SUPREME COURT SPLITS THREE WAYS ON CLIENT LIABILITY FOR ATTORNEY CONDUCT

July 6, 2004

Steven P. Garmisa
Hoey & Farina Attorney
garmisa@hoeyfarina.com
1-888-425-1212

When a good court splits into majority and dissenting opinions, like an atom shattered in a cyclotron, we can reach a deeper understanding of basic rules.

The Illinois Supreme Court, for example, split three ways on the responsibility of a client for an alleged intentional tort by its law firm, providing profound lessons on the key question of vicarious liability. Horwitz v. Holabird & Root, 2004 WL 1118511 (May 20).

Holabird & Root retained the law firm of Sabo & Zahn to collect on a debt allegedly owed by Tem Horwitz and Horwitz Matthews Inc. (To keep things simple, the client will be referred to as "Holabird," its law firm as "Sabo" and the alleged debtors as "Horwitz Matthews.")
During the collection case, according to Horwitz Matthews, Sabo received Horwitz Matthews' tax returns, subject to a confidentiality agreement. Sabo, which also obtained the identity of business associates and investors of Horwitz Matthews, allegedly used this information to send letters to 40 of these business associates and investors, accusing Horwitz Mathews of allocating to itself more than the permitted portion of partnership proceeds. This allegedly constituted intentional interference with business relationships by Sabo.

The question of law that split the Illinois Supreme Court three ways was whether Holabird could be held vicariously liable for the alleged intentional tort of its law firm, Sabo.

This article focuses on the majority opinion, while the Trial Notebooks on Wednesday and Thursday turn to the dissents. Although each of these opinions reverberates with richly texture responses to arguments made by the other justices, much of this analysis is being sacrificed to shorten the articles.

Here are some highlights of Justice Thomas L. Kilbride's majority opinion (with various omissions note noted in the quoted text):

"As we stated in Gomien v. Wear-Ever Aluminum Inc., 50 Ill.2d 19 (1971): 'Generally, it is the law that a master is liable for the acts of his servant committed within the scope of his employment; that a principal is liable for the acts of his agent performed within the scope of the agency; but neither is liable for the acts of an independent contractor unless the act or omission causing harm was pursuant to the order or direction of the principal or employer, or unless under certain circumstances, the principal or employer failed to exercise reasonable care in selecting a careful and competent contractor.'

"In the attorney-client relationship, clients are generally bound by their attorneys' acts or omissions during the course of the legal representation that fall within the apparent scope of their attorneys' authority. Moreover, the attorney-client relationship is a fiduciary relationship. As fiduciaries, attorneys owe to their clients 'the basic obligations of agency: loyalty and obedience.' Restatement (Second) of Agency, section 14N, comment a, at 80 (1958).

"Nonetheless, this case does not involve an attorney's duty to a client, but rather an attorney's duty to a third party. Thus, Holabird & Root has accurately pointed out that there is no Illinois decision addressing whether clients may be held liable for their attorneys' alleged intentional torts against a third party undertaken without the direction or knowledge of the client.

"In Flight Kitchen Inc. v. Chicago Seven-Up Bottling Co., 22 Ill.App.3d 558 (1974), heavily relied upon by Horwitz Mathews, the plaintiff filed an action to recover damages allegedly suffered by reason of an averred trespass to its property by the defendant's attorney. In enforcing a judgment rendered on behalf of the plaintiff against a third party, the attorney wrongfully directed the sheriff to levy against the property of an innocent third party.

"The client was fully aware of the levy against the wrong party. In fact, the client executed a bond to institute the levy proceeding. Thus, the misconduct engaged in by the attorney was committed with the full knowledge and direction of the client. That is not the case here. A factual scenario more clearly on point was presented in a case cited by Holabird & Root, In re Berry Publishing Services Inc., 231 B.R. 676 (Bankr. N.D. Ill. 1999).

"In Berry, a party attempted to purchase a bankruptcy debtor's interest in certain assets at a court-approved sale. The purchaser later commenced a cause of action against the bankruptcy trustee and the trustee's attorney, alleging tortious interference with the purchaser's contracts or prospective business relationships. The claims stemmed from a letter sent by the trustee's attorney without the knowledge of the trustee to several of the purchaser's clients, opining that the purchaser had not actually acquired the assets at issue.

"In addition to recovery against the trustee's attorney, the purchaser also sought recovery against the trustee premised upon an agency law theory of vicarious liability. The bankruptcy court held that the purchaser could not recover from the trustee on such a theory.

"Applying Illinois law, the court held that a principal is not liable for an agent's torts, provided the agent is not an employee of the principal. Berry, 231 B.R. at 682, citing Anderson v. Marathon Petroleum Co., 801 F.2d 936, 938 (7th Cir. 1986), citing Gomien, 50 Ill.2d at 21.

"According to the Berry court, although the attorney-client relationship is governed by agency principles, the attorney is considered a classic independent contractor.

"The Berry court specifically relied on the following passage of the [7th U.S. Circuit Court of Appeals'] opinion in Anderson: 'The reason for distinguishing the independent contractor from the employee is that, by definition of the relationship between a principal and an independent contractor, the principal does not supervise the details of the independent contractor's work and therefore is not in a good position to prevent negligent performance, whereas the essence of the contractual relationship known as employment is that the employee surrenders to the employer the right to direct the details of his work, in exchange for receiving a wage. The independent contractor commits himself to providing a specified output, and the principal monitors the contractor's performance not by monitoring inputs -- i.e., supervising the contractor -- but by inspecting the contractually specified output to make sure it conforms to the specifications.'

"The Berry court concluded that there was no authority to depart from this rule in cases concerning an attorney-client relationship.
"The courts of our sister states are, however, divided on the issue of imposing vicarious liability for the actions of attorneys. In some jurisdictions, the courts find no vicarious liability. Other jurisdictions impose vicariously liability, holding the attorney-client relationship is a principal-agent relationship.

"After careful consideration of this conflicting authority," Kilbride's majority opinion explained, "we conclude that when, as here, an attorney acts pursuant to the exercise of independent professional judgment, he or she acts presumptively as an independent contractor whose intentional misconduct may generally not be imputed to the client, subject to factual exceptions.

"Individuals more often than not seek the assistance of an attorney because they are unfamiliar with the law and unable to perform the work themselves. Therefore, an attorney usually pursues a client's legal rights without specific direction from the client, using independent professional judgment to determine the manner and form of the work.

"An independent contractor is defined by the level of control over the manner of work performance. 'An independent contractor is one who undertakes to produce a given result but in the actual execution of the work is not under the orders or control of the person for whom he does the work but may use his own discretion in things not specified ... [and] without his being subject to the orders of the [person for whom the work is done] in respect to the details of the work.' Hartley, 344 Ill. at 539.

"That someone is an independent contractor does not bar the attachment of vicarious liability for her actions if she is also an agent. See Petrovich v. Share Health Plan of Illinois Inc., 188 Ill.2d 17, 31 (1999) ('[a]s a general rule, no vicarious liability exists for the actions of independent contractors. Vicarious liability may nevertheless be imposed for the actions of independent contractors where an agency relationship is established').

"A person may be both an independent contractor and an agent with the authority both to control the details of the work and also the power to act for and to bind the principal in business negotiations within the scope of the agency. As a general rule, attorneys fit squarely within this category. Nonetheless, when attorneys act pursuant to the exercise of independent professional judgment, they possess such considerable autonomy over the details and manner of performing their work that they are presumptively independent contractors for purposes of imposing vicarious liability.

"Accordingly, where a plaintiff seeks to hold a client vicariously liable for the attorney's allegedly intentional tortious conduct, a plaintiff must prove facts demonstrating either that the client specifically directed, controlled or authorized the attorney's precise method of performing the work or that the client subsequently ratified acts performed in the exercise of the attorney's independent judgment.

"If there is no evidence that the client directed, controlled, authorized or ratified the attorney's allegedly tortious conduct, no vicarious liability can attach.

"Here, the record contains no evidence that the content of the allegedly tortious letters was directed, controlled or authorized by Holabird & Root. Nor is there any evidentiary material in the record creating a genuine issue of fact on the question of whether Holabird & Root knew of the contents of the letters before they were sent by Sabo & Zahn.

"Turning to the parties' final argument, ratification of an unauthorized act is tantamount to an original authorization and confirms what was originally unauthorized. The principle behind the doctrine of ratification is that the person ratifying secures a benefit through the actions of another who is acting on his behalf with apparent or implied authority. If there is no benefit, ratification will not be implied.

"The record in this case is devoid of any suggestion that could support an inference Holabird & Root benefited in any way from Sabo & Zahn's alleged interference with the business relationships of Horwitz Matthews. Without a question of fact concerning whether Holabird & Root derived a benefit from the allegedly tortious letters, there could be no ratification and summary judgment was appropriately granted to Holabird & Root.

"In rendering our holding, we acknowledge that attorneys remain bound by strong ethical obligations to their clients and that the attorney-client relationship is fiduciary in nature. As a fiduciary relationship, there are a myriad of circumstances where attorneys act as agents for their clients. The situation at hand is simply not one of them.

"We further acknowledge that our holding conflicts with the comment following section 253 of the Restatement of Agency: 'The principal is liable [for its agent's conduct] only if [that] conduct ... is, in part at least, to carry out the purposes of the principal. The situation most frequently aris[es] ... [when] an attorney at law tortiously institutes or continues civil or criminal proceedings, or is guilty of oppressive or wrongful conduct during the course of the proceedings, in order that he may enforce a claim of the principal. The fact that the attorney is subject to discipline by the court does not prevent the client from being liable for his conduct.' Restatement (Second) of Agency, section 253, comment a.

"We disagree with the Restatement's discounting that attorneys are constrained by certain court-imposed ethical considerations that serve to distance their behavior from their clients. Attorneys cannot blindly follow their clients' directions, even if those directions are particular and express, if doing so would require them to violate their ethical obligations.

"Were we to hold otherwise, we would in effect compel clients in similar cases to oversee or micromanage every action taken by their attorneys during the course of the attorney-client relationship, and obligate clients to take control of their representation at the slightest hint of potentially wrongful conduct on the part of their attorneys. Such close monitoring would be impossible for most clients.

"Moreover, most clients are not qualified to undertake that type of monitoring. The obligation to supervise an attorneys' conduct would make plaintiffs reluctant to file suit and make defendants hesitant to defend themselves vigorously. This would not only chill the willingness of Illinois citizens to vindicate their legal rights, it would make them ultimately responsible for their own legal representation -- the very act for which they hire an attorney in the first place.

"For the above-stated reasons, we hold generally that attorneys may be both independent contractors and agents but, regarding specific conduct, are either one or the other. We further hold that for purposes of imposing vicarious liability for allegedly tortious conduct, when attorneys act pursuant to independent professional judgment, they are presumptively independent contractors whose alleged misconduct may not be imputed to their clients, unless it is shown that the client directed, controlled, authorized or ratified the alleged misconduct."

The Trial Notebooks on Wednesday and Thursday will look at the dissenting opinions.

Back to Trial Notebook Main page