Freed v. Friedman
MEMORANDUM Opinion and Order Written by the Honorable Gary Feinerman on 10/17/2016.Mailed notice.(jlj, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
ERIC D. FREED,
NEIL FRIEDMAN, C.P.A., P.C., d/b/a Michael Silver
16 C 1997
Judge Gary Feinerman
MEMORANDUM OPINION AND ORDER
Eric Freed brought, then voluntarily dismissed, and then brought again this diversity suit
against Neil Friedman, C.P.A., P.C., d/b/a Michael Silver & Co., an accounting firm. Doc. 25;
see Freed v. Neil Friedman, C.P.A., P.C., No. 14 C 7241 (N.D. Ill. filed Sept. 17, 2014). Freed
alleges that Ronald Weiss, an accountant who worked at Silver, misstated various aspects of
Freed’s financial dealings with a law firm in which he formerly was a partner, Doc. 25 at ¶¶ 4963, 91-98; that those misstatements inflated his tax liabilities and otherwise harmed him
financially, id. at ¶¶ 64-73, 99-107, 111; and that Silver’s negligent supervision of Ronald Weiss
makes it liable for those harms, id. at ¶¶ 77-85. Silver has moved the court to stay and abstain
from hearing this case under the doctrine set forth in Colorado River Water Conservation
District v. United States, 424 U.S. 800 (1976), pending resolution of two earlier-filed suits that
Freed currently is litigating in Illinois state court. Doc. 31. The motion is granted.
This is not Freed’s first rodeo—or his second, third, or fourth. He is the plaintiff in two
other cases on this court’s docket: Freed v. Weiss, Case 12 C 6720, and Freed v. JPMorgan
Chase Bank, N.A., Case 12 C 1477, both of which are stayed pursuant to Colorado River. See
Freed v. Weiss, 974 F. Supp. 2d 1135 (2013) (“Freed I”), aff’d sub nom. Freed v. JPMorgan
Chase Bank, N.A., 756 F.3d 1013 (7th Cir. 2014) (“Freed II”). He also is currently litigating at
least two Illinois state court cases: Freed v. Weiss, Case 2011 CH 41529 (Cir. Ct. Cook Cnty.,
Ill.), and Freed v. Quantum Legal LLC, Case 2014 CH 14770 (Cir. Ct. Cook Cnty., Ill.). Docs.
31-1, 31-2. Like this suit, those suits concern grievances stemming from the dissolution of the
law firm referenced above. The firm has had various names over the years, such as “Freed &
Weiss, LLC,” “Quantum Legal LLC,” and “Complex Litigation Group, LLC.” Doc. 31 at ¶ 1;
Doc 33 at 1; Freed I, 974 F. Supp. 2d at 1139. For simplicity, this opinion will refer to the firm
as “the LLC.” The various state and federal cases are referred to by docket number, and all
record citations herein are to the docket in this case unless otherwise noted. Because the
previous federal cases and one of the state cases (Case 2011 CH 41529) were described in Freed
I, 974 F. Supp. 2d at 1138-45, and Freed II, 756 F.3d at 1016-18, the court presumes familiarity
with those decisions.
In Case 12 C 6720, Freed sued three defendants: the LLC itself; Freed’s former comanaging partner in the LLC, Paul Weiss (“Weiss”); and Weiss’s father, the aforementioned
Ronald Weiss (“Ronald Weiss”), who provided accounting services to the LLC as an employee
and agent of Silver. Freed II, 756 F.3d at 1016; Freed I, 974 F. Supp. 2d at 1137-38; Doc. 25 at
¶¶ 16, 19-20. That suit centered on a scheme allegedly concocted and executed by Weiss—with
Ronald Weiss’s assistance—to freeze Freed out of the LLC and take its assets. Doc. 1 (12 C
6720) at ¶¶ 1-3, 49-55. Freed alleged that he had provided “virtually all of [the LLC’s] operating
capital through loans in excess of $12 million” and was “entitled to repayment of the loans
before [the LLC] could make distributions to other members.” Freed II, 756 F.3d at 1016
(internal quotation marks omitted). Weiss allegedly carried out the scheme by fraudulently
transferring the LLC’s funds into bank accounts that he controlled, and also by asserting that
Freed had withdrawn LLC funds in March 2011 in violation of the partnership agreement and
had thereby voluntarily disassociated himself from the LLC and relinquished control over it.
Freed I, 974 F. Supp. 2d at 1138.
Freed filed the other federal case, Case 12 C 1477, in Illinois state court against
JPMorgan Chase Bank, which removed the suit to this court and then brought third-party claims
against Weiss, his wife, Jamie Saltzman Weiss (“Saltzman”), and the LLC. Id. at 1137. In that
suit, Freed alleged that Chase committed tortious interference with the partnership agreement
between Freed and Weiss by encouraging and assisting Weiss’s siphoning of funds from the
LLC’s accounts at Chase and, additionally, that Chase aided and abetted Weiss’s breach of
fiduciary duties that he owed to Freed. Id. at 1143. Those claims against Chase required Freed
to prove the impropriety of the underlying transactions that Weiss undertook with regard to the
LLC. Ibid. Both Case 12 C 6720 and Case 12 C 1477 are currently stayed pursuant to Colorado
River, pending the state court’s resolution of Case 2011 CH 41529. Freed II, 756 F.3d at 1024.
In Case 2011 CH 41529, Freed (individually and derivatively on behalf of the LLC) sued
Weiss and Saltzman. Freed I, 974 F. Supp. 2d at 1137. That suit’s factual allegations largely
overlap with those in Case 12 C 6720. Id. at 1139. Weiss and the LLC responded with
counterclaims against Freed. Id. at 1137, 1139. After the defendants in the federal suits filed
abstention motions in this court, the state court granted Freed’s motion to voluntarily dismiss his
claims. Id. at 1137. Because Weiss and the LLC had filed counterclaims, however, the state
court’s dismissal of Freed’s claims did not end the state case. Ibid. That case remains pending,
see Docket, 2011 CH 41529 (Cir. Ct. Cook Cnty., Ill.), https://perma.cc/GVK5-TXNP (last
visited Oct. 17, 2016), and both Saltzman and the LLC remain in that litigation, aligned with
Weiss. Doc. 31-4 at 2; Freed II, 756 F.3d at 1019 (describing the alignment of the parties in that
The counterclaims in Case 2011 CH 41529 allege that Freed dissociated from the LLC in
March 2011 or, in the alternative, that he thereafter engaged in misconduct that should have
resulted in his being expelled from the LLC under the Illinois Limited Liability Company Act,
805 ILCS 180/1-1 et seq. Doc. 31-1 at ¶¶ 1, 216-242. The gravamen of the alleged misconduct
is that Freed “withheld his services from [the LLC],” “secretly [took] $1.5 million of [the LLC]’s
funds,” and as a result “was grossly over-paid for his membership interest.” Id. at ¶ 1. The
counterclaims seek, among other things, a declaration of the parties’ rights and obligations under
the partnership agreement, id. at ¶¶ 144-69—including “[a] declaration that, as of the date of
Freed’s voluntary termination, Freed had been repaid any and all funds that Freed had previously
advanced to [the LLC] for the normal and ordinary operations of [the LLC],” id. at 28 ¶ b; see
also id. at 49 ¶ b (seeking the same if Freed is deemed to have dissociated for other reasons)—as
well as compensation for Freed’s alleged misappropriation of funds to which he was not entitled,
id. at 33 ¶ a, 35 ¶¶ a-b, 39 ¶ b, 43 ¶ b. The claims sound principally in contract, fiduciary duty,
and partnership law. Doc. 31-1.
A dispute has arisen in Case 2011 CH 41529 over whether Weiss, Saltzman, and the
LLC, on the one hand, and Freed, on the other, entered into a settlement. Doc. 31 at ¶ 19; Doc.
33 at 8-9. In August 2015, Weiss, Saltzman, and the LLC filed a motion to enforce the (alleged)
settlement agreement. Doc. 31-4. The parties are in the midst of contesting that motion, with
Freed asserting that the alleged settlement agreement was never finalized and does not bind him.
Doc. 33-1 at 2-16; Doc. 33-2 at ¶ 4; Doc. 33-3. Freed and Silver nevertheless agree—as Freed
confirmed at a hearing on the present motion—that the purported settlement, if valid, contains a
third-party release that would foreclose Freed’s claims against Silver in this case. Doc. 31 at
¶ 19 (describing the purported settlement agreement and third-party release); Doc. 33 at 8-9
(contesting the validity and enforceability of the purported settlement agreement, but not
challenging Silver’s assertion that one of its provisions was a third party release that included
Freed (again, both individually and derivatively on behalf of the LLC) initiated a second
suit in state court, Case 2014 CH 14770, on September 12, 2014—just over two months after the
Seventh Circuit affirmed this court’s decision to abstain in Cases 12 C 6720 and 12 C 1477, and
less than a week before Freed filed his earlier, abortive iteration of this federal suit. Doc. 31-2.
The 2014 state suit names Weiss, Saltzman, and the LLC as defendants, and seeks dissolution of
the LLC, damages for the defendants’ alleged unlawful distributions and failure to repay loans
owed to Freed, and an order voiding certain allegedly fraudulent disbursements. Ibid. The
complaint alleges that Weiss and Saltzman conspired to make various improper distributions
from the LLC for their own benefit and to improperly transfer an interest in the LLC to
Saltzman, id. at ¶¶ 1, 16-35, 110-120, 167-174, 184-203, even though the LLC failed to first
properly cash out Freed’s interest when he voluntarily dissociated on August 21, 2012, id. at
¶¶ 1, 70-82, 106-14. Among Freed’s factual allegations are that “Paul Weiss and Saltzman
conspired with LLC’s accountants to create fraudulent accounting records to help them conceal
their illegal conduct,” id. at ¶ 174, and that “improper financial records maintained on behalf of
LLC allowed LLC to disguise loan repayments [made to Freed] as distributions,” id. at ¶ 215.
Freed also alleges that the LLC failed to repay loans and advances that he made to it and seeks
damages for that failure. Id. at ¶¶ 2, 233-38. Freed further alleges that determining those
damages will require untangling “the illegal manipulation of LLC’s financial books and records
by Paul Weiss and Saltzman” and “measures undertaken by them and by professionals paid by
LLC to conceal the misreporting of LLC’s finances.” Id. at ¶ 4. Freed amended the complaint
after Weiss was disbarred in November 2015, asserting that Weiss’s inability to practice law,
combined with the allegedly invalid attempt to transfer ownership to Saltzman, required
dissolution of the partnership—with distributions for Freed’s still-uncompensated share—and
provides an additional basis for permitting Freed to recoup the funds that he believes he is owed.
Doc. 31-3. The claims in Case 2014 CH 14770 are premised primarily on violations of Illinois
statutes governing LLCs. Doc. 31-2.
Freed filed this suit in early 2016. The operative complaint, with claims sounding in
negligence and negligent misrepresentation, alleges that Silver, acting through Ronald Weiss,
Doc. 25 at ¶ 19, “failed to exercise due professional care” in providing accounting services to
Freed, both individually and as a partner in the LLC, id. at ¶¶ 16, 23, 31; failed to supervise
Ronald Weiss, id. at ¶¶ 77-85; failed to record $1.85 million in loans that Freed made to the LLC
and, consequently, misclassified loan repayments as taxable disbursements, id. at ¶¶ 35-36, 4142 53-57; otherwise maintained inaccurate financial records, id. at ¶¶ 86-116; and took steps to
conceal its malfeasance, id. at ¶¶ 43-44, 112; see also id. at ¶ 67 (alleging non-reporting of the
LLC’s transfers to secret Chase bank accounts). Those accounting failures, the complaint
alleges, accrued to Weiss’ personal benefit at Freed’s expense. Id. at ¶¶ 63, 65, 74. The
complaint seeks damages for losses that Freed personally incurred as a consequence of the
various accounting failures and misrepresentations, id. at ¶¶ 76, 85, 98, 107, 111, and those
damages include compensation for taxes that Freed allegedly overpaid as a result of Silver’s
failure to record Freed’s loans to the LLC and Silver’s misclassification of loan repayments, id.
at ¶¶ 73, 81.
A stay is warranted on two independent grounds, Colorado River abstention and the
court’s inherent authority, which are discussed in turn.
Colorado River Abstention
The Colorado River doctrine provides that “a federal court may stay or dismiss a suit in
federal court when a concurrent state court case is underway, but only under exceptional
circumstances and if it would promote ‘wise judicial administration.’” Freed II, 756 F.3d at
1018 (quoting Colorado River, 424 U.S. at 818); see also Caminiti & Iatarola, Ltd. v. Behnke
Warehousing, Inc., 962 F.2d 698, 700 (7th Cir. 1992). The Supreme Court “has cautioned that
abstention is appropriate only in ‘exceptional circumstances,’ and has also emphasized that
federal courts have a ‘virtually unflagging obligation … to exercise the jurisdiction given them.’”
AXA Corporate Solutions v. Underwriters Reins. Corp., 347 F.3d 272, 278 (7th Cir. 2003)
(alteration in original) (quoting Colorado River, 424 U.S. at 813, 817). In determining whether
to abstain, the court’s task is “not to find some substantial reason for the exercise of federal
jurisdiction by the district court; rather, the task is to ascertain whether there exist exceptional
circumstances, the clearest of justifications, that can suffice under Colorado River to justify the
surrender of that jurisdiction.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 25-26 (1983) (internal quotation marks omitted).
The Colorado River analysis has two steps. First, the court inquires “whether the state
and federal court actions are parallel.” Freed II, 756 F.3d at 1018; see also Caminiti, 962 F.2d at
700. If the proceedings are not parallel, Colorado River abstention must be denied. Freed II,
756 F.3d at 1018. If the proceedings are parallel, the court then must weigh ten non-exclusive
factors to determine whether abstention is proper. Ibid.
Whether the Federal and State Cases Are Parallel
State and federal suits need not be identical to be parallel. See Adkins v. VIM Recycling,
Inc., 644 F.3d 483, 498-99 (7th Cir. 2011) (“[F]or Colorado River purposes … [p]recisely formal
symmetry is unnecessary.”); Interstate Material Corp. v. City of Chicago, 847 F.2d 1285, 1288
(7th Cir. 1988) (“Interstate is correct in its assertion that differences exist. However, the
requirement is of parallel suits, not identical suits.”). Rather, suits are parallel when
“substantially the same parties are contemporaneously litigating substantially the same issues in
another forum.” Freed II, 756 F.3d at 1019. Put another way, “[t]he question is not whether the
suits are formally symmetrical, but whether there is a substantial likelihood that the [state]
litigation will dispose of all claims presented in the federal case.” AAR Int’l, Inc. v. Nimelias
Enters. S.A., 250 F.3d 510, 518 (7th Cir. 2001) (internal quotation marks omitted); see also Huon
v. Johnson & Bell, Ltd., 657 F.3d 641, 646 (7th Cir. 2011) (same). “Any doubt regarding the
parallel nature of the [state] suit should be resolved in favor of exercising jurisdiction.” Adkins,
644 F.3d at 499 (alteration in original) (internal quotation marks omitted). This suit clears the
parallelism bar for two independent reasons.
First, the issues and parties in the state cases and this case are substantially the same.
Freed argues that the issues are not parallel because “[t]his action solely puts at issue accounting
malpractice” and “[t]here are no accounting malpractice claims in the state actions.” Doc. 33 at
2; see also id. at 9-10. True, Freed’s claims here are styled as “negligence” and “negligent
misrepresentation,” which differ from the contract, partnership, and other causes of action in the
state cases. But the underlying factual disputes overlap considerably. See Freed II, 756 F.3d at
1019 (instructing district courts to “examine whether the cases raise the same legal allegations or
arise from the same set of facts” in evaluating parallelism). Specifically, both this case and the
state cases arise from the same disputed series of financial transactions involving the LLC and
Freed—when and whether payments between Freed and the LLC occurred, and how to classify
them—and thus the claims in this suit and many of the claims in the state cases “will be resolved
largely by reference to the same evidence.” Tyrer v. City of S. Beloit, 456 F.3d 744, 752-53 (7th
Cir. 2006); see also Vulcan Chem. Techs., Inc. v. Barker, 297 F.3d 332, 341 (4th Cir. 2002)
(holding that Colorado River abstention was proper where the federal court would otherwise
“consider the same evidence and arguments” as did the state court).
The state court has already been asked to adjudicate the nature and extent of the LLC’s
obligations to Freed. Doc. 31-1 at 28 ¶ b, 49 ¶ b; Doc. 31-2 ¶¶ 4, 233-38. The accuracy or
inaccuracy of Silver’s accounting turns on the nature and extent of the LLC’s obligations to
Freed. Doc. 25 at ¶¶ 36-37, 39, 69-73, 81. Were this court to resolve those claims, it would risk
either duplicating effort with the state court or issuing rulings that conflict with the state court’s
rulings. Conversely, abstaining and awaiting the state court’s decision would provide
clarification of Freed’s financial entitlements as to the LLC that could entirely dispose of the
claims here. See Freed II, 756 F.3d at 1020 (“The federal court cannot determine the value of
Freed’s distributional interest until the claims brought in state court are resolved.”); id. at 1021
(“Only after the state court resolves whether Weiss violated obligations to Freed can Freed try to
hold Chase liable for assisting in that wrongdoing.”).
Principles of res judicata provide another lens through which it is clear that Freed’s
claims here are parallel to the issues being litigated in state court. If Freed loses in state court
based on a finding that he was “grossly over-paid for his membership interest [in the LLC],”
Doc. 31-1 ¶ 1, and the state court issues a “declaration that … Freed [has] been repaid any and
all funds that Freed had previously advanced to [the LLC],” id. at 28 ¶ b, 49 ¶ b, preclusion
almost certainly would provide Silver an immediate victory in this case. See Havoco of Am., Ltd.
v. Freeman, Atkins & Coleman, Ltd., 58 F.3d 303, 308 n.9 (7th Cir. 1995) (discussing defensive
non-mutual collateral estoppel under Illinois law); In re Owens, 532 N.E.2d 248, 251 (Ill. 1988)
(“Defensive use of collateral estoppel precludes a plaintiff from relitigating issues by switching
adversaries, and thus gives a plaintiff an incentive to try and join all defendants in the first
action.”). True, if Freed prevails in state court, he may be unable to use that victory offensively
against Silver due to a lack of privity between Silver, on the one hand, and Weiss and the LLC,
on the other. See Congregation of the Passion, Holy Cross Province v. Touche Ross & Co., 636
N.E.2d 503, 510 (Ill. 1994) (“Three factors are necessary for the application of collateral
estoppel,” including “(3) the party against whom the estoppel is asserted must be a party, or in
privity with a party, to the prior adjudication.”); Havoco, 58 F.3d at 308 n.9 (same). But
parallelism under Colorado River requires only that there be “a substantial likelihood,” not a
certainty, “that the [state court] litigation will dispose of all claims presented in the federal case.”
AAR Int’l, 250 F.3d at 518 (internal quotation marks omitted).
Freed argues that a state court finding “that Freed is owed no money” would not
necessarily resolve this case, since it is at least theoretically possible that Freed was repaid in full
but that Silver nevertheless misclassified certain disbursements made to him. Doc. 33 at 10. But
Freed points to no allegation in any of the cases indicating that such a resolution is at all
probable; to the contrary, his litigating stance in state court tightly links Silver’s alleged
inattentiveness and Weiss’s alleged duplicity by contending that Silver’s accounting inaccuracies
masked and enabled the LLC’s failure (at Weiss’s behest) to pay him his due. Doc 31-2 at ¶¶ 4,
174, 215. The two go hand-in-hand—a point the very next sentence of Freed’s brief
underscores. Doc. 33 at 10 (“Further, where Freed made loans to the LLC that were never
recorded, to the extent that they were repaid, they were repaid as taxable income and increased
his tax liability.”). Thus, the determination sought in state court concerning the LLC’s
obligations to Freed will almost certainly resolve what accounting accuracies, if any, existed in
the first place, and, if there were none, there likely can be no liability here against Silver for
accounting failures that never occurred. See Freed II, 756 F.3d at 1020 (“If the state court were
to determine that Weiss did not violate the partnership agreement or breach fiduciary duties
owed to Freed, then Ronald Weiss could not be held responsible for assisting Weiss in those
So the issues are substantially the same here and in the state cases. The parties are
substantially the same as well. It is true, as Freed stresses, that Silver is not a party in state court;
nor, for that matter, is Ronald Weiss. Doc. 33 at 3. But “[o]ne way that parties in separate
actions are considered substantially the same under the Colorado River doctrine is when they
have nearly identical interests.” Freed II, 756 F.3d at 1019 (internal quotation marks omitted);
see also Lumen Constr., Inc. v. Brant Constr. Co., 780 F.2d 691, 695 (7th Cir. 1985) (“The only
apparent basis for the Villasenors’ claim is their status as the sole shareholders and owners of
Lumen. Their interest in the outcome of the law suit is the same as that of their company.”);
Jimenez v. Rodriguez-Pagan, 597 F.3d 18, 22-23 (1st Cir. 2010) (abstaining under Colorado
River where two parties in a Puerto Rico case were heirs to an estate on whose behalf the federal
case was brought, even though the heirs were not parties in the federal case); Romine v.
Compuserve Corp., 160 F.3d 337, 340 (6th Cir. 1998) (“Exact parallelism is not required. …
This principle is especially apposite in the instant matter, where the interests of both the named
plaintiffs … are congruent, notwithstanding the nonidentity of the named parties.”) (internal
quotation marks omitted). Silver shares an interest with Weiss and his fellow counterclaimants
(in Case 2011 CH 41529) and defendants (in Case 2014 CH 14770) in the state court cases in
securing a ruling that the LLC’s obligations to Freed have been satisfied and that the accounting
entries that indicate as much are above-board and accurate.
Accordingly, although the state and federal cases do not involve identical parties, they do
involve “substantially the same parties.” Tyrer, 456 F.3d at 752; see also Freed II, 756 F.3d at
1019 (“Moreover, while the various defendants are not identical in the two cases, their interests
are nearly identical: to show that neither fiduciary duties nor the partnership agreement were
breached and to have the court determine that Freed dissociated from CLG in March 2011, or in
the alternative, to dissolve CLG and distribute its assets accordingly. The parties’ interests are
substantially the same.”). What this court said when staying Freed’s earlier suit against Ronald
Weiss holds true for this action against Silver, which is, after all, Ronald Weiss’s employer:
Ronald Weiss is a defendant only in the federal suit. But Freed’s claim
against Ronald Weiss is derivative of his claim against Weiss, in that Freed
claims that Ronald Weiss breached duties owed to Freed when Weiss received
the help of his father Ronald Weiss, the LLC’s accountant, to create false
accounting records that concealed Weiss’s theft from Freed. If Weiss is not
liable for any theft or other misconduct, then Ronald Weiss could hardly be
liable for having helped Weiss to cover up that alleged misconduct.
Freed I, 974 F. Supp. 2d at 1140 (citation omitted) (internal quotation marks omitted); see also
Freed II, 756 F.3d at 1020 (“As the district court correctly determined, Freed’s action against
Ronald Weiss is derivative of his claim against Weiss.”). A materially identical dynamic exists
here. Silver’s liability for Ronald Weiss’s alleged accounting errors turns on proving that
Weiss’s account of the parties’ obligations to one another (on which Ronald Weiss signed off) is
duplicitous or otherwise inaccurate; if Weiss’s version proves correct, then there were no
accounting inaccuracies for which to hold Silver accountable.
It follows that this federal suit and the state suits are not rendered non-parallel by the
inclusion in this suit of a party, Silver, not present in the state suits. See AAR Int’l, 250 F.3d at
518 (“the mere presence of additional parties … in one of the cases will not necessarily preclude
a finding that they are parallel”). “If the rule were otherwise, the Colorado River doctrine could
be entirely avoided by the simple expedient of naming additional parties. … [I]ts impact cannot
be obliterated by the stroke of a pen.” Lumen, 780 F.2d at 695. It is true that, unlike Ronald
Weiss in Case 12 C 6720, Silver is not an additional defendant here but rather the only
defendant, but that does not preclude a finding of parallelism. See Freed II, 756 F.3d at 1020-21
(affirming this court’s finding of parallelism between the claim that Freed brought against only
Chase in Case 12 C 1477 and the state counterclaims in Case 2011 CH 41529, which did not
involve Chase). The only difference is that there was a third-party complaint by Chase against
the LLC, Weiss, and Saltzman in Case 12 C 1477, making them parties to that suit, id. at 1020,
and there is not any equivalent third-party claim bringing them into the present case. But that is
just the flip side of the same coin—much as Freed could have, but did not, sue Silver in the state
cases, the only thing stopping him from suing Weiss and the LLC in this suit is the fact that he
already did so separately in Case 12 C 6720. Parallelism remains. See Knight v. DJK Real
Estate Grp., LLC, 2016 WL 427614, at *4-5 (N.D. Ill. Feb. 4, 2016) (finding parallelism even
though the plaintiff faced completely different adversaries in state and federal court, where those
differences flowed entirely from the plaintiff’s “unilateral choice[s]”).
Indeed, a finding that the cases are not parallel predicated on Silver’s absence from the
state suits (and Weiss’s and the LLC’s absence from this one) would unjustly reward strategic
behavior, because Silver’s absence from the state proceedings is attributable entirely to Freed.
See Freed II, 756 F.3d at 1020 (“The decision to exclude Weiss from the original state court
proceeding was entirely Freed’s choice.”). It was Freed who decided to sue Silver in a separate
suit rather than adding it as a defendant in his state suits against Weiss. This is not a new tactic
for Freed. In 2012, Freed sued Chase separately when there was no need to do so, and he had
even brought yet another standalone suit against another bank, Northern Trust, which according
to Freed also was in cahoots with Weiss. See Freed I, 974 F. Supp. 2d at 1144. As the court
observed in Freed I, “Judge Pantle [the state trial judge presiding over the state suits] has
repeatedly remarked, with ample justification, that Freed is attempting to avoid her courtroom,
and her adverse rulings, by filing several suits rather than combining all of his related claims
before her in the state court Freed v. Weiss lawsuit.” Ibid. (collecting Judge Pantle’s statements).
This court held, and the Seventh Circuit agreed, that Freed’s divide-and-conquer litigation tactics
reinforced, rather than undermined, the conclusion that this court should abstain from Freed’s
claims against Chase. See Freed II, 756 F.3d at 1020-21 (reasoning that parallelism existed
because “Freed actively chose to exclude Chase as a defendant in the state court proceeding
when it could have been joined as a party and there appears to be no legitimate reason for Freed
to leave Chase out of the state court action”). That is not behavior the parallelism requirement
was intended to reward. See Knight, 2016 WL 427614, at *5 (“Nothing is stopping Upper
Midwest from bringing as a counterclaim against Westfield and/or a third-party claim against
DJK in state court the same claims it has brought here—nothing other than Upper Midwest’s
desire to have a federal judge examine the subrogation issue already squarely before the state
judge in the guise of affirmative defenses.”). Under the present circumstances—where Silver’s
liability in the federal suit flows from the liability of Weiss, a party in the state suit, and also
where Silver’s presence in the federal suit and absence from the state suit is entirely Freed’s
doing—Silver’s absence from the state suit does not defeat parallelism.
There is a second, independent ground for finding parallelism: the pending motion to
enforce the purported settlement agreement in Case 2011 CH 41529. If the state court grants the
motion, a third party release of liability in the agreement would dispose of the claims in this case.
Doc. 31 at ¶ 19 (Silver asserting that proposition); Doc. 33 at 8-9, 11-12 (Freed not refuting it).
Freed conceded as much during argument on this motion:
THE COURT: … [T]he defendant argued that there’s currently a motion to
enforce a settlement agreement in state court, and suggested that if the motion
is granted, it would impact the claims that Freed is bringing against the
accounting firm in this case.
And in the response brief, I saw Freed argue that the motion to enforce is
going to be denied or should be denied, but he didn’t question the premise,
which is if the motion to enforce is granted, it would impact this case. Did I
read that correctly?
PLAINTIFF’S COUNSEL: Well, I think that’s true. …
… [I]n the document it does, I believe, purport to release Michael Silver.
So, yes, if the state court found that there was a settlement, it would dispose of
Silver’s stake in the validity of the alleged settlement means that any claims against it here could
be fully resolved in the state case. See Huon, 657 F.3d at 646 (holding that cases are parallel
under Colorado River when there is “a substantial likelihood that the state litigation will dispose
of all claims presented in the federal case”) (internal quotation marks omitted); Lumen, 780 F.2d
at 695 (“[O]ne can predict with some confidence that the state court litigation will probably
eliminate the need for any further proceedings in federal court.”); Knight, 2016 WL 427614, at
*5 (finding parallelism in part because “if Upper Midwest is found not liable in state court, the
only claim remaining here would concern Upper Midwest’s seeking attorney fees and costs as
damages”). This means that the possible settlement that has become a focal point of the state
case could—and would—create the kind of dispositive issue that satisfies the parallelism
requirement. That is so because the settlement (if found valid) would dispose of this case and
because it makes Silver, in effect, a de facto interested party—even though not formally a
litigant—in the state court litigation. This conclusion is in keeping with the Seventh Circuit’s
teaching that the precise claims advanced in a state case can evolve over time, and sound judicial
administration requires the federal court to look to whether the suits are parallel at the time it
rules on the abstention motion, not to whether they were parallel at some earlier date. See Day v.
Union Mines Inc., 862 F.2d 652, 658 (7th Cir. 1988) (“a stay should be upheld in the interests of
judicial economy if the concurrent suits are parallel at the time of review, as they are here, even
if they were not parallel when the stay was entered”).
Most of Freed’s contrary arguments regarding the settlement agreement concern the
merits—he insists that the purported settlement was never finalized and that the settlement will
be found unenforceable. Doc. 33 at 8-9, 11; Doc. 33-1. Perhaps, * but the question of the
settlement’s validity is before the state court, not this one, and it is the state court that should
On the question whether the settlement was finalized, Weiss maintains in state court that the
parties orally agreed to settle in a February 6, 2015 phone call. Doc. 31-4 at 3. Michael Freed—
Freed’s father and his then-attorney—memorialized that call in an e-mail two days later to
Weiss’s attorney to “confirm our conversation on Friday that the parties have agreed to settle all
matters in litigation relating to Eric’s and Paul’s partnership breakup.” Ibid. Michael Freed’s email also described the “broad terms” of that agreement, including the compensation that Freed
would receive. Ibid. During the next several months, the parties exchanged numerous drafts of a
comprehensive written agreement consistent with those broad terms. Id. at 3, 5. On July 3,
2015, Michael Freed e-mailed Weiss’s attorney, stating: “We have a deal. Eric agrees to the
terms contained in the agreement attached to your below e-mail [of July 1, 2015].” Id. at 4; Doc.
33-1 at 28. When Weiss’s attorney then forwarded a copy of that agreement—which is the
settlement that Weiss, Jamie Weiss, and the LLC seek to enforce—for Freed to sign, Michael
Freed replied on July 5: “I notice that the clean version of the settlement agreement that you sent
me has a reference at the top of each page to it being a draft. The parties should sign a document
which does not have this language so you will need to clean that up.” Doc. 33-1 at 32. Despite
having sent those emails, Michael Freed—as noted, an attorney—now avers in opposition to the
motion to enforce: “When I used the colloquialism, ‘We have a deal’ in the [July 3] e-mail … it
was not my intention to bind Eric Freed to the terms of a settlement agreement, absent execution
of an agreement by the parties thereto, nor did I believe that I had done so.” Doc. 33-2 at 41
¶ 16. He further avers: “In using the term ‘deal’ … I was stating that in my view, terms and
conditions had been identified for an agreement to be signed by the parties. This
understanding … in my view is completely inconsistent with the creation of a final and binding
agreement.” Id. at 41 ¶ 18. All of this evidence is currently before Judge Pantle.
have the opportunity to address it in the first instance. See Freed I, 974 F. Supp. 2d at 1142
(holding that parallelism existed where “the state court is set to resolve Freed’s argument”).
Freed thus continues to “miss the point of a Colorado River motion, which is not to decide who
has the better case, but merely to decide which court should decide.” Ibid.
Freed cites Rosenbauer America, LLC v. Advantech Service & Parts, LLC, 437 F.
Supp. 2d 1081 (D.S.D. 2006), for the proposition that “[t]he pendency of a motion to enforce a
settlement does not render lawsuits or actions parallel under Colorado River.” Doc. 33 at 11.
For the reasons stated above, this court respectfully disagrees. In any event, and as will be
discussed in Part II, even though Rosenbauer concluded that the pending motion to enforce a
settlement there did not justify Colorado River abstention, it nevertheless held that a stay was
warranted. Freed cites no examples of courts denying a stay where a motion to enforce a
settlement in a state court could dispose of the claims in the federal suit.
In sum, this litigation is parallel to the state court proceedings in which Freed is already
enmeshed, both because of the issues and parties involved and also because of the pending
motion to enforce a settlement. Thus, Colorado River’s first requirement is satisfied.
The Colorado River Factors
The second step in the Colorado River analysis requires examining and balancing these
ten non-exclusive factors:
1) whether the state has assumed jurisdiction over property;
2) the inconvenience of the federal forum;
3) the desirability of avoiding piecemeal litigation;
4) the order in which jurisdiction was obtained by the concurrent forums;
5) the source of governing law, state or federal;
6) the adequacy of state-court action to protect the federal plaintiff’s rights;
7) the relative progress of state and federal proceedings;
8) the presence or absence of concurrent jurisdiction;
9) the availability of removal; and
10) the vexatious or contrived nature of the federal claim.
Freed II, 756 F.3d at 1018 (quoting Tyrer, 456 F.3d at 754). “No one factor is necessarily
determinative; a carefully considered judgment taking into account both the obligation to
exercise jurisdiction and the combination of factors counseling against that exercise is required.”
Colorado River, 424 U.S. at 818-19; see also Tyrer, 456 F.3d at 754. The court will address
each factor in turn, making distinctions between the two state suits where appropriate. See Freed
II, 756 F.3d at 1022 (noting that Colorado River abstention requires adherence to “rigorous
standards,” which were met where this court “carefully addressed each of the ten factors and
provided sufficient explanations for its findings”).
1. Whether the state has assumed jurisdiction over property. The parties dispute the
relevance of this factor. Freed argues that, unlike in his two previous federal suits, the fact that
the state court has issued orders concerning the partnership’s assets is not relevant here because
this suit doesn’t seek disposition of those assets. Doc. 33 at 12. Silver counters that the LLC’s
property is nevertheless still “at issue in this case given that Freed claims Silver improperly
accounted for it.” Doc. 35 at 7.
Silver has the better of the argument. The Seventh Circuit most recently described this
factor as concerning whether “the state court assumed jurisdiction over property relevant to the
claims in this appeal.” Freed II, 756 F.3d at 1021 (emphasis added). So, even if this suit will
not formally resolve ownership of the LLC’s assets, it will require determining which of those
assets rightfully belonged to whom, setting up a possible conflict with the state court’s rulings.
See African Methodist Episcopal Church v. Lucien, 756 F.3d 788, 799-800 (5th Cir. 2014) (“The
federal court’s exercise of jurisdiction in the subsequently filed, parallel federal action would
present a significant risk of inconsistent rulings as to the ownership of the property.”).
Accordingly, this factor favors abstention.
2. The inconvenience of the federal forum. Because the federal and state suits are
pending in courts located in Chicago, the federal forum is not inconvenient, and the second
factor weighs against abstention. See Freed II, 756 F.3d at 1021-22.
3. The desirability of avoiding piecemeal litigation. “Piecemeal litigation occurs when
different tribunals consider the same issue, thereby duplicating efforts and possibly reaching
different results ….” Day, 862 F.2d at 659; see also Freed II, 756 F.3d at 1022. “When two
courts are given the task to oversee similar proceedings … it is effectively duplicating the
amount of judicial resources required to reach a resolution.” Freed II, 756 F.3d at 1022 (internal
quotation marks omitted); see also Day, 862 F.2d at 659 (“Dual proceedings could involve what
we have called a grand waste of efforts by both the court and parties in litigating the same issues
regarding the same contract in two forums at once.”) (internal quotation marks omitted).
Redundant proceedings also raise the prospect of “inconsistent rulings,” which could “jeopardize
the appearance and actuality of justice.” Freed II, 756 F.3d at 1022. Here, because the federal
and state actions involve substantially the same parties and issues, and because both cases turn
on the extent of Freed’s entitlement to the LLC’s assets, proceeding in a single forum would
“conserve judicial resources and avoid the potential for the two proceedings to reach inconsistent
results.” Ibid. This factor favors abstention.
4. The order in which jurisdiction was obtained by the concurrent forums. This factor
strongly favors abstention, as Freed filed the first state suit in December 2011 and the second in
September 2014, and he brought this suit in February 2016. See Lumen Constr., Inc., 780 F.2d at
697 (holding that this factor favored abstention where the state case was filed “nearly five
months before” the federal case).
5. The source of governing law, state or federal. The source of the governing law in this
federal suit is state law, which favors abstention. See Freed II, 756 F.3d at 1022; Day, 862 F.2d
at 660 (“a state court’s expertise in applying its own law favors a Colorado River stay”).
6. The adequacy of state court action to protect the federal plaintiff’s rights. As this
court held the last time Freed was here trying to avoid Colorado River abstention, “[t]he state
court is eminently competent to protect Freed’s rights, which turn on state law.” Freed I, 974 F.
Supp. 2d at 1147. This court rejected Freed’s argument that he, as a Floridian, faced prejudice in
the Illinois state court system, noting both his substantial ties to Illinois and—crucially—his own
choice as a “savvy and experienced litigation attorney” to litigate in Illinois state court. See id. at
1147-48. The Seventh Circuit agreed. See Freed II, 756 F.3d at 1022-23 (“We agree with the
district court that Freed effectively undermined his own argument of prejudice when he chose the
state court forum ….”).
Freed wisely does not revive his “prejudice against Floridians” argument this time
around. But he does continue to insist that the state court’s disagreement with his positions
evidences its inadequacy. Doc. 33 at 13. Nothing has changed there, either. It remains the case
that “[i]f the state court views Freed in a negative light … it is due to Freed’s behavior and
tactics in state court,” not to any intrinsic inadequacy of the state forum. Freed I, 974 F.
Supp. 2d at 1148. And, in any event, this court is “not dismiss[ing] Freed’s federal claims, but
rather stay[ing] them pending the resolution of the state court proceeding.” Freed II, 756 F.3d at
1023. If, when the state proceedings conclude, Freed believes the state court has proved
“inadequate,” he will have a chance to make that argument here when the stay is lifted. Ibid.
The sixth factor favors abstention.
7. The relative progress of state and federal proceedings. In this suit, there has been an
“absence of any proceedings in the [federal] District Court, other than the filing of the complaint,
prior to the motion to [abstain].” Colorado River, 424 U.S. at 820. By contrast, Judge Pantle has
addressed numerous motions and issued many rulings, some of which have been appealed to and
upheld by the Appellate Court of Illinois. Docs. 30-5, 30-6, 30-7, 30-8, 41-1 (Case 12 C 6720);
see Freed v. Weiss, 2013 IL App (1st) 122815-U, 2013 WL 6592748 (Ill. App. Dec. 13, 2013).
Freed counters that the state court litigation still “is not making progress.” Doc. 33 at 13. But
the state suits are undeniably farther along than they were when the Seventh Circuit rejected an
indistinguishable argument three years ago, and Freed does not and could not deny that the state
court has expended substantially more judicial resources on this matter than has this court. See
Freed II, 756 F.3d at 1023.
8. The presence or absence of concurrent jurisdiction. Freed’s claims in federal court
arise under Illinois law, and Silver would be susceptible to suit in Illinois court, so the eighth
factor favors abstention. Compare Caminiti, 962 F.2d at 702 (holding that the state court’s lack
of jurisdiction to hear a federal claim weighed against abstention). Freed concedes as much, but
nevertheless rehashes his frustration with a supposed “lack of progress” in state court as a reason
to disregard this factor. Doc. 33 at 14. Those arguments are both irrelevant to the question of
jurisdiction and meritless anyhow for the reasons given above.
9. The availability of removal. This factor recognizes a policy against a federal court’s
hearing claims that are closely related to non-removable state proceedings. See Freed II, 756
F.3d at 1023; Day, 862 F.2d at 659-60. Case 2011 CH 41529 is non-removable under 28 U.S.C.
§ 1441(b)(2) because diversity provides its only basis for federal jurisdiction and Weiss is a
citizen of Illinois, where the state suit was brought. See Freed I, 974 F. Supp. 2d at 1144, 1149.
The same is true of Case 2014 CH 14770. Doc. 31-2 at ¶¶ 11, 15, 17. Because this federal suit
is bound up with the claims in non-removable state proceedings, the ninth factor favors
abstention. See Freed II, 756 F.3d at 1023 (holding that, because 2011 CH 41529 was nonremovable, this factor favored abstention in Freed’s previous federal suits).
10. The vexatious or contrived nature of the federal claims. There is no need to comment
adversely on Freed’s motives to conclude that, because his federal court claims closely track the
state court claims that he brought and that have been brought against him, the federal suit is
“vexatious” and “contrived” within the meaning of Colorado River. See Freed II, 756 F.3d at
1024 (“[E]ven setting aside these presumptions [that Freed attempted to evade the state court],
this factor can weigh in favor of abstention when the claims and parties in the federal suit could
have been included in the original state court proceeding.”); Interstate Material Corp., 847 F.2d
at 1289 (“[T]he federal suit could be considered both vexatious and contrived. … Without
presuming Interstate’s motives, we see no reason why all claims and all parties could not have
been, and still could not be, part of one suit.”). That said, there is overwhelming evidence that
Freed has behaved vexatiously during the course of the federal and state suits. The last time
Freed tried to press his case in federal court, Judge Pantle had already expressed concern on
several occasions that he had abused the judicial process by bringing a series of suits in an effort
to circumvent her rulings. See Freed II, 756 F.3d at 1024 (“Judge Pantle stated that she was
‘very concerned about an abuse of process here and a manipulation of the system’ and concluded
that Freed was ‘seeking to litigate matters at the heart of [the state court proceeding] before other
judges in an attempt to evade [Judge Pantle’s] orders.’”) (alterations in original); Freed I, 974 F.
Supp. 2d at 1149 (noting that Judge Pantle’s rulings as of 2013 had “been extremely
unfavorable,” which made it “obvious as obvious can be” that Freed’s fragmented litigation
strategy was “an effort to evade Judge Pantle’s courtroom”). Freed provides no reason to reach a
different conclusion here, particularly given that he himself describes this suit as yet another
effort to seek “a forum that is above actual or perceived local prejudice.” Doc. 33 at 14. The
tenth factor accordingly weighs heavily in favor of abstention.
In sum, nine of the ten factors favor abstention. As when Freed was last before this court,
that state of affairs more than suffices to support a finding that Colorado River abstention
pending resolution of the state suits is warranted. See Freed II, 756 F.3d at 1024.
Inherent Authority to Stay
Even if Colorado River abstention pending resolution of the state suits were not
warranted, this court would exercise its discretion to issue a more limited stay pending the state
court’s resolution of the motion to enforce the purported settlement in Case 2011 CH 41529.
This court has the inherent authority to “control the disposition of the causes on its docket with
economy of time and effort for itself, for counsel, and for litigants.” Landis v. N. Am. Co., 299
U.S. 248, 254 (1936). That inherent authority includes the power to stay proceedings where the
party seeking the stay would be spared “hardship or inequity,” the prejudice to the non-movant
would be comparatively minor, and the stay would significantly advance judicial economy. Id.
at 255. Here, pressing forward despite the pending motion to enforce the settlement in state
court risks subjecting Silver to a considerable hardship—having to defend itself against claims
that might have been resolved by a recent settlement. And pressing forward also risks having
this court and the parties expend considerable time and effort on a suit that could prove entirely
fruitless if it turns out Freed already released Silver from liability. See Ingersoll Milling Mach.
Co. v. Granger, 833 F.2d 680, 686 (7th Cir. 1987) (“The court did not dismiss the action; it
simply stayed further proceedings until the Belgian appeals were concluded. This approach
protects the substantial rights of the parties while permitting the district court to manage its time
effectively. Such a common sense approach is clearly within the sound discretion of the trial
court.”) (citation omitted).
As Freed himself recognizes, the Rosenbauer court relied on its inherent authority to stay
a federal suit pending a state court’s determination of the enforceability of a settlement. See
Rosenbauer, 437 F. Supp. 2d at 1084 (“A decision by the Ohio court that the settlement
agreement between the parties is enforceable would render moot any decision of this Court on
Plaintiff’s breach of contract claim. The time and resources devoted by the Court, parties and
witnesses would be wasted. In the interests of the parties and of judicial economy, the Court
determines that a stay is warranted pending the outcome of the Ohio case.”). As noted above,
this court parts ways with Rosenbauer on the question whether a pending motion to enforce a
settlement can predicate Colorado River parallelism. But insofar as Rosenbauer held that the
court’s inherent authority to stay may apply even where full-blown Colorado River abstention
does not, its conclusion is sound. See Calleros v. FSI Int’l, Inc., 892 F. Supp. 2d 1163, 1171 n.8
(D. Minn. 2012) (“Apart from abstention, the Court enjoys the inherent power to stay
proceedings before it, to control the disposition of the causes on its docket with economy of time
and effort for itself, for counsel, and for litigants. A stay is appropriate to permit the state court,
where jurisdiction first attached, to adjudicate the issues before this Court reaches them, and that
adjudication may well have a significant impact on this case ….”) (citations omitted) (internal
quotation marks omitted); Rhodes v. Indep. Blue Cross, 2012 WL 447544, at *4-6 (E.D. Pa. Feb.
9, 2012) (exercising the court’s inherent authority to stay the case pending resolution of state
litigation, after considering the parties’ competing interests and judicial efficiency); Melo v.
Gardere Wynne Sewell LLP, 2005 WL 991600, at *3 n.3 (N.D. Tex. Apr. 21, 2005) (“Even if
abstention is not warranted under the Colorado River doctrine, a federal court has the inherent
power to stay proceedings to control the disposition of the causes on its docket with economy of
time and effort for itself, for counsel, and for litigants.”) (internal quotation marks omitted). At a
minimum, then, the pending motion to enforce the settlement should be resolved in state court
before this litigation moves forward, given the real and immediate possibility that the state court
will make a determination that the purported settlement is valid and enforceable, which in turn
would resolve this suit.
For the foregoing reasons, the motion to stay is granted. Colorado River abstention is
warranted, and this case is stayed pending the state court’s resolution of Case 2011 CH 41529
and Case 2011 CH 14770. Even if Colorado River were not satisfied, a more limited stay
pending resolution of the motion to enforce the settlement in Case 2011 CH 41529 would be
appropriate. If the state court rules on the motion to enforce before the state litigation is fully
resolved, either party may move this court to lift the stay.
October 17, 2016
United States District Judge
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