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A recent opinion from the U.S. District Court for the Northern District of Illinois offers important guidance for attorneys handling settlement proceeds. The court partially denied Johnson & Bell's motion to dismiss in Zucker v. Johnson & Bell, Ltd., keeping alive a conversion claim over disputed settlement funds deposited into a lawyer's Interest on Lawyers' Trust Account (IOLTA).
The Background: A $2.2M Loan and a Secured Interest
In 2019, Scott Zucker loaned $2.2 million to several cannabis-related businesses known collectively as the "CannaBoss Parties." To secure repayment, Zucker obtained a priority security interest in their assets, including general intangibles and choses in action. He filed UCC financing statements in Illinois, Nevada, and Florida to perfect his security interests.
Later that year, Johnson & Bell began representing CannaBoss in a separate Illinois lawsuit. In 2021, the firm requested Zucker's promissory note and security agreements. According to Zucker, the firm acknowledged his first-priority lien and assured him that any settlement funds would be directed to him.
The Dispute: $500,000 in Settlement Funds Disbursed
By 2023, the lawsuit settled for $500,000, with payments wired to Johnson & Bell's IOLTA account. Zucker alleges that, despite repeated assurances, the firm wrongfully disbursed the money to itself instead of honoring his secured position. He filed suit alleging conversion, breach of fiduciary duty, fiduciary fraud, and accounting.
The law firm challenged Zucker's standing, arguing he had no right to the settlement funds. Judge Lindsay Jenkins rejected this argument, holding that Zucker's alleged security interest and claim to the settlement proceeds was sufficient injury to confer standing. At the pleading stage, the court was required to accept his allegations as true.
Why the Conversion Claim Survived Dismissal
The court found that Zucker adequately alleged conversion under Illinois law. Conversion occurs when someone wrongfully exercises control over another's property. Because Zucker claimed a perfected security interest in the settlement proceeds, and because Johnson & Bell allegedly disbursed those funds to itself, the complaint stated a plausible claim.
Importantly, the court rejected Johnson & Bell's contention that its IOLTA account constituted a deposit account that gave it superior rights. Instead, the court likened the IOLTA to an escrow account, noting that discovery would be necessary to sort out the parties' competing claims.
Why Fiduciary Duty Claims Were Dismissed
However, the court dismissed Zucker's remaining claims. Under Illinois law, attorneys generally owe duties only to their clients—not third parties. Exceptions exist when a client hires an attorney specifically to benefit a third party, but Zucker failed to allege such circumstances.
The court also declined to impose fiduciary obligations based on Rule 1.15 of the Illinois Rules of Professional Conduct, which governs handling of client and third-party funds. While ethical rules can guide attorney behavior, violations do not automatically create private causes of action. As a result, Zucker's breach of fiduciary duty, fiduciary fraud, and accounting claims were dismissed without prejudice.
Key Takeaways for Law Firms and Secured Creditors
This case highlights growing scrutiny of attorney handling of funds in complex commercial disputes. Law firms representing debt-ridden clients must balance duties to their clients with respect for valid third-party security interests. This decision reaffirms that courts will not dismiss conversion claims lightly, especially where secured rights are well-documented. At the same time, the dismissal of fiduciary duty claims preserves the traditional attorney-client boundary, avoiding expanded liability to non-clients.
The key takeaway is: IOLTA funds are not immune from dispute. Holding settlement proceeds in an IOLTA does not automatically give the firm superior rights. Courts may view IOLTA accounts more like escrow than deposit accounts. Even if ethical rules don't create causes of action, handling funds in which others claim rights can lead to litigation.
The Zucker v. Johnson & Bell ruling demonstrates the risks attorneys face when controlling settlement funds subject to competing claims. While the court dismissed most of Zucker's claims, it allowed the conversion claim to proceed, signaling that lawyers may be liable when they disburse funds in disregard of valid security interests.
For law firms, the opinion is a cautionary reminder: IOLTA funds are not untouchable, and handling them can invite serious litigation. For creditors, it is reassurance that secured interests in settlement proceeds remain enforceable—even against law firms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
