Panel rules on ongoing dispute over dissolution of Chicago law firm

A lawyer embroiled in a contract dispute with his former law partner over the dissolution of their Chicago firm will need to find some way other than arbitration to resolve their conflict.

In an order issued Dec. 13, the First District Appellate Court determined that plaintiff Eric D. Freed - by first suing his former business partner Paul M. Weiss, despite his opponent’s earlier stated demand to bring their case to an arbitrator-- waived any rights he had to change his mind and double back.

The panel’s ruling affirmed the decision of Cook County Circuit Court Judge Kathleen M. Pantle, who had denied Freed’s request to compel arbitration against Weiss.

The unpublished order was issued by Justice Stuart E. Palmer. Justices Robert E. Gordon and Margaret Stanton McBride concurred.

The case arose after the two attorneys ended their 11-year business relationship in the Chicago-based firm known as Freed & Weiss LLC.

The two had been partners in the firm since 2000, with Freed holding a 53-percent ownership stake, and Weiss holding the remaining 47-percent.

However, in March 2011, for reasons not stated in the appellate court order, Freed withdrew $1.5 million from the firm’s operating account without Weiss’ knowledge or approval.

Since 2008, Weiss has been involved in proceedings with the Illinois Attorney Registration and Disciplinary Commission (ARDC) over allegations he sexual harassed from former female employees and others.

The ARDC Hearing Board wrapped up a five-day hearing in the matter in May, when the administrator urged the panel to recommend that Weiss be disbarred.

Weiss’ attorneys sought dismissal or in the alternative, a low-level form of discipline, after explaining “a lot of people don’t like Mr. Weiss” and that the allegations against him came from women “seeking financial gain” or former employees with “an axe to grind."

The Hearing Board has not yet issued its final report and recommendation over Weiss' matter to the Illinois Supreme Court, which has the final say in disciplining attorneys.

The appellate court order does not tie Weiss’ disciplinary case to the dispute between him and Freed. It does note that Freed claimed Weiss breached his fiduciary duty by among other things, “engaging in sexual misconduct that sullied the reputation” of their firm.

After Freed withdrew the $1.5 million, the order states, Weiss moved to dissolve the firm, asserting in an April 2011 letter that Freed had “voluntarily terminated his membership in" Freed & Weiss.

About eight months later, Weiss moved to take the matter to arbitration, citing terms of his contract with Freed governing the resolution of disputes between the partners. At the time, Weiss sought damages of $1 million, asserting Freed had improperly withdrawn the funds from the firm’s account and had not returned all but $300,000 after terminating his involvement with the firm.

On the same day, however, Freed filed suit in circuit court against Weiss and his wife, Jamie Saltzmann Weiss, who was an employee at the firm. The ARDC website lists her as Jamie E. Weiss and as attorney with her husband's Highland Park firm.

In his complaint, Freed alleged that Weiss and his wife had “breached their fiduciary duties” and improperly used the firm’s money to pay for personal expenses and other purposes not related to the firm, such as “to finance the start-up of a new law firm.”

Freed asked the court to grant him access to the firm’s books, an injunction to prevent Weiss from moving the firm’s money, and to appoint a receiver to oversee the firm’s affairs, among other items.

In response, Weiss asked the court to compel arbitration to resolve the matter.

Freed opposed arbitration, arguing at that time that the nature of their dispute was outside the parameters of their contract because it involved misuse of the firm’s funds, a term not defined in the contract, and an issue he asserted should be litigated under state law.

From then until May 2012, the two sides exchanged motions in court, with Freed and Weiss each asking the court to remove the other from management of the firm and its funds.

Freed, for his part, continued to accuse Weiss of “breach of fiduciary duty” and misappropriation of the firm’s funds, stating that Weiss had used the money to pay personal expenses and to move the firm’s offices to Highland Park, reopening under a new name, Complex Litigation Group LLC, with Weiss as the sole owner of the firm.

In May 2012, however, Freed reversed his position, telling the court he wanted for the matter to go to arbitration. The ARDC website shows that Freed’s registered business address is located in Hollywood, Fla.

Freed asked the court in June 2012 to compel arbitration, and two months later, notified Weiss he was withdrawing from their firm, and filed a federal complaint alleging Weiss stole from the firm.

Weiss, in response, asked the court to rule that Freed had waived his right to arbitration, and to issue an injunction preventing the matter from going to arbitration.

In September 2012, Pantle, a circuit judge, agreed with Weiss, finding Freed had acted “’entirely inconsistently’ with his right to arbitrate.”

Freed appealed, arguing that Pantle erred in reaching her ruling.

In the order issued earlier this month, the appeals panel sided with Pantle, noting that, Freed not only failed to inform the court of his intent to arbitrate, but actively litigated to prevent arbitration.

“The record amply demonstrates the court’s conclusion that Freed waived his right to arbitration by acting inconsistently with his known right to arbitrate,” Palmer wrote.