Articles Posted in Legal Ethics

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Shaf, a New Jersey company, sells apparel. Seventh Avenue, a Wisconsin-based catalog merchandiser, sells clothing protected by a trademark. After a dispute over Shaf’s alleged infringement of Seventh Avenue’s trademark, the parties entered into a consent agreement. Months later, Seventh Avenue discovered what it saw as continuing infringement by Shaf and moved to hold Shaf in contempt. Shaf was represented in the district court by Milwaukee counsel. The attorney received an email notification (from the court’s electronic docketing system) of the motion upon its January 17 filing, indicating that response was due January 24. Shaf failed to respond. The court scheduled a hearing for February 14. Nobody for Shaf appeared. The court held Shaf in contempt and required that it pay Seventh Avenue’s fees and costs. The contempt order prompted Shaf's local counsel to move for reconsideration, explaining that counsel was traveling internationally when the motion was filed. Counsel returned to work five days before Shaf’s written response was due and 26 days before the hearing, but took several weeks to catch up on his email. Shaf’s request also explained that local counsel believed national counsel would attend to any ongoing needs in the case. The court denied the motion to reconsider. Seventh Avenue supplemented its fee petition to reflect additional expenses. The Seventh Circuit affirmed an award of $34,905 in fees and costs. While the delayed response was better than no response, the court acted within its discretion to find that Shaf’s initial unresponsiveness warranted a sanction. View "Seventh Avenue, Inc. v. Shaf International, Inc." on Justia Law

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Waushara County wanted to improve a rural highway. A dispute erupted about who owned land on which DeCoster had erected a fence. State court litigation settled for a $7,900 payment to DeCoster, who then sought more than $110,000 in attorneys’ fees and other expenses. The court of appeals affirmed an award of about $31,000, ruling that any outlay after the $7,900 offer was unreasonable. DeCoster then sued in federal court, seeking an award under 42 U.S.C. 4651–55, the Uniform Relocation Assistance and Real Property Acquisition Act, which conditions federal grants for highway projects on states’ providing assurance that they will compensate affected landowners for reasonable attorney, appraisal, and engineering fees. The district court ruled that the Act does not provide a private right of action. The Seventh Circuit affirmed, without deciding the merits. DeCoster had to present his claim in the state suit. Wisconsin employs the doctrine of claim preclusion under which all legal theories, pertaining to a single transaction, that could have been presented in the initial suit, are barred if not so presented. It does not matter whether the “transaction” is identified as the (arguable) taking of DeCoster’s land or his litigation expenses; the federal suit rests on a transaction that was before the state court. In addition, both Wis. Stat. 32.28 and the Act call for reimbursement of “reasonable” litigation expenses. Wisconsin’s judiciary determined that an award exceeding $31,561 would be unreasonable. View "DeCoster v. Waushara County Highway Department" on Justia Law

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Bell sued Vacuforce for copyright infringement, accusing it of publishing his photograph of the Indianapolis skyline on its website without a license. Vacuforce hired attorney Overhauser. The parties quickly settled; the federal lawsuit was dismissed with prejudice. Overhauser then moved to recover attorney fees from Bell, arguing that because the settlement produced a dismissal with prejudice, Vacuforce was the “prevailing party” for purposes of fees under the Copyright Act, 17 U.S.C. 505. The district court denied Overhauser’s as motion frivolous and misleading and ordered monetary sanctions against Overhauser: one under Federal Rule of Civil Procedure 11 and another under 28 U.S.C. 1927. The Seventh Circuit affirmed the sanctions, rejecting an argument that a party can “prevail” for purposes of a fee-shifting statute by paying a settlement and obtaining a dismissal with prejudice. The district court did not abuse its discretion by imposing the section 1927 sanction. “Objective bad faith” will support such a sanction. A lawyer demonstrates objective bad faith when she “pursues a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound.” The district court found that Overhauser’s legal contentions were baseless and that he failed to disclose the proper factual foundation necessary to evaluate his legal argument. View "Overhauser v. Bell" on Justia Law

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After plaintiffs successfully prosecuted their cases, the Treasury Department determined that plaintiffs had outstanding debts to various government entities. However, plaintiffs had assigned to counsel any legal fees to which they might be entitled under the Equal Access to Justice Act (EAJA). The Treasury Department, rather than paying out the fees directly, reduced plaintiffs' debts by equal amounts under the Treasury Offset Program and thus the attorneys received nothing. The Seventh Circuit held that it would be imprudent to entertain new administrative claims that were only minimally related to the judgments, and declined to exercise ancillary jurisdiction over plaintiffs' collateral challenges to the regulations. Accordingly, the court affirmed the district courts' judgments. In this case, the district courts properly granted attorney fees under the EAJA, and the government properly applied those fees to plaintiffs' outstanding debts. View "Harrington v. Berryhill" on Justia Law

Posted in: Legal Ethics

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Reynolds claimed that the law firm (H&L) gave bad advice that led him to violate federal disclosure laws when he drafted his LLCs’ financial statements. The district court granted H&L summary judgment, stating that Reynolds could not bring a malpractice suit on his own behalf because he did not have a personal attorney-client relationship with H&L. The Seventh Circuit affirmed. Although H&L had an attorney-client relationship with the LLCs that Reynolds co-owned and managed, and it was in his capacity as a managing member of these LLCs that Reynolds communicated with, and was advised by, H&L, Illinois courts consistently have held that neither shared interests nor shared liability establish third-party liability. For third-party liability in Illinois, Reynolds must have been a direct and intended beneficiary; simply because the officers of a business entity were at risk of personal liability does not transform the incidental benefits of the law firm’s representation of the business entity into direct and intended benefits for the officers. View "Reynolds v. Henderson & Lyman" on Justia Law

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Holcomb did not pay her credit-card bill. The creditor hired the Freedman law firm, which sued Holcomb on the creditor’s behalf in state court. Holcomb initially appeared pro se but later retained Attorney Finko. When Freedman moved for default judgment, Finko had not yet filed a written appearance. Freedman served the motion on both Holcomb and Finko. Holcomb alleges that Freedman violated the Fair Debt Collection Practices Act, which prohibits a debt collector from directly contacting a debtor who is represented by counsel absent “express permission” from “a court of competent jurisdiction,” 15 U.S.C. 1692c(a)(2). Freedman argued that it had “express permission” because Illinois Supreme Court Rule 11 requires service of court papers on a party’s “attorney of record,” if there is one, but “[o]therwise service shall be made upon the party.” Freedman argued that Finko was not yet Holcomb’s “attorney of record” for purposes of Rule 11, requiring service on Holcomb directly. The district judge rejected this argument as “hyper-technical.” The Seventh Circuit reversed. An attorney becomes a party’s “attorney of record” for Rule 11 purposes only by filing a written appearance or another pleading with the court. Finko had done neither, so Rule 11 required Freedman to serve the default motion on Holcomb directly. View "Holcomb v. Freedman Anselmo Lindberg, LLC" on Justia Law

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In 2009 Blanchard, a Chicago law firm, provided legal services to an Indian pharmaceutical company, Lupin India, and its American subsidiary, Lupin USA, concerning the patentability of a generic birth‐control drug that Lupin India planned to launch in the U.S. through Lupin USA. When the Lupin companies initially sought Blanchard’s advice, the firm sent an engagement letter outlining its hourly fees and other terms. Neither Lupin India nor Lupin USA signed the letter, but Blanchard provided the requested legal services and the companies, at first, paid the firm for its work. In October 2009 Blanchard sent its two final invoices, which went unpaid. Seven years later Blanchard sued the Lupin companies for breach of contract and unjust enrichment. A district judge dismissed both claims as untimely. The Seventh Circuit affirmed in part. The unjust enrichment claim is untimely, having accrued in 2009 when Blanchard furnished the services and the Lupin companies did not pay. The five‐year statute of limitations expired long before suit was commenced. The contract claim is timely, however. Though the engagement letter is unsigned, it counts as a written contract under Illinois limitations law, and the claim for breach is therefore governed by a ten‐year statute of limitations. View "Blanchard & Associates v. Lupin Pharmaceuticals, Inc." on Justia Law

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Fuery, her friends Sciortino and Tomaskovic, and Chicago police officer Szura were involved in an altercation on the side of the road. The three women were arrested for battery of a police officer; each was acquitted. The women sued the City and Officer Szura under 42 U.S.C. 1983 and 1985. At trial, the defendants objected to various testimony as violating the court’s rulings on motions in limine, moved for a mistrial, and requested dismissal of all claims and attorneys’ fees as a sanction. The judge stated, “[t]here are plenty of options once the trial is concluded to deal with the misconduct … I am not letting it go.” The jury awarded Tomaskovic $260,000 against Szura on her excessive force claim, finding that Szura was acting within the scope of his employment, but found in favor of the defendants on all other claims. The court entered judgment in favor of the City and Szura on all claims but denied the claims for attorneys’ fees. The court found misconduct by plaintiffs’ attorney and that “plaintiffs actively participated.” The Seventh Circuit affirmed, stating that it was apparent, “even from the two-dimensional record, the judge’s patience being tried.” District courts “possess certain inherent powers, not conferred by rule or statute, to manage their own affairs so as to achieve the orderly and expeditious disposition of cases. That authority includes the ability to fashion an appropriate sanction for conduct which abuses the judicial process.” View "Fuery v. City of Chicago" on Justia Law

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A class action stemming from Southwest’s decision to stop honoring drink vouchers for “business select” customers settled with the customers receiving replacement vouchers. The Seventh Circuit affirmed, holding that 28 U.S.C. 1712, the Class Action Fairness Act, allowed the court to award class counsel (Siprut) attorney fees ($1,365,882) based on the lodestar method rather than the value of the redeemed vouchers. On remand, Siprut sought supplemental fees. For its work on the motion to amend the fee award and the prior appeal, The court called the number of hours requested “grossly excessive,” stating that counsel was trying to reach “some of the originally hoped‐for $3,000,000 that Southwest agreed not to oppose.” The court awarded $455,294 plus expenses, then vacated so that the class would receive notice. In exchange for dismissal of an appeal, by objector Markow, Siprut agreed to take $227,647 plus $3,529.68 in expenses; Southwest agreed to issue two additional vouchers for each one claimed. The court was notified that the number of vouchers claimed under the original settlement was less than one-third what the parties earlier indicated and approved the new settlement. Southwest distributed the vouchers and paid Siprut. Markow then unsuccessfully moved for $80,000 in attorney fees and an incentive award of $1,000 from Siprut’s fee award. The Seventh Circuit reversed. Unless the parties to a class action settlement, including objecting parties, expressly agree otherwise, settlement agreements should not be read to bar objectors from requesting fees for their efforts in adding value to a settlement. View "Markow v. Southwest Airlines Co." on Justia Law

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Indiana Child Protective Services removed Swallers’s daughter from his custody. Swallers responded with a deluge of federal filings and filed “Common Law Liens” (each $10,000,000) against all the judges in the Southern District of Indiana except Judge Young. Judge Pratt ordered the Marion County Recorder to expunge any liens that Swallers had filed against Judges Lawrence, Barker, Magnus‐Stinson, Pratt, and Young. Swallers was charged with filing a false lien and encumbrance against a federal judge, 18 U.S.C. 1521, and with possessing ammunition as a felon, 18 U.S.C. 922(g)(1). That case was assigned to Judge Young. Swallers moved for Judge Young’s recusal; 28 U.S.C. 455(a) requires recusal in any proceeding in which a judge's impartiality might reasonably be questioned, Judge Young denied the motion. Swallers pled guilty to the false lien charge; the felon‐in‐possession charge was dismissed. None of the judges named in Swallers’s liens submitted a victim‐impact statement. Judge Young imposed the agreed‐upon "time served" sentence. Swallers sought to vacate his conviction on the ground that Judge Young should have recused himself. The Seventh Circuit affirmed. Judge Young was not a victim of Swallers’s liens; there was little risk that his professional relationship with the victims would interfere with the case because the crime had little effect on them. This is not a case in which a well‐informed observer would perceive a significant risk that Judge Young would decide this case on a basis other than its merits. View "United States v. Swallers" on Justia Law