Fees as Element of Damages

Legal Fees as a Measure of Damages

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Maria Freda (“Freda”) sued her attorney, Michael Canulli (“Canulli”), in connection with his representation of her during her divorce.  Canulli’s professional liability insurer, the Illinois State Bar Association Mutual Insurance Company (“ISBA Mutual”), initially agreed to defend him.  However, Freda amended her complaint to allege that “‘as a direct and proximate result’ of Canulli’s (1) professional negligence and (2) breach of contract, she had been damaged ‘in an amount in excess of $100,000 in that she has incurred attorney’s fees and costs for useless and unnecessary legal proceedings initiated by *** Canulli.’”  Id. at ¶24.  Per Canulli’s policy from ISBA Mutual, a plaintiff must seek damages against the insured in order to trigger a duty to defend, and legal fees are explicitly excluded from the policy’s definition of damages.  Id. at ¶23.  Consequently, ISBA Mutual filed a declaratory judgment action seeking a finding that it was not obligated to defend Canulli.  The circuit court found in ISBA Mutual’s favor.

On appeal, the Appellate Court of Illinois, First District, held that Freda’s damages were not fees.  It explained that Freda’s damages were “not a consequence of Canulli’s fees but a consequence of his alleged failure to handle [Freda’s] divorce proceedings expeditiously and appropriately—i.e., his negligence and breach of contract in representing her.”  Id. at ¶30, emphasis in original.  In other words, “Freda’s complaint stem[med] from the allegedly negligent way Canulli represented her in the divorce, and it is that negligent representation that caused her to expend more money than necessary.”  Id.

Illinois State Bar Ass’n Mut. Ins. Co. v. Canulli, 2020 IL App (1st) 190142

(This is for informational purposes and not legal advice.)

Swervo Entertainment Group, LLC v. Mensch

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The District Court for the Northern District of Illinois dismissed in part and refused to dismiss portions of a complaint against an attorney.   The attorney allegedly agreed to hold an advance deposit in escrow and release it if the attorney’s client and the depositor did not reach an agreement.    An agreement was not reached, but the attorney did not release the funds allegedly deposited in escrow.   The court held that the plaintiff stated a claim for fraud (the attorney allegedly never intended to return the funds) and breach of the escrow agreement.   The court further held that the plaintiff’s claim for negligence was barred by the Moorman doctrine, its claim for breach of fiduciary duty was duplicative of the claim for breach of the escrow agreement, its quasi-contract claim was barred by the existence of an actual contract and its claim for attorneys’ fees was barred by the “American rule” barring attorneys’ fees in ordinary litigation.

Swervo Entertainment Group v. Mensch

Baez v. Rosenberg, 409 Ill. App. 3d 525, 949 N.E.2d 250 (1st Dist. 2011)

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Baez v. Rosenberg, 409 Ill. App. 3d 525, 949 N.E.2d 250 (1st Dist. 2011) (Attorney retained by special administrator of estate to prosecute wrongful death action owes fiduciary duty to beneficiaries of estate; attorney who acts against interest of beneficiaries may be denied fees)

Kravis v. Smith Marine, Inc., 60 Ill. 2d 141, 324 N.E.2d 417 (1975)

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Kravis v. Smith Marine, Inc., 60 Ill. 2d 141, 324 N.E.2d 417 (1975)

Krantz v. Chessick, 282 Ill. App. 3d 322, 668 N.E.2d 77 (1st Dist. 1996)

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Krantz v. Chessick, 282 Ill. App. 3d 322, 668 N.E.2d 77 (1st Dist. 1996) (attorney fees in malpractice action not recoverable)

Sterling Radio Stations, Inc. v. Weinstine, 328 Ill. App. 3d 58, 765 N.E.2d 56 (1st Dist. 2002)  

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Sterling Radio Stations, Inc. v. Weinstine, 328 Ill. App. 3d 58, 765 N.E.2d 56 (1st Dist. 2002)

Sorenson v. Fio Rito, 90 Ill. App. 3d 368, 413 N.E.2d 47 (1st Dist. 1980)

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Sorenson v. Fio Rito, 90 Ill. App. 3d 368, 413 N.E.2d 47 (1st Dist. 1980)

Schweihs v. Davis, Friedman, Zavett, Kane & MacRae, 344 Ill. App. 3d 493, 800 N.E.2d 448 (1st Dist. 2003)

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Schweihs v. Davis, Friedman, Zavett, Kane & MacRae, 344 Ill. App. 3d 493, 800 N.E.2d 448 (1st Dist. 2003)

Harris v. Harris, 196 Ill. App. 3d 815, 555 N.E.2d 10 (1st Dist. 1990)

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Harris v. Harris, 196 Ill. App. 3d 815, 555 N.E.2d 10 (1st Dist. 1990)

Coughlin v. SeRine, 154 Ill. App. 3d 510, 507 N.E.2d 505 (1st Dist. 1987)

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Coughlin v. SeRine, 154 Ill. App. 3d 510, 507 N.E.2d 505 (1st Dist. 1987)