DISSENT: RULING ON CLIENT'S LIABILITY THROWS ATTORNEYS INTO STATE OF 'FLUX'

July 7, 2004

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

Three justices dissented from the Illinois Supreme Court's ruling on when a client can be held liable for an intentional tort by its law firm. Horwitz v. Holabird & Root, 2004 WL 1118511 (May 20).

Tuesday's Trial Notebook focused on Justice Thomas L. Kilbride's majority opinion. (Unfortunately, I had to skip Kilbride's detailed responses to the arguments made by the dissenters.)
Here are some highlights of Chief Justice Mary Ann G. McMorrow's dissent (with various omissions not noted in the quoted text):

"This appeal presents an important issue of first impression for this court: whether, and if so, to what extent, clients may be held vicariously liable for the intentional torts of their attorneys.
"The majority holds that attorneys are non-agent independent contractors whose intentional misconduct may not be imputed to the client, unless a plaintiff proves 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.'

"Applying this rule to the facts before it, the majority also holds that the Circuit Court properly granted summary judgment to the client, Holabird & Root, finding that there was no evidence giving rise to a genuine issue of material fact as to whether Holabird & Root authorized, directed, had prior knowledge of or ratified the allegedly tortious conduct of its attorneys, Sabo & Zahn.

"The central issue presented in this case reaches the core of the relationship between an attorney and a client: to what extent can an attorney bind his or her client for the actions taken by the attorney? In order to answer this question, it is necessary to briefly review basic principles of the law of agency, and the differences between an 'agent' and an 'independent contractor.'

"In general, an agency relationship is characterized by a fiduciary affiliation between two individuals in which the principal exercises some degree of control over the conduct of the agent, and the agent has the power to act on behalf of the principal. Restatement (Second) of Agency, section 1 (1958).

"Section 2 of the Restatement (Second) of Agency defines 'independent contractor' as 'a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking.'

"Notably, section 2 of the Restatement also provides that an independent contractor 'may or may not be an agent.' Thus, under the Restatement, the concept of an 'independent contractor' and 'agent' are not mutually exclusive. The comments to section 2 of the Restatement explain that, generally, an 'agent who is not a servant is ... an independent contractor when he contracts to act on account of the principal.'

"However, 'not all independent contractors are agents.' Restatement (Second) of Agency, section 2, comment b. For example, 'one who contracts for a stipulated price to build a house for another and who reserves no direction over the conduct of the work is an independent contractor; but he is not an agent, since he is not a fiduciary, has no power to make the one employing him a party to the transaction, and is subject to no control over his conduct.'

"Section 14N of the Restatement (Second) of Agency more clearly states the concept that an individual may be characterized as both an agent and an independent contractor. This section provides that, 'One who contracts to act on behalf of another and subject to the other's control except with respect to his physical conduct is an agent and also an independent contractor.'

"Particularly relevant to the matter before us, the comment to section 14N discusses the dual roles that an attorney plays during the representation of a client. Comment a to section 14N explains that 'most of the persons known as agents, that is ... attorneys ... are independent contractors as that term is used in the Restatement of this subject, since they are contractors but, although employed to perform services, are not subject to the control or right to control of the principal with respect to their physical conduct in the performance of the services.'

"The comment goes on to explain that even though attorneys may be considered independent contractors, they nevertheless also 'fall within the category of agents,' because '[t]hey are fiduciaries; they owe to the principal the basic obligations of agency: loyalty and obedience.'

"Whether an attorney is characterized as an agent or an independent contractor affects the vicarious liability of the client for the attorney's conduct. A principal is liable for the acts of an agent committed within the scope of the agent's authority. Conversely, no vicarious liability exists for the conduct of independent contractors. However, '[v]icarious liability may nevertheless be imposed for the actions of independent contractors where an agency relationship is established.' Petrovich, 188 Ill.2d at 31.

"Although the majority correctly acknowledges that an attorney may simultaneously be an agent and an independent contractor, the majority nevertheless incorrectly holds that 'regarding particular conduct [an attorney] is either one or the other, but not both.'

"Based upon the apparent, yet incorrect, premise that the concept of an 'agent' and an 'independent contractor' are mutually exclusive, the majority concludes that, '[W]hen 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.'

"The majority concludes that, 'presumptively,' unless it is shown otherwise, an attorney is not an agent at all.

"In my opinion, the majority's holding is inconsistent with fundamental principals of agency law, as set forth above, which provide that: (1) the concepts of 'agent' and 'independent contractor' are not mutually exclusive; and (2) while the relationship of an attorney to a client may be characterized, in some respects, as that of an independent contractor, it nevertheless remains a relationship of agency to the extent that an attorney is a fiduciary to the client.

"Under the majority's holding, an Illinois attorney, when acting 'pursuant to independent professional judgment,' is now considered a non-agent independent contractor.

"The comments to section 14N of the Restatement (Second) of Agency define a 'non-agent independent contractor' as an individual 'who contracts to accomplish something for another or to deliver something to another, but who is not acting as a fiduciary for the other.' I cannot agree with the majority's apparent position that, as of today, the attorney-client relationship in Illinois is now simply a relationship wherein an attorney, when 'acting pursuant to independent professional judgment,' is an independent contractor who does not act as a fiduciary for the client, and who therefore neither stands in a position of confidence or trust with respect to the client nor owes a duty of loyalty or obedience to the client. I cannot support such a result.

"It is well-settled that a fiduciary relationship is an agency relationship. When two parties enter into an agency relationship, 'the principal has the right to control the conduct of the agent and the agent has the power to affect the legal relations of the principal.' Taylor v. Kohli, 162 Ill.2d 91, 95 (1994). Indeed, it is precisely because an attorney stands in a fiduciary relationship to the client that the attorney has the power to act for and to bind the client to matters within the scope of the attorney's agency.
"Despite acknowledging, as it must, that an attorney-client relationship creates a fiduciary relationship between those parties, the majority nevertheless holds that, when an attorney exercises 'independent professional judgment,' the attorney's status automatically shifts from that of an agent of the client to an independent contractor.

"This reasoning is in error. An attorney's exercise of 'independent professional judgment' is the very essence of the attorney's relationship to the client. Indeed, Rule 2.1 of the Illinois Rules of Professional Conduct mandates that, 'In representing a client, a lawyer shall exercise independent professional judgment and render candid advice.' Therefore, because an attorney is required to exercise independent professional judgment during the course of representation of a client, the majority's holding leads to the conclusion that an attorney is a non-agent independent contractor throughout the duration of the client's representation.

"The majority assures that its holding today neither 'alter[s] the core relationship between the attorney and client' nor 'impact[s] the ability of an attorney to bind his or her client in a traditional representational context.' I disagree.

"The flaws inherent in the majority's protestations are apparent from the majority's statement that it 'continue[s] to affirm the long-standing principles of an attorney's fiduciary obligations,' and the majority's citation to case law holding that 'a client is bound by the acts or omissions of his attorney within the scope of the attorney's authority.'

"As set forth above, a fiduciary obligation arises from an agency relationship, a relationship which the majority today holds is nonexistent when an attorney exercises independent professional judgment. Similarly, any discussion of the 'scope of the attorney's authority' is defined by the scope of the attorney's agency relationship with the client, a relationship which the majority has found does not exist when an attorney exercises independent professional judgment during the representation of a client.
"It is my position that, as a result of the majority's holding that during the course of representing their clients Illinois attorneys are non-agent independent contractors, the court's opinion today calls into question the ability of attorneys to bind their clients in any legal or business dealings conducted by the attorney on behalf of the client.

"As stated, it is by operation of agency principles that an attorney has authority to bind a client with respect to acts performed by the attorney within the scope of the agency. It is foreseeable that a client, unhappy with a transaction, would rely upon the majority's holding to argue that because his or her attorney was merely an independent contractor, the client is not bound by any actions that the attorney performed during the course of the legal representation.

"Under the majority's holding, not only is the power of an attorney to act on behalf of a client limited, but those third parties with whom the attorney must deal may legitimately question whether the attorney has the necessary authority to negotiate for and bind the client.

"Review of the majority opinion, which not only effectively overrules a long line of precedent but also calls into question the ability of Illinois attorneys to bind their clients to any matters the attorney engages in on the client's behalf, appears to lead to the conclusion that this is a decision aimed at achieving a particular result: the non-liability of a client, in virtually every instance, for the intentional torts of the client's attorney.

"The majority attempts to somewhat ameliorate the result in this matter in several ways. The majority repeatedly characterizes its holding that an attorney is an independent contractor as a 'presumption' limited to vicarious liability claims against a client based upon an attorney's alleged intentional tortious conduct.
"The majority further holds that its presumptive general rule of non-liability may be rebutted, and vicarious liability can attach, if a plaintiff proves either that (1) the client specifically directed, controlled or authorized the attorney's precise method of performing the work, or (2) that the client subsequently ratified the attorney's allegedly tortious acts.

"Under the majority's view, then, it is only upon proof of either of these two elements that an attorney becomes an agent of a client for whose acts the client may be vicariously liable. It would follow, then, that it would only be upon such proof that a client would be bound by the conduct engaged in by his or her hired attorney because only then would the attorney be considered an agent of the client.

"[T]his holding is contrary to basic black-letter principles of agency law, which stand for the proposition that an attorney may be characterized, simultaneously, as both an agent and an independent contractor.

"Under the majority's holding, an attorney will never be an agent of his or her client, as long as the attorney abides by professional standards of ethics and satisfies his or her obligation to exercise 'independent professional judgment' during the representation of the client. In this way, the majority's presumption effectively becomes irrebutable.

"In addition, by holding that an attorney is not an agent when acting in accordance with his or her independent professional judgment, the majority also calls into question the fiduciary obligations which an attorney owes to a client as a result of the agency relationship. By dispensing with the agency relationship, the majority also dispenses with the attorney's fiduciary obligations to the client.
"The difficulties which are apt to flow from the majority's holding cannot be overstated. In addition to the several serious concerns I have outlined above, I note that in practical application the majority's holding will be unworkable, as the status of an attorney will constantly be in flux.

"I would hold that, when assessing the liability of a client for the tortious acts of the client's attorney, we should not presume that the scope of the attorney's authority extends to encompass intentional misconduct. To the contrary, as a matter of public policy, we should presume that: the client hired the attorney to pursue legal remedies in a legal and ethical manner; and that, because the attorney stands in a fiduciary relationship to the client and is an officer of the court, the client is justified in expecting that the attorney will represent the client ethically and within the bounds of the law.

"It is this presumption that should define the scope of the attorney's authority in representing the client. It would then be incumbent upon the party seeking to hold the client liable to rebut this presumption by producing evidence that the client authorized, directed, had knowledge of or ratified the attorney's misconduct, so as to bring that misconduct within the scope of the attorney's authority.

"It is well-settled that, 'The client is not liable ... for acts of the attorney which are outside the scope of the attorney's authority. Thus, a client is not responsible for any illegal action taken or directed by his attorney which the client did not advise, consent to, participate in, and which was not justified by any authority he had given.' 7A C.J.S. Attorney and Client, section 190, at 309 (1980).

"The proposed analysis which I employ serves not only to protect an innocent client who hired an attorney in good faith who thereafter engaged in misconduct not known to the client, but it would also allow a plaintiff to hold vicariously liable those clients who authorized, directed, had knowledge of or ratified the attorney's misconduct.

"A contrary result imposing vicarious liability upon a client in every instance of intentional tortious misconduct by the client's attorney would mean that clients would be forced to micromanage the conduct of their attorneys.

"It is precisely because clients have no expertise in the law that they hire attorneys for their specialized legal skill, and it would be manifestly unfair to hold a client liable for the intentional torts of his or her attorney if the client did not authorize or direct those actions, and if the client was unaware of those actions.

"Applying my proposed analysis to the case at bar, I agree with the Appellate Court below, and also with Justice Freeman's dissent, that there are sufficient facts presented to withstand summary judgment."

Thursday's Trial Notebook will examine Justice Charles E. Freeman's dissent.

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