A Cook County judge could soon decide whether attorneys who pursued a lawsuit among business partners for almost two decades should receive fees of almost $25 million - a fee request that would include a 7% cut for a current Cook County judge and his former law partner, ostensibly for work they performed at the lawsuit’s outset.
Last month, attorneys for the business partners targeted in the legal action filed a brief in Cook County Circuit Court, asking Cook County Associate Judge Neil H. Cohen to reject a request from attorneys with the Chicago law firm of Edward T. Joyce & Associates for fees totaling $24.7 million.
That filing came about a month after Joyce lawyer Robert T. Carroll submitted the request to Cohen and comes as the latest step in the long-running legal imbroglio.
Cook County Judge Patrick Sherlock | Youtube screenshot
The case landed in Cook County court in 2001, when a group of investors filed suit against their business partners, involved in partnerships created in the 1990s to invest in bonds issued by the villages of Broadview and Bedford Park in Chicago’s suburbs.
According to the lawsuit, the villages paid the bond investors from those villages’ Tax Increment Financing (TIF) funds, which are funded from local property taxes.
According to the lawsuit, the defendants, including Dennis Hiffman, John Shaffer, E. Thomas Collins Jr. and Richard Hulina, allegedly redirected the proceeds away from the partnerships and to themselves. The plaintiffs alleged the defendants amassed as much as $24 million to $50 million in the process.
$80 MILLION JUDGMENT
The defendants, collectively identified in court documents as “HCH,” have contested the accusations in court for more than 18 years.
Initially, the plaintiffs in the action were represented by attorneys Peter Carey and Patrick Sherlock.
However, Carey and Sherlock stepped out of the case in 2003. In later filings, Carey said they withdrew amid a dispute with one of the initial plaintiff investors over her desire to accept a “wholly inadequate” settlement deal.
Carey and Sherlock were then replaced by the Joyce lawyers, to represent the remaining plaintiffs who had also been represented by Carey and Sherlock.
Edward T. Joyce is now Sherlock’s father-in-law.
In 2007, Sherlock was appointed by the Illinois Supreme Court as a judge. Voters then elected Sherlock in 2014. He is assigned to cases in the Cook County Circuit Court’s Law Division.
The lawsuit over the Broadview and Bedford Park TIF funds is assigned to the county court’s Chancery Division.
At the end of 2018, Judge Cohen ruled in favor of the plaintiffs, finding the HCH defendants had violated their fiduciary duty to the other investors. Judge Cohen ultimately ordered HCH to pay damages of about $80 million. The money was divided into so-called “common funds,” designed to reimburse the partnerships for the alleged losses.
Since then, however, much of the action in the case has focused on how much Joyce & Associates, Carey and Sherlock should be paid.
In January 2019, Carey filed a motion, asking the court to award him and Sherlock $2.4 million in fees for their work on the case. That fee request had been based on a 3% allocation of the total award.
HCH opposed that request, and asked Judge Cohen to recuse himself and send the case to a court outside Cook County, since it involved a request from one judge to ask his colleague to award him millions of dollars.
Judge Cohen declined the recusal request. In later proceedings, he indicated he would award fees to the Joyce firm, but was not willing to award fees to Carey and Sherlock separately.
Carey and Sherlock then withdrew their independent fee request. Instead, Carey and Sherlock reached a deal with the Joyce firm under which they would receive 7% of whatever fees the Joyce firm was awarded in the case.
PERCENTAGE OR LODESTAR?
In January, Joyce submitted its $24.7 million fee request. The lawyers argued they should be entitled to about 30% of the total common funds, saying it represented a fair payment for the amount of work they invested in the case through the years of litigation.
They noted, for instance, they defeated six attempts to dismiss the lawsuit, and resurrected the case on appeal after it had been dismissed with prejudice.
“For a small law firm, this has been a significant and risky expenditure of resources and money,” Joyce lawyer Robert Carroll wrote in the brief filed in support of the fee request. “Furthermore, Derivative Counsel (the Joyce lawyers) prosecuted this case alone. It did not have any co-counsel or assistance from other attorneys. It bore all the risk alone.
“The risks that Derivative Counsel took in funding and aggressively prosecuting this case were substantial. These factors - risk of non-payment, costs expended by counsel and the tenacity of the defense - weigh heavily in favor of Derivative Counsel’s requested fee.”
HCH, however, has contested the fee request, calling it “unreasonable.”
The defendants contend the fees would particularly be out of balance compared to the benefits that would be paid to the investor plaintiffs the Joyce firm is representing.
According to the brief filed in opposition, HCH’s lawyers estimate those investor plaintiffs would receive a net benefit of about $1.9 million. While HCH has been ordered to pay $80 million, the funds would be paid to partnerships in which HCH holds ownership interests of about 97%. The plaintiffs, by contrast, hold 2-3% ownership stakes, collectively, according to HCH’s brief.
In this case, as a so-called derivative action, “only about $1,899,125.29 actually changes hands as compared to the total size of the gross derivative amount in this case,” HCH wrote.
“…Calculating the fee award as a percentage of the entire common fund ignores the Court’s concern about the proportionality between the fee award and the ‘real money’ that (the investor plaintiffs) receive in this case,” HCH wrote.
Further, HCH estimated the Joyce lawyers’ “actual fees” at about $2.8 million, which they said was based on Joyce firm billing records submitted as part of a settlement with defendant Shaffer years ago. At that time, the Joyce firm and Carey and Sherlock collectively received $2.16 million in fees from that settlement, and the Joyce firm reported billing rates of $475 per hour. Under the current proposed fee request, the HCH defendants asserted that rate would jump to $3,720 per hour.
Further, HCH argued the percentage award requested by the Joyce lawyers again draws Carey and Judge Sherlock back into the equation, complicating proceedings once more.
Instead, they suggested Judge Cohen award attorney fees based on billable hours under the alternative “lodestar method.”
Under this approach, the HCH lawyers asked the judge to award the Joyce lawyers about $1.85 million in fees.
“Applying the lodestar method awards fees strictly based on the hours (the Joyce firm) worked on the case and will serve to filter out the influence, contribution, and other impact of Judge Sherlock’s claimant status that this Court expressed concern about when it determined that ‘the efforts of Carey and Sherlock shall not and cannot be any part of [the Courts] (sic) consideration’ of the appropriate fee award in this case,” HCH wrote in its brief.
They argued adopting their method would also “minimize the appearance of impropriety that may be additionally caused by the 7% arrangement.”
HCH is represented in the case by attorneys Robert H. Lang, of the firm of Thompson Coburn LLP; John D. Burke, of Ice Miller LLP; and Matthew T. Furton, of Locke Lord LLP, all of Chicago.