No. 2--02--1008

JUSTICE GILLERAN JOHNSON delivered the opinion of the court:

The instant controversy arises from an attorney fees disputebetween the plaintiff law firm, Joseph P. Storto, P.C., d/b/aStorto, Finn & Tenuto, and its former client, the defendant, DionneBecker. After the parties severed their attorney-clientrelationship, the plaintiff filed a petition seeking $1,823.92 inattorney fees. The defendant responded that her contract with theplaintiff law firm was void because the plaintiff law firm was notregistered to practice law in Illinois as required by Supreme CourtRule 721(c) (166 Ill. 2d. R. 721(c)). She subsequently filed amotion for summary judgment, arguing that she was entitled tojudgment as a matter of law. The trial court granted thedefendant's motion for summary judgment, and the plaintiffthereafter filed a timely notice of appeal. We reverse and remandfor additional proceedings.

On November 21, 2000, the defendant entered into a contractwith the plaintiff to represent her in her postdissolutionproceedings against her former husband, James Becker. Theplaintiff represented the defendant over the next 14 months. OnJanuary 10, 2002, the defendant filed a motion for substitution ofattorneys and requested that Benjamin Hyink be allowed to file anappearance on behalf of the defendant. The trial court granted themotion and also granted the plaintiff leave to file a petition forattorney fees.

On March 20, 2002, the plaintiff filed a petition, as amended,seeking to collect $1,823.92 in attorney fees from the defendant. The petition noted that the defendant had already paid $21,136 inattorney fees in the course of the plaintiff's representation ofher. On April 15, 2002, the defendant filed an answer to thepetition, denying that the fees the plaintiff sought to recover hadactually been incurred or were reasonable.

On June 21, 2002, the defendant filed a motion for summaryjudgment, arguing that she was entitled to judgment as a matter oflaw because the plaintiff had never been registered to practice lawin Illinois as was required by Supreme Court Rule 721 (166 Ill. 2dR. 721). Because the plaintiff was not registered to practice law,the defendant argued that the contract she had entered into withthe plaintiff for legal fees was void. As such, she argued thatshe was not obligated to pay any of the plaintiff's purported fees.

On July 5, 2002, the plaintiff filed a response. Theplaintiff argued that the defendant's argument was moot because, onJune 24, 2002, it had paid its registration fees to engage in thepractice of law for 1981 and all successive years through 2002. The plaintiff also argued that, even if it was not properlyregistered at the time in question, this did not affect the abilityof its licensed attorneys to represent the defendant. Furthermore,the plaintiff argued that because Rule 721 was not enacted toprotect public health and safety, the defendant could not seek tovoid her contract with the plaintiff due to its noncompliance withRule 721.

On September 9, 2002, following a hearing, the trial courtgranted the defendant's motion for summary judgment. The trialcourt held that no valid contract existed between the plaintiff andthe defendant. The trial court explained that, pursuant to SupremeCourt Rule 721, no corporation that was not properly registeredcould practice law. Because the plaintiff was not properlyregistered, it was without authority to provide legal services. Because it was without authority to render legal services, thecontract it had entered into with the defendant was not valid. Following the trial court's ruling, the plaintiff filed a timelynotice of appeal.

At the outset, we note that the purpose of a motion forsummary judgment is to determine whether a genuine issue of triablefact exists and that such a motion should be granted only when "thepleadings, depositions, and admissions on file, together with theaffidavits, if any, show that there is no genuine issue as to anymaterial fact and that the moving party is entitled to a judgmentas a matter of law" (735 ILCS 5/2--1005(c) (West 2000)). Nickel v.Hollywood Casino-Aurora, Inc., 313 Ill. App. 3d 925, 928-29 (2000). An order granting summary judgment should be reversed if theevidence shows that a genuine issue of material fact exists or ifthe judgment was incorrect as a matter of law. Clausen v. Carroll,291 Ill. App. 3d 530, 536 (1997). The disposition of a motion forsummary judgment is not discretionary and the standard of review isde novo. Evans v. General Motors Corp., 314 Ill. App. 3d 609, 617(2000).

The Illinois Supreme Court has promulgated certain rules onthe discipline of attorneys and their admission to the state bar. These rules provide the requirements for those wanting to attain alicense to practice law in the state. See 188 Ill. 2d R. 701. Therules also provide for additional requirements for those seeking topractice law through a professional corporation. See 166 Ill. 2dR. 721. For instance, Rule 721(a) requires that each corporateshareholder be licensed to practice law. See 166 Ill. 2d R.721(a). Rule 721(b) requires that the corporation do nothing thatwould violate the standards of professional conduct applicable toattorneys. See 166 Ill. 2d R. 721(b). Rule 721(c) requires eachcorporation that seeks to practice law to register with theIllinois Supreme Court. See 166 Ill. 2d R. 721(c). Specifically,this section provides:

"No corporation or association or limited liabilitycompany shall engage in the practice of law in Illinois, oropen or maintain an establishment for that purpose inIllinois, without a certificate of registration issued by thiscourt." 166 Ill. 2d R. 721(c).

Additionally, each corporation must pay an initial registration feeof $50 (166 Ill. 2d R. 721(e)) and an annual renewal fee of $40 tomaintain its certificate of registration (166 Ill. 2d R. 721(f)). Finally, "[a]ny violation of [Rule 721] by the corporation *** isa ground for the court to terminate or suspend the right of thecorporation *** to practice law or otherwise to discipline it." 166 Ill. 2d R. 721(b). (We note that the Illinois Supreme Courthas recently amended Rule 721. See Official Reports Advance SheetNo. 8 (April 16, 2003), R. 721, effective July 1, 2003. However,these amendments are not germane to the case at bar.)

The question we are confronted with herein is whether a lawfirm's failure to register as a corporation with the IllinoisSupreme Court pursuant to Rule 721 provides a remedy to a formerclient of the law firm to void an otherwise valid contract with thelaw firm because of that Rule 721 violation. We note that noIllinois court has previously addressed this precise issue. However, our research reveals that when a lawyer violates a supremecourt rule regarding the discipline of attorneys and theiradmission to the state bar, a client or interested party, beforereceiving relief, must demonstrate how he has been harmed by theviolation of the rule. See People v. Brigham, 151 Ill. 2d 58(1992); Murges v. Bowman, 275 Ill. App. 3d 153 (1995).

In Brigham, the defendant filed a postconviction petitionarguing that his trial counsel was ineffective because he was noton the master roll of attorneys at the time of his trial. Brigham,151 Ill. 2d at 59. The trial court dismissed the defendant'spetition, but the appellate court reversed, finding that thedefendant had been denied his right to effective assistance ofcounsel. Brigham, 151 Ill. 2d at 59. The supreme court thenreversed the appellate court, holding that the defendant had notreceived ineffective assistance of counsel. Brigham, 151 Ill. 2dat 71.

The supreme court explained that the attorney's name had beenremoved from the master roll of attorneys due to his failure to payhis registration dues. Brigham, 151 Ill. 2d at 60. The supremecourt noted that under Rule 756, " '[a]n attorney who is not listedon the master roll is not entitled to practice law or to holdhimself out as authorized to practice law in this State.' " Brigham, 151 Ill. 2d at 61, quoting 134 Ill. 2d R. 756(b). Thesupreme court found that whether a lawyer's failure to pay hisregistration fee prevented him from providing competent legalassistance was an issue of first impression in Illinois. Brigham,151 Ill. 2d at 61. However, the supreme court noted that severalother jurisdictions had considered that precise issue. The supremecourt noted the court's observation in Reese v. Peters, 926 F.2d668, 670 (7th Cir. 1991):

" 'Lawyers who do not pay their dues violate a legal norm, butnot one established for the protection of clients; suspensionsused to wring money from lawyers' pockets do not stem from anydoubt about their ability to furnish zealous and effectiveassistance.' " Brigham, 151 Ill 2d. At 65, quoting Reese, 926F.2d at 670.

The supreme court additionally considered the Kansas SupremeCourt's holding in Johnson v. State, 225 Kan. 458, 590 P.2d 1082 (1979):

" 'Although the payment of the registration fee is aprerequisite to the ethical practice of law in this state, thepayment itself has nothing to do with the legal ability of theattorney. Just as the payment of the fee does not guaranteethat an attorney will practice law in a competent manner, thenonpayment of the fee does not necessarily imply that thenonpaying attorney will perform in an incompetent manner.' " (Emphasis added.) Brigham, 151 Ill. 2d at 66, quotingJohnson, 225 Kan. at 465, 590 P.2d at 1087.

Based on these foreign authorities, the supreme court heldthat a defendant was not automatically deprived of his sixthamendment right to counsel because his attorney had failed to payhis registration dues. Brigham, 151 Ill. 2d at 70. Instead, thesupreme court held that, to find a defendant's sixth amendmentright to counsel violated, there must be additional factors aboveand beyond a mere suspension for nonpayment of bar dues. Brigham,151 Ill. 2d at 71.

In Murges v. Bowman, 275 Ill. App. 3d 153 (1995), theplaintiff law firm sought a preliminary injunction against two ofits former partners (the defendants) who had removed client filesfrom the plaintiff's office. After the trial court granted thepreliminary injunction, the defendants appealed. They argued, inpart, that because the plaintiff had never registered as acorporation with the supreme court pursuant to Rule 721, it had noascertainable right to seek injunctive relief. Murges, 275 Ill.App. 3d at 159-60. The reviewing court rejected this argument.Murges, 275 Ill. App. 3d at 160. The reviewing court found thatalthough the plaintiff may have violated some ethical rules, thedefendants were well aware that they were corporate employees. Murges, 275 Ill. App. 3d at 160. Because they were not harmed bythe plaintiff's failure to register with the Illinois Supreme Courtas a corporation, the defendants could not use this as a defense tothe allegations that they had breached their fiduciary duties tothe plaintiff. See Murges, 275 Ill. App. 3d at 160.

Based on Brigham and Murges, we believe that although aplaintiff law firm has violated a supreme court rule regarding theadmission of attorneys, this violation does not warrant thedefendant any special relief unless the defendant can demonstratethat he has been harmed by the plaintiff's violation of the rule atissue. As such, we conclude that in order for a client to beexcused from his contractual obligations with a law firm due tothat law firm's violations of Rule 721, the client must demonstrate that he was harmed by the law firm's violation. Wenote that this conclusion is supported by a recent case from anappellate court in California that was confronted with a nearlyidentical issue. See Olson v. Cohen, 106 Cal. App. 4th 1209, 131Cal. Rptr. 2d 620 (2003).

In Olson, the defendant law firm failed to register with thestate bar as a law corporation as was required by statute. Olson,106 Cal. App. 4th at 1212, 131 Cal. Rptr. 2d at 622. Theplaintiff, a former client of the defendant, filed a class actionseeking disgorgement of all legal fees collected by the defendantfor work occurring during the period before the defendant wasregistered to practice law as a law corporation with the state bar. Olson, 106 Cal. App. 4th at 1212, 131 Cal. Rptr. 2d at 622. Thetrial court granted the defendant's motion to dismiss the lawsuitand the reviewing court affirmed. Olson, 106 Cal. App. 4th at1212-13, 131 Cal. Rptr. 2d at 622. The reviewing court explainedthat a law firm's decision to incorporate was not undertaken forthe protection of clients. Olson, 106 Cal. App. 4th at 1215, 131Cal. Rptr. 2d at 625. Rather, the decision to incorporate wastypically made to obtain tax advantages and to avoid personalliability for the corporation's debts. Olson, 106 Cal. App. 4th at1215, 131 Cal. Rptr. 2d at 625.

The reviewing court also determined that the plaintiff had notbeen harmed by the defendant's failure to register as acorporation. Olson, 106 Cal. App. 4th at 1214, 131 Cal. Rptr. 2dat 624. The reviewing court noted that the plaintiff had made noallegation that he relied upon the existence of a corporate entityin seeking legal services or that he was injured by the delay inregistration. Olson, 106 Cal. App. 4th at 1214, 131 Cal. Rptr. 2dat 624. The reviewing court also found that the plaintiff had notalleged that the defendant had committed any act of malpractice. Olson, 1 106 Cal. App. 4th at 1214, 31 Cal. Rptr. 2d at 624. Accordingly, because the plaintiff had failed to allege eitherjustifiable reliance or resulting damage to himself due to thedefendant's failure to register, requiring the defendant todisgorge fees because of a failure to register would bedisproportionate to the wrong. Olson, 106 Cal. App. 4th at 1216,131 Cal. Rptr. 2d at 625-26.

As in Olson, we believe that in order for a client to beexcused from his contractual obligation to a law firm because ofthat law firm's failure to register as a corporation, the clientmust demonstrate that he has been prejudiced by the law firm'sfailure to register. Absent any prejudice, allowing the client toescape his contractual obligations would be disproportionate to thewrong committed by the law firm. See Olson, 106 Cal. App. 4th at1216, 131 Cal. Rptr. 2d at 625-26; see also Dixon v. MercuryFinance Co. of Wisconsin, 296 Ill. App. 3d 353, 358, 360 (1998)(although the defendant finance company was not properly licensedin Illinois, it would be improper and excessively harsh to void itscontract with the plaintiff on those grounds where the plaintiffhad not suffered any harm due to the defendant being unlicensed).

Here, the record reveals that the plaintiff law firm was notregistered as a corporation with the supreme court as required byRule 721 when it was representing the defendant. (Although theplaintiff subsequently paid its registration fees for the time atissue, based on our resolution of this appeal, we need not addresswhether this late payment applied retroactively.) There is,however, no evidence in the record that the defendant was harmed bythe plaintiff's failure to register. There are no allegations thatthe defendant contracted with the plaintiff because she believedthat the plaintiff's law firm was incorporated. There are also noallegations that the plaintiff committed any malpractice. Accordingly, absent any evidence that the defendant was harmed bythe plaintiff's lack of compliance with Rule 721, we hold that thetrial court erred in determining that the defendant was entitled tojudgment as a matter of law on the plaintiff's petition forattorney fees.

In so ruling, we find without merit the defendant's argumentthat the contract she entered into with the plaintiff was void asa matter of public policy. The plaintiff contends that Rule 721was enacted to protect public health and safety. As a generalrule, courts will not enforce a contract involving a party who doesnot have a license called for by legislation that expresslyprohibits the carrying on of the particular activity without alicense, where the legislation was enacted for the protection ofthe public and not as a revenue measure. Ransburg v. Haase, 224Ill. App. 3d 681, 685 (1992).

We do not believe that Rule 721 was enacted for the protectionof the public safety. Rather, we believe that it was enacted togenerate additional revenue. We note that Rule 721 requires thata law firm pay an annual fee to renew its registration with theIllinois Supreme Court. See 166 Ill. 2d R. 721(f). We furthernote that Rule 721 carries no civil or criminal penalties fornoncompliance. Such criminal or civil penalties would indicatethat the licensing requirements were enacted because they have asignificant impact on public health or safety. See, e.g., Kaplanv. Tabb Associates, Inc., 276 Ill. App. 3d 320, 324-25 (1995)(because the practice of architecture by a corporation carried withit a criminal penalty for unlicenced practice, a contract involvingunlicensed architecture corporation was void as a matter of publicpolicy). Moreover, we note that statutes have been interpreted asnecessary for public safety if they were enacted to provideassurance of adequately trained professionals. See Tovar v. PaxtonCommunity Memorial Hospital, 29 Ill. App. 3d 218, 220 (1975) (thepurpose of the statutes establishing a licensing requirement fordoctors is to protect the public by assuring them of adequatelytrained practitioners). However, as discussed above, our supremecourt in Brigham determined that a lawyer's failure to pay hisregistration fees did not prevent him from providing competentlegal advice. Brigham, 151 Ill. 2d at 70. In a similar fashion,we do not believe that a law firm's failure to pay its corporateregistration fees will undermine the public's trust that itslicensed attorneys can practice law competently. See Brigham, 151Ill. 2d at 70.

Furthermore, we note that a law firm generally does notincorporate to benefit its clients or to advance the publicwelfare. See Olson, 106 Cal. App. 4th at 1215, 131 Cal. Rptr. 2dat 625. Rather, a law firm incorporates to enjoy certain taxbenefits and to reduce its potential civil liability. See Olson,106 Cal. App. 4th at 1215, 131 Cal. Rptr. 2d at 625. Based on thisreality, we believe that the requirements that a law corporationregister with the Illinois Supreme Court pursuant to Rule 721 andannually pay a fee were enacted merely to generate revenue.

Finally, in the event a law firm fails to comply with therequirements of Rule 721, it loses its right to invoke thecorporate protections of limited liability that are encompassed inRule 721. See Olson, 106 Cal. App. 4th at 1217, 131 Cal. Rptr. 2dat 625-26 (lawyer's failure to comply with rules of incorporationwould cause his law firm to be treated as a sole proprietorship andwould deny him the benefits of conducting his law practice througha corporate entity); see also People ex rel. Tilton v. Mackey, 255Ill. 144, 151 (1912) (failure to comply with requirements ofincorporation cause business to lose its corporate existence). Consequently, a client who has been the victim of an incorporatedlaw firm's malpractice would be in a better position if the lawfirm had not complied with Rule 721 than if it had. See Olson, 106Cal. App. 4th at 1217, 131 Cal. Rptr. 2d at 625-626. Based on thisreality, it is apparent that Rule 721 was not enacted for publicsafety but rather to benefit the law firms that were seeking togain the benefits of incorporation. Accordingly, we hold that theplaintiff's failure to register as a corporation pursuant to Rule721 did not render its contract with the defendant void on publicpolicy grounds. See Ransburg, 224 Ill. App. 3d at 685.

For the foregoing reasons, the judgment of the circuit courtof Du Page County granting the defendant's motion for summaryjudgment is reversed and we remand for additional proceedingsconsistent with this opinion.

Reversed and remanded.

CALLUM and KAPALA, JJ., concur.