Articles Posted in Legal Ethics

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Davis sued, asserting malpractice and breach of contract claims, and federal Fair Housing Act (FHA) and Civil Rights Act claims, arising out of Fenton’s legal representation of Davis in a mortgage foreclosure action in which Davis lost her home. Davis alleged that Fenton’s representation of her was deficient and that he had targeted her for deficient representation because of her race. Because Fenton’s contract with Davis required the parties to arbitrate any disputes, the district judge ordered the suit “stayed pending arbitration.: Arbitrators awarded Davis $82,528.10 in damages for malpractice but denied her other claims. Fenton sued in Illinois state court to have the award vacated. Davis moved the federal court to reinstate her suit, to confirm the award under 9 U.S.C. 9, and to permit her to file a new FHA claim, accusing Fenton of retaliating against her for having filed her original claim. Fenton failed to appear; the judge entered a default judgment granting the motion. The court refused to vacate the default and remand to state court but dismissed the retaliation claim. The Seventh Circuit affirmed. The federal judge had jurisdiction over the case when it was filed; the order staying the case, subject to reinstatement, retained jurisdiction to confirm or vacate an arbitral award. The court affirmed the dismissal; filing a lawsuit cannot be considered retaliation, except in extraordinary circumstances. View "Davis v. Fenton" on Justia Law

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Seventh Circuit upholds award of attorneys’ fees to some plaintiffs and of costs to some defendants in civil rights case. Ghidotti, an employee of Reliable Recovery, attempted to repossess a car from Baker’s step‐daughter. Ghidotti called 911, falsely stating that Baker had threatened him. Police arrived, arrested Baker, and charged him with possession of shotgun with an expired registration. Baker attended nine court hearings before the charges were dropped. Baker and family members sued Chicago, eight named police officers, unknown officers, two private citizens, and Reliable Recovery, alleging civil rights violations and state law tort claims. Baker won a modest recovery from several City defendants on one civil rights claim, and from the City defendants and a private defendant on one state law tort claim, but the defendants prevailed on the remaining claims. The district court granted attorneys’ fees to Baker, but denied him costs as prevailing party, awarding costs to the City for prevailing against two other plaintiffs. The Seventh Circuit affirmed in part, finding no abuse of discretion under 42 U.S.C. 1988 in either the court’s refusal to award costs to plaintiffs or its decision to award costs to the City for the claims raised by family members. The court remanded for recalculation of fees. View "Baker v. Lindgren" on Justia Law

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In the 1990s, Terzakis met Berenice Ventrella, the trustee for a family trust with extensive real‐estate holdings. Terzakis managed and developed real estate and eventually managed some of Berenice’s property. In 2007, they created an LLC to hold one of Berenice’s properties. Berenice appointed her son Nick, who had Asperger syndrome, as the Ventrella Trust’s successor trustee. After Berenice's 2008 death, Terzakis opened an account for the “Estate of Berenice Ventrella,” took Nick to banks and had him transfer funds from Berenice’s accounts into this new account, transferred $4.2 million from the estate account to the LLC account, which he controlled, then transferred $3.9 million from the LLC account to his personal accounts. Nick was the only witness with personal knowledge of Terzakis’s statements about the transfers. Prosecutors interviewed Nick. The government informed the grand jury that Nick had cognitive problems; Nick did not testify. Days before the limitations period expired, the grand jury returned a five‐count indictment for transmitting stolen money, 18 U.S.C. 2314. Before trial, the government learned that Nick had been diagnosed with brain cancer, with a prognosis of six months. The government informed Terzakis of the diagnosis. The parties resumed plea negotiations. Terzakis rejected the government’s plea offer. The government dismissed the case, citing Nick’s unavailability. The Seventh Circuit affirmed denial of Terzakis’s motion to recover attorney fees under 18 U.S.C. 3006A. View "United States v. Terzakis" on Justia Law

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Prather, age 31, tore his Achilles tendon. His surgery to repair the injury was uneventful. He returned to work. Four days later he collapsed, went into cardiopulmonary arrest, and died as a result of a blood clot in the injured leg that had traveled to a lung. Prather’s widow applied for benefits under his Sun Life group insurance policy (29 U.S.C. 1132(a)(1)), which limited coverage to “bodily injuries ... that result directly from an accident and independently of all other causes.” Sun Life refused to pay. The Seventh Circuit ruled in favor of Prather’s widow, noting that deep vein thrombosis and pulmonary embolism are risks of surgery, but that even with conservative treatment, such as immobilization of the affected limb, the insured had an enhanced risk of a blood clot. The forensic pathologist who conducted a post-mortem examination of Prather did not attribute his death to the surgery. Prather’s widow then sought attorneys’ fees of $37,170 under ERISA, 29 U.S.C. 1132(g)(1). The Seventh Circuit awarded $30,380, stating that there is no doubt of Sun Life’s culpability or of its ability to pay without jeopardizing its existence; the award of attorneys’ fees is likely to give other insurance companies in comparable cases pause; and a comparison of the relative merits of the contending parties clearly favors the plaintiff. View "Prather v. Sun Life Financial Insurance Co." on Justia Law

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Turnoy sold insurance to Shiner’s in‐laws for decades. After Shiner, a Chicago lawyer, demanded that Turnoy split commissions on their new policies, Turnoy sent him a check for $149,000. Rejecting $149,000 as too little, Shiner sued for breach of contract, then brought another suit, alleging tax fraud, 26 U.S.C. 7434, by reporting to the IRS the $149,000 as income to Shiner; Shiner had not cashed the check. The judge ordered Turnoy to pay Shiner damages of $16,000 for fraud. The Seventh Circuit reversed, noting that the state court rejected Shiner’s breach of contract claim before the district court’s decision. Turnoy had placed a restrictive endorsement on the back of the check, stating that by cashing the check Shiner accepted $149,000 as full payment. U.S. Treasury regulations provide that a check received but not cashed counts as income for tax purposes only if “credited or set apart to a person without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made,” but Shiner neither asked for a new check nor otherwise communicated rejection of the check. Shiner’s inaction gave Turnoy a solid basis for believing that Shiner had accepted the check, so Turnoy’s filing of Form 1099 was not “willfully … fraudulent.” View "Shiner v. Turnoy" on Justia Law

Posted in: Contracts, Legal Ethics

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After the IRS assessed tax deficiencies and penalties, the taxpayers filed a pro se petition for review. Acting on advice from Niehus, a lawyer who was not authorized to practice in Illinois, the couple stipulated that only half of the tax relief they sought was appropriate. Upon discovering that Niehus was not a member of the Illinois bar, they asked the court to set aside the stipulation. The Tax Court refused and entered judgment against the couple. On remand, with the couple represented by a CPA, Drobny, who was authorized to practice before the Tax Court, the court held that the couple had not been prejudiced by Niehus’s ineligibility to practice and that the advice he had given them had been valid. The Seventh Circuit affirmed, agreeing that Niehus provided “competent, valuable, diligent, and effective” assistance, and noting that there is no right to counsel in a Tax Court proceeding. View "Shamrock v. Commissioner of Internal Revenue" on Justia Law

Posted in: Legal Ethics, Tax Law

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In 2012, NITEL filed this breach of contract suit in an Illinois state court against PNC Bank. PNC Bank removed to federal court and the district court granted summary judgment for PNC Bank. This appealed stemmed from the district court's post-judgment award of Rule 11 sanctions against both NITEL and its lawyer, Robert Riffner. In this case, PNC Bank failed to comply with Rule 11(c)(2)'s requirement that a party seeking Rule 11 sanctions first to serve a proposed motion on the opposing party and to give that party at least 21 days to withdraw or correct the offending matter. PNC Bank argued that the two letters it sent containing both settlement demands and threats to seek Rule 11 sanctions if its demands were not met amounted to "substantial compliance" with Rule 11(c)(2) and thus preserved its right to move for sanctions after the district court granted summary judgment in its favor. The district court agreed and imposed sanctions. The court need not revisit here whether substantial compliance can ever satisfy the warning shot requirement of Rule 11(c)(2). In this case, the court concluded that PNC Bank's warning shot letters fell far short of even the generous target of substantial compliance. Accordingly, the court reversed the award of sanctions against Riffner. View "Northern Illinois Telecom, Inc. v. PNC Bank" on Justia Law

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Plaintiffs alleged that, beginning in 1997, Swiech Group looted Krakow Business Park’s assets, diluting the value of the firm and of their shares. All of the claimed actions, including sham contracts, took place in Poland. Some of Swiech’s proceeds were allegedly funneled to Chicago‐area businesses and properties. Adam Swiech was arrested by the Polish authorities and charged with money laundering, forgery, tax evasion, and leading an organized crime ring, in connection with his conduct at the Business Park. He has been convicted on some of the charges. In a second round of litigation, plaintiffs alleged violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(d) (RICO), naming multiple defendants related to Swiech, including attorneys. The district court concluded that plaintiffs were estopped from asserting certain aspects of their claim and that nothing in the complaint plausibly asserted that the lawyer-defendants stepped over the line between representation of their clients and participation in a RICO conspiracy. The Seventh Circuit affirmed, citing the scope of its appellate jurisdiction, and reasoning that any wrongdoings in the course of lawyers' representation were outside the scope of the asserted RICO conspiracy. “Although the supplemental complaints paint a dismal picture of these attorneys’ behavior, assuming the truth of the allegations of disregard for the alleged neutrality principle, misleading billing statements, and the like, these problems must be addressed in a different forum.” View "Domanus v. Locke Lord LLP" on Justia Law

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The Seventh Circuit affirmed Trudeau’s fraud conviction and his $38 million civil contempt judgment after he refused to surrender profits made from violating Federal Trade Commission orders. Trudeau claimed to be destitute. The FTC demanded that firms thought to be affiliated with Trudeau turn over business records. One such entity, Website Solutions, hired the Law Firms to represent it in connection with the demand. The district judge concluded that Website was under Trudeau’s control and appointed a receiver to marshal assets of Website and Trudeau’s other entities. The receiver collected approximately $8 million. The court approved the receiver’s plan, rejected the Firms’ request for compensation from funds in the receiver’s custody, approved the receiver’s compensation, accepted the final report, and authorized the receiver to send remaining funds to the FTC, closing the receivership. The Seventh Circuit affirmed, rejecting an argument that the Firms’ fees should be paid ahead of compensation for Trudeau’s victims. Before the Firms were hired by Website, a federal court had already directed Trudeau to turn over all proceeds of his improper commercial activities. That order created a lien on Website’s assets, senior to any claim created later. As a proxy for Trudeau, Website had no right to make commitments to pay third parties with funds belonging to Trudeau’s victims. View "Federal Trade Commission v. Trudeau" on Justia Law

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In 2008, West Bend filed a legal malpractice action based on the performance of attorney Schumacher and his firm, RLGZ, in a 2005-2006 workers’ compensation matter. The parties agreed to a dismissal of that claim and entered into a tolling agreement pending the resolution of related actions. After the resolution of those claims, West Bend filed a malpractice suit against Schumacher in 2013. The district court dismissed the first and an amended complaint, concluding that the allegations were too speculative or vague. The court stated that allegations about failure to depose a doctor, failure to contact witnesses prior to the hearing, the disclosure of certain facts to opposing counsel, and that Schumacher had represented that West Bend would accept liability, did not explain “how any of these alleged acts and omissions harmed its defense.” The Seventh Circuit affirmed. The complaint did not adequately plead a claim for legal malpractice under Illinois law; it fails to allege plausibly that the outcome of the underlying action would have been more favorable to West Bend, had it not been for Schumacher’s alleged litigation conduct View "West Bend Mutual Insurance Co v. Schumacher" on Justia Law