Grochocinski v. Mayer Brown Rowe & Maw LLP et al

Filing 150

RESPONSE by David Grochocinskiin Opposition to MOTION by Defendants Mayer Brown Rowe & Maw LLP, Ronald B Given for summary judgment On Their Unclean Hands Defenses 135 (Joyce, Edward)

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS, EASTERN DISTRICT
DAVID GROCHOCINSKI, not individually,
but solely in his capacity as the Chapter 7
Trustee for the bankruptcy estate of
CMGT, INC.
Plaintiff,
v.
MAYER BROWN ROWE & MAW LLP,
RONALD B. GIVEN, and CHARLES W.
TRAUTNER,
Defendants.

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No. 06 C 5486
Judge Virginia M. Kendall

PLAINTIFF’S RESPONSE IN OPPOSITION TO DEFENDANTS’ MOTION FOR
SUMMARY JUDGMENT

Edward T. Joyce
Arthur W. Aufmann
Robert D. Carroll
EDWARD T. JOYCE & ASSOC., P.C.
11 South LaSalle Street, Ste., 1600
Chicago, Illinois 60603

I.

INTRODUCTION
Defendants’ Motion should be denied because material questions of fact exist.

Moreover, this Court should disregard Defendants’ irrelevant attack on Plaintiff’s pre-filing
investigation.

Plaintiff’s pre-filing investigation is irrelevant because the real premise of

Defendants’ Motion is that the affidavits they submitted defeat Plaintiff’s claims.
Defendants are wrong.

But

As shown below, summary judgment is inappropriate because the

contemporaneous documents support Plaintiff’s claims.1 Defendants’ irrelevant attack is
unwarranted because, as they know, Plaintiff’s pre-filing role was to (a) obtain the most reliable
source of the underlying occurrence facts -- the contemporaneous documents generated in the
time period leading up to and after the filing of Spehar Capital, LLC’s (“SC’s”) California
lawsuit against CMGT, Inc. (“CMGT”); and to (b) rely on his special counsel’s analysis of
whether those occurrence facts support causes of action against Defendants.2 Because the
contemporaneous documents support Plaintiff’s claims, summary judgment is not appropriate.
II.

RELEVANT FACTS
A. CMGT Hires Defendants
In July 1999, CMGT hired Defendants Mayer Brown Rowe & Maw, LLP (“MBRM”)

and Ronald Given (“Given”) (together, “Defendants”) as its attorneys because CMGT’s
President, Louis Franco (“Franco”), had a pre-existing relationship with Given. (¶1.)3 CMGT
and MBRM entered into a written engagement agreement on January 31, 2000. (Def. SOF ¶10.)
1

This Court has already held that the contemporaneous documents it has seen thus far support Plaintiff’s
claims. (See 6/28/07 Mem. Op.) After reviewing the additional contemporaneous documents submitted herewith,
this Court can be confident that its decision not to dismiss this case at the pleading stage was correct.
2
In response to Defendants’ personal attack, Plaintiff is providing an accurate record of what happened here
pre-filing. To be clear, however, Plaintiff is not asserting an advice of counsel defense to Defendants’ Motion. As
this Court will see, Plaintiff does not make any arguments that are based on (a) privileged documents or
communications, or (b) advice of counsel.
3
Citations to Plaintiff’s Rule 56.1 Stmt are referred to as “(¶__.)” Citations to Plaintiff’s Response to
Defendants’ Rule 56.1 Stmt are referred to as “(Ans. ¶__.)” Citations to Defendants’ Rule 56.1 Stmt are referred to
as “(Def. SOF ¶__.)”

Payment of Defendants’ hourly fees was contingent upon CMGT receiving at least $1,000,000 in
funding. (Ans. ¶10.) Consequently, Defendants had a significant interest in CMGT getting any
financing.
B. CMGT Hires SC
In June 2001, CMGT hired SC to assist it in obtaining financing. (Def. SOF ¶15.) They
entered into a written contract on October 1, 2001. (Ans. ¶15.) SC was entitled to a success fee
of 6% of any Accepted Capital [cash, liquid assets, assets to be used as collateral, Letter of
Credit or other form of capital acceptable to CMGT] upon the closing of a transaction in which
the investor was either: (a) someone introduced to CMGT by SC, or (b) someone with whom
CMGT had approved SC to hold discussions regarding CMGT. (Ans. ¶17.) SC’s October 1,
2001 contract attached a list, “Exhibit A,” that identified the names of all parties who, as of
October 1, 2001, met one of those two criteria. (Id.)
In June 2002, SC asked CMGT to revise its contract.

SC’s owner, Gerry Spehar

(“Spehar”), stated that the revisions were warranted because SC had made valuable contributions
to CMGT. (¶2.) On September 30, 2002, CMGT and SC executed a revised contract (the “SC
Contract.”) (¶3.) Franco also updated Exhibit A. (Ans. ¶17.) After September 30, 2002,
Exhibit A was not formally updated. (Id.)
Pursuant to the SC Contract, if CMGT accepted a term sheet or other commitment for
Accepted Capital of at least $1,000,000, SC was entitled to receive additional compensation,
such as stock, future investment banking rights and a $100,000 management fee. (Ans. ¶17.)
SC’s Contract was to expire on October 1, 2003, but could be terminated earlier. (¶3.)
C. CMGT Approves SC to Have Discussions with Trautner and Signs a Letter
of Intent with Trautner

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In January 2003, CMGT (through Franco) approved SC/Spehar to have discussions with
a CMGT shareholder, Charles Trautner (“Trautner”), and an individual introduced to CMGT by
Trautner, Harlan Smith (“Smith”). (¶¶4-5.) Although Smith was not formally added to Exhibit
A of SC’s Contract, Franco acknowledged in writing that SC was involved in discussions with
him. (¶5.) On January 27, 2003, Franco asked Spehar to participate in a conference call with
Trautner to vet Trautner’s idea of restructuring CMGT into an entity he referred to as “Newco.”
(¶4.)

Under Trautner’s proposal, CMGT’s shareholders would receive only about 20% of

Newco’s stock and Newco would not be responsible for CMGT’s liabilities. (Id.) Franco (on
behalf of CMGT) rejected Trautner’s “Newco” idea. (Id.)
In May 2003, Given and/or Trautner revived discussions about Trautner’s “Newco”
proposal. Given spearheaded those negotiations on behalf of CMGT. Given’s negotiations
resulted in the July 31, 2003 letter of intent (“LOI”) that later became the “Trautner Deal.”
Franco’s involvement in the negotiations was very limited. (¶6.) He did, however, condition the
deal on Trautner’s investment group agreeing to: (a) hire him to be Newco’s President, and (b)
assist him in resolving his credit card debts, IRS obligation and personal loans, which Trautner
agreed to do. (¶¶8, 17 & 21.) On August 8, 2003, Franco sent CMGT’s shareholders a letter
(dated August 7) recommending the Trautner Deal. He stated that there were “no alternatives”
even though the Washoe Tribe (“Washoe”), among others, was considering an investment in
CMGT. (¶¶9& 7.)
D. SC Asks CMGT to Add Trautner to Exhibit A of its Contract
After reviewing Franco’s letter to CMGT’s shareholders, Spehar asked Franco to add
Trautner and another potential investor, FlexBen, to Exhibit A of SC’s Contract.

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Spehar

reminded Franco of the conversations that Spehar had with Trautner at Franco’s request. (¶10.)
Franco did not dispute the accuracy of Spehar’s recitation of facts. (¶11.)
Franco forwarded Spehar’s request to Given. On August 8, 2003, Given responded to
Spehar on behalf of CMGT. Given stated that he and Franco were “big fans” of Spehar, and he
acknowledged that Spehar had spoken to Trautner about his “Newco” idea. However, Given
asserted that the Trautner Deal was not within the scope of SC’s Contract because Spehar’s
conversations with Trautner were not discussed during Given’s subsequent negotiations with
Trautner. Given also stated that he was going to advise Franco to refer any future questions SC
had regarding the Trautner LOI directly to him (Given.) (¶12.) Spehar responded to Given the
next day. Spehar explained his belief that SC’s Contract entitled SC to compensation in any deal
where the investor was either: (a) someone introduced to CMGT by SC, or (b) someone with
whom CMGT had authorized SC to have discussions. Spehar argued that the scope of his
involvement in the negotiations was irrelevant. (¶13.)
In response, Given stated, “[t]here is nothing left to be said regarding the [Trautner] LOI,
in my view. If you wish to pursue it, you will be in an adversarial position and should deal with
us through counsel.” (¶14.) When Spehar asked Franco (by e-mail) what he thought about the
dispute, Franco forwarded the email to Given and told him, “[o]f course, you and I are
completely one voice on this matter.” (¶15.) On August 11, 2003, Franco acknowledged in
writing that FlexBen (but not Trautner) was within the scope of SC’s contract even though
FlexBen was not listed on Exhibit A. (¶16.)
E. CMGT Sends the Washoe a Letter of Intent, Seeks Shareholder Approval of
the Trautner Deal and Rejects SC’s Settlement Attempts
On August 13, 2003, Franco told Given that the Washoe wanted to do a deal, that they
would accelerate their due diligence on CMGT, and that they “can do deals quickly…i.e., in 30-

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60 days.” Franco stated, “I believe the interest is real,” and he recommended sending the
Washoe an LOI. (¶18.) The next day, Given suggested sending the Washoe a copy of the
Trautner LOI with the “20 percentage [sic] deleted.” Franco responded that he did not want to
“set the bar down as low as the Newco LOI” because he believed the Washoe wanted to do a
“much better deal” with CMGT. (¶19.) Later that day (August 14), Franco told SC to send the
Washoe an LOI, which he had approved, that gave the Washoe until September 30 to finish due
diligence. SC carried-out Franco’s instruction. (¶20.)
On August 16, 2003, Franco sent CMGT’s shareholders a letter (dated August 15)
seeking approval of the Trautner Deal. Franco did not disclose CMGT’s negotiations with the
Washoe, his belief that the Washoe’s interest was real or his belief that the Washoe wanted to do
a deal that was better for CMGT than the Trautner Deal. Given helped prepare the August 15
letter. (¶22.)
Meanwhile, Spehar kept trying to resolve SC’s contract dispute regarding the Trautner
Deal. On August 19, 2003, Spehar sent Franco and Given an email regarding their discussions
of the dispute. Spehar stated:
Ron [Given], in between your many epithets and derogatory comments, you were
extremely dismissive today of my efforts to discuss a settlement based on
honoring Spehar Capital’s contract. You encouraged me to ‘bring it on’ and told
me that you were ‘not afraid’ because whatever I do would not affect the
[Trautner] deal. In your words: This deal will go forward!
(¶23.)
Given responded that he had listened to Spehar, had told Spehar his view and that there
was nothing more CMGT could do. (¶24.) On August 21, 2003, Spehar sent an email to Franco,
stating:
I remain agreeable to further legitimate attempts to resolve this dispute amicably.
As stated on our call, however, your delays and the pace of events are quickly

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forcing my hand…Please seek a second legal opinion and reconsider -- you run
CMGT, not Ron Given.
(¶25.) Franco forwarded Spehar’s settlement request to Given and stated, “[m]y trust is in you
and remains so.” Given advised Franco to “[j]ust let it be.” (¶26.)
F. Defendants Tell Trautner about SC’s Contract Dispute, Advise Trautner
How to Protect Newco Against a Deal Disruption and Propose that Trautner
Pay Legal Fees to MBRM
On August 22, 2003, Given sent a memo to Trautner and Trautner’s attorney, John
Politan (“Politan”), that disclosed SC’s contract dispute regarding the Trautner Deal. Given
dismissively stated that Spehar was just “rattling [his] sword a bit.” Given also provided his
strategy for protecting Newco (Politan’s client) in the event that SC was able to stop or unwind
the deal. In that regard, Given stated that the deal documents should have CMGT (Given’s
client): (a) indemnify Newco against third-party claims, (b) allow Newco to escrow the purchase
price, and (c) grant Newco a “perpetual, nonexclusive license” covering CMGT’s software and
business methods.

Given also recommended that Newco be formed and enter into an

employment agreement with Franco. Given (CMGT’s attorney) then stated:
Interestingly enough, they [SC and Dick Ross] may have actually improved the
deal from Newco’s perspective. With the license, if either Gerry or Dick [a
CMGT shareholder] was successful in disrupting the deal, you [Trautner] could
walk away with the software and, most importantly, Lou Franco without making
any payment to CMGT whatsoever.
(¶28.) (Emphasis added.)
Given then proposed that Trautner/Newco pay Defendants: (a) $50,000 for MBRM’s
accrued legal fees immediately, (b) $50,000 for accrued fees when the Trautner Deal closed, and
(c) the entire amount of Defendants’ expenses and legal fees incurred from July 31, 2003 through
closing. Given threatened to stop working on the Trautner Deal if the payment issue was not
promptly resolved. He also solicited future legal business from Newco. (¶28.)

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The next day (August 23), Franco addressed MBRM’s legal fees with Given as follows:
“Chuck [Trautner] wants to work something out with you [Given]/MBRM that will not ‘look
funny,’ even if he [Trautner] has to personally ‘take care of it.’ I told him that you had sent a
letter to him and that he should refer to it on this subject. He [Trautner] had not yet picked-up
your letter from John Politan’s office.” (¶30.)
G. Given and Franco Tell CMGT’s Shareholders about the SC Dispute, and
Given Again Advises Franco to “Ignore” that Dispute
On August 27, 2003, Franco sent CMGT’s shareholders a letter (which was written by
Given) regarding the Trautner Deal. The letter stated: (a) the shareholders had voted to approve
the Trautner Deal, (b) SC has claimed that it is entitled to compensation as a result of the
Trautner Deal, (b) CMGT and its legal counsel strongly disagree with that contention, (c) SC’s
claim should not delay or hinder the proposed transaction, (d) the appropriate venue for the
resolution of SC’s claim will be in the winding up of CMGT, (e) as a result of SC’s claim,
Newco will require indemnification and an escrow of the shares, (f) to protect against any threat
to break-up the transaction after it is consummated, Newco will require an independent license to
CMGT’s software that would survive a break-up, and (g) the only substantive effect of SC’s
claim will be additional documentation complexity and a delay in the winding up of CMGT until
such time as the escrow is released. (¶31.)
On August 31, 2003, Spehar sent Franco an email asserting that certain compensation
provisions of SC’s Contract were trigged when CMGT’s shareholders voted in favor of the
Trautner Deal and chose to accept Newco stock. (¶33.) Franco asked Given if he should
respond in a “legal fashion.” Given advised Franco to “ignore it.” (¶34.)
On September 1, 2003, Franco sent Given a draft summary of CMGT’s liabilities for his
review. With respect to SC’s contract dispute, the summary stated, “[n]o legal action required,”

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“[l]ikelihood of settlement is high if legal action is taken against CMGT,” “MBR&M and
Management agree there is no basis for a claim,” “G. Spehar has indicated he will take legal
action to enforce his contract based on his previous introductions to/discussions with Chuck
Trautner & various investors,” degree of risk is “high,” and no curative action is required. (¶35.)
On September 2, 2003, Franco sent a final version of that summary, which was unchanged with
respect to SC’s contract dispute, to a representative of Trautner’s investment group, Peter Bentz
(“Bentz”). (¶36.)
H. The Washoe Reject a Given-Modified LOI
On September 2, 2003, the Washoe delivered an unsigned letter of intent to CMGT on
the Washoe’s letterhead. (¶¶37-38.) On September 3, Given sent revised copies of the Washoe
LOI to SC and Franco. Given shortened the due diligence deadline from September 30 to
September 29. He also included language that allowed CMGT to close a competing bid (e.g., the
Trautner Deal) prior to September 30. (¶39.) Later that day (September 3), Spehar sent Franco
and Given a revised LOI that Spehar had prepared. Spehar’s revised LOI incorporated Given’s
September 29 due diligence deadline, but removed CMGT’s ability to close a competing deal
before the Washoe finished its due diligence. Spehar asserts that Franco told him to send his
revised LOI to the Washoe, which Spehar did on September 3. Franco asserts that he did not
authorize Spehar/SC to send that LOI to the Washoe. (¶40.)
On September 4, Franco instructed Spehar to tell the Washoe about Given’s additional
revisions, e.g., that CMGT could close a competing deal prior to September 29. Spehar warned
Franco that the Washoe would not agree to that change, but Franco insisted that Spehar tell the
Washoe about Given’s revisions. Franco then sent Given an email, confirming that he would
support Given’s terms to protect the Trauter Deal:

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Gerry [Spehar] contends nothing less than CMGT ‘guarantee’ that no closing
will occur until at least 9/30 will satisfy them [the Washoe] because they intend
to use an expensive Philadelphia law firm to accelerate their review/due diligence
to be able to commit to funding by 9/30. Of course, we are using 9/29 as the
significant date!
(¶41.)
Spehar followed Franco’s instructions and told the Washoe about Given’s additional
revisions. The Washoe told Spehar that it would not agree to Given’s changes to the LOI. After
learning that the Washoe had rejected the revised LOI, Franco asked Given whether he should
suggest to the Washoe that they “step into” the Trautner investment group’s position. (¶42.) In
response, Given arranged a phone call between himself and the Washoe.

There were no

discussions during that call about the Washoe “stepping into” the Trautner group’s position.
Because Given shortened the due diligence deadline and would not guarantee that CMGT would
not close a competing deal prior to the Washoe completing due diligence, the Washoe terminated
its negotiations with CMGT. (¶43.)
I. Given Provides Trautner’s Attorney with a Nine-Point Strategy For
Responding to a Potential Temporary Restraining Order, and Given
Demands a $50,000 Legal Fee Payment
After having its settlement overtures dismissed, on September 9 and 11, 2003, SC
notified Given that it was seeking a TRO to prevent the Trautner Deal from closing. On
September 12, 2003, SC obtained a TRO. (¶44.) A few days later, on September 14, Given sent
a memo to Politan (Trautner’s lawyer). The first issue Given addressed was Defendants’ fees.
He told Politan what needed to be put into a letter on Politan’s letterhead regarding the Trautner
group’s payment of Defendants’ fees. (¶46.)
Given then explained to Politan that the work he (Given) needed to do (and be paid for)
included “cleaning up Lou Franco’s credit card situation.” Given next discussed timing issues.
He stated that CMGT’s shareholder approval of the Trautner Deal was going to expire on

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October 17, 2003. He also stated his understanding that Trautner’s investment group might
prefer a later closing date, but thought that pushing the date back was a bad idea because (a) a
later closing date would require another shareholder solicitation, and (b) he did not think Franco
could “hold out much longer.” (¶47.)
Because of Franco’s credit card situation and the possibility of an SC TRO, Given
advised Politan to form Newco as soon as possible and to have Newco immediately enter into an
employment agreement with Franco. He stated, “this is the only way to get him [Franco]
focused on building Newco’s business instead of dealing with less productive things such as the
Spehar TRO.” (¶48.)
Given then discussed the possibility of SC obtaining a pre-transaction TRO, and he
provided Politan with the following nine-point strategy:
whether we are simply dealing with threats of a pre-transaction TRO, or an actual
TRO, I think the following strategy makes sense:
1. We notify CMGT’s shareholders of the threats of the TRO or send
them a copy of the actual TRO if it is in fact issued.
2. Lou Franco and Newco [enter] into an employment agreement, which
will confirm the arrangements to deal with Franco’s debts and to
move him to Phoenix.
3. I subsequently notify the shareholders (using the E-mail list that
includes Spehar) that neither Franco nor Newco has any desire to
expend time or funds to engage in litigation, even if they firmly
believe the Spehar litigation is frivolous. As a consequence of the
Spehar TRO, I will announce that Lou intends to resign and that
Newco intends to terminate the LOI. I also announce that I have not
been retained to deal with the TRO. Lou’s previous correspondence
with the shareholders has made it clear that he is on the verge of
financial collapse and will need to move on to other opportunities if a
transaction cannot happen. Neither Newco nor any other third-party
investor group could be expected to get bogged down in this type of
litigation when they have many viable alternatives.
4. When I notify the shareholders that Lou Franco intends to resign, I

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will indicate that he will do all he can [to] make arrangements for the
servicing of the existing contracts to avoid default and the consequent
potential shareholder liability.
5. Spehar will have to return to court to make the TRO permanent. My
notice to the shareholders (which includes at least one California
lawyer) will give them an opportunity to take their own actions
against Spehar. His TRO may simply be dissolved, or he may be
convinced to give up his efforts to disrupt the transaction beforehand.
In either case, the uncertainty and delay he will have caused will make
it reasonable to ask the shareholders to extend the October 17
deadline.
6. If the Spehar situation does not resolve itself, I think Newco should
simply start on its own with Lou Franco as its president and CEO.
Newco would enter into a commercial transaction to service, in the
name of CMGT, Inc., its existing four contracts. In effect, CMGT,
Inc., will outsource the servicing of its existing book of business to
Newco pursuant to arm’s-length agreements. When these existing
contracts expire, the clients would be free to roll over their accounts to
Newco. For this service, Newco would be paid for its expenses. Any
excess amounts could be returned to CMGT, but this would only be
done after netting everything Newco has paid on CMGT, Inc.’s behalf
(including legal fees and expenses). This outsourcing arrangement
would require Newco to enter into a service arrangement with Rob
Crandall and other Canadian employees, just like it would in the
transaction contemplated by the [Trautner/Newco] LOI. I am very
confident they would cooperate.
7. Depending on the actual language of the TRO, if it is issued, I think it
would be reasonable for Newco to also be granted a license in the
software. Again depending on the language of the TRO, we might
structure this as an option to acquire a license in the software. I would
like to note that if for whatever reason such a license is not deemed
appropriate or desirable, Lou Franco is comfortable that we can
independently create appropriate software which will not infringe on
anything belonging to CMGT, Inc.
8. If the outsourcing alternative is consummated, CMGT, Inc. will not
receive any shares of Newco. Also, Newco will not have to be
immediately capitalized at the $2.5 million level. CMGT, Inc. and
Newco would, of course, be free to subsequently enter into a
transaction like that contemplated by the LOI after the Spehar
situation is clarified. It may be no longer in Newco’s interests to do
so, however, in which case all Spehar will have accomplished is to
have deprived the CMGT, Inc. shareholder/stakeholder group of a

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20% interest in Newco. This is not Newco’s fault and is, frankly,
beyond its control. I think everything that could be done to be fair to
the CMGT, Inc. shareholder/stakeholder group has been done.
9. I believe the outsourcing alternative could be the functional
equivalent of the transaction contemplated by the LOI. The only
difference is that Newco would not be receiving exclusive rights in the
software. As a practical matter, however, once Lou Franco leaves
CMGT, Inc., there is no one left to do anything with the software
anyway.
(¶49.) (Emphasis added.) (Hereafter, Given’s strategy for consummating the Trautner Deal
without any payment to CMGT is referred to as the “functional equivalent” deal.) Given ended
his letter to Politan by stating he would not do any more work unless the legal fee issue was
immediately resolved. (¶50.)
J. Given Receives Notice of SC’s TRO and Implements His Nine-Point
Strategy, Which Will Culminate in the “Functional Equivalent” Deal
On September 16, 2003, Given received notice of SC’s TRO and immediately began
implementing his nine-point strategy for dealing with that TRO. (¶¶53-54 & 56.) First, on
September 17, he sent an email to CMGT’s shareholders and Spehar that attached a copy of SC’s
TRO, and stated that Defendants had not been retained to “deal with this matter.” (¶54.) Then,
on September 19, Given implemented points one, three and four of his strategy -- i.e., he sent
CMGT’s shareholders and Spehar an email stating: (a) Franco was going to resign, (b) Newco
was going to terminate the LOI, (c) SC’s claim was “absolutely spurious” and its request for
injunctive relief was “clearly inappropriate,” (d) CMGT had no money to fight SC, and (e)
Franco and Given were going to “work on” CMGT not breaching its client contracts. Given
invited CMGT’s shareholders to call him with questions about SC’s lawsuit, but he said nothing
about the “functional equivalent” deal he had proposed to Trautner’s lawyer. (¶56.)

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On September 19, SC’s attorney responded to Given’s email. He stated, “Spehar Capital
was forced to rely on the legal process to preserve its rights because CMGT and its counsel
refused to substantively address Spehar Capital’s claims, even though it knew of Spehar
Capital’s position and the potential for legal action.” SC’s attorney also stated that CMGT could
have closed the Trautner Deal while protecting SC’s rights, but decided to “just pull the plug.”
(¶57.)
A CMGT shareholder, John Ross, sent an email to CMGT’s other shareholders, stating:
I have no idea of what, if any, disputes or claims may exist which might delay
and/or diminish the ultimate distribution to the rightful shareholders. Further, I
have just received a faxed copy of a filing by Spehar Capital, LLC for a
temporary restraining order against CMGT in connection with the Newco sale. It
sounds as if this is going to be a difficult sale to consummate.
(¶58.) Clearly, Ross was neither asked to contribute money to defend SC’s TRO request nor told
about Given’s conflicted nine-point strategy and the fact that Given and Franco were
implementing that strategy.
On September 20, 2003, Baliga sent an email to Spehar, Franco and James Wong
(“Wong”). Baliga encouraged them to settle SC’s dispute. Spehar stated that he remained
willing to talk about solutions. Franco forwarded that email exchange to Given. (¶59.)
K. Trautner’s Investment Group Pays Defendants $50,000, and Given’s
“Functional Equivalent” Deal Moves Full Steam Ahead
On September 21, 2003, Politan sent Given the letter he had requested in his September
14 memo (see Ex. 62) regarding payment of Defendants’ fees. Politan’s letter did not say
anything about the Trautner LOI being terminated. Politan enclosed a $50,000 check payable to
Defendants. (¶60.) The next day, Franco sent Given several “to do” lists that were prepared by
Trautner’s representative, Bentz. Bentz’s “to do” lists, which are dated September 20, 2003,
reveal that Given and Franco were proceeding with Given’s “functional equivalent” deal. The

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lists also reveal that Newco’s name would be “First In Touch.” Finally, these lists reveal that
Wong knew about and was participating in Given’s “functional equivalent” deal. (¶61.)
On October 2, 2003, Given sent CMGT’s shareholders and Spehar an email. Pursuant to
point 3 of his nine-point strategy, Given stated that because SC had not withdrawn its lawsuit,
Trautner’s investment group had terminated their LOI. (¶63.)

Given did not disclose that

Trautner’s investment group had just paid MBRM $50,000 or that he was proceeding with the
“functional equivalent” deal. (Id.) The next day, SC obtained a preliminary injunction. CMGT
did not appear for the preliminary injunction hearing. (Def. SOF at ¶43.) That same day, SC’s
attorney told CMGT’s shareholders that SC still wanted to salvage a deal that worked for all
parties. (¶64.)
Unaware of Given’s “functional equivalent” deal with Trautner, Spehar asked Franco for
the Trautner group’s contact information so he could try to (a) bring them back to the table, and
(b) resolve SC’s contract dispute. Franco forwarded Spehar’s October 4, 2003 email to Bentz
and stated, “Ron and I discussed this and we are not replying to Gerry’s email as it is not
necessary.” (¶66.) Given and Franco then kept pursuing the “functional equivalent” deal. (¶¶6769.)
On or about October 6, 2003, Given, Franco, Bentz and Trautner discussed “the many
issues” before them, including SC’s preliminary injunction and TRO. (¶67.) By October 2003,
Given’s “functional equivalent” deal was in full-swing. Instead of Trautner’s investment group
forming and owning Newco/First In Touch, the plan was to have an existing company, Keenan
& Associates (“Keenan”), with whom CMGT had a pre-existing relationship, form First In
Touch as its subsidiary. Keenan would then enter into an outsourcing agreement with CMGT to

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service CMGT’s four existing clients. That outsourcing work would be done by First In Touch,
which would have an Arizona-based call center called the “Arizona Call Center.” (¶68.)
According to the draft deal documents, Trautner’s investment group was to have funded
CMGT’s operating deficit from July 31, 2003 through the formation of First In Touch. The draft
documents gave Trautner’s investment group an option to purchase an ownership interest in the
Arizona Call Center. The formula for the purchase price was based on the difference between
(a) the amount spent by Keenan with respect to First In Touch, and (b) the amount paid by
Trautner’s investment group to fund CMGT’s operating deficit.

The deal documents also

contemplated that Franco would be the President of both First In Touch and the Arizona Call
Center. Franco also had an opportunity to become an owner of the Arizona Call Center. (¶69.)
L. Given Advises Franco About SC’s Lawsuit and How to Respond to
Shareholder Inquiries Regarding CMGT’s Status
While working towards consummating Given’s “functional equivalent” deal, Franco
repeatedly consulted with Given about SC’s lawsuit. (¶¶55, 62 &70-71.) For example, Franco
sought Given’s advice about SC’s amended complaint seeking damages, and SC’s motion for
default judgment, which SC obtained on March 18, 2004. (¶¶70-71.)
In March 2004, Franco and Given began receiving emails from or on behalf of CMGT
shareholders inquiring about the status of CMGT. One such email stated, “[i]s CMGT still
active? We have heard nothing since being advised of the Spehar injunction…Please fulfill your
obligation to respond.” Franco asked Given how to respond. Given told Franco to “send your
note out to everyone regarding the LA lawsuit. I wouldn’t bother with them [the CMGT
shareholders] anymore than that.” (¶72.)
Pursuant to that advice, Franco sent CMGT’s shareholders an email which had been
reviewed by Given. The email stated that Franco had resigned as CMGT’s President and CEO.

15

(Franco later testified, in a citation deposition, that he resigned on September 19, 2003.)
Attached to Franco’s email were a copy Given’s September 19 email, SC’s $17 million default
judgment and other “legal papers.” Franco’s email did not disclose that he was negotiating to
become First In Touch’s President as part of Given’s proposed deal that was the “functional
equivalent” of the Trautner Deal. (¶73.)
III.

SUMMARY OF PLAINTIFF’S CLAIMS
Claim One: Defendants committed malpractice when they: (a) negligently advised

CMGT to ignore SC’s contract dispute, (b) failed to make a reasonable effort to settle that
dispute, and (c) devised a conflicted strategy for dealing with the SC dispute that protected
Defendants’ and Franco’s interests, but was destructive to CMGT. As a result of Defendants’
malpractice, SC filed its lawsuit and obtained both injunctive relief and a $17 million default
judgment. In addition, Defendants’ malpractice caused CMGT to lose the Trautner Deal and be
forced into involuntary bankruptcy.
Claim Two: Defendants committed malpractice when they advised CMGT to shorten the
Washoe due diligence deadline from September 30 to September 29, and advised against giving
the Washoe a guarantee that CMGT would not close a competing deal before the Washoe
finished its due diligence. Defendants did this even though they knew that the Trautner Deal
might not close before October 16 and that Trautner’s investment group would agree to a postOctober 16 closing date. Moreover, even if Defendants did not learn that Trautner’s investment
group would agree to a later closing date until after September 4 (the date the Washoe walked
away), Given (who had negotiated with the Washoe on CMGT’s behalf) should have tried to
resurrect the Washoe deal. He did not do that because he was putting Defendants’ interests (i.e.,
an immediate $50,000 payment) and Franco’s personal interests (i.e., resolving credit card

16

collection actions and getting a job as First In Touch’s President) ahead of CMGT’s interests.
As a result of this malpractice, CMGT lost a valuable financing opportunity.
Claim Three: Defendants committed malpractice when, instead of making a real effort to
settle with SC after it filed its lawsuit and/or obtain a defense fund to defend SC’s lawsuit, Given
developed and implemented his conflicted nine-point strategy (see Ex. 62.) As a result of
Defendants’ malpractice, SC obtained injunctive relief and a $17 million default judgment.
Moreover, CMGT lost the Trautner Deal and was forced into involuntary bankruptcy.
IV.

ARGUMENT
A. Legal Standard
Summary judgment is appropriate only when the record demonstrates that there are no

genuine issues of material fact. Fed.R.Civ.P. 56. A genuine issue of material fact exists if there
is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The court must review all evidence
in a light most favorable to the non-moving party and draw all inferences in the non-movant’s
favor. Judsen Rubbert Works, Inc. v. Mfg., Production & Service Workers Union Local No. 24,
889 F. Supp. 1057, 1060 (N.D. Ill. 1995.)
Defendants do not cite any cases regarding the standard for a summary determination.
They also fail to cite any “fraud on the court” cases. Instead, Defendants rely exclusively on
dicta from Maxwell v. KPMG, LLC, 520 F.3d 713 (7th Cir. 2008). Specifically, Defendants rely
on Maxwell’s discussion about KPMG’s right to move for sanctions after summary judgment had
already been granted (and affirmed) in its favor. 520 F.3d at 718-19. That dicta from Maxwell is
irrelevant because Defendants’ Motion is for summary judgment, not sanctions. Moreover, the

17

contemporaneous documents demonstrate that this case is neither appropriate for summary
judgment nor frivolous.
B. Defendants’ “Absurd Result” Argument Should Be Rejected
Citing Maxwell, Defendants argue that summary judgment is appropriate because SC
cannot be both the cause of CMGT’s insolvency/bankruptcy and its primary beneficiary.
Defendants’ argument should be rejected because the Maxwell statement on which Defendants’
rely is obiter dictum. Maxwell, 520 F.3d at 715-16. The statement is obiter dictum because (a) it
was a passing remark on an issue that was not addressed by the parties, and (b) it was not
necessary to the outcome of the case. See Exelon Corp. v. Dept. of Revenue, -- N.E. 2d --, 2009
WL 426468 at *5-6 (Ill. Feb. 20, 2009) (defining obiter dictum); see also, Dedham Water Co.,
Inc. v. Cumberland Farms Dairy, Inc., 972 F.2d 453, 459 (1st Cir. 1992) (defining obiter dictum)
and Passmore v. Astrue, 533 F.3d 658, 661 (8th Cir. 2008) (defining dictum.) Because the
Maxwell statement is obiter dictum, it is not binding. Id. Obiter dictum is not binding, in part,
because the statement may not have been as fully considered as it would have been if it were
essential to the outcome. Id. Indeed, because the Maxwell statement was obiter dictum, the
court did not explain what it meant by the phrase “cause the bankruptcy.”4

Additionally,

Defendants’ argument should be rejected because, as explained below, even if the Maxwell
statement was not dicta, the issue of whether Defendants or SC was a proximate cause of
CMGT’s insolvency is a disputed question of fact.
Defendants also argue that summary judgment is appropriate because this case will
produce an “absurd result.” Defendants’ “absurd result” argument is based on the false premise
that: (a) in order to win, Plaintiff must prove that SC’s contract claim in the underlying case was

4

Plaintiff interprets the phrase “cause the bankruptcy” in this context to mean cause the debtor’s insolvency.

18

“meritless,” and (b) if that happens, the result will be contrary to law because SC is the “real
party in interest” and will be unjustly enriched.
The first premise of Defendants’ argument is false because Plaintiff does not need to (and
is not going to) prove that SC’s contract claim was “meritless.” Instead, Plaintiff will prove that
SC had a colorable claim that should not have been “ignored” (as Given advised). For instance,
the contemporaneous documents demonstrate that: (1) CMGT authorized SC to have discussions
with Trautner (specifically about the structure of what later became the Trautner Deal) (¶4), (2)
CMGT and SC did not formally updated Exhibit A after September 30, 2002, even though
Franco acknowledged that additional investors were within the scope of SC’s Contract (¶¶5 & 16
and Ans. ¶17), and (3) SC’s Contract could be interpreted as requiring CMGT to compensate SC
whenever any investor who is within the scope of the contract closes any deal with CMGT (¶13
and Ex. 5 at p. 3, ¶1.)5 Under those circumstances, it was negligent for Given to advise that
CMGT “ignore” SC’s claim and “just let it be.” Given gave that bad advice both before and
after SC filed its lawsuit. (E.g., ¶¶ 26, 34 & 66.) Moreover, CMGT had technical defenses that
would have prevented SC from obtaining a judgment for damages, regardless of the merit of
SC’s contract claim. (See pp. 27-28, infra.) Finally, as this Court previously noted, it is
immaterial whether this Court believes that SC’s default judgment is “speculative” because it is a
valid judgment that cannot be collaterally attacked.6 (9/26/07 Tr. at p. 52.)
Even if Defendants’ first false premise is not wrong (which it is), their second false
premise -- that the posture of this case is contrary to law -- is wrong. This Court previously
5

SC’s Contract explicitly accounted for a transaction that involved the sale of CMGT’s assets to a successor
company, e.g., the Trautner Deal. (Ans. ¶34.)
6
Because the bankruptcy court has held that SC is an unsecured creditor of CMGT, SC will share in any
recovery just like any other unsecured creditor, i.e., it will receive its pro rata share. (Ans. ¶58.) Any objections to
the fairness of SC receiving its pro rata share of a recovery should be made by the unsecured creditors to the
bankruptcy court at the appropriate time. Indeed, bankruptcy law has rules, such as equitable subordination, to deal
with that type of objection.

19

noted that it has not seen “any posture like this in a case before,” i.e., where a judgment creditor
(SC) seeks to collect on its judgment through a legal malpractice case by the insolvent judgment
debtor (CMGT/Plaintiff) against the attorneys (Defendants) who represented the judgment debtor
in the underlying case. (9/26/07 Tr. at p. 4.) However, since this Court made that statement, the
Illinois Appellate Court has addressed a case that has that same posture. In Brandon Apparel
Group v. Kirkland and Ellis, 382 Ill. App. 3d 273 (1st Dist. 2008), a judgment creditor (Johnson
Bank) sought to collect on its judgment through a legal malpractice case by the insolvent
judgment debtor (Brandon Apparel Group) against the attorneys (Kirkland and Ellis) who
represented the judgment debtor in the underlying case. In its reversal of the circuit court’s
summary determination in favor of Kirkland, the Illinois Appellate Court did not express any
concern that the case was “absurd” or that Johnson Bank (the judgment creditor) would be
unjustly enriched. Instead, the court remanded for trial. This Court should follow Brandon
Apparel Group and deny Defendants’ Motion.
C. The Contemporaneous Documents Support Plaintiff’s Claims
1. Claim One: Malpractice Before SC Filed its Lawsuit
a. Existence of Attorney-Client Relationship
The undisputed evidence proves that: (a) CMGT (through Franco) routinely consulted
with Given about SC’s contract dispute (¶¶12-15, 23-26, 31 & 34-35); (b) Given advised Franco
to direct all communications regarding the dispute to himself (¶12); (c) Given responded to SC’s
contract dispute on behalf of CMGT (¶¶ 12-15, 23-26 & 34-35); (d) Franco believed that he and
Given were of “one voice” with respect to the matter (¶15); and (e) Franco’s “trust” was in
Given (¶26.) Thus, Plaintiff has established the existence of an attorney-client relationship with
respect to Defendants’ pre-lawsuit conduct as it relates to SC’s contract dispute. Morris v.

20

Margulis, 307 Ill. App. 3d 1024, 1035 (5th Dist. 1999), reversed on other grounds, 197 Ill. 2d 28
(2001).
b. Breach of Duty and Proximate Cause
When SC’s contract dispute arose, Defendants should have pursued a settlement with SC
that would treat the Trautner Deal as, at least arguably, within the scope of SC’s Contract in
exchange for SC’s agreement to “give-up” some aspect or percentage of its compensation. But
Defendants did not do that. Instead, Defendants wrote-off SC’s colorable claim (see p. 19 supra)
as a “meritless” distraction that would not disrupt the deal, advised CMGT to “ignore” the claim
and even dared SC to “bring it on.” (¶¶12-14, 23-26, 28, 31, 34-35 & 48.) Defendants’
negligent response to SC’s dispute caused SC to file its lawsuit, to obtain injunctive relief and to
obtain a default judgment.

It also caused SC to thereafter put CMGT into involuntary

bankruptcy. Moreover, Defendants’ negligent failure to settle combined with their conflicted
strategy for responding to SC’s lawsuit was a proximate cause of the Trautner investment
group’s abandonment of the Trautner Deal and acceptance of Given’s “functional equivalent”
deal, which only benefited Franco, Trautner and Defendants.
Defendants argue that summary judgment is appropriate because four of CMGT’s
shareholders -- Franco, Wong, Baliga and Quarles (the “Affiants”) -- believe/assert that CMGT:
(a) had no money to settle with SC, and (b) tried to settle with SC, which included making a
$250,000 cash offer, but that SC refused to settle. Defendants’ arguments fail for several
reasons.
First, the contemporaneous documents show that SC was not demanding a pre-closing
cash payment to settle the dispute. (See Exhibits 6 and 28.) Thus, whether CMGT had cash to
pay SC before closing the Trautner Deal is irrelevant.

21

Second,

the

contemporaneous

documents

contradict

the

Affiants’

purported

beliefs/assertions. Those documents reveal that Given’s responses to SC’s settlement attempts
were uncompromising. For example, in just his second correspondence regarding the dispute,
Given told SC that if it pursued the issue any further it would be in an “adversarial position” and
should deal with CMGT “only through counsel.” (¶14.) When SC subsequently tried to settle
with Franco, Given advised Franco to “just let it be.” (¶26.) Later, Given advised Franco to
“ignore” SC. (¶34.) The evidence also shows that CMGT believed that SC was willing to settle.
In its September 1, 2003 summary of CMGT’s liabilities, CMGT correctly noted that if SC filed
a lawsuit the likelihood of a settlement was “high.” (¶35.) Thus, the failure to settle was the
result of Given’s malpractice.
Third, the contemporaneous documents are inconsistent with Franco’s assertion that
Trautner’s investment group offered to pay SC $250,000.

None of the contemporaneous

documents mention any such purported settlement offer. (¶27.) Moreover, Given’s August 22
memo to Trautner, which disclosed SC’s contract dispute for the first time, advised Trautner that
his investment group could acquire CMGT’s assets without paying anything to CMGT if SC
disrupted the deal. (¶28.) Amazingly, Given told Trautner that it was better for his investment
group if SC disrupted the deal. (Id.) It is not believable that Trautner’s investment group would
offer to pay SC $250,000 after being advised by Given (CMGT’s counsel) that it was better for
them if SC disrupted the deal.
In sum, the evidence creates material questions of fact as to whether Defendants breached
their duty and whether that breach was a proximate cause of CMGT’s insolvency. None of the
Affiants even addressed any of the contemporaneous documents. Because material questions of

22

fact exist as to what/who caused CMGT’s insolvency, Defendants’ Maxwell argument, i.e., that
SC cannot be both the cause of the bankruptcy and its primary beneficiary, should be rejected.
c. Damages
Plaintiff discusses damages for all three claims at page 30 infra.
2. Claim Two: The Washoe Negotiations
a. Attorney-Client Relationship
The undisputed evidence proves that CMGT (through Franco) asked for and received
advice from Given concerning CMGT’s negotiations with the Washoe. (¶¶18-19, 39 & 41-43.)
In fact, Given negotiated directly with the Washoe on behalf of CMGT. (¶43.) Thus, an
attorney-client relationship existed with respect to Defendants’ conduct as it relates to the
Washoe negotiations.
b. Breach of Duty and Proximate Cause
Defendants argue that summary judgment is appropriate because the Affiants have
opined that Defendants did everything required of them with respect to the Washoe negotiations
and that “Franco made a business decision not to pursue financing from the Washoe.” However,
the contemporaneous documents tell a different story.
Those documents reveal that Franco: (a) believed the Washoe’s interest in CMGT was
“real” (¶18), (b) believed that the Washoe wanted to do a deal with CMGT that was better for
CMGT than the Trautner Deal (¶19), (c) believed that the Washoe could complete due diligence
quickly (¶18), and (d) asked for Given’s advice about whether to suggest to the Washoe that it
step into the Trautner group’s position. (¶42.)
The documents also reveal that: (a) Given negotiated directly with the Washoe on behalf
of CMGT (¶43), (b) the Washoe terminated negotiations with Given on September 5th because

23

Given shortened the due diligence date and refused to guarantee that CMGT would not close a
competing deal before the Washoe finished its due diligence (¶43), (c) sometime before
September 14, Given learned that Trautner’s investors would accept a later closing date (¶47),
but (d) Given did not want to push back the Trautner Deal’s closing date because he was
concerned about Franco’s personal financial situation and he was trying to collect from Trautner
an immediate $50,000 payment towards MBRM’s accrued fees. (¶47; see also, Ex. 62.)
In sum, regardless of what the Affiants now say they believe, the contemporaneous
documents support Plaintiff’s allegations that Defendants’ conduct with respect to the Washoe
negotiations did not advance CMGT’s interests, was a breach of their fiduciary duties and was a
proximate cause of the Washoe’s decision to terminate negotiations.7
c. Damages
Plaintiff discusses damages for all three claims at page 30 infra.
3. Claim Three: Malpractice After SC Filed Suit
a. Attorney-Client Relationship
Given’s August 22 and September 14 memos to Politan prove that he provided legal
advice about SC’s lawsuit. (See Exhibits 34 & 62.) Other contemporaneous documents prove
that Given implemented his strategy for responding to SC’s lawsuit. (See ¶¶54, 56, 60-61, 66 &
67-69.) The documents also prove that Given advised CMGT about his view of the validity of
SC’s lawsuit. (E.g., ¶¶31, 35 & 56.) Moreover, as this Court previously noted, Given invited
CMGT’s shareholders to contact him with questions regarding SC’s lawsuit. (¶56; see also,
6/28/07 Mem. Op. at p. 14.) The documents also prove that Franco repeatedly sought Given’s
7

Defendants make too much of the fact that Plaintiff mistakenly alleged that the Washoe signed a letter of
intent. Certainly, if the Washoe had signed the LOI that they delivered, it would be clear evidence that they were
serious about investing in CMGT. But, there is plenty of other evidence, including Franco’s admissions, that the
Washoe were serious about doing a deal with CMGT. (See e.g., ¶¶18-20, 32 & 37-38.) Plaintiff intends to seek
leave to file an amended complaint at an appropriate time, at which time the mistaken allegation will be corrected.

24

advice about SC’s lawsuit. (¶¶55, 62 &70-71.) Finally, Given’s September 17 email, with its
“Mayer Brown has not been retained to deal with this matter” statement, was prepared and sent
as part of Given’s conflicted nine-point strategy for responding to a potential TRO. (Ex. 62 at pt.
3.) Thus, the evidence supports Plaintiff’s allegation that Defendants owed CMGT fiduciary
duties with respect to SC’s lawsuit. Morris, 307 Ill. App. 3d at 1035.
b. Breach of Duty
When Defendants realized that SC would likely sue to stop the Trautner Deal from
closing or, at the very latest, when Defendants learned that SC was seeking a TRO, they should
have immediately advised CMGT to notify CMGT’s shareholders and Trautner of SC’s plan and
to pursue a settlement with SC. In fact, just before SC filed its lawsuit, Franco and Given noted
that the likelihood of settling with SC was “high” if SC filed a lawsuit. (¶35.) If settlement
negotiations did not work, Given should have told CMGT why he believed injunctive relief was
inappropriate and advised CMGT to encourage its shareholders and Trautner’s investment group
to contribute to a defense fund so that CMGT could prevent SC from obtaining injunctive relief.
But Defendants did not do any of that. Instead, before SC filed its lawsuit, Given
developed a strategy for responding to an SC lawsuit that was not in CMGT’s best interests.
(¶28 and Ex. 62.) That strategy was not in CMGT’s best interests because it counseled Trautner
and Franco to cut CMGT out of the deal. (Id.) Before SC filed its lawsuit, Given actually told
Trautner that it was better for him if SC disrupted the deal. (Id.) Given then misled CMGT’s
unconflicted shareholders -- e.g., shareholders other than Franco and Wong -- into believing that
SC’s dispute could not stop the Trautner Deal from closing. (¶31.) He did not disclose his
concern that SC could stop the deal from closing, that he had developed a strategy that would
allow Trautner’s investment group to acquire CMGT’s assets without paying anything to CMGT,

25

or that the “functional equivalent” deal would take care of Franco’s and Trautner’s interests and
get $100,000 of Defendants’ accrued fees paid. (Id.)
When Given learned that SC had filed an action seeking a TRO, he further developed his
conflicted strategy for responding to an SC deal disruption.

(¶¶44 & 49.)

That strategy

protected everyone in the deal from SC’s TRO, except for CMGT (Given’s client).

(Id.)

Accordingly, when CMGT’s shareholders began asking Franco and Given about CMGT’s status
after SC obtained an injunction, Given advised Franco to send the shareholders a note regarding
SC’s lawsuit, but not to “bother with them any more than that.” (¶72.) Moreover, when Spehar
tried to revive the Trautner Deal in October 2003, Given told Franco and Trautner’s investment
group that there was no reason to respond. There was no reason to respond because they had
abandoned CMGT and were proceeding with the “functional equivalent” deal. (¶66.)
Instead of being candid about these well-documented facts, Defendants ignore them and
feign dismay that Plaintiff would allege that an “internationally-recognized law firm” would fail
to appear in a lawsuit and let its client default four times. Defendants fail to acknowledge that
CMGT defaulted because defending SC’s lawsuit was not part of Given’s strategy. Given’s
strategy was to send emails to CMGT’s shareholders and SC that lulled them into believing that
CMGT would be dead unless SC immediately withdrew its TRO. (Ex. 62.) Knowing that would
not happen, Given’s plan was to abandon CMGT and proceed with the “functional equivalent”
deal. (Id.) That deal benefited Trautner’s investment group, Franco and Defendants, but it
destroyed CMGT and made its shareholders’ investments worthless.8 (Id.)

8

Defendants sarcastically ask, “[w]ould even a first year law student advise a client to ignore litigation and
just pretend it does not exist?” (Mot. p. 18.) But even Defendants’ hypothetical first year law student would know
not to develop and implement a conflicted strategy that advances your interests and your opposition’s interest, but
destroys your client.

26

Because Given’s strategy included telling CMGT’s shareholders that Trautner’s
investment group had terminated the LOI, that Franco had resigned, that CMGT had no money
to fight Spehar and that CMGT could not protect their investment from SC’s lawsuit, it is not
surprising that CMGT’s shareholders wrote-off their investment in CMGT and did not want to
contribute money to defend SC’s lawsuit. (See Exhibits 62 & 68.) Moreover, after SC obtained
its TRO, Given’s and Franco’s efforts were focused on consummating the “functional
equivalent” deal -- not on settling or defending SC’s lawsuit.

(¶¶60-61, 65-69 & 72-73.)

Finally, Franco testified that CMGT “could not step foot in California for legal reasons” that
would have to be explained by Given. (¶52.) The evidence supports an inference that at least
one of those “legal reasons” was that Given did not want to subject CMGT to California
jurisdiction.

(Ex. 68.)

Another “legal reason” was that Given did not want CMGT’s

unconflicted shareholders to discover that he was the source of the strategy whereby Trautner’s
group could acquire all of CMGT’s key assets without paying for them, Franco’s interests would
be taken care of, and MBRM would be paid at least $100,000.
In sum, the evidence supports Plaintiff’s allegation that Defendants breached their
fiduciary duty when Given developed and implemented his conflicted strategy for not responding
to SC’s lawsuit. Thus, summary judgment is not appropriate here.
c. Proximate Cause
By implementing his nine-point strategy instead of advising CMGT to settle with SC or
to seek money from its shareholders and/or Trautner to defend SC’s lawsuit, Defendants were a
proximate cause of SC obtaining injunctive relief and a default judgment.

If CMGT had

defended SC’s request for a TRO, CMGT would have won because, as Defendants admit,
adequate legal remedies were available to SC. (Ex. 68.)

27

Moreover, Defendants knew that SC was in bad shape financially. (Ans. at ¶43.) If
CMGT had defended SC’s request for injunctive relief, it would have convinced the California
court to require SC to post an injunction bond substantially in excess of $25,000, which was the
amount SC was required to post. See Cal. Civ. Code § 529; see also, Hummell v. Republic
Federal Savings & Loan, 133 Cal. App. 3d 49 (Cal. Ct. App. 1982.) Because SC could not have
done that (Ans. ¶43), it would not have obtained injunctive relief. Moreover, Defendants should
have advised CMGT that it could recover its attorney’s fees from SC’s bond. See Surety Savings
and Loan Assoc. v. Nat’l Automobile & Cas. Ins. Co., 8 Cal. App. 3d 752 (Cal. Ct. App. 1970)
(attorney’s fees resulting from issuance of injunction are recoverable); see also, Casitas
Investment Co. v. Paratore, 203 Cal. App. 2d 811, 818 (Cal. Ct. App. 1962) (attorney’s fees
reasonably incurred in securing release of a TRO are recoverable.) That information would have
made the unconflicted shareholders even more willing to contribute to a defense fund.
If CMGT had defeated SC’s attempts to stop the Trautner Deal from closing, SC would
not have amended its complaint to seek damages. (Ans. ¶45.) However, even if SC would have
pursued a lawsuit for damages, CMGT could have prevented a $17 million award, even if SC
prevailed on liability. Thus, regardless of the merit of SC’s contract claim, CMGT could have
obtained a different and better result if it had defended SC’s lawsuit. See Bucci v. Rustin, 227 Ill.
App. 3d 779, 784-85 (1st Dist. 1992) (whether legal malpractice plaintiff was guilty of the
misconduct alleged in the underlying suit is a different issue than whether the attorney’s
negligence was a proximate cause of the findings in the underlying suit.)
Defendants argue that Plaintiff cannot establish causation because CMGT had no money
to defend the SC lawsuit. Plaintiff already addressed this argument at pp. 25-27 supra, but has
one additional point to make. In his September 14 memo to Politan, Given stated that if SC

28

obtained a TRO, he would tell CMGT’s shareholders that “neither Lou Franco nor Newco has
any desire to expend time or funds to engage in litigation.” (Ex 62 at p. 3, pt. 3.) (Emphasis
added.) Given’s frankness in this memo is significant because it reveals that Franco and/or
Newco had the ability to fund a defense. Given’s September 14 memo also reveals that the
“desire” was not there because Given had a different plan for responding to SC’s lawsuit. (Id. at
pp. 2-4.) In sum, whether CMGT’s shareholders and/or Trautner’s investment group would have
contributed money to a defense fund if Given had not devised and implemented his nine-point
strategy is a material question of fact that cannot be resolved on the evidence presently before
this Court. Because several material questions of fact exist as to whether Defendants or SC
proximately caused CMGT’s insolvency, Defendants’ Maxwell argument should be rejected.
Defendants also argue that Plaintiff could have gotten the default judgment vacated if he
had tried. Defendants are wrong. To get the default judgment vacated, Plaintiff had the burden
of convincing the California court that CMGT failed to appear and defend due to either: (a)
mistake, inadvertence, surprise or excusable neglect, or (b) Defendants’ inexcusable neglect.
Cal. Civ. Proc. Code § 473 (2006). Citing State Farm & Fire Cas. Co. v. Pietak, Defendants
argue that Plaintiff could have gotten the default judgment vacated simply by alleging that
Defendants made a mistake, i.e., without an admission of fault by Defendants. Defendants’
argument is misleading. State Farm held that a court can vacate a judgment on the basis of an
attorney’s mistake without an admission of error only where the attorney’s mistake was
excusable. State Farm, 90 Cal. App. 4th at 610-15; see also, Metropolitan Service Corp. v. Casa
de Palms, Ltd., 37 Cal. App. 4th 1481, 1486-87 (Cal. Ct. App. 1995.) For a judgment to be
vacated on the basis of inexcusable neglect by an attorney, the moving party must submit an

29

affidavit from its attorney admitting the inexcusable error. State Farm, 90 Cal. App. 4th at 60809.
Here, the Parties present two conflicting explanations for CMGT’s failure to appear and
defend. Plaintiff argues that CMGT failed to appear and defend because Defendants were guilty
of malpractice -- i.e., inexcusable neglect.9 Defendants argue that CMGT failed to appear and
defend because it had no money or desire to do so.

Neither reason constitutes mistake,

inadvertence, surprise or excusable neglect. Thus, Plaintiff needed an affidavit from Defendants
confessing inexcusable neglect. Plaintiff did not move to vacate the default judgment because he
believed he could not obtain such an affidavit. (Ans. ¶63.) He was right. Defendants have
denied any wrongdoing. (Id.) Thus, Plaintiff could not have gotten SC’s default judgment
vacated.
d. Damages (all claims)
This Court has already held that SC’s default judgment constitutes damage. (6/28/07
Mem. Op. at pp. 11-12.) That ruling has been reinforced by Fox v. Seiden, 382 Ill. App. 3d 288
(1st Dist. 2008.) This Court has also held that determining what the value of the Newco stock
would have been is a fact question. (9/26/07 Tr. at p. 53.) Likewise, what CMGT’s profits
would have been if it had received funding from the Washoe is a fact question.
V.

CONCLUSION
For all of the foregoing reasons, Plaintiff respectfully requests that this Court enter an

order denying Defendants’ Motion for Summary Judgment.

9

For an attorney’s mistake to be “excusable,” the legal problem posed must be “complex and debatable.”
State Farm, 90 Cal. App. 4th at 611. The “controlling factors” for that determination “are the reasonableness of the
misconception and the justifiability of the failure to determine the correct law.” Id. Clearly, Defendants malpractice
does not fall within this definition of “excusable.”

30

Dated: July 13, 2009

Respectfully submitted,
DAVID GROCHOCINSKI, not individually,
but solely in his capacity as the Chapter 7
Trustee for the bankruptcy estate of
CMGT, INC.
BY: ____/s/ Edward T. Joyce___________
Plaintiff’s attorneys

Edward T. Joyce
Arthur W. Aufmann
Robert D. Carroll
EDWARD T. JOYCE & ASSOC., P.C. - Atty No. 32513
11 South LaSalle Street, Ste., 1600
Chicago, Illinois 60603

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CERTIFICATE OF SERVICE
The undersigned attorney, certifies that on July 13, 2009, he caused the attached
Plaintiff’s Response in Opposition to Defendants’ Motion for Summary Judgment to be
served upon
Stephen Novack
Mitchell L. Marinello
Steven J. Ciszewski
Novack and Macey LLP
100 N. Riverside Plaza
Chicago, IL 60606
by electronically delivering a copy through the Court’s CM/ECF filing system.

/s/ Edward T. Joyce