The Supreme Court Clarifies Rules on Disgorgement for Interim Attorney Fees and Rejects the Use of Advance Payment Retainers in Dissolution Actions

In In re Marriage of Earlywine, 2013 IL 114779, the Illinois Supreme Court recently addressed whether the circuit court, in an action for dissolution of marriage, had discretion to order the husband’s attorney to turn over (or disgorge) to the wife as interim attorneys’ fees under § 501(c-1)(3) of the Illinois Marriage and Dissolution of Marriage Act (IMDMA) funds which were held by the attorney in an advance payment retainer account.  This State’s highest tribunal answered this question in the affirmative.

The husband initiated the divorce action in 2010. Both parties were unemployed and had debts. The husband’s family, however, had paid more than $8,000 to his attorney to cover the legal fees in the action. When the attorney received this money, rather than placing it in a client trust account, he executed an agreement with the husband which designated the funds as an “advance retainer” making them the attorney’s property. The attorney-client agreement identified the “special purpose” for the advance payment retainer: that the funds held in this manner would not be available for payment as attorney fees to the other side.

Pursuant to what is known as the “leveling of the playing field” provision in §501(c-1)(3) of the IMDMA, the wife petitioned the circuit court for interim attorney fees in the amount of $5,000 and asked that the court order the husband to either pay the fees or to order disgorgement of fees previously paid to his attorney.

The circuit court, finding that neither party had the financial ability or resources to pay their respective attorney fees, ordered the husband’s attorney to turn over to the wife’s attorney $4,000, half of the fees he previously received. The attorney filed a motion to reconsider the disgorgement order, arguing that because the fees were placed in an advance payment retainer, they were insulated from disgorgement pursuant to the Illinois Supreme Court’s opinion in Dowling v. Chicago Options Associates, Inc., 226 Ill. 2d 277 (2007). The circuit court denied the motion to reconsider, holding that “[p]ublic policy allowing divorce litigants to participate equally should override the advance payment retainer device of protecting the fees of one side.”

The husband’s attorney then moved for the entry of friendly contempt regarding compliance with the fee disgorgement order. The circuit court granted the motion and fined him $50. He then filed his notice of appeal with the appellate court, which affirmed the turnover order and vacated the contempt order. That court concluded that §501(c-1)(3) applied to all types of “retainers,” and that allowing an exception to disgorgement for funds held in an advance payment retainer would defeat the purpose of the legislature in enacting the “leveling of the playing field” provision.

The Illinois Supreme Court granted the petition for leave to appeal filed by the husband’s attorney and affirmed the judgment of the lower courts. The Supreme Court began its analysis by noting that it first recognized “advance payment retainers” as one of the three types of retainers available in its 2007 ruling in Dowling. It underscored, however, that Dowling cautioned that advance payment retainers “should be used only sparingly” when necessary to accomplish a purpose for the client that cannot be accomplished by using a security retainer, which is deposited in a client trust account until applied to charges for services actually rendered. The court explained that the use of an advance payment retainer is appropriate only where a client would likely have difficulty in hiring counsel and, absent such retainer, the funds for fees would be subject to the creditor’s claims. As examples, the court held that an advance payment retainer may be used where a debtor hires counsel to represent him in proceedings against a judgment creditor; where a criminal defendant whose property remains subject to forfeiture retains an attorney; and for debtors in a bankruptcy case.