COURT CREATES 'PERVERSE INCENTIVE' FOR UNSCRUPULOUS CLIENTS: DISSENT

July 8, 2004

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

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

The Trial Notebooks on Tuesday and Wednesday examined highlights of Justice Thomas L. Kilbride's majority opinion and Chief Justice Mary Ann G. McMorrow's dissent.

Here are some of the main points Freeman raised in his dissent (with various omissions not noted in the quoted text):

"The question raised in this appeal is simple: May a client be held vicariously liable for tortious conduct committed by counsel during litigation on the client's behalf in furtherance of that litigation?

"The majority holds that a client can only be liable when the client 'specifically directed, controlled or authorized the attorney's precise method of performing the work or ... subsequently ratified acts performed in the exercise of the attorney's independent judgment.'

"I believe this position is inconsistent with basic agency law which this court has previously endorsed. The majority's holding is also inconsistent with previous decisions directly on point by our Appellate Court, the [7th U.S. Circuit Court of Appeals], the Restatement (Second) of Agency, and the vast majority of foreign jurisdictions to have addressed the issue. Accordingly, I respectfully dissent.

"Black-letter agency law tells us that there are three types of relationships in vicarious liability analysis: master-servant, principal-agent and independent contractor. See Restatement (Second) of Agency, section 2 (1958).

"The relationships of master-servant and independent contractor are mutually exclusive -- a subordinate is either an independent contractor or a servant, not both. Restatement (Second) of Agency, section 220 (1958). But the relationships of independent contractor and agent are not mutually exclusive; one may be both an independent contractor and an agent, as the appellate majority noted. See also Restatement (Second) of Agency, section 2(3) (1958) ('[a]n independent contractor . . . may or may not be an agent').

"In fact, 'most of the persons known as agents, that is ... attorneys ... are independent contractors as the 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. However, they fall within the category of agents. They are fiduciaries; they owe to the principal the basic obligations of agency: loyalty and obedience.' Restatement (Second) of Agency, section 14N, comment a.

"So far, the majority and I are in agreement -- the majority recognizes that 'a person may be both an independent contractor and an agent.' Yet, the majority immediately thereafter states that an attorney should not be treated as an agent because of precisely those attributes which make the attorney an independent contractor -- 'autonomy over the details and manner of performing their work.' Thus, according to the majority, even though 'a person may be both an independent contractor and an agent,' attorneys are not agents because they are independent contractors.

"This about-face is confusing at best.

"The fact that someone is an independent contractor does not bar the attachment of vicarious liability for his actions if he is an agent, as this court explicitly held less than five years ago. Petrovich v. Share Health Plan of Illinois Inc., 188 Ill.2d 17, 31 (1999) ('As 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.') To the extent that our decision in Gomein says otherwise, it is incorrect and was overruled by Petrovich.

"Simply put, a principal is liable for its agent's conduct within the scope of the agent's authority. Brubakken v. Morrison, 240 Ill.App.3d 680, 686 (1992). Liability is not limited to those cases in which the principal authorized the specific conduct of the agent. Restatement (Second) of Agency, section 216 (1958).

"Although a principal is not liable for physical harm caused by negligent physical conduct of an agent who is also an independent contractor (Restatement (Second) of Agency, section 250 (1958)), a principal is liable for the agent's conduct in matters which the agent has the right to direct under the agreement creating the agency relation, even if the principal is wholly unaware of the specific conduct in question. Restatement (Second) of Agency, section 216, comment a.

"The Restatement (Second) of Agency contains an entire title devoted exclusively to 'Agents' Torts -- Liability Not Dependent Upon Relation of Master And Servant.' Restatement (Second) of Agency, ch. 7, topic 2, title C. "Moreover, section 253 of the Restatement speaks to the precise situation presented in this case.

"That section, entitled 'Tortious Institution or Conduct of Legal Proceedings,' states that 'A principal who authorizes a servant or other agent to institute or conduct such legal proceedings as in his judgment are lawful and desirable for the protection of the principal's interests is subject to liability to a person against whom proceedings reasonably adapted to accomplish the principal's purposes are tortiously brought by the agent.' Restatement (Second) of Agency, section 253.

The comments to section 253 explain that: "The principal is liable only if the conduct of the agent is, in part at least, to carry out the purposes of the principal. The situation most frequently arising which involves the rule stated in this section is that in which 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."

"Additionally," Freeman continued, "although the majority contends 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,' Illinois courts have imposed vicarious liability for the actions of an attorney in the conduct of litigation."

"More importantly, however, the majority disavows basic black-letter principles of agency law when it holds that principals are not liable for their agents' conduct within the scope and in the service of the agency. See, e.g., Petrovich, 188 Ill.2d at 31; Restatement (Second) of Agency, section 253; 7A C.J.S. Attorney and Client, section 190 (1980).

"I recognize the public policy argument that clients should be entitled to assume that attorneys will behave properly. It is, of course, reprehensible when an attorney oversteps the bounds of appropriate behavior in the service of his client's cause. But the whole field of vicarious liability concerns situations in which someone entrusted with authority or responsibility falls short or acts wrongly in their principal's service. I do not agree that we should create a special rule for attorneys, simply because attorneys are subject to disciplinary rules.

"In this regard I note, first, that the Restatement directly states that, '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.

"Second, I note that a principal can be held liable even for criminal actions by his agent -- the fact that an agent's actions are criminal does not automatically mean that no respondeat superior liability will lie. Deloney v. Board of Education of Thornton Township, 281 Ill.App.3d 775, 783 (1996), citing Restatement (Second) of Agency, section 231 (1958).

"I assume that the majority is not suggesting that ordinary people are more lax in their observance of the criminal code than attorneys are with respect to the profession's ethical rules. But otherwise, what is the basis for the majority's distinction -- that an attorney's tortious conduct is so inherently unforeseeable that a principal cannot be held liable, whereas a normal agent's illegal activity may still form the basis for a principal's liability?

"I believe the analogy to violations of the criminal law is instructive, because when courts do reject vicarious liability in the context of a criminal act by the agent, it is because the criminality of the act is found to have taken the act outside the scope of the employment or agency. I believe that this inquiry forms the proper focus in cases seeking to hold clients liable for the wrongdoing of their attorneys.

"The question should be whether the attorney was conducting matters with which he had been entrusted, and was motivated at least in part by his desire to serve his client, when he committed the tort.

"In the case at bar, I agree with the Appellate Court that there are sufficient facts to survive summary judgment on this issue. Therefore, there is no basis for concluding as a matter of law that the attorneys' actions were outside the scope of the agency. And thus, as nearly every court to consider the question has agreed, the client may potentially be held liable for its attorney's actions.

"I finally submit that the rule suggested by the majority is ill-advised as a matter of public policy. I believe the majority is unwittingly encouraging the retention of attorneys who operate at or beyond the boundaries of law and ethics. The majority would hold that no matter what an attorney does, the client is not liable for any acts except those he 'specifically directed, controlled, or authorized.' Under such a rule, an unscrupulous client could freely hire an attorney known to 'push the envelope' and then, ostrich-like, hide his head in the sand so as to disavow any specific involvement in the attorney's methods, and walk away from any wrongdoing committed by his chosen agent on his behalf in the service of his cause.

"I firmly believe in the upstanding moral character of the membership of the Illinois bar. The chief justice's observations regarding the ethical constraints within which Illinois attorneys are required to operate are entirely correct -- although I must note that the majority's alteration of the laws of agency is not restricted to attorneys licensed in this state, or even in this country. But despite my conviction that very few would stoop to take advantage of it, I cannot endorse the perverse incentive system the majority creates today."

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