Thul et al v. Onewest Bank, FSB d/b/a Indymac Mortgage Services
Filing
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MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 1/18/2013: For the reasons stated in this decision, the Court vacates the previously entered order to show cause as to attorney Andrew Fuchs and declines to impose any further sanction upon attorneys John Beisner and Jessica Miller. (mk)
IN THE UNITED SATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CHARLES THUL and CYNTHIA THUL,
individually and on behalf of
all others similarly situated,
Plaintiffs,
vs.
ONEWEST BANK, FSB, d/b/a
INDYMAC MORTGAGE SERVICES,
a division of OneWest Bank, FSB,
Defendant.
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Case No. 12 C 6380
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
The Court entered an order directing defendants’ attorneys to show cause why
they should not be sanctioned in connection with their failure to bring adverse Seventh
Circuit precedent to the Court’s attention in their brief supporting their motion to dismiss
plaintiffs’ complaint. See Thul v. OneWest Bank, FSB, Case No. 12 C 6380, 2013 WL
24599 (N.D. Ill. Jan. 2, 2013). The attorneys are John Beisner and Jessica Miller of the
Washington, D.C. office of Skadden, Arps, Meagher & Flom, and Andrew Fuchs of the
Skadden firm’s Chicago office. The attorneys filed a written response and also
appeared in court yesterday, as directed. The Court made comments on the record and
now enters this order to summarize its findings and resolve the issue of sanctions.
First of all, the Court vacates the order to show cause as to Mr. Fuchs. In the
attorneys’ written response, they stated that Mr. Fuchs “was neither the principal drafter
of the briefs nor tasked with conducting research related to the briefs”; he relied on the
other two attorneys concerning the legal content of the briefing; and he was not
personally aware of the Seventh Circuit decision in question, Wigod v. Wells Fargo
Bank, N.A., 673 F.3d 547 (7th Cir. 2012). See Counsel’s Resp. at 1. Mr. Fuchs is an
associate, and the other lawyers are senior to him. The Court accepts the attorneys’
statement and vacates the show cause order as it relates to Mr. Fuchs.
In the written response, the other two attorneys, Mr. Beisner and Ms. Miller, took
responsibility for filing the brief in question. They apologized for their failure to cite
Wigod and explained why they did not do so. The attorneys also reported that in the
interim, the parties had reached a settlement of the case (including a related state court
case), to which the attorney’s law firm will contribute “in order to personally redress
plaintiffs’ counsel for responding to the motion to dismiss.” Counsel’s Resp. at 2.
The attorneys’ written response indicated that Ms. Miller, the principal drafter of
the brief, and Mr. Beisner, who took ultimate responsibility for filing the brief, were
aware of Wigod and did not cite it because they considered it distinguishable. They
reaffirmed this orally in court and repeated what the Court found to be a sincere apology
to plaintiffs’ counsel and to the Court.
The Court acknowledges counsel’s contention that Wigod was distinguishable
but respectfully disagrees. The Court will address one example of this, which is
sufficient for present purposes.
The Thuls alleged in their complaint that they were issued a “trial period plan”
(TPP) under which OneWest agreed to modify their mortgage if they complied with the
plan and the material representations in their application remained true. Compl. ¶ 2.
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The Thuls also squarely alleged, without equivocation, that they had fully complied with
the TPP and that there were no material changes in their financial status. Id. ¶ 3. They
repeated these allegations in their breach of contract and promissory estoppel claims.
Id. ¶¶ 88 & 99. These allegations, of course, must be taken as true on a motion to
dismiss for failure to state a claim. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Counsel argued in their opening brief that “[p]laintiffs’ breach-of-contract,
promissory-estoppel, and ICFA claims fail under Illinois law for a simple reason:
OneWest never promised to modify Mr. Thul’s mortgage.” Mem. in Support of Mot. to
Dismiss at 7 (emphasis added). After citing Seventh Circuit cases from 1991 and 2002
and district court cases from 1995 and 2004 for the proposition that contract and
promissory estoppel claims cannot stand unless there is a promise, id., counsel went on
to state that “OneWest never promised Mr. Thul that his mortgage would be modified . .
. .” but rather represented that “a modification would not occur if ‘the Lender
determine[d] that [Mr. Thul did] not qualify of if [he] fail[e]d to meet any one of the
requirements under [the] Plan.’” Id. at 8 (emphasis added). They went on to argue that
because “OneWest told Mr. Thul that he did not, in fact, qualify for a HAMP modification
. . . the explicit precondition for a HAMP modification was not satisfied.” Id. Counsel
concluded the argument with this statement: “Because OneWest was ‘not . . . obligated’
to modify the mortgage under the terms of the TPP, its failure to do so cannot give rise
to liability.” Id. at 8-9 (emphasis added). Counsel’s argument was, essentially, that
there was no enforceable promise to modify the mortgage because OneWest had to
determine that they met the plan’s requirements, and because OneWest “found” the
Thuls did not meet the requirements for a modification, they could not sustain a claim.
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This amounted to an argument that OneWest had complete discretion to determine
whether to make a modification, had exercised its discretion by determining not to do
so, and this was the end of the story.
The Seventh Circuit rejected this same argument, or one indistinguishable from
it, in Wigod. Wigod, like this case, involved a lender’s allegedly wrongful failure to
modify a mortgage under the HAMP program. The Seventh Circuit dealt with an
argument by a lender that the borrower’s TPP “was not an enforceable offer to
permanently modify Wigod’s mortgage because it was conditioned on Wells Fargo’s
further review of her financial information to ensure she qualified under HAMP” and
because “its obligation to modify Wigod’s mortgage was also contingent on its
determination, after the trial period began, that she qualified under HAMP’s guidelines.”
Wigod, 673 F.3d at 561, 562. The Seventh Circuit squarely rejected these arguments,
in a lengthy discussion that this Court need not repeat here. See id. at 562-65. The
Seventh Circuit made it clear, however, that the bank’s interpretation of the qualifying
language in the TPP was unsustainable because it “turns an otherwise straightforward
offer into an illusion.” Id.at 563.
There is no appreciable difference between the argument that the Seventh
Circuit rejected in Wigod and the argument that the attorneys for OneWest made here.
Because Mr. Beisner and Ms. Miller were aware of Wigod and because it was “directly
adverse to the position of the[ir] client,” Ill. RPC 3.3(a)(2), they should have cited it. The
fact that they cited, on the general contract-law issue involved, both older Seventh
Circuit cases and non-binding precedent from trial courts, underscores the
inappropriateness of their failure to cite Wigod. See Mannheim Video, Inc. v. County of
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Cook, 884 F.3d 1043, 1047 (7th Cir. 1989) (discussing a similar scenario). Counsel
may have persuaded themselves that Wigod was distinguishable in some way, but the
Seventh Circuit has made it clear that the tactic “of pretending that potentially
dispositive authority against a litigant’s contention does not exist is as unprofessional as
it is pointless.” Hill v. Norfolk & Western Ry., 814 F.2d 1192, 1198 (7th Cir. 1987).
Enough said about that. The question now before the Court is what further
action it should take with regard to Mr. Beisner and Ms. Miller’s conduct. Determination
of this issue turns on not just what counsel did that got them into this position in the first
place, but what has happened since then. First of all, the Court’s prior ruling, which like
this one identified Mr. Beisner and Ms. Miller by name, is a matter of public record. That
is of no small consequence to a professional whose reputation “is his or her bread and
butter.” Harlyn Sales Corp. Profit Sharing Plan v. Kemper Fin. Servs., Inc., 9 F.3d 1263.
1269 (7th Cir.1993). Second, Mr. Beisner and Ms. Miller took full responsibility for their
actions, apologized sincerely, and took Mr. Fuchs off the hook. Third, OneWest
promptly settled the case; the attorneys’ law firm has contributed financially to the
settlement; and the settlement takes into account the additional expense plaintiffs’
counsel incurred due to the filing of the motion to dismiss.
The Court fully understands the impact that a finding of misconduct can have
upon an attorney even without the imposition of additional sanctions. This impact was
brought home to the Court by counsel’s demeanor when they spoke in the courtroom
and when they listened to the oral admonition that the Court rendered. Given all the
circumstances, the Court’s issuance of the earlier decision and this one as well as the
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oral admonition amounts to a sufficient remedy. The Court trusts that Mr. Beisner and
Ms. Miller will be more cautious in the future. The Court will impose no further sanction.
________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: January 18, 2013
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