delivered the opinion of the court:
In 1977, the Illinois Director of Insurance took over the assets of Main Insurance Company under a court order of rehabilitation. In 1980 the Director filed for liquidation. Attorneys who had acted for Main’s shareholder were appointed by the court to defend Main. After trial the trial court initially denied the petition for liquidation; later it reversed itself and granted the petition. It also held that it had no discretion to award attorney fees to the attorneys defending Main and refused to provide for a transcript of the report of proceedings. Thus very little of the record is before the court. On appeal Main contends that:
(1) the trial court erred in holding it had no power to award attorney fees;
(2) the trial court erred in admitting certain exhibits into evidence as they did not qualify as business records;
(3) section 190(5) of the Illinois Insurance Code (Ill. Rev. Stat. 1981, ch. 73, par. 802(5)), if interpreted to require the introduction of any exhibit attached to the complaint, however irrelevant or otherwise improper, is unconstitutional;
(4) the trial court erred in admitting opinion evidence on the claims reserves of Main without sufficient foundation of fact.
The Director of Insurance on appeal contends:
(1) in light of the Illinois Insurance Code, the court had no discretion to award attorney fees to attorneys not appointed by the Director;
(2) in the absence of a report of proceedings, the appellate court must presume that the judgment was supported by the evidence;
(3) the exhibits were properly admitted as business records and, as to one of the exhibits, as an exhibit attached to the complaint;
(4) the opinion evidence was proper under Wilson v. Clark (1981),
We hold that the trial court erred in holding it had no discretion to award attorney fees. We further note that the other issues raised are serious in nature, particularly in light of the fact that the trial court initially denied the petition for liquidation and Wilson v. Clark was not applicable to the trial of this case. These issues, however, are not reviewable in the absence of a transcript. In light of the strong public policy involved here, we remand this case to the trial court and order it to make some provision for a sufficient report of proceedings so that the case may be properly reviewed by this court.
Main Insurance Company is an Illinois corporation organized under the Illinois Insurance Code to insure property and casualty risks. While its principal place of business is in Chicago, Illinois, it does business in other States as well as Illinois.
On January 18, 1977, the Director of Insurance filed a complaint for rehabilitation of Main under section 188 of the Illinois Insurance Code (Ill. Rev. Stat. 1975, ch. 73, par. 800), which provides for rehabilitation where consented to by a majority of the directors of the company. (Here the directors unanimously agreed to rehabilitation.) Unlike liquidation, rehabilitation has as its purpose the preservation, whenever possible, of the business of an insurance company threatened with insolvency. (In re Allcity Insurance Co. (1979), 66 App. Div. 2d 531,
In November 1980, the Director filed a petition that Main be found insolvent and liquidated. Main, by its attorneys, the Arvey firm, filed a cross-petition seeking an order that the rehabilitation be terminated and Main be returned to its former management. Main further contended that in light of the court approved plan of rehabilitation, the filing of a liquidation action was improper and premature.
In response, the Director filed a separate action on February 6, 1981, again seeking liquidation. On February 25, 1981, the Arvey law firm filed a petition to clarify its status as attorneys in representing Main and resisting the Director’s petition. Over the Director’s objection, the court ruled that the Arvey firm had the right to represent Main in connection with the hearings on the pending petition for liquidation and Main’s cross-petition and to be paid reasonable attorney fees from the Main estate in connection with its opposition to the petition for liquidation. The Director has not appealed from this order.
On March 9, 1981, Mainway Financial Corporation, represented by the law firm of Herman, Tannebaum, Levine and Gilbert, was given leave to intervene in the liquidation proceedings. Mainway is the sole stockholder of Main.
On May 6, 1981, the Arvey firm sought leave to withdraw as counsel for Main on the grounds that while its representation had initially been necessary to afford due process, Main’s interests and Main-way’s appeared to be identical so that the defense could be continued by Mainway. The court granted the motion on the condition that the Herman firm appear instanter as counsel for Main. It also, over the Director’s objection, awarded attorney fees to the Arvey firm, such fees being treated as a “reasonable and necessary expense in the administration of the estate.” Again the Director has not appealed from the award.
The case was tried and the trial concluded in late summer 1981. On October 20, 1981, the trial court entered an order denying plaintiff’s petition for liquidation. On June 22, 1982, the trial court vacated its original ruling and found Main to be insolvent. Apparently this reversal was based on a decision by the trial court to accept as proper evidence and rely upon certain opinion evidence it had previously rejected. The order of liquidation, however, was stayed without bond pending appeal. The trial court denied the Herman firm’s petition for attorney fees, holding it was without discretion to award attorney fees.
I
Because the trial court found it had no power to award attorney fees the issue before this court is not whether such fees should have been awarded but merely whether the trial court could have awarded such fees and erred in refusing to consider the motion. It is well established that as a general rule where an application has been made for the appointment of a receiver for a corporation, attorney fees and expenses, if incurred in good faith, may become a valid claim against the receiver, such claim being addressed to the sound discretion of the trial court. Roddis v. Strong (1967),
Such fees are in the nature of expenses incurred by the corporation and its directors in the protection and preservation of the trust which they represent. (Watson v. Johnson (1933),
The Director cites no case in opposition to this rule. Nor does he cite any case holding that the court lacks the power to award attorney fees out of the company’s assets. Despite this lack of authority, he contends that the court had no power to award fees for the following reasons.
(1) The Illinois Insurance Code narrowed the discretion of the chancery court and only permits fees to be awarded to firms appointed by the Director.
(2) The cases cited before are irrelevant because, so the Director inaccurately alleges, they involved the resistance to the appointment of a receiver while the company was still under the direction and control of the company’s officers and directors; whereas, here the assets had already been taken over by the Director in 1977. The Director contends that if the directors wished to contest the takeover, they should have done so in 1977 and having failed to do so cannot now claim attorney fees in order to contest the petition for liquidation.
(3) Absent statutory or contractual authority a party must pay for his own attorneys.
(4) Payments of attorney fees would be an illegal preference of the claims of guarantee fund certificate holders, guarantee capital shareholders, surplus note holders, shareholders, members or other owners over claims of the other creditors.
It is true that the Insurance Code has limited the power of chancery in areas where the code is expressly in contradiction with common law (see, for example, People ex rel. Palmer v. Niehaus (1934),
Indeed we must assume that the legislature did not intend to overturn the common law doctrine since we must assume it did not intend to pass an unconstitutional statute:
“To hold that the court lacked jurisdiction to make orders such as are before us would be to countenance a de facto deprivation of property without due process of law. While the nature of the insurance business justifies the preliminary interposition of a conservator on an ex parte application, respondents cannot validly be deprived permanently of their property and of their control over it without a full-dress judicial hearing on the merits of the commissioner’s allegations. But such a hearing necessarily implies the assistance of counsel and the expenditure of funds in preparation of a defense. The commissioner cannot, by seizure of respondents’ funds before the hearing, create a practical impossibility of any effective contest of his administrative findings and allegations. Totally to deny respondents access to any corporate funds thus would render the entire scheme invalid. The Legislature cannot be presumed to have intended an unconstitutional procedure and the absence of any provision for orders for counsel fees and costs from the particular statute involved must be deemed to evidence an intent to resort to the provisions of general law applicable to all kinds and varieties of receivership, statutory or otherwise.” McConnell v. All-Coverage Insurance Exchange Automobile & Fire (1964),229 Cal. App. 2d 735 , 743-44,40 Cal. Rptr. 587 , 593.
As already noted, a corporation has both the right and duty to defend itself when its very existence is attacked. Yet unless Main can employ counsel such defense is impossible since the insurance company, being a corporation, may appear only by attorney. Greer v. Ludwick (1968),
For this reason, it is well recognized that as a matter of due process, the seizure of the assets of the allegedly insolvent corporation cannot abolish:
“the ordinary and fundamental legal right of such corporation to employ counsel to aid it to resist by legal means all attempts by state officers or others to have it taken charge of and liquidated as unsound or insolvent. Nor does the act of seizure of its assets by the comptroller deprive such corporation of its inherent right to defend its affairs against judicial sequestration and to that end reasonably obligate itself by incurring legal expenses that are lawfully payable by the liquidator as a corporate debt chargeable against the assets of the liquidated institution.” (Twyman v. Smith (1935),119 Fla. 365 , 373,161 So. 427 , 430; In accord, Assets Realization Co. v. Defrees, Brace & Ritter (1907),225 Ill. 508 ,80 N.E. 263 ; McConnell v. All-Coverage Insurance Exchange Automobile & Fire (1964),229 Cal. App. 2d 735 ,40 Cal. Rptr. 587 ; Anderson v. Great Republic Life Insurance Co. (1940),41 Cal. App. 2d 181 ,106 P.2d 75 .)
As the court in Anderson remarked:
“If such an argument were valid, the result would be obvious. An insurance company proceeded against by the commissioner would be hamstrung in any effort to defend itself, the hands of its directors would be tied and there would be no effective recourse from unwarranted official action. If this were the case the effect would be to deny the company the right to counsel and hence to due process of law. Since in such a proceeding as this all the funds of the corporation are placed in the hands of the conservator, an arbitrary denial to the corporation of the use of any portion of such funds to pay attorneys’ fees amounts to the same thing as a denial of the right to contract for the services of an attorney, the effect of which would be a denial of the right to defend at all.”41 Cal. App. 2d 181 , 193,106 P.2d 75 , 82.
In light of this, it is apparent that this rule is not limited to situations where the appointment of a receiver is resisted in the first instance but it applies also to good faith efforts, on reasonable grounds, to discharge a receiver already appointed. (Sims v. Homeseekers Fire Insurance Co. (1938),
There is no need for an express statutory provision permitting such attorney fees (Anderson v. Great Republic Life Insurance Co. (1940),
Since the Herman firm is not a shareholder of Main, payment to the firm is not an improper preference to a stockholder. The Director contends that the stockholders were obligated to pay the attorney fees and thus payment of the fees is payment of a debt of the stockholders. This contention overlooks the fact that the right and obligation to defend was on the corporation itself. As pointed out in McConnell v. All-Coverage Insurance Exchange Automobile & Fire (1964),
“In the second place, the officers, directors and stockholders of an insurance company cannot arbitrarily be required to devote additional assets in order to protect those already devoted to that business. As we have pointed out above, the state cannot constitutionally take possession of assets and thus deprive the owner of power to secure a judicial order for their return. Nor do we think that the state can insist, as a matter of right, that the security of a legitimate investment in a legitimate business must be subject to the unlitigated ipse dixit of a state officer unless the investor is prepared to invest new funds in defense of the first investment.”
Payment of the attorney fees is not payment to the stockholders or directors but payment in effect to the corporation itself (Wolbrette v. New Orleans Drug Co. (1921),
We have not, in this opinion, ruled that the Herman firm is entitled as a matter of right and a matter of law to the fees sought in its petition. As previously stated, both the actual award of attorney fees and their amount rest in the sound discretion of the trial court in view of all the circumstances. (Watson v. Johnson (1933),
We also note that one of the circumstances the trial court must take into consideration in awarding fees is that it ordered the Herman firm to assume Main’s defense. Thus the usual rule making the rights of the attorneys dependent on the good faith of the directors employing them would seem not to be in point.
II
Main also attacks the decree of liquidation contending that the trial court erred in admitting certain exhibits and in admitting opinion evidence as to the claims reserves of Main without sufficient foundation of fact. The exhibits were:
(1) an unaudited 1980 financial statement of Main which was attached to the complaint;
(2) spread sheets of claims reserves;
(3) clerical reconciliation of claims reserves;
(4) analysis of changes in Main’s surplus between September 30, 1979, and June 30, 1980;
(5) spread sheets summarizing all Main’s claims reserves used in the financial statement.
The Director contends that the first exhibit was properly admitted under section 190(5) of the Illinois Insurance Code (Ill. Rev. Stat. 1981, ch. 73, par. 802(5)), which provides that the complaint and any exhibits filed therewith shall be received as prima facie evidence of the facts therein recited. Main contends that the statute, if construed to preclude the judiciary from determining in the first instance the admissibility of the evidence, is unconstitutional, citing Johnson v. Theodoron (1927),
The Director contends that all five exhibits were properly admitted as business records. (87 Ill. 2d R. 236(a).) The business records rule simply recognizes that records of an act, occurrence or event routinely made at the time of the transaction, or within a reasonable time thereafter are normally sufficiently reliable in nature to be admissible in evidence despite their hearsay character. The credibility of any business record depends upon the regular, prompt and systematic nature of the entry and the fact that it is relied on in the operation of a business. (People v. Mormon (1981),
Perhaps even more serious is Main’s contention that the trial court erred in admitting opinion evidence on the claims reserves of Main without sufficient factual foundation. The trial court in its decision of October 20, 1981, denying the Director’s motion, rejected this opinion evidence. It later reversed itself and found Main insolvent allegedly relying on this opinion evidence. Thus the importance of this evidence, which is not before this court, is obvious. But since it is not before this court it is impossible for us to determine whether the evidence was indeed without sufficient factual foundation in the record.
The Director contends that this argument is foreclosed by the Illinois Supreme Court decision in Wilson v. Clark (1981),
The Director contends that this court must affirm the decision of the trial court because the record before this court is incomplete. While this is the normal rule (LaPlaca v. Gilbert & Wolf, Inc. (1976),
Since the issues before the court are serious, and it is impossible to review them without a record, it is necessary for this court to remand this case to the trial court with instructions to provide the necessary record for review. At that time, in the interests of expediting the final decision, the trial court may, if it so desires, reconsider its decision of June 23, 1982, in light of this court’s ruling as to the inapplicability of Wilson v. Clark.
Reversed and remanded to the trial court with instructions.
JOHNSON and LINN, JJ., concur.
Notes
The Director contends in his brief that he did not appeal from the Arvey award because he did not wish to delay the trial on the issue of Main’s insolvency. The Director fails to explain how since the final order directing the Director to pay Arvey was not entered until October 20, 1981, after the trial had been concluded, an appeal could have delayed the trial. In any event, absent a Supreme Court Rule 304(a) (87 Ill. 2d R. 304(a)), finding the Director could not appeal until all the issues were determined. In addition, even where an appeal of a single issue is permitted under Supreme Court Rule 304(a) that appeal does not necessarily stay the rest of the proceedings.