In re Marriage of Goesel
In re Marriage of Goesel
Opinion
*232 ¶ 1 At issue is whether fees that have already been earned by an attorney in a dissolution of marriage proceeding are considered "available funds," such that they may be disgorged under section 501(c-1)(3) of the Illinois Marriage and Dissolution of Marriage Act (Act) ( 750 ILCS 5/501(c-1)(3) (West 2014)). We hold that earned fees are not subject to disgorgement.
¶ 2 BACKGROUND
¶ 3 The facts of this case are set forth fully in the appellate court's opinion.
¶ 4 On March 10, 2014, the Law Offices of Edward R. Jaquays (Jaquays) appeared on behalf of Christine, and on June 6, 2014, Howard LeVine of LeVine, Wittenberg, Shugan, and Schatz, Ltd., appeared on behalf of Andrew. On June 12, 2014, Christine filed a petition for interim attorney fees, which she amended on June 20, 2014. In the amended petition, Christine stated that she had paid Jaquays an initial retainer of $5000 and had an outstanding balance with him of $27,142.60. She argued that she lacked sufficient funds to pay any additional fees beyond the retainer, and she requested that the court, pursuant to the "leveling of the playing field" rules of the Act, order Andrew to pay her fees. Alternatively, if the court determined that Andrew lacked the ability to pay her attorney fees, Christine requested that the court order disgorgement of the necessary amount from the money that Andrew had already paid to Holwell. Andrew also filed a petition for prospective attorney fees, contending that, although he was employed, he did not have sufficient funds to pay his attorney fees. On June 20, 2014, Holwell moved to withdraw as Andrew's counsel. The court granted the motion but retained jurisdiction over Holwell pending resolution of the disgorgement issue.
¶ 5 At the hearing on the petition for interim attorney fees, the parties stipulated to the attorneys' rates and that the work performed by the attorneys was reasonable *233 and necessary. Copies of invoices entered into evidence at the hearing showed that all of the money Holwell had received was for work already performed. Andrew still owed $17,500.38 to Holwell and $26,000 to LeVine. Additionally, Holwell testified that she was holding $13,000 that Andrew had previously paid to Boback and that Boback had then paid to Holwell, as there was a dispute as to who owned the money.
¶ 6 On September 29, 2014, the court entered an order finding that both parties lacked an ability to pay reasonable attorney fees. The court found that the total attorney fees paid by Andrew were $100,022.27, with $66,382.28 going to Holwell, $10,000 to LeVine, and $23,639.99 to Boback. Christine had paid her attorneys $18,117.04, with $5000 going to Jaquays and $13,117.04 going to Goldstine. The court thus found that $118,139.31 had been paid to date, and to "level the playing field," each party should have $59,069.65 for attorney fees. In order to achieve parity, the court found that it was necessary to order Holwell to disgorge $40,952.61. Accordingly, the court ordered Holwell to tender $40,952.61 in fees to Jaquays with 14 days.
¶ 7 After more than 14 days had passed and Holwell had not turned over the funds, Christine moved to have Holwell held in indirect civil contempt. Holwell requested to be held in friendly contempt of court so that she could appeal pursuant to Illinois Supreme Court Rule 304(b)(5) (eff. Feb. 26, 2010). On December 18, 2014, the court entered an order finding Holwell in friendly contempt of court. Christine later filed a motion to clarify the court's contempt finding. Christine pointed out that, pursuant to Rule 304(b)(5), only contempt orders that impose a penalty are immediately appealable. Accordingly, Christine asked the court to impose a monetary or other penalty on Holwell. At the hearing on Christine's motion, Holwell explained to the court that she was not willfully disobeying its order but that she did not have $40,000 to turn over. The court subsequently vacated its December 18, 2014, finding of friendly contempt, held Holwell in indirect civil contempt, charged her with a $10 per day penalty for each day that she did not pay the disgorgement, and sentenced her to an indeterminate amount of time in the Will County adult detention facility, not to exceed 179 days. The court stayed Holwell's sentence for 30 days to give her time to file an appeal. The court stated that Holwell could purge herself of the contempt order by paying $40,952.61 to Jaquays by January 21, 2015. At a hearing on January 21, 2015, Holwell reiterated to the court that she did not have the money but explained that she was making arrangements to borrow it. The court reaffirmed its contempt finding and penalty, and Holwell appealed to the Appellate Court, Third District.
¶ 8 Holwell raised several issues on appeal. Holwell argued that the trial court erred in (1) ordering disgorgement without making a specific finding that Christine lacked the ability to pay, (2) finding that the disgorgement order was a judgment because disgorgement orders are temporary advances against the marital estate, and (3) holding Holwell in indirect civil contempt without notice and a hearing and without inquiring into Holwell's ability to pay. After the Appellate Court, First District, issued its opinion in
In re Marriage of Altman
,
*234
¶ 9 The appellate court reversed the disgorgement order. The court first held that, contrary to Holwell's claim, the trial court had made a specific finding that neither party had the ability to pay attorney fees.
¶ 10 This court allowed Christine's petition for leave to appeal. Ill. S. Ct. R. 315 (eff. Mar. 15, 2016). This court also allowed the Illinois State Bar Association and the Illinois Chapter of the American Academy of Matrimonial Lawyers to file a joint brief amici curiae in support of Holwell.
¶ 11 ANALYSIS
¶ 12 Christine raises two issues on appeal. First, Christine argues that the appellate court erred in holding that earned fees are not available for disgorgement under the Act. Second, Christine contends that the appellate court erred in vacating the contempt finding against Holwell. According to Christine, Holwell was not engaging in a good-faith attempt to appeal the trial court's contempt finding. The second issue was not raised in Christine's petition for leave to appeal and is thus forfeited. See
Crossroads Ford Truck Sales, Inc. v. Sterling Truck Corp.
,
*235
¶ 13 The issue before us is one of statutory construction, and the principles guiding our review are familiar. The primary goal of statutory construction, to which all other rules are subordinate, is to ascertain and give effect to the intention of the legislature.
Jackson v. Board of Election Commissioners
,
¶ 14 The relevant statute-section 501(c-1)(3) of the Marriage and Dissolution of Marriage Act-was enacted as part of the "leveling of the playing field amendments," which became effective on June 1, 1997. See
In re Marriage of Earlywine
,
"In any proceeding under this subsection (c-1), the court (or hearing officer) shall assess an interim award against an opposing party in an amount necessary to enable the petitioning party to participate adequately in the litigation, upon findings that 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 lacks sufficient access to assets or income to pay reasonable amounts. In determining an award, the court shall consider whether adequate participation in the litigation requires expenditure of more fees and costs for a party that is not in control of assets or relevant information. Except for good cause shown, an interim award shall not be less than payments made or reasonably expected to be made to the counsel for the other party. If the court finds that both parties lack financial *236 ability or access to assets or income for reasonable attorney's fees and costs, the court (or hearing officer) shall enter an order that allocates 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." 750 ILCS 5/501(c-1)(3) (West 2014).
The statute does not use the term "disgorgement." The term was adopted by courts to describe the process whereby a court orders an attorney to turn over previously paid interim fees or retainers. As this court explained in
Earlywine
, the purpose of the "leveling of the playing field" amendments was to " 'equaliz[e] the parties' litigation resources where it is shown that one party can pay and the other cannot.' "
Earlywine
,
¶ 15 We discuss first this court's decision in Earlywine . The Second District in Squire believed that Earlywine settles the question before the court, while the First and Third Districts did not believe that Earlywine spoke to it. Thus, we will first consider whether Earlywine settles this question because, if so, we need go no further. In Earlywine , this court considered whether an advance payment retainer was subject to disgorgement under section 501(c-1)(3). In that case, the petitioner husband had paid his attorney by way of an advance payment retainer. Upon finding that neither party had the ability to pay attorney fees, the trial court ordered that $4000 be disgorged from the husband's attorney, Thomas James. Id. ¶ 5. James then asked to be held in friendly contempt. Id. ¶ 9. The court agreed, held James in friendly contempt, and fined him $50. Id. James appealed, contending that advance payment retainers are not subject to disgorgement because they become the property of the attorney upon payment. The appellate court affirmed, explaining that (1) section 501(c-1)(3) simply used the term "retainers" and did not limit the type of retainers to which it applied and (2) allowing a party to avoid disgorgement through the use of an advance payment retainer would defeat the purpose of the leveling of the playing field amendments. Id. ¶ 10. This court affirmed the appellate court.
¶ 16 This court first discussed the different types of retainers that are allowed in Illinois. The first is the "general" retainer, which is paid to secure a lawyer's availability during a specified time or for a specified matter. It becomes the lawyer's property upon payment.
Id.
¶ 15. The second type is the security retainer. A security retainer is held in a client trust account and remains the property of the client until the attorney applies it to charges for services rendered.
Id.
The third type of retainer is the advance payment retainer, which was first recognized by this court in
Dowling v. Chicago Options Associates, Inc.
,
*237
Prof'l Conduct (2010) R. 1.15(c)(4) (eff. Jan. 1, 2010).
Earlywine
noted that
Dowling
had explained that advance payment retainers should be used sparingly and only to accomplish a purpose that cannot be accomplished with a security retainer.
Earlywine
,
¶ 17 First, this court noted that section 501(c-1) used the general word "retainers" and did not place any qualifications on the types of retainers that could be disgorged. Id. ¶ 25. This court then considered the policy underlying the leveling of the playing field amendments. This court explained that allowing advance payment retainers to be used in the manner suggested by James would undermine the purpose of the amendments. Id. ¶ 27. It was obvious that the retainer in Earlywine was set up specifically to circumvent the leveling of the playing field rules. Id. Accepting James's argument would have meant that avoiding the application of the rules was as simple as putting the funds in an advance payment retainer. Id. Thus, the rules would no longer prevent an economically advantaged spouse from gaining an unfair advantage over the other spouse. Id. The policy concerns expressed in Dowling are simply not present in dissolution cases. Id. ¶ 28. Thus, this court held that advance payment retainers must be subject to disgorgement in order to avoid "defeat[ing] the express purpose of the Act and render[ing] the 'leveling of the playing field' provisions powerless." Id. ¶ 29.
¶ 18 As noted, the Second District in
Squire
believed that
Earlywine
largely settled the question before the court by holding that advance payment retainers are subject to disgorgement.
Squire
,
¶ 19 The first court to consider the precise issue of whether earned fees are subject to disgorgement was the Second District in
Squire
,
¶ 20 On appeal, Stogsdill argued that it could not be required to turn over fees that it had already earned. Section 501(c-1)(3) refers to "available" funds being subject to disgorgement, and Stogsdill argued that funds that have been earned by the attorney and have become the attorney's property are no longer "available." Id. ¶ 9. The appellate court rejected Stogsdill's argument. The court's decision was based largely on this court's decision in Earlywine , which held that advance payment retainers are subject to disgorgement. The court noted that an advance payment retainer, in contrast to a security retainer, becomes the attorney's property upon payment and is to be deposited in the attorney's general account. Id. ¶¶ 17, 22. Thus, it could not be correct that funds that are the property of the attorney are not subject to disgorgement. Id. ¶ 22. The court also believed that Stogsdill's position would frustrate the purposes of the statute because an attorney could block the other side's access to fees by filing voluminous pleadings and motions early in the case, thus earning the retainer, while leaving the other spouse with insufficient funds to respond properly. Id. ¶ 21. Accordingly, the Second District concluded that the word "available" in section 501(c-1)(3) must simply mean that the funds "exist somewhere." Id. ¶ 22.
¶ 21 In Altman , the First District rejected the Second District's interpretation. In that case, the wife petitioned for a dissolution of marriage.
*239
Altman
,
¶ 22 Following a hearing, the trial court determined that neither party had sufficient access to assets or income to pay attorney fees and that the leveling of the playing field provisions of the Act should be applied. Id. ¶ 10. As part of its order allocating funds for attorney fees, the court found that it would be necessary to order Gerage to disgorge $16,000 in fees that he had earned and that this amount needed to be turned over to Bradford within seven days. Id. Gerage failed to turn the money over, was held in contempt of court, and appealed. Id. ¶ 11.
¶ 23 On appeal, Gerage argued, inter alia , that the disgorgement order was improper because he had earned the funds and deposited them into his general operating account. Gerage argued that the legislature's use of the term "available" in section 501(c-1)(3) must mean that some funds are "unavailable" and this should include funds that an attorney has earned. Id. ¶ 27. The First District reviewed the Second District's decision in Squire and stated that, if "leveling the playing field" were the only consideration, it would be inclined to agree with Squire . Id. ¶ 33. Nevertheless, the court held that it could not ignore the legislature's use of the word "available" and that it would be a "tortured reading of the statute to say that even though the firm has earned the fees, paid itself (as it was entitled to do), and used that income to pay salaries, overhead, and litigation expenses for items such as experts and court reporters, it can nonetheless be required to refund those fees, not to its client, but to a third party." Id. The court noted that Squire had not discussed the significant policy concerns in holding that earned fees are subject to disgorgement. Id. ¶ 34. The court believed that small firms and solo practitioners could face significant financial hardships when attempting to comply with disgorgement orders, particularly when the fees have been earned over several months and transferred in and out of their operating accounts. Id. The court noted that such concerns were exacerbated in cases such as the one before it where a party delays filing the fee petition. Id. The court further noted that, logically, the Squire interpretation means that a lawyer who had withdrawn from the case could be called upon months or even years later to write a check to the opposing party's counsel, as the funds still "exist somewhere." Id. ¶ 35. The court stated that it would not construe the statute as allowing such absurd results. Id. The court acknowledged that it was addressing interim fee awards and that accounts may be "trued up" when a final dissolution judgment is entered. Id. ¶ 36. However, the court explained that, because disgorgement is ordered upon a finding that neither party is able to pay attorney fees, it is not realistic to assume that the attorneys will ever be paid. Id. The court did not believe that the legislature *240 intended that the "financial burden of leveling the playing field should be borne, in substantial part, by lawyers who must refund, under pain of contempt, fees they have earned." Id. The court thus reversed both the trial court's order and the contempt order. Id.
¶ 24 In the present case, the Third District considered the interpretations set forth in
Squire
and
Altman
and determined that
Altman
was correct.
¶ 25 We agree with the appellate court that the relevant question is what it means for funds to be "available" under section 501(c-1)(3). The legislature did not merely say that retainers and interim payments were subject to disgorgement. Rather, it stated that those funds must also be "available." As the appellate court has noted, this implies that some funds are "unavailable."
Id.
¶ 25 ;
Altman
,
¶ 26 "Available" means "such as may be availed of: capable of use for the accomplishment of a purpose: immediately utilizable" or "that is accessible or may be obtained: personally obtainable." Webster's Third New International Dictionary 150 (1993). As used in section 501(c-1)(3), the appellate court has defined "available
*241
funds" three different ways. In
Squire
, the Second District determined that it meant simply that the funds "exist somewhere."
Squire
,
¶ 27 For several reasons, we believe that Altman represents the correct interpretation. For one thing, it is consistent with the plain meaning of the term "available." It is difficult to see how an interim payment or retainer that has been earned by the attorney is nevertheless "available." Once an attorney has used up a retainer, there is clearly no longer an available retainer. Indeed, there is no longer even a retainer. If there is no retainer "available" as between the attorney and the client, it is difficult to see how one can be available to third parties. Christine relies on the statute's inclusion of "interim payments," and Christine contends that a "payment" is the discharge of a debt or liability by the delivery or money or other value. Thus, Christine suggests that an "interim payment" will always be for an amount that the lawyer has already earned. "Payment," however, can also mean more generally "the act of paying or giving compensation." Webster's Third New International Dictionary 1659 (1993). The statute defines "interim attorney's fees and costs" as including "reasonable fees and costs either already incurred or to be incurred ." (Emphasis added.) 750 ILCS 5/501(c-1) (West 2014). Moreover, the phrase "previously paid" in section 501(c-1)(3) also modifies the term "retainers," which means that the legislature is clearly using the term "paid" as including sums that the attorney has not yet earned.
¶ 28 We acknowledge that, when the meaning of a legislative enactment is unclear, the court may consider the purpose behind the law and the evils the law was designed to remedy.
Gruszeczka
,
¶ 29 Nevertheless, we must also consider the consequences that would result from construing the statute one way or the other, and in doing so, we presume that the legislature did not intend absurd, inconvenient, or unjust consequences.
Solon
,
"It is not speculation to predict that some lawyers, particularly solo practitioners and those in small law firms, may be unable to comply with orders to disgorge funds that they have earned over several months and that have been transferred into (and out of) their operating accounts, at least not without serious financial hardship." Altman ,2016 IL App (1st) 143076 , ¶ 34,406 Ill.Dec. 136 ,59 N.E.3d 914 .
The court further noted that lawyers who have already been granted leave to withdraw from the case could be called upon months or years later to write a check to opposing party's counsel.
Id.
¶ 35. In the present case, the Third District cited with approval
Altman
's statement that it was not the legislature's intent that " 'the financial burden of leveling the playing field should be borne, in substantial part, by lawyers who must refund, under pain of contempt, fees they have earned.' "
¶ 30
Amici
have identified further policy concerns that would arise if earned fees were subject to disgorgement. First, it would mean that Illinois divorce lawyers pay themselves at their own risk. Illinois Rule of Professional Conduct 1.15(c) (eff. July 1, 2015) allows attorneys to withdraw money from a client trust account as fees are earned and expenses incurred. If an attorney used this money as he or she was entitled to do, then he or she would have to have a backup plan-either sufficient cash reserves or a line of credit-if later ordered to comply with a disgorgement order. Attorneys practicing in other areas do not act at their own risk when they pay themselves fees they have rightfully earned. Second, the Act does not state what defenses an attorney has to a disgorgement order. Here, Holwell told the trial court that she did not have the money, and no hearing was held on the matter. Rather, Christine's attorney proceeded immediately with a citation to discover assets and froze Holwell's bank accounts.
2
These concerns are serious, especially given that the Act contemplates that proceedings relating to interim attorney fees and costs be conducted in summary fashion. 750 ILCS 5/501(c-1)(1) (West 2014). Third, most people's wealth is typically concentrated in their homes and retirement accounts. The appellate court held that a party cannot be required to sell real estate to pay attorney fees (
¶ 31 We agree with the appellate court,
amici
, and Holwell that these concerns are substantial. Picture the case of a solo practitioner who earns $60,000 during the first year of representing a party in a contentious dissolution proceeding and applies those funds to overhead and operating expenses in the normal course of business. Holding that such funds are available for disgorgement would mean that the attorney could be ordered to pay all of that money in a lump sum to another party's counsel years later, despite the fact that the funds belonged to the attorney and he or she had used them in a way that he or she had every legal right to do. And if the attorney does not comply, he or she can be held in contempt and jailed. The present case shows that such concerns are not merely theoretical. Holwell represented Andrew for eight months and then was granted leave to withdraw. During this period, Holwell earned over $50,000. The trial court later ordered her to turn over $40,952.61 to Christine's counsel. Holwell did not turn the money over, and she explained to the court that she was not willfully disobeying its order but that she did not have the money. The court held her in indirect civil contempt, fined her, and sentenced her to jail. Moreover, Christine's attorney immediately put a freeze on Holwell's bank accounts and issued a citation to discover assets against her. If this was the way that the legislature intended the statute to work, and if this is the type of result that the legislature intended, then the legislature needs to say so explicitly in the statute. We are not going to construe the statute in a way that leads to absurd, unjust, or inconvenient results. See
Solon
,
¶ 32 Christine points out that construing the statute the other way could also lead to inequities and absurd results. Christine points out that one spouse may engage in a "scorched earth" campaign of liquidating the marital assets and using the money to pay his or her attorney. While this is indeed a concern, Holwell points out that the disadvantaged spouse has some remedies available, including (1) filing the petition for interim attorney fees at the beginning of the case and (2) seeking a preliminary injunction or temporary restraining order under section 501(a)(2)(i) ( 750 ILCS 5/501(a)(2)(i) (West 2014)) (allowing parties to seek a temporary restraining order or preliminary injunction "restraining any person from transferring, encumbering, concealing or otherwise disposing of any property except in the usual course of business or for the necessities of life"). By contrast, the Act provides no remedy for an attorney who is ordered to turn over money that the attorney no longer has.
¶ 33 The other interpretation of "available" was that set forth by the Second District in
Squire
. The Second District defined "available" as meaning that the funds "exist somewhere."
Squire
,
¶ 34 As we noted above, the appellate court in the present case modified
Altman
's rule that earned fees are not subject to disgorgement. The Third District held that available funds are those funds that are being held for a client and that have not yet been earned by the attorney at the time the attorney receives notice of the petition for interim fees.
¶ 35 For all of the above reasons, we believe that Altman 's interpretation is correct. "[F]unds earned by and paid to a party's lawyer in the normal course of representation for past services rendered are not 'available funds' within the meaning of section 501(c-1)(3)."
*245
Altman
,
¶ 36 Affirmed.
Chief Justice Karmeier and Justices Freeman, Kilbride, Garman, Burke, and Theis concurred in the judgment and opinion.
As an alternative basis for affirming the appellate court's judgment, Holwell argues that the trial court abused its discretion in finding that neither party had the ability to pay attorney fees. However, given that we allowed the petition for leave to appeal to resolve the conflict in the appellate court over whether earned fees are subject to disgorgement, and we agree with Holwell that her earned fees were not subject to disgorgement, we see no need to address this issue.
The parties disagreed over whether a disgorgement order is an enforceable judgment, and the trial court ruled that it was.
Although this court has not had occasion to address the due process implications of section 501(c-1)(3)'s disgorgement provisions, the appellate court upheld this section under facial substantive and procedural due process challenges in
Kaufman, Litwin & Feinstein v. Edgar
,
Reference
- Full Case Name
- In RE MARRIAGE OF Christine GOESEL, Appellant, and Andrew Goesel (Laura A. Holwell, Appellee).
- Cited By
- 23 cases
- Status
- Published