litigation – Page 2 – Paul Porvaznik

Embattled Ex-Congressman Wins Law Firm’s Fee Spat [Ind. Appeals Court]

Perhaps known as much for his chiseled physique, burnished Instagram presence and garish office furnishings as his political acumen, former wunderkind congressman Aaron Schock resigned in 2015 after dual Federal probes unearthed wide-ranging campaign finance infractions.

The twin Federal investigations – a Department of Justice (DOJ) subpoena followed by an FBI lighting raid on Schock’s Peoria IL office – culminated in a grand jury indictment involving some 24 criminal charges most of which centered around Schock using taxpayer money to fund his lavish lifestyle. While Schock pleaded not guilty and was never convicted, his once surging political career cratered in the prosecution’s wake and to date has not recovered.

It is the DOJ’s and FBI’s tandem probes against Schock and his erstwhile campaign committee, Schock for Congress [SFC] that form the backdrop for Bopp Law Firm, P.C. v. Schock, et al., 2020 Ind.App.LEXIS 287 (July 6, 2020). The case illustrates in sharp relief the proof problems a law firm suing a former client for unpaid fees faces when it skimps on engagement letter and billing details.

The Plaintiff law firm [the “Law Firm” or “Firm”] sued Schock and SFC in 2016 to recover nearly $160,000 in unpaid legal bills. After a four-day bench trial, the trial court entered judgment for Schock and SFC. The Law Firm appealed.

Affirming, the Indiana appeals court first dispensed with the Law Firm’s argument that it stated a viable account stated claim. In Indiana, as in other states, a party waives a claim by not presenting it in its operative pleadings. Here, the Plaintiff waited until its post-trial brief to first raise the account stated issue. It was too late. Since account stated was never pled in the complaint or litigated at trial, the Defendants were unable to defend against it. As a result, the trial court correctly found that the Law Firm waived its account stated claim.

The Court then held that even if the Law Firm did timely raise an account stated claim, it still would have lost. In Indiana, a monetary amount on a bill or statement is prima facie evidence of the amount claimed which can be disproved by a defendant. Here, the Defendants disproved the invoice amounts by pointing to the Firm’s multiple block-billing entries where it failed to separate work done for individual clients vs. services provided to related entity clients.

The Court then rejected the Law Firm’s other arguments on appeal.

The Court first noted the Law Firm’s tardy subpoena response led to a subsequent search warrant and raid on SFC’s campaign office. The Court then pointed to the Law Firm’s failure to separate legal work it performed for SFC from the work it did for related individuals and entities. The Court chided this “block-billing” as potentially violative of Rule 1.8(f) of the Indiana Rules of Professional Conduct – the ethics rule that provides that a lawyer can only accept compensation from someone other than the client upon client’s informed consent, and where there is no interference with the lawyer’s independent professional judgment.

While the Court stopped short of finding a Rule 1.8 violation, it used the Rule as a guidepost when assessing the Firm’s billing practices.

Questionable optics was another basis for the appeals court’s ruling. It noted the Firm assumed role of trustee responsible for reviewing and approving all bills, including legal bills, issued to SFC. This put the Firm in the impossible situation of self-policing its own legal bills. [18]

Still another ground on which the Court relied in upholding the trial court was the time entries attributed to attorney Randy Elf – a lawyer who resigned from the Firm after Defendants challenged several of his time entries. The Court agreed with the trial judge that the Firm had an obligation to review all of Elf’s bills. And since the Firm did not, the trial court properly struck all of Elf’s time entries from the universe of recoverable fees.

The Court also credited the testimony of the Defendants’ discovery expert who testified that $30,000 [and not the $90,000-plus charged by the Firm] was reasonable fee for document review and production. The Court conversely discounted the Firm’s rebuttal witness – a Firm lawyer – who testified that the bills were reasonable. The Court noted the Firm’s witness admitted that document review and production did not comprise a large percentage of his practice.

Finally, the Court rejected the Firm’s attempt to recover interest of 1.5% on the unpaid invoices. It upheld the trial court’s determination that the reasonable value of the Firm’s services were $30,000 and that it had already been paid more triple that amount. As a result, the trial court properly found the Defendants did not owe any additional amounts to the Firm.

Afterwords:

Law firms should be sedulous in its engagement letters and billing records and make it clear who is and who is not their client;

Firms should guard against block-billing and take pains to separate work done for individuals versus services provided to related entities;

A claim not pled or litigated at trial will be deemed waived on appeal; and

Law firm should consider hiring an outside auditor to vet legal bills in situations where a firm’s impartiality could be questioned.

Federal Court Examines Illinois’ Savings Clause, Job-Related Per Se Defamation in Warring Yelp.com Posts

Shortly after their business relationship imploded, the parties in Levin v. Abramson, 2020 WL 249649, brought dueling defamation claims in Federal court premised on March 2017 Yelp posts by the parties.

The former client defendant (the “Client”) skewered the plaintiffs lawyer and her law firm (“Lawyer”) on Yelp.com in which he braded the Lawyer, among other things, an incompetent predator who defrauded Client.

The Lawyer responded with a post of her own the same day. She added some factual context to Client’s screed and portrayed the reason behind Client’s vitriol as a simple billing dispute. Lawyer also added in her retort that Client had a pattern of suing all of his lawyers.

Lawyer’s Complaint alleged claims for defamation and false light invasion of privacy. Client counter-sued for defamation, too, and added legal malpractice and breach of fiduciary duty claims based on Lawyer’s Yelp response.

The Lawyer moved to dismiss Client’s counterclaims and both parties filed cross-motions for summary judgment.

Lawyer’s Motion to Dismiss

Rejecting the Lawyer’s argument that the Client’s defamation suit was untimely, the Court examined the interplay between Code Sections 13-201 [735 ILCS 5/13-201], the one-year statute of limitations for defamation suits and 13-207 [735 ILCS 5/13-207], the Illinois “savings” statute that permits otherwise time-barred counterclaims in certain circumstances.

The Court noted that each side’s alleged defamatory Yelp posts were published on March 22, 2017. So the defamation one-year limitation period would normally expire March 22, 2018. The Lawyer filed her defamation suit on March 8, 2018 – two weeks before the defamation statute lapsed while Client filed his counter-claim in January 2019 – almost 10 months after the limitations ran.

However, since the Lawyer’s defamation claim accrued before the defendant’s defamation counter-suit lapsed – March 22, 2018 – Section 13-207 preserved or “saved” the defendant’s countersuit even though it wasn’t filed until 10 months later.

The court then focused on whether the Client sufficiently alleged per se defamation against the Lawyer’s Rule 12(b)(6) attack.

Two salient stripes of per se defamation include statements (1) that impute a plaintiff’s inability to perform or want of integrity in the discharge of his duties of office or employment and (2) that prejudice a plaintiff or impute a lack of ability in his or her trade. These particular per se claims must directly involve a plaintiff’s job performance; generalized personal attacks on a plaintiff’s integrity and character are non-actionable.

The Court rejected Lawyer’s truth defense argument – that her Yelp retort was substantially true. The Court found that whether, as Lawyer said in her post, that Client had in fact sued all of his other lawyers, lost his bid to reverse his credit card payment to Lawyer, and that his complaints to ARDC and CBA were rejected, were questions more appropriate for a summary judgment motion and not a dismissal motion.

Next, the Court addressed Lawyer’s argument that Client failed to properly allege in his Counterclaim what his job was and therefore couldn’t make out a claim that Lawyer’s Yelp response prejudiced Client in his work. The Court held that when considering Client’s Counterclaim exhibits and supporting affidavit [both of which established that client owned a record label] Client plausibly pled Lawyer’s Yelp statements could prejudice him in his role as business owner. On this point, the Court also credited Client’s argument that plaintiff’s Yelp response could cause the record company to lose current and future clients.

Cross-Motions for Summary Judgment

Both sides moved for summary judgment on plaintiff’s defamation and false light claims. The Court considered Lawyer’s argument that Client’s Yelp post contained actionable facts as opposed to non-actionable opinions.

Black-letter defamation law cautions that opinions that do not misstate facts are not actionable. Whether a given statement consists of a factual (and therefore actionable) assertion, the court considers (1) whether the statement has a precise and readily understood meaning, (2) whether the statement is verifiable, and (3) whether the statement’s literary or social context signals it has factual content.

The Court found that Client’s Yelp review contained both opinion and factual elements. The Client’s statements that Lawyer illegally charged Client’s credit card, exceeded a $4,000 ghost-writing budget by nearly $10,000, and that Client’s credit card sided with him in his dispute with Lawyer were all verifiable enough to be factual. The Court also found that defendant’s branding plaintiff a “con artist” – normally non-actionable name-calling or opinion – rose to the level of actionable fact when viewed in context with other aspects of the Yelp review.

According to the Court, for the Lawyer to win summary judgment on her defamation claim, she must show that no reasonable jury fact could decide that Client’s Yelp statements were substantially true. Conversely, on the Client’s cross-motion, the Court noted that he must establish that a jury could only conclude that his Yelp review statements were substantially true for him to prevail on his cross-motion.

The Court found the record revealed genuine disputed fact questions as to (1) who severed the Lawyer-Client relationship and when, (2) whether the Lawyer agreed to cap her fees at $4,000 [which Lawyer disputed], (3) whether there was in fact a $4,000 budget for Lawyer’s ghost-writing work and (4) whether Lawyer had authority to charge Client’s credit card once the $4,000 retainer was exhausted. These factual discrepancies led the Court to deny the warring summary judgment motions.

Afterwords:

Levin meticulously dissects the governing legal standards that control pleadings and dispositive motion practice in Federal courts.

The case also provides a trenchant analysis of Illinois per se defamation law, particularly the contours of job performance-related per se defamation, the truth defense, and the importance of the fact-versus-opinion analysis inherent in such a claim.

Discovery Screw-Up Not Enough To Sustain Negligence Claim – 7th Cir.

Nixing an $8M Federal jury verdict, the Seventh Circuit recently held, among other things, that a discovery rule violation cannot undergird a negligent misrepresentation claim.

The plaintiffs in Turubchuk v. Southern Illinois Asphalt Company, 958 F.3d 541 (7^thCir. 2020), twice sued a joint venture consisting of two paving contractors for personal injuries sustained in a 2005 traffic accident. The first lawsuit, sounding in negligence, settled for $1MM, the amount plaintiff believed was the maximum available insurance coverage based on the defendant’s for the JV defendant’s attorneys’ pretrial discovery disclosures.

When the plaintiffs learned that the $1MM coverage cap only applied to the joint venture entity and not to the venture’s component companies, they sued again. This second suit alleged fraud and negligent misrepresentation – that the defendant’s counsel misrepresented its insurance coverage limits. Plaintiffs eventually went to trial only on their negligent misrepresentation claim.

This second suit culminated in the jury’s $8MM-plus verdict. Defendant appealed citing a slew of trial court errors.

Reversing, the Court first considered the effect of Defendant’s erroneous Rule 26 disclosure. Under Illinois law, an actionable negligent misrepresentation claim requires proof of a legal duty on the person making the challenged statement to convey accurate information.

The Plaintiffs alleged the Defendant’s duty was found in the disclosure requirements of Rule 26 – the Federal rule governing pre-trial witness and document disclosures. The Court found no case authority that grounded a negligence duty in a federal procedural rule. Instead, the Court noted, cases from the 9^thCircuit and 7^thCircuit held just the opposite and further opined that discovery rules are “self-policing:” a discovery violation subjects the violator to sanctions under Rules 26 and 37.

The 7^thCircuit also ruled that the District Court erred in finding as a matter of law (on pretrial summary judgment and in-limine orders) that defendant breached its duty to plaintiffs and that plaintiffs justifiably relied on the representations.

Whether a defendant breaches a legal duty and whether a plaintiff reasonably relies on a representation are natural fact questions. Here, on the existence of a legal duty prong, there were a plethora of unanswered questions – i.e. what information did the attorney have at his disposal when plaintiff made a $1MM policy limits (or so he thought) demand before discovery even started? – that raised possible disputed fact questions that are normally jury questions. The District Court’s pre-trial ruling on these issues hamstrung the defendant’s efforts to challenge whether defendant’s counsel acted negligently. [15]

Another trial court error stemmed from the non-reliance clause contained in the written release that settled the Plaintiffs’ first negligence lawsuit. A non-reliance clause will normally foreclose a future fraud suit since reliance is one of the salient fraud elements.

That said, Illinois case law is in flux as to whether a non-reliance clause precludes a later fraud action.

In addition, whether reliance is justified in a given fact setting is quintessentially a triable fact question involving what a statement recipient knew or could have learned through the exercise of ordinary prudence. This case authority uncertainty coupled with the multiple fact issues endemic to the justifiable reliance inquiry made it improper for the District judge to make a per se, pre-trial finding that plaintiffs justifiably relied on the defendant’s counsel’s insurance coverage disclosure.

The evidence was also conflicting on whether the defendant entities even had a joint venture. Whether or not defendants were a joint venture was integral to the amount of insurance available to settle Plaintiffs’ claims and so it impacted the causation and damages elements of plaintiffs’ negligent misrepresentation case.

A hallmark of a joint venture is joint ownership or control of a business enterprise. See http://paulporvaznik.com/joint-ventures-in-illinois-features-and-effects/6699. This created disputed fact questions that should have been decided by the jury.

Next, the Court overturned the jury’s finding that Plaintiffs’ established that Defendant’s attorney intended to induce Plaintiffs’ reliance on the amount of available insurance coverage. [The intent to induce reliance element was the only negligent misrepresentation element that went to the jury.]

Federal Rule of Evidence 602 requires a witness to testify based on personal knowledge.

However, there was no such testimony adduced at trial. Instead, the only trial evidence on this negligent misrepresentation element was Plaintiffs’ counsel’s self-serving speculative testimony that defendant’s counsel misrepresented the available insurance coverage to induce Plaintiffs’ to accept a relatively paltry $1MM to settle the case. [21, n. 11]. Moreover, the District Court improperly excluded evidence of Plaintiff’s counsel’s credibility since he had previously surrendered his law license in lieu of disbarment for alleged acts of dishonesty, fraud or misrepresentation. See FRE 608.

In the end, the Court found there was insufficient evidence at trial for the jury to find that Defendant’s counsel intended to induce Plaintiffs’ reliance on the Rule 26 discovery disclosures of insurance coverage.

Afterwords:

A negligent misrepresentation claim cannot be premised on violation of a Federal discovery rule;

The court invades province of the jury when it rules on elements that are inherently fact-driven;

Evidence Rules 602 and 608 respectively limit a trial witness to testifying to matters of personal knowledge and allow an opponent to probe that witness’s credibility by delving into his/her reputation for truthfulness.

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