Contingent, ‘PI’ Firm’s Dearth of Time Records Dooms Attorneys’ Fee Award in Real Estate Spat

A personal injury firm’s (Goldberg, Weisman and Cairo) failure to properly document its attorney time records resulted in an almost 88% fee reduction after the defendants appealed from a real estate dispute bench trial verdict.

The plaintiffs – one of whom is a GWC attorney – in Kroot v. Chan, 2019 IL App (1st) 181392 sued the former property owners for violating Illinois Residential Real Property Disclosure Act, 765 ILCS 77/1 et. seq. (the Act) after they failed to disclose known property defects to the plaintiffs.

The trial court found for the plaintiffs on their Act claims and common law fraud claims and assessed nearly $70,000 in attorneys’ fees and costs against defendants. The defendants appealed citing the plaintiffs’ dearth of competent fee support.

Reversing, the First District emphasized how crucial it is for even a “contingent fee law firm” like GWC to sedulously document its attorney time and services.

Under Illinois law, a plaintiff seeking an attorney fee award had the burden of proving entitlement to fees. Additionally, an attorneys’ fee award must be based on facts admissible in evidence and cannot rest on speculation, conjecture or guess-work as to time spent on a given task.

Unless there is a contractual fee-shifting provision or a statute that provides for fees, an unsuccessful litigant is not responsible for the winner’s fees. And while the Act does provide a “hook” for attorneys’ fees, the common law fraud claim did not. As a result, the First District held that the fraud verdict against one defendant wasn’t properly subject to a fee petition.

“Reasonable attorneys’ fees” in the context of a fee-shifting statute (like the Act) denotes fees utilizing the prevailing market rate. The Act’s fee language differs from other statutes in that it provides that fees can be awarded to a winning party only where fees are incurred by that party. “Incurred,” in turn, means “to render liable or subject to” [⁋⁋ 11-12 citing Webster’s Third New International Dictionary 1146 (1981)]. As a consequence, unless attorneys’ fees have actually been incurred by a prevailing party, the trial court has no authority to award fees under the Act.

At the evidentiary hearing on plaintiff’s fee petition, three GWC attorneys admitted they didn’t enter contemporaneous timesheets during the litigation and that a document purportedly summarizing GWC’s attorney time was only an estimate. The lawyers also conceded that plaintiffs didn’t actually pay any legal fees to GWC. Still another attorney witness acknowledged she tried to reconstruct her time nearly 8 months after the underlying work was performed. [⁋ 19]

The appeals court noted the record was devoid of any evidence that (1) plaintiffs ever agreed to pay for legal services, (2) plaintiffs were ever billed for GWC’s legal services, (3) plaintiff ever paid for those services, or (4) that GWC expected plaintiffs’ to pay for its services. The court also found that the supporting affidavits submitted in support of the fee petition were inadmissible hearsay documents. (It’s not clear from my reading of the opinion why the affidavits and billing record did not get into evidence under the business records hearsay exception.)

In the end, the Court found the absence of either simultaneous time records or testimony that the attorney working on the matter had an independent recollection of the time and tasks incurred/performed rendered the fee petition too speculative.

Kroot provides a useful gloss on the governing standards that control when a plaintiff can recover attorneys’ fees. Aside from stressing the importance of making contemporaneous time records and offering proper supporting fee evidence, the case’s lesson is that in the context of a statute like the Act that only provides for fees actually incurred, the plaintiff must actually pay attorneys’ fees to merit a fee award. Since the evidence was that the prevailing plaintiffs never actually were billed or paid any fees to their attorneys, the plaintiffs’ lawyers failed to carry their burden of proof on the fees issue.

Set-off Is Counterclaim; Not Affirmative Defense – IL Court Rules in Partition Suit

Stadnyk v. Nedoshytko, 2017 IL App (1st) 152103-U views the counterclaim-versus-affirmative defense distinction through the prism of a statutory partition suit involving co-owners of a Chicago apartment building.

The plaintiff sued to declare the parties’ respective ownership rights in the subject property.  After the court issued a partition order finding the plaintiff and defendants had respective 7/8 and 1/8 ownership interests.  After the trial court ordered a partition of the property, the defendants filed affirmative defenses titled unjust enrichment, breach of fiduciary duty and equitable accounting.  Through all the “defenses” defendants sought to recoup property maintenance and repair expenses they made through the years.

The trial court struck defendants’ affirmative defenses on the basis that they were actually counterclaims and not defenses. The court also refused to award statutory attorneys’ fees to the plaintiff.  Each side appealed.

Affirming the trial court’s striking of the defendants’ affirmative defenses, the First District initially considered the difference between an affirmative defense and a counterclaim.

Code Section 2-608 provides that counterclaims in the nature of “setoff, recoupment, cross-claim or otherwise, and whether in tort or contract, for liquidated or unliquidated damages, or for other relief, may be pleaded as a cross claim in any action, and when so pleaded shall be called a counterclaim.” 735 ILCS 5/2-608

Code Section 2-613 governs affirmative defenses and requires the pleader to allege facts supporting a given defense and gives as examples, payment, release, satisfaction, discharge, license, fraud, duress, estoppel, laches, statute of frauds, illegality, contributory negligence, want or failure of consideration. 735 ILCS 5/2-613.

Counterclaims differ from affirmative defenses in that counterclaims seek affirmative relief while affirmative defenses simply seek to defeat a plaintiff’s cause of action.  In this case, the defendants’ did not seek to defeat plaintiff’s partition suit.  Instead, the defendants sought post-partition set-offs against sale proceeds going to plaintiff for defendants’ property maintenance and repair expenses.

A setoff is a counterclaim filed by a defendant on a transaction extrinsic to the subject of plaintiff’s suit.  Since the defendants styled their affirmative defenses as sounding in setoff and accounting – two causes of action (not defenses) – the Court affirmed the trial court’s striking the defenses.

The Court also reversed the trial court’s order refusing to apportion plaintiff’s attorneys fees.  Section 17-125 of the partition statute provides that a partition plaintiff’s attorney can recover his fees apportioned among the various parties since, in theory, the attorney acts for all interested parties.  However, where a party mounts a “good and substantial defense to the complaint,” the plaintiff’s attorneys’ fees should not be spread among the litigants. 735 ILCS 5/17-125.

Here, the defendants attempted to raise defenses (setoff and public sale, as opposed to private, was required) but only after the trial court entered the partition order.  Since the defendants didn’t challenge plaintiff’s partition request but instead sought a setoff for defendants’ contributions to the property and a public sale of the property, the trial court correctly concluded the defendants failed to raise good and substantial defenses under the partition statute.  As a consequence, the trial court should have apportioned plaintiff’s attorneys’ fees.

Afterwords:

Stadnyk cements the proposition that a counterclaim differs from an affirmative defense and that setoff fits into the former category.  The case also stresses that where a defendant seeks to recover damages from a plaintiff based on a collateral transaction (other than the one underlying the plaintiff’s lawsuit), defendant should file a counterclaim for a setoff rather than attempt to raise the setoff as a defense.

Other critical holdings from the case include that a court of equity lacks power to go against clear statutory language that require a public sale and partition plaintiff attorneys’ fees should only be apportioned where a defendant doesn’t raise a substantial defense to the partition suit.

 

 

Tacking Unsigned Change Orders On To Contractors’ Lien Not Enough For Constructive Fraud – IL Court

Constructive mechanics lien fraud and slander of title are two central topics the appeals court grapples with in Roy Zenere Trucking & Excavating, Inc. v. Build Tech, Inc., 2016 IL App (3d) 140946.  There, a commercial properly developer appealed bench trial judgments for two subcontractor plaintiffs – a paving contractor and an excavating firm – on the basis that the plaintiffs’ mechanics liens were inflated and fraudulent.

The developer argued that since the subcontractors tried to augment the lien by adding unsigned change order work to it – and the contracts required all change orders to be in writing – this equaled that voided the liens.  The trial court disagreed and entered judgment for the plaintiff subcontractors.

Affirming the trial court’s judgment, the appeals court provides a useful summary of the type of proof needed to sustain constructive fraud and slander of title claims in the construction lien setting and when attorneys’ fees can be awarded to prevailing parties under Illinois’ mechanics lien statute, 770 ILCS 60/1 (the Act).

Section 7(a) of the Act provides that no lien shall be defeated to the proper amount due to an error of overcharging unless it is shown that the error or overcharge was made with an “intent to defraud.”  Constructive fraud (i.e., fraud that can’t be proven to be purposeful) can also invalidate a lien but there must be more than a simple overcharge in the lien claim.  The overage must be coupled with other evidence of fraud.

Slander of title applies where (1) a defendant makes a false and malicious publication, (2) the publication disparages the plaintiff’s title to property, and (3) damages.  “Malicious” in the slander of title context means knowingly false or that statements were made with a reckless disregard of their truth or falsity.  If a party has reasonable grounds to believe it has a legal or equitable claim to property, even if it’s later proven to be false, this won’t amount to a slander of title.

Here, the appeals court agreed with the trial court that there was no evidence to support a constructive fraud or slander of title claim.  The defendant property owner admitted that the subcontractor plaintiffs performed the contract as well as the extra change order work.

While the Court excluded the unsigned change order work from the lien amount, there was still insufficient constructive fraud or slander of title evidence to sustain the owner’s counterclaims.  Though unsuccessful in adding the change orders to the lien, the Court found the plaintiffs had a reasonable basis to recover the extra work in their lien foreclosure actions based on the parties’ contracting conduct where the owner routinely paid extras without signed change orders.

The Court then examined whether the subcontractors could add their attorneys’ fees to the judgment.  Section 17(b) of the Act allows a court to assess attorneys’ fees against a property owner who fails to pay “without just cause or right.”  This equates to an owner raising a defense not “well grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law.”  770 ILCS 60/17(b), (d).

The evidence at trial that the subcontractors substantially performed the paving and excavation work cut in favor of awarding fees to the plaintiffs.  There was no evidence to support the owner defendant’s failure to pay the subcontract amounts.  The Court held that this lack of a colorable basis not to pay the subcontractors was “without just cause or right” under the Act.

Afterwords:

1/ Constructive fraud requires more than a computational error in the lien amount.  There must be other “plus-factor” evidence that combines with the overcharge;

2/ Where a contractor has reasonable basis for lien claim, it will be impossible for plaintiff to meet the malicious publication requirement of a slander of title claim;

3/ This case is pro-contractor as it gives teeth to the Mechanics’ Lien Statute’s fee-shifting section.