Circuit court has jurisdiction to resolve disputes involving attorney referral agreements


By Shuaib Ahmed, Founder of ASA Law Group // From Volume 52, No 4 of the newsletter of the Illinois State Bar Association’s Section on Workers’ Compensation Law

In Ferris, Thompson and Zweig, Ltd. v. Esposito, 2015 IL 117443, the Illinois Supreme Court addressed the issue of whether the Legislature intended to divest the Circuit Court jurisdiction and confer original jurisdiction on the Commission to resolve a dispute based on a referral agreement apportioning attorney fees earned in a claim filed under the Workers’ Compensation Act.

By way of summary, Plaintiff alleged that it and Defendant agreed to act as co-counsel in the legal representation of two women with respect to the workers’ compensation claims. Under the agreements, Plaintiff was required to: (1) assist Defendant with initial interviews and document preparation for the claims; (2) assist Defendant with “client contact and communication” when necessary; (3) provide translation services when necessary; (4) represent the clients in “any related third party action”; and (5) keep a duplicate file in its office containing correspondence and filings associated with the claims. Conversely, Defendant was required to: (1) Prepare documents and obtain records necessary to process the claims; (2) represent the clients before the Commission, including conducting any investigation, negotiation and processing necessary to resolve the claim; and (3) send status reports to Plaintiff “every 60 days or as significant developments occur in connection with the handling of the claim.” Under the contracts, Plaintiff was to receive 45% of the attorney fees recovered in the two cases and defendant would receive the remaining 55% of the fees. The agreements were signed by the Plaintiff, Defendant and the clients who acknowledged on the agreements that Plaintiff was retained and that Plaintiff had “contracted with defendant to pursue this workers’ compensation claim on their behalf.” After the cases were settled, defendant refused to pay Plaintiff its share of the attorney fees.

Defendant filed a Section 2-619 Motion to Dismiss the Complaint, asserting that the Circuit Court lacked subject matter jurisdiction to consider Plaintiff’s claims. Specifically, Defendant stated that under Section 16a(J) of the Act, “any and all disputes regarding attorney fees,” including disputes on division of fees when the claimant has been represented by more than one attorney and disputes on contracts for attorney fees, “shall be heard and determined by the Commission.” Defendant contended the Commission must resolve Plaintiff’s claims because they involve a dispute about attorney fees in a workers’ compensation case. The Circuit Court of Lake County held that it had subject matter jurisdiction to decide this case and the Appellate Court affirmed the Circuit Court’s judgment.

In analyzing this issue, the Supreme Court interpreted the relevant statutory provisions under Section 16 and 16a of the Illinois Workers’ Compensation Act, including Section 16a(J) which provides:

   Any and all disputes regarding attorney fees, whether such disputes relate to which one or more attorneys represents the claim or claimants or is entitled to the attorneys’ fees, or a division of attorneys’ fees where the claimant or claimants are or have been represented by more than one attorney, or any other disputes concerning attorneys’ fees or contracts for attorneys’ fees, shall be heard and determined by the Commission after reasonable notice to all interested parties and attorneys.

   820 ILCS 305/16a(J) (West 2012).

   The Commission noted while Section 16a(J) contains expansive language governing attorney fee disputes at the Commission, the said language cannot be read in isolation; rather, must be construed in the context of Section 16 and 16a as a whole. Section 16 outlines the Commission’s general authority to set fees for services provided under the Act:

   The Commission shall have the power to determine the reasonableness and fix the amount of any fee of compensation charged by any person, including attorneys, physicians, surgeons and hospitals, for any service performed in connection with this act, or for which payment is to be made under this act or rendered in securing any right under this act.

   820 ILCS 305/16 (West 2012).

   Section 16a gives specific guidance of the Commission’s authority to set attorney fees. Specifically, the first section of Section 16a states:

   In the establishment or approval of attorney fees in relation to claims brought under this act, the Commission shall be guided by the provisions of the section and by the legislative intent, hereby declared, to encourage settlement and prompt administrative handlings of such claim and thereby reduce expenses to claimants for compensation under this act.

   820 ILCS 305/16a(A) (West 2012).

   The Supreme Court noted that Section 16a(A) contains legislative intent to encourage prompt handling of claims to “reduce expenses to claimants for compensation under this Act.” The remaining provisions of Section 16a guide the Commission in establishing or approving attorney fees to accomplish that purpose.

Furthermore, Section 16a(B) states claims by attorneys “for services rendered in connection with the securing of compensation” generally may not exceed 20% of the amount recovered. Section 16a(C) provides:

   All attorney fees in connection with the initial or original claim for compensation shall be fixed pursuant to written contract on forms prescribed by the Commission between the attorney and the employee or his dependents, and every attorney, whether the disposition of the original claim is by agreement, settlement, award, judgment or otherwise, shall file his contract with the Chairman of the Commission who shall approve the contract only if it is in accordance with all provisions of this section.

Accordingly, the Supreme Court noted that Section 16a(D), 16a(E), 16a(F), and 16a(G) set forth specific limitation on attorney fees that may be charged for certain types of compensation recovered. Section 16a(H) states no attorney fees shall be paid when the amount of compensation does not exceed the written offer made to the claimant prior to representation by an attorney. Section 16a(I) mandates that “all attorneys’ fees for representation of an employee or his dependents shall be only recoverable for compensation actually paid to such employee or dependents.” A review of Section 16a, therefore, shows it is directed exclusively at fees awarded to attorneys representing claimants before the Commission. Section 16a(J), when viewed in the context of Section 16a as a whole, sets forth the Commission’s authority to hear and decide disputes on fees for attorneys representing claimants before the Commission, including division of those fees when more than one attorney represents a claimant before the Commission. Based on the express legislative intent and the specific provisions in Section 16 and 16a, the Supreme Court determined that the Commission’s authority to resolve disputes on attorney fees is limited to the amount and apportionment of fees charged by attorneys representing claimants before the Commission.

The Supreme Court agreed with the Circuit and Appellate Courts that Plaintiff’s action is for breach of the referral agreements as opposed to determination of the amount of fees charged for representing the claimants before the Commission or an apportionment of those fees between the attorneys who represented the claimants before the Commission. The Supreme Court differentiated the instant case with the holding in Alvarado. In Alvarado, claimant’s attorney filed an Application with the Commission. After the matter was assigned to an Arbitrator, the claimant then entered into an attorney-client relationship with another attorney. The subsequently retained attorney filed Substitution of Attorney. Several years later, the parties secured a settlement for the pending workers compensation case wherein the Arbitrator approved settlement contracts. The claimant’s former attorney was never provided notice of the settlement. On appeal, the issue was whether the Commission had authority to apportion attorney fees several months after the settlement was approved and the award had become final. The Supreme Court held while the Commission did not have jurisdiction to reopen the final award, the fee Petition did not require the Commission to reconsider the award. Rather, the Motion for Attorney Fees was a collateral matter, distinct from the settlement between claimant. Simply put, the Commission has jurisdiction to resolve fee disputes as long as the dispute is collateral to the final award in the workers compensation claim.

In the instant case, the entire dispute was based entirely on a referral agreement. Unlike Alvarado, this case did not involve the Commission’s jurisdiction to apportion fees between attorneys who both represented a claimant before the Commission. Plaintiff’s claims do not involve any question of establishing, approving or apportioning of fees for services it performed under the Act. To the contrary, the dispute here only involved the agreement that Plaintiff is entitled to a specific percentage of the fees for referring the cases to Defendant. Therefore, Plaintiff’s Complaint does not fall within the Commission’s authority to resolve disputes on the amount or apportionment of fees charged by attorneys for representing claimants before the Commission.

The Supreme Court concluded that the Act does not provide the Commission with authority to hear and determine this dispute based on the referral agreements between the Plaintiff and Defendant. The legislature did not explicitly divest the Circuit Court of jurisdiction to consider the claims in Plaintiff’s Complaint by enacting a comprehensive administrative scheme. Accordingly, the Circuit Court did not err in denying Defendant’s Motion to Dismiss Plaintiff’s Complaint for lack of subject matter jurisdiction.

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