Lawyer can't get fees plus settlement cut in pro se action vs My Pillow over unpaid sales taxes: IL Sup Ct

By Scott Holland | Sep 21, 2018

The Illinois Supreme Court ruled an attorney collecting a settlement award from a lawsuit he pressed in his own name, ostensibly on behalf of the state of Illinois, against a business over alleged unpaid sales taxes, isn’t entitled also to collect additional legal fees.

At the center of the matter is Chicago lawyer Stephen B. Diamond, of the firm of  Stephen B. Diamond P.C., formerly known as Schad, Diamond & Shedden P.C. Diamond has pressed almost 1,000 lawsuits, known as qui tam actions, since 2001 in Illinois. The lawsuits, filed on behalf of the state, have resulted in settlements totaling $30 million against retailers like Walmart, Office Depot and Target. His share of the suits has been about $12 million, according to published reports.

Diamond buys products from online retailers to see if they are paying proper taxes, according to a report by Bloomberg Big Law Business, and files lawsuits regarding supposed violations under the Illinois False Claims Act. One such matter dates to 2012, a qui tam case against MyPillow, a Minnesota-based manufacturer that has sold millions of pillows, mostly through television infomercials.

Beginning in Cook County Circuit Court, Diamond alleged My Pillow failed to collect $221,379 in taxes on sales made through telephone and online orders Illinois residents placed between 2010 and 2013. The state declined to pursue the matter itself, authorizing Diamond to act on its behalf.

Ill Supreme Court Chief Justice Lloyd Karmeier  

In 2016, Cook County Associate Judge Thomas Mulroy ruled for Diamond, fixing the judgment at $1.38 million in damages and legal fees, of which Diamond received 30 percent, or $266,891. The judge also awarded him additional attorney fees of $600,960, purportedly for 2,087 hours of work. My Pillow challenged the fees in the Illinois First District Appellate Court, arguing Diamond acted as his own attorney in the matter and didn’t deserve fees.

The state appellate panel favored My Pillow, with Justice David Ellis expressing concern allowing Diamond to collect the fees could spur other attorneys to seek to represent themselves in similar actions, seeking what would essentially be double payment for the same service, acting out of a desire for self-enrichment, rather than public good. Ellis did praise Diamond for rendering the “valuable service of uncovering fraud against the State.”

Diamond appealed, and the state Supreme Court took up the case, allowing the Illinois Attorney General and Illinois Chamber of Commerce to file briefs supporting My Pillow. Chief Justice Lloyd Karmeier wrote the court’s opinion issued Sept. 20. Justices Robert Thomas, Thomas Kilbride, Rita Garman, Anne Burke and Mary Jane Theis concurred. Justice P. Scott Neville Jr. did not participate in the decision.

According to Karmeier’s opinion, the appellate court was right to focus on the circuit court’s error in granting legal fees to Diamond’s firm after he’d already been awarded his share as a whistleblower.

“More than 150 years ago our court expressly rejected the notion that an attorney who represents himself or herself in a legal proceeding may charge a fee for professional services in prosecuting or defending the case,” Karmeier wrote,

Karmeier noted the idea of keeping a lawyer from becoming their own client and charging for the services has been extended to legal partners, and invoked the 1989 Illinois Supreme Court opinion in Hamer v. Lentz, in which the panel “expressly held that a ‘lawyer representing himself or herself simply does not incur legal fees.’ ”

Barring lawyers from collecting fees in such matters, the panel reasoned, removes the incentive for attorneys to pursue unwinnable actions simply to create billable hours. And while the justices held there may be instances in which an entity could claim legal fees for work performed by in-house attorneys, “Diamond was not entitled to such an award here.”

“… There was nothing that could fairly be characterized as an attorney-client relationship from which an obligation or need to pay an attorney fee might arise,” Karmeier wrote.

My Pillow has been represented by attorneys Catherine A. Battin and Daniel Campbell, of McDermott Will & Emery LLP, of Chicago. They also had been represented before the First District Appeals Court by attorney Nicholas M. Furtwengler, according to court records.

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Circuit Court of Cook County Illinois First District Appellate Court Illinois Supreme Court Mcdermott Will & Emery Stephen B. Diamond

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