwise would frustrate the purpose of “leveling the playing field” because “the attorney representing the advantaged spouse would have a strong incentive to earn the fees at an early stage of the litigation.” In Re the Marriage of Squire, 2015 IL App (2d) 150271 ¶ 21.
The Appellant/Wife’s brief in Goesel argues that the court must determine the nature of an “interim payment” to an attorney under the context of the interim fee statute. Black’s Law Dictionary defines “payment” as “the performance of a duty, promise, or obligation, or discharge of a debt or liability, by the delivery of money or other value by a debtor to a creditor where the money or other valuable thing is tendered and accepted as extinguishing debt or obligation in whole or in part.” Black’s Law Dictionary, Rev. 4th Ed., page 1285. As argued by the Appellant, the legislature used the word “interim payment” in the statutory definition of available funds, and the legislature also included “interim payments” that were “previously paid”, to support the Appellant’s argument in favor of disgorgement. See 750 ILCS 5/501(c-1). The Appellant’s brief argued that the amounts paid to the husband’s attorney were in discharge of a debt owed by the husband and therefore “available” and any other reading would frustrate the intent of the interim fee statute where it protects against “shielding assets that one spouse may easily hire an attorney has the direct effect of making it difficult for the other spouse to hire his or her own attorney defeating the purpose and goals of the Act, which is to enable parties to have equitable access to representation.” See Earlywine, 2013 IL 117779 (2013) ¶ 12.
The Appellee/Contemnor (attorney) brief in Goesel argues that the interim fee statute does not state “available funds” that “exist somewhere”; instead, it states “available funds.” Further, if the Illinois Supreme Court finds in accordance with Squire, it poses the possibility that the attorney being disgorged no longer has possession of the funds because the funds have been paid out for his or her operating costs and are not in the possession of the attorney being disgorged. Appellee’s Brief filed in In re Marriage Goesel, Case No. 122046, P. 31.
The Illinois Chapter of the American Academy of Matrimonial Lawyers and the Illinois State Bar Association filed a joint amici curie brief in the Goesel case supporting the Appellee/Contemnor position. The amici stresses that fees that have been paid to an attorney and which he or she has earned are the attorney’s property and do not meet the definition of “available” for disgorgement. This was reasoned by the First District in Altman, 2016 IL App (1st) 143076 ¶ 33, and in Third District in Goesel, 2017 IL App (3d) 150101, ¶ 27, and supported by the Illinois Rule of Professional Conduct 1.15(a) which authorizes an attorney to withdraw funds held in his/her client trust account “as fees are earned and expenses incurred.”) In addition, although Section 501 (c-1)(3) uses the phrase “previously paid” when referring to “retainer” and “interim payments” the amici focuses on the fact that any unused retainer or other payment must be refunded to the client. See Goesel, 2017 IL App (3d) 150101, ¶ 28, and 750 ILCS 5/508(f)(5) (divorce counsel may not require a non-refundable retainer fee, but must remit back any overpayment at the end of representation). Therefore, a retainer or interim payment to an attorney is “paid” but it is really a “prepaid credit that ensures payment when he earns the fee in the future.” Amici Brief filed in In re Marriage Goesel, Case No. 122046, P 8. It should be noted that the amici also “part ways” with the Goesel court’s “notice” holding allowing for disgorgement of fees after notice has been given of an interim fee award reasoning that the statutory authority that the Appellate Court relied on in determining this “notice” provision, namely Section 510(a) of the Illinois Marriage and Dissolution of Marriage Act that modifies maintenance and child support only as to “installments accruing subsequent to due notice by the moving party of the filing of the motion for modification,” has no reference and no effect on an attorney fee award.
On September 20, 2017, the Illinois Supreme Court will decide the Goesel matter, which will forever shape the future of interim fee awards in dissolution proceedings and will directly impact how divorce attorneys handle payments from their clients.