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Illinois Supreme Court affirms decision favoring My Pillow on attorneys fees

By Gabriel Neves | Feb 28, 2019

SPRINGFIELD, Ill. (Legal Newsline) - A law firm that was attempting to collect attorneys fees from pillow maker My Pillow has suffered a loss in court.

Chief Justice Lloyd Karmeier, on the bench of the Illinois Supreme Court, issued a 10-page ruling on Feb. 4, affirming the Illinois First District Appellate Court decision in the lawsuit filed by Schad, Diamond & Shedden PC against My Pillow Inc.

The court sustained the appellate court decision, that the firm was entitled to fees for outside counsel it retained but that state law did not authorize an award for fees done by its own attorneys.

Schad, Diamond & Shedden sued My Pillow alleging that the company concealed an obligation to pay money, and that My Pillow also failed to collect state tax, as well as made false statements, kept false records and avoided obligations in violation of the Retailers Occupation Act, and of the Use Tax Act.

As stated in the ruling, "the law firm’s Retailers’ Occupation Tax Act allegations arose from the sale of My Pillow products at craft shows. Its Use Tax Act claims pertained to the company’s sale of its products online and by phone."

The court explained how the action works regarding the tax act violations.

"While the Act authorizes the attorney general to bring a civil action against persons the attorney general has found to be in violation of section 3 of the Act, it also expressly permits such actions to be commenced by private parties, as this one was," the court said.

"Where, as here, a private party initiates the action, the cause must be brought in the name of the State, and the State must be served with a copy of the complaint and other documents. The State then has the right to intervene and take over the action. 

"If it elects not to proceed, the party who initiated the action has the right to conduct it, subject to certain ongoing rights of the State. There is no dispute that the State received the requisite notice in this case and expressly elected not to proceed with the action itself, yielding the right to conduct the litigation to Diamond."

The firm was both the relator and the plaintiff, amending the complaint several times to correct the firm's name, as well as all the pleadings that followed were all made on behalf of Schad, Diamond & Shedden.

"At the conclusion of the bench trial, the circuit court issued a written decision, finding in favor of My Pillow and against Diamond on Diamond’s Retailers’ Occupation Tax Act claims, but in favor of Diamond and against My Pillow on Diamond’s Use Tax Act claims. Following additional briefing and a hearing, the circuit court ordered My Pillow to pay $343,227 in damages and $225,500 in statutory penalties, for a total of $568,727. The court subsequently increased this award to $782,667. It also recognized that the litigation had resulted in My Pillow paying the State an additional $106,970 in use taxes it owed, bringing the total proceeds from the action to $889,637," the ruling said.

Based on the legal provision that a private party that obtains a successful claim under the Use Tax Act was entitled to up to 30 percent as a compensation to recovering money on behalf of the state, the circuit court made an award stating that My Pillow, as of the ruling, "should pay 30% of the $889,637 in total proceeds, or $266,891, to Diamond with the balance to be paid directly to the State," plus $697,760 in fees for its own work.

The lower court recognized the firm was entitled to the fees, but with a lower amount. My Pillow appealed, and the appellate court affirmed in part and reversed in part, sending the case back to the circuit court for a new fee calculation.

In his ruling, justice Karmeier stated that "the appellate court was therefore correct when it reversed that portion of the circuit court’s judgment awarding Diamond attorney fees for work it performed by the firm’s own lawyers and remanded the cause for recalculation of the attorney fee award to include only fees for services performed by the firm’s outside counsel."

Justices Robert R. Thomas, Thomas L. Kilbride, Rita B. Garman, Anne M. Burke, and Mary Jane Theis concurred in the judgment. Justice P. Scott Neville, Jr. did not take part in the decision.

Illinois Supreme Court Case number 122487

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