account stated – Paul Porvaznik

Embattled Ex-Congressman Wins Law Firm’s Fee Spat [Ind. Appeals Court]

Perhaps known as much for his chiseled physique, burnished Instagram presence and garish office furnishings as his political acumen, former wunderkind congressman Aaron Schock resigned in 2015 after dual Federal probes unearthed wide-ranging campaign finance infractions.

The twin Federal investigations – a Department of Justice (DOJ) subpoena followed by an FBI lighting raid on Schock’s Peoria IL office – culminated in a grand jury indictment involving some 24 criminal charges most of which centered around Schock using taxpayer money to fund his lavish lifestyle. While Schock pleaded not guilty and was never convicted, his once surging political career cratered in the prosecution’s wake and to date has not recovered.

It is the DOJ’s and FBI’s tandem probes against Schock and his erstwhile campaign committee, Schock for Congress [SFC] that form the backdrop for Bopp Law Firm, P.C. v. Schock, et al., 2020 Ind.App.LEXIS 287 (July 6, 2020). The case illustrates in sharp relief the proof problems a law firm suing a former client for unpaid fees faces when it skimps on engagement letter and billing details.

The Plaintiff law firm [the “Law Firm” or “Firm”] sued Schock and SFC in 2016 to recover nearly $160,000 in unpaid legal bills. After a four-day bench trial, the trial court entered judgment for Schock and SFC. The Law Firm appealed.

Affirming, the Indiana appeals court first dispensed with the Law Firm’s argument that it stated a viable account stated claim. In Indiana, as in other states, a party waives a claim by not presenting it in its operative pleadings. Here, the Plaintiff waited until its post-trial brief to first raise the account stated issue. It was too late. Since account stated was never pled in the complaint or litigated at trial, the Defendants were unable to defend against it. As a result, the trial court correctly found that the Law Firm waived its account stated claim.

The Court then held that even if the Law Firm did timely raise an account stated claim, it still would have lost. In Indiana, a monetary amount on a bill or statement is prima facie evidence of the amount claimed which can be disproved by a defendant. Here, the Defendants disproved the invoice amounts by pointing to the Firm’s multiple block-billing entries where it failed to separate work done for individual clients vs. services provided to related entity clients.

The Court then rejected the Law Firm’s other arguments on appeal.

The Court first noted the Law Firm’s tardy subpoena response led to a subsequent search warrant and raid on SFC’s campaign office. The Court then pointed to the Law Firm’s failure to separate legal work it performed for SFC from the work it did for related individuals and entities. The Court chided this “block-billing” as potentially violative of Rule 1.8(f) of the Indiana Rules of Professional Conduct – the ethics rule that provides that a lawyer can only accept compensation from someone other than the client upon client’s informed consent, and where there is no interference with the lawyer’s independent professional judgment.

While the Court stopped short of finding a Rule 1.8 violation, it used the Rule as a guidepost when assessing the Firm’s billing practices.

Questionable optics was another basis for the appeals court’s ruling. It noted the Firm assumed role of trustee responsible for reviewing and approving all bills, including legal bills, issued to SFC. This put the Firm in the impossible situation of self-policing its own legal bills. [18]

Still another ground on which the Court relied in upholding the trial court was the time entries attributed to attorney Randy Elf – a lawyer who resigned from the Firm after Defendants challenged several of his time entries. The Court agreed with the trial judge that the Firm had an obligation to review all of Elf’s bills. And since the Firm did not, the trial court properly struck all of Elf’s time entries from the universe of recoverable fees.

The Court also credited the testimony of the Defendants’ discovery expert who testified that $30,000 [and not the $90,000-plus charged by the Firm] was reasonable fee for document review and production. The Court conversely discounted the Firm’s rebuttal witness – a Firm lawyer – who testified that the bills were reasonable. The Court noted the Firm’s witness admitted that document review and production did not comprise a large percentage of his practice.

Finally, the Court rejected the Firm’s attempt to recover interest of 1.5% on the unpaid invoices. It upheld the trial court’s determination that the reasonable value of the Firm’s services were $30,000 and that it had already been paid more triple that amount. As a result, the trial court properly found the Defendants did not owe any additional amounts to the Firm.

Afterwords:

Law firms should be sedulous in its engagement letters and billing records and make it clear who is and who is not their client;

Firms should guard against block-billing and take pains to separate work done for individuals versus services provided to related entities;

A claim not pled or litigated at trial will be deemed waived on appeal; and

Law firm should consider hiring an outside auditor to vet legal bills in situations where a firm’s impartiality could be questioned.

Federal Court Grapples with Illinois Account Stated and Joint Venture Theories in Broken Airline Pact

The Illinois Northern District recently examined the contours of Illinois fiduciary duty, account stated, and joint venture breach claims in Flair Airlines v. Gregor, LLC, 2018 WL 4404649 (N.D.Ill. 2018)(slip copy).

The plaintiff airline company hired the defendants to rebrand and create a technological infrastructure for the airline including a website and online reservation system. While the defendants/counter-plaintiffs prepared a written agreement that formalized the terms of the venture (which called for future multi-year profit-sharing agreements, among other things), the airline never signed the agreement. This was done, according to counter-plaintiffs, for the airline to buy time to form a competing business in Canada and to leverage the fruits of defendants’ work.

The parties’ business relationship eventually crumbled and the airline sued defendants for unfair competition and deceptive trade practices. (The thrust of the complaint was that defendants were wrongfully using plaintiff’s domain names and websites, among other allegations).

Defendants counter-sued for account stated, breach of fiduciary duty, and breach of the never-signed joint venture agreement. The airline moved to dismiss all counterclaims.

The Court first denied the plaintiff’s motion to dismiss defendants’ account stated claims.

In Illinois an account stated is a form of proving damages on a pre-existing obligation. It is an alternative legal theory to one sounding in breach of contract for a plaintiff to recover the same damages asserted in a contract action.

An account stated determines the amount owed between parties who have previously conducted monetary transactions with each other.

Where a plaintiff renders a statement of account to a defendant who retains the statement beyond a reasonable amount of time without objection, the law views this as a tacit acknowledgement of the statement’s validity.

However, an account stated “cannot be made the instrument to create an original liability; it merely determines the amount of the debt where liability previously existed.”

The Court found that the counter-plaintiffs’ allegations that they regularly sent invoices to the plaintiff who then retained them without objection, were enough to state a colorable account stated claim.

The court also sustained the counter-plaintiffs’ breach of fiduciary duty claim against the airline.

Under Illinois law, a breach of fiduciary duty plaintiff must allege (1) a fiduciary relationship, (2) a breach of the fiduciary duty, and (3) injury resulting from the breach. Fiduciary duties exist as a matter of law in a joint venture relationship.

The court found the counter-plaintiffs’ allegations that they formed a joint venture with the airline to expand its business and build the airline’s operations and reservations systems and the airline’s abandonment of the venture was enough to state a viable fiduciary duty claim under Federal notice pleading standards.

On the counter-plaintiffs’ breach of joint venture (JV) claim, the Court noted that under Illinois law, a JV exists where there is (1) an express or implied agreement to carry on an enterprise, (2) a manifestation of intent by the parties to be associated as joint venturers; (3) a joint interest as shown by the parties’ contribution of property, financial resources, effort, skill or knowledge; (4) a degree of joint ownership over the enterprise including the mutual right to exercise control over it; and (5) the joint sharing of profits and losses.

The court rejected the plaintiffs’ argument that the joint venture claim was defeated by the Statute of Frauds. In Illinois, a contract that cannot be performed within the space of one year must be in writing in order to be enforceable. The plaintiff argued that since part of the alleged JV contemplated future three-year contracts between the airline and the defendants’ company, a writing was required.

The Court disagreed. It found the unsigned JV provided evidence of the key terms of the parties’ business arrangement and that even so, a sender’s name on an email could satisfy the signature requirement of the Statute of Frauds.

The court ultimately dismissed the counter-plaintiffs’ JV claim though since the counterclaim didn’t properly identify the JV members. The Court granted the counter-plaintiffs’ 14 days leave to replead the JV count.

Take-aways:

Where a plaintiff sends a statement of account to another who retains the statement beyond a reasonable time without objection, this can establish an account stated.

A joint venture doesn’t have to be in writing and can give rise to breach of fiduciary duty claim.

On the Statute of Frauds question, this case solidifies the dual propositions that (1) the formal execution of a contract isn’t necessary if a court can piece together the key contract terms through various writings, and (2) a properly authenticated email can serve as proxy for signature requirement of Statute of Frauds.

Account Stated and Course of Dealing: Illinois Law

STOPS Enterprises, LLC v. United Medical Equipment Co., 2014 WL 2699723 (N.D. IL 2014), examines how the parties’ course of dealing defines an oral contract and analyzes the account stated remedy in a case involving unpaid invoices for medical transportation services.

Under a series of oral agreements, plaintiff would pick up and give rides to the defendant’s clients in exchange for the defendant paying the plaintiff its transportation and wait time rates.

Over a three-year period, defendant fell behind in its payments and plaintiff sued to recover about $185,000 in unpaid invoices. The court granted the plaintiff summary judgment on its breach of contract and account stated counts.

Result: Affirmed.

Reasoning:

There was no factual dispute that the plaintiff established defendant’s breach of an oral contract. In the oral contract setting, the parties course of dealing or course of performance gives content to the specifics of an agreement.

The defendant argued that the plaintiff’s damage claim for “wait time charges” (about $30,000 of the claimed damages) should be stricken since there was no meeting of the minds on this point. The court quickly rejected this argument; noting that the parties course of performance – shown by three years of plaintiff charging and defendant paying wait time charges – clearly established that these charges were a material and agreed term of the parties’ oral contract. (*5-6).

The Court also held that even if there was no express contract, the plaintiff established an account stated. In Illinois, an account stated is a determination of the amount of an existing debt combined with a tacit promise to pay that debt.

When a plaintiff issues a statement of account to a defendant and the defendant retains the statement without objection within a reasonable amount of time, the law deems this as the defendant’s acknowledgement of the validity of the statement’s accuracy.

The court will infer a meeting of the minds (as to the amounts owed) from the defendant’s failure to object to a statement of account within a reasonable time. (*7).

Here, the plaintiff sent multiple e-mails requesting payment from defendant and the defendant sent numerous return e-mails acknowledging and promising to pay the debt.

The defendant also never objected to the plaintiff’s invoices and made partial payments to them over a several-month period. The court found that by its actions, the defendant conceded the validity of plaintiff’s invoices.

The court further observed that for almost three years before its default, the defendant regularly paid plaintiff’s invoices without incident. (*8).

The Court granted plaintiff’s claim for nearly $14,000 in prejudgment interest. Section 2 of the Illinois Interest Act (815 ILCS 205/2) allows a creditor to recover prejudgment interest at the rate of 5% on “instruments of writing.” The party claiming interest must show that the money amount owed is an easily calculable (“liquidated”) amount or easy computable.

Illinois case law specifically includes unpaid invoices within the instruments of writing definition. Because of this, the Court allowed the plaintiff to recover interest on the unpaid invoices measured from 30 days after the plaintiff stopped providing ride services to the defendant. (*10).

Take-aways:

(1) the parties’ course of performance provides evidence of oral contract terms; (2) a failure to dispute invoices can lead to an account stated; (3) FRE 408 will not bar statements or admissions if they were made before an actual dispute formed; (4) pre-judgment interest will apply to an oral contract.

As long as there are unpaid invoices or other documents to show a readily computable sum, a plaintiff can tack on annual interest of 5% to the judgment amount and to his damage claim.

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