Bartlett v. Bartlett et al
MEMORANDUM Opinion and Order. Signed by the Honorable Manish S. Shah on 12/20/2016: James Bartlett's motion to disqualify plaintiff's counsel, 8 , is denied. [For further detail see attached order.] Notices mailed by Judicial Staff. (psm, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
No. 16 CV 6595
JAMES BARTLETT, DENISE BARTLETT,
EVAN BARTLETT, ANOOSH MOTAMEDI,
and MARK KEENAN,
Judge Manish S. Shah
MEMORANDUM OPINION AND ORDER
Mark Bartlett and his brother James Bartlett jointly own cash-lending
stores. Mark is suing James—along with James’s wife, son, and two employees—for
allegedly setting up rival stores and siphoning business and resources away from
the brothers’ co-owned stores. .1 James now moves to disqualify Mark’s counsel,
Arnstein & Lehr LLP (including lead counsel Steven Malitz), because the firm
previously represented the brothers’ cash-lending businesses in litigation with third
parties and did estate planning for James and his wife. For the following reasons,
the motion to disqualify is denied.
Local Rule 83.50 incorporates ABA Model Rule of Professional Conduct 1.9 on
duties to former clients. Rule 1.9(a) provides that “[a] lawyer who has formerly
represented a client in a matter shall not thereafter represent another person in the
Bracketed numbers refer to entries on the district court docket.
same or a substantially related matter in which that person’s interests are
materially adverse to the interests of the former client unless the former client gives
informed consent, confirmed in writing.” In considering motions to disqualify, courts
must balance two important considerations: “the sacrosanct privacy of the attorneyclient relationship (and the professional integrity implicated by that relationship)
and the prerogative of a party to proceed with counsel of its choice.” Schiessle v.
Stephens, 717 F.2d 417, 419–20 (7th Cir. 1983). Although courts have a duty to
safeguard the attorney-client relationship, “it must also be recognized that
disqualification, as a prophylactic device for protecting the attorney-client
relationship, is a drastic measure which courts should hesitate to impose except
when absolutely necessary.” Cromley v. Bd. of Educ. of Lockport Twp. High Sch.
Dist. 205, 17 F.3d 1059, 1066 (7th Cir. 1994). Motions to disqualify counsel are
typically disfavored because “they can be misused as techniques of harassment” and
they “depriv[e] a party of representation of their own choosing,” but “there obviously
are situations where they are both legitimate and necessary.” Freeman v. Chicago
Musical Instrument Co., 689 F.2d 715, 721–22 (7th Cir. 1982). The moving party
“bears a heavy burden of proving facts required for disqualification.” Evans v. Artek
Sys. Corp., 715 F.2d 788, 794 (2d Cir. 1983).
The standard for disqualification of an attorney who undertakes litigation
against a former client is the so-called “substantial relationship” test. LaSalle Nat’l
Bank v. Lake Cty., 703 F.2d 252, 255 (7th Cir. 1983). The test has three steps:
“First, the trial judge must make a factual reconstruction of the scope of the prior
legal representation. Second, it must be determined whether it is reasonable to infer
that the confidential information allegedly given would have been given to a lawyer
representing a client in those matters. Third, it must be determined whether that
information is relevant to the issues raised in the litigation pending against the
former client.” Id. at 255–56. Matters are substantially related “if they involve the
same transaction or legal dispute or if there otherwise is a substantial risk that
confidential factual information as would normally have been obtained in the prior
representation would materially advance the client’s position in the subsequent
matter.” ABA Model Rules Prof’l Conduct § 1.9 cmt. 3; see Analytica, Inc. v. NPD
Res., Inc., 708 F.2d 1263, 1266 (7th Cir. 1983). If a substantial relationship exists, it
is presumed that the attorney received confidential information during the prior
representation. LaSalle Nat’l, 703 F.2d at 257. Although the presumption is
rebuttable, “[a] very strict standard of proof must be applied to the rebuttal of this
presumption, however; and any doubts as to the existence of an asserted conflict of
interest must be resolved in favor of disqualification.” Id.
Mark Bartlett and his brother James Bartlett jointly own American Cash
Loans, LLC, and B & B Investment Group, Inc. As relevant here, the companies
operate four cash-lending stores in New Mexico, which are allegedly managed by
James. In 2011, the brothers hired Arnstein & Lehr LLP to represent these
companies, another Bartlett business, and Mark individually in two Illinois state
court breach of contract actions involving third parties. Around this time, James
also hired Arnstein & Lehr LLP for estate-planning work for him and his wife,
Denise Bartlett. Steven Malitz was the originating partner for both matters, but his
partner Jay Tarshis handled James’s estate-planning work in 2011 and 2012.
Through 2014, Tarshis also performed some discrete transactional work for two
other business entities owned by James.
In early 2015, Mark—represented by Arnstein & Lehr LLP—brought suit
against James in Florida state court, alleging that James breached the brothers’
business agreement and his fiduciary duties by failing to transfer funds from the
cash-lending stores to Mark. James filed a motion to disqualify Arnstein & Lehr as
Mark’s counsel and requested that the firm return his estate planning file
materials. Mark substituted in new counsel before the motion to disqualify was
decided. Arnstein & Lehr returned James’s file, along with a letter from its general
counsel stating that the firm would not perform any additional services for James.
In 2015, using other counsel, Mark asserted similar claims against James in New
Mexico state court (in two consolidated cases). The Florida court stayed proceedings
pending completion of the New Mexico litigation and then dismissed the case
without prejudice. The New Mexico litigation remains pending.
In 2016, Mark brought suit against James here in federal court, asserting
that James, his wife Denise, his son Evan, and employees Anoosh Motamedi and
Mark Keenan engaged in a racketeering scheme in violation of the Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961. Arnstein & Lehr, with
Malitz as lead counsel, represent Mark in the current RICO action against James.
James moves to disqualify Malitz and Arnstein & Lehr, asserting that the firm has
a conflict of interest because James is a former client.
Prior Litigation Matters
In 2011, Steven Malitz sent an engagement letter and retainer agreement
from Arnstein & Lehr to James and Mark Bartlett. [8-3]. The firm agreed to
represent a few Bartlett businesses (American Cash Loans, LLC, B & B Investment
Group Inc., America’s Cash Advance Store, Inc., and OPM Enterprises, Inc.) in two
pending lawsuits in the Circuit Court of Cook County: OPM Enterprises, Inc. v.
Affinity Credit Services, Inc., Case No. 09 CH 00521, and Michael D’Ambrose v.
American Cash Loans, LLC et al., Case No. 09 L 011858. The letter also stated that
the firm would represent Mark, who was named individually in the D’Ambrose
action. [8-3] at 1. The parties argue over whether James was a client of Arnstein &
Lehr for either litigation matter. Although he was not a named party in either suit,
and the letter stated that the firm was only representing the Bartletts’ businesses
and Mark individually, James signed the letter “individually and on behalf of” the
businesses. [8-3] at 3. Arnstein & Lehr argues that this was only meant to obligate
James to pay for attorney fees if the businesses did not, but there is no language in
the letter to that effect. At the end of the day, even if James were not represented
by Arnstein & Lehr as a named party, as a co-owner of businesses that necessarily
act through people, he would expect to have a confidential relationship with the
attorneys representing the businesses.
In OPM Enterprises, Inc. v. Affinity Credit Services, Inc., Bartlett-owned
OPM Enterprises, Inc. sued a third party in 2009 for allegedly failing to make
payments pursuant to a consulting agreement. See [14-2] at 21–29. James does not
dispute that Malitz’s point of contact for the case was Mark, who was principal of
OPM, and the case was resolved in 2011. [14-2] ¶¶ 19, 21. In Michael D’Ambrose v.
American Cash Loans, LLC et al., a third-party sued Bartlett-owned businesses
American Cash Loans, LLC, B & B Investment Group, Inc., and America’s Cash
Advance Store, Inc., in 2009 for allegedly failing to make payments pursuant to
investment agreements entered into in 2003. An unjust enrichment claim was also
brought against Mark for allegedly failing to disburse proceeds from a partnership
dissolved in 2008. See [14-2] at 8–20. James also does not dispute that Mark was
the firm’s point of contact in the D’Ambrose case and that it was dismissed in 2011.
[14-2] ¶¶ 9, 14.
James has made no argument that these prior litigation matters are
substantially related to Mark’s current RICO suit, although it is his burden to
establish a substantial relationship. Two Bartlett businesses in the D’Ambrose
action—American Cash Loans, LLC, and B & B Investment Group, Inc.—are
mentioned in the RICO complaint as jointly-owned businesses from which James
and the other defendants allegedly siphoned off business and resources. But James
does not argue that any confidential information from these prior actions would be
relevant to the issues raised in this RICO action several years later. The prior
litigation matters are not substantially related to this RICO action, and therefore
the firm is not conflicted from representing Mark on that basis.
Estate Planning and Transactional Work
James largely focuses on estate planning work by Arnstein & Lehr, arguing
that the firm’s work included review of his assets and business ownership. In 2011,
James engaged the firm to assist with estate planning for him and his wife. Malitz
sent James an engagement letter and retainer agreement stating that the scope of
the representation was “to review your existing asset protection structure, offer
suggestions for any revisions or additions, and draft certain documents to
implement our suggestions, with your prior approval.” [8-4] at 1. The estate
planning work was done by another Arnstein & Lehr partner, Jay Tarshis, but
Malitz remained the originating/billing partner. [8-4] at 1; [14-2] ¶¶ 22–23; [14-3]
¶ 4. Tarshis worked on James’s estate plan from 2011 to 2012. From 2012 through
2014, Tarshis performed some “corporate maintenance” for two of James’s other
businesses (AITF Investments and Infinite Leads, LLC). [14-2] ¶¶ 24, 29–30; [14-3]
¶¶ 4–6, 11–12.
Estate planning issues do not, on their face, appear to be relevant to the
alleged racketeering scheme. However, James asserts that Arnstein & Lehr’s estate
planning work continued nearly until 2015 and included review of all his assets and
business ownership. He argues that this information was kept by Arnstein & Lehr,
along with an analysis of the entities and potential changes to their corporate
structure, until he requested the return of his file in 2015. Arnstein & Lehr, in turn,
described its estate planning work much more narrowly, maintaining that Malitz
was never involved with the estate planning, that Tarshis merely updated an
existing estate plan in 2011 and 2012, and that Tarshis thereafter performed
limited transactional work for two other business entities owned by James, which
are not at issue in the RICO action. Faced with these competing versions of the
scope of the transactional matters performed for James, I accepted James’s offer to
submit his Arnstein & Lehr file for in camera review.
A review of the file shows that the scope of Arnstein & Lehr’s estate planning
work was more involved than the firm suggested, but its work was not as extensive
or current as James argues. The estate planning work occurred largely in 2011
through 2012 and was performed by Tarshis. For estate planning purposes,
Arnstein & Lehr had access to information regarding James and Denise Bartlett’s
assets and business ownership, including James’s co-ownership of American Cash
Loans, LLC, and B & B Investment Group, Inc. (the entities owning the New
Mexico cash stores at issue in the RICO action). Tarshis also performed some
transactional work for other business entities owned by James (and which are not
at issue in the RICO action). According to Tarshis, the last billing entry for that
work was in May 2014. [14-3] ¶ 12. Tarshis also declared that he performed no work
for brothers’ jointly-owned businesses, or the alleged new rival business entities.
[14-3] ¶¶ 14–15. Similarly, James does not contend that Tarshis performed any
transactional work for American Cash Loans, LLC, or B & B Investment Group,
Inc., or for any other corporate entity mentioned in Mark’s RICO complaint.
Arnstein & Lehr’s termination of the engagement was not formalized until 2015,
when the firm’s general counsel sent James’ counsel the letter when returning his
It is reasonable to infer that confidential information relating to James and
Denise Bartlett’s personal finances, assets, and business ownership as of 2012
passed to Arnstein & Lehr. The evidence need not establish that Arnstein & Lehr
actually received confidential information—instead, James only need establish the
scope of the legal representation and a reasonable inference that the firm could
have received confidential information under it. See Novo Terapeutisk Laboratorium
A/S v. Baxter Travenol Labs., Inc., 607 F.2d 186, 189 (7th Cir. 1979) (“The evidence
need only establish the scope of the legal representation and not the actual receipt
of the allegedly relevant confidential information.”). Although Malitz disclaims
involvement in the estate planning and transactional matters as anything other
than the originating partner, actual receipt of confidential information by other
members of the firm need not be shown if the prior and current representations are
substantially related matters. See id. at 189, 192; LaSalle Nat’l, 703 F.2d at 257.
Moreover, James’s file includes communications with Tarshis, copying Malitz—
Malitz cannot rebut the presumption that he and the firm received confidential
information during the course of James’s estate planning work.
The remaining question, then, is whether confidential information about
James and Denise Bartlett’s assets and business ownership from 2011 and 2012 is
relevant to the issues in this RICO action. (The mere fact of James’s co-ownership of
American Cash Loans, LLC, and B & B Investment Group, Inc. is not confidential
because that information was already known to others.) “Relevance must be gauged
by the violations alleged in the complaint and an assessment of the evidence useful
in establishing those allegations.” Westinghouse Electric Corp. v. Gulf Oil Corp., 588
F.2d 221, 226 (7th Cir. 1978). Mark alleges that beginning in 2014, James (with the
help of his wife Denise, son Evan, and employee Anoosh Motamedi) organized a
company named Dellano LLC to operate a new loan business called AAA Quick
Cash Advance, to be managed by Motamedi and another employee, Mark Keenan.
According to Mark Bartlett, the defendants began directing customers, money, and
resources away from the New Mexico stores owned by the brothers’ jointly owned
companies to Dellano and AAA Quick Cash Advance. He alleges that in 2014,
Denise, Evan, and Anoosh reinstated Dellano as a company, and that they also
incorporated Blue Financial, Inc. (with Motamedi and the Denise E. Bartlett
Revocable Trust 1-20-2007 as shareholders) and The Pathway Group, Inc. (with
Denise and Evan as shareholders) to jointly own Dellano. He asserts that another
company, Renwel Financial, Inc. was solely owned by Denise and provided seed
funding to Blue Financial and The Pathway Group in order to capitalize Dellano.
See generally .
James, however, does not explain how information about James and Denise’s
assets in 2011 and 2012 is materially relevant to any issue in the RICO action—
namely, whether the defendants set up a racketeering scheme in 2014 by forming
new business entities and siphoning business to these newly-formed entities. See
ABA Model Rules Prof’l Conduct § 1.9 cmt. 3 (matters are substantially related “if
they involve the same transaction or legal dispute or if there otherwise is a
substantial risk that confidential factual information as would normally have been
obtained in the prior representation would materially advance the client’s position
in the subsequent matter”); see, e.g., Bayshore Ford Truck Sales, Inc. v. Ford Motor
Co., 380 F.3d 1331, 1340 n.10 (11th Cir. 2004) (affirming denial of motion for
disqualification where movant did not argue that knowledge of business ownership
and estate planning matters would have given attorney insight into breach of
contract claim); alfaCTP Sys., Inc. v. Nierman, No. 15-CV-9338, 2016 WL 687281, at
*5 n.9 (N.D. Ill. Feb. 19, 2016) (although there was a reasonable inference that
defendant shared confidences with firm relating to his estate planning and real
estate investments, such information was not reasonably related to action against
defendant alleging fraud, breach of contract, and breach of fiduciary duty arising
from purported misuse of company funds). He does not assert, for example, that any
Arnstein & Lehr attorney assisted James with transactional work related to the
jointly-owned entities or assisted him to form any of the rival business entities
alleged in the RICO suit. James also does not assert that any Arnstein & Lehr
attorney would be called as a witness or invoke the witness-advocate rule set forth
in Model Rule 3.7. James’s generalized argument that the firm’s exposure to
information about his assets creates a conflict of interest does not explain how that
information is relevant to Mark’s RICO allegations. James has not met his heavy
burden of demonstrating a substantial relationship between the current and former
representations, and of justifying the drastic step to disqualify Mark’s chosen
James suggests, however, that the specificity of Mark’s RICO allegations
could only have come from knowledge gleaned from James’s estate planning work.
In response, Arnstein & Lehr contends that Mark caught wind of the alleged
racketeering scheme during discovery in the New Mexico litigation, when Motamedi
disclosed the existence of the rival business during his deposition. The firm states
that it then obtained further information to support its RICO allegations from
various secretary of state websites and other defendants’ depositions during the
New Mexico litigation. In reply, however, James pokes holes in the credibility of
this assertion by pointing out that Mark asserted a similar state-law RICO
counterclaim against James and Motamedi in early October 2015. [12-6] at 11–13.
The depositions of Motamedi and Denise Bartlett did not occur until mid-November
2015, several weeks later. [16-2]. Other filings in the New Mexico litigation indicate
that as early as August 2015, Mark had filed a third-amended complaint alleging
that James and Motamedi had opened a rival business. [14-5] at 5. The filing also
indicates that Mark, in fact, learned before the depositions that Motamedi had
opened a rival business, and the depositions then provided additional specificity to
the allegations. [14-5] at 5–6.
Arnstein & Lehr does not provide an entirely coherent explanation for how
Mark discovered that James and Motamedi were allegedly setting up rival stores.
But that does not mean that such information came from Arnstein & Lehr’s estate
planning work for James and Denise. Indeed, James does not contest Tarshis’s
declaration that Tarshis never performed any work for the brothers’ jointly-owned
businesses or for the business entities alleged to be rival stores opened by James
and the other defendants two years later. Nothing in James’s estate planning file
suggests that the scope of Tarshis’s work extended to any of these entities, or that
his review of James and Denise Bartlett’s assets continued beyond 2012. Given the
limited scope of the estate planning work, it is not reasonable to infer that RICO
allegations relating to Motamedi and rival businesses could have originated from
Arnstein & Lehr’s representation of James.
James also argues that Arnstein & Lehr essentially conceded a conflict of
interest when Mark substituted in new counsel in the Florida litigation after James
sought to disqualify the firm. But the motion for disqualification was never decided
by the Florida court. It is too speculative to conclude, without more, that the firm
conceded a conflict of interest, and speculation is an inappropriate basis for
James also argues in his reply brief (where new arguments ordinarily may not be raised)
that the court should apply the disqualification test for current client conflicts under Model
Rule 1.7(a), which prohibits representation of one client directly adverse to another,
because Arnstein & Lehr did not expressly end its engagement for James until after it filed
the Florida litigation on Mark’s behalf. Rule 1.7 on concurrent representations does not
apply because James admits he was a former client at the time this suit was filed. Arnstein
& Lehr possibly faced disqualification under Rule 1.7 in the Florida litigation, and the
firm’s conduct in agreeing to represent Mark against James in that case is not above
reproach. But the timing and circumstances of this case are different.
Relying on O’Malley v. Novoselsky, No. 10 C 8200, 2011 WL 2470325, at *2
(N.D. Ill. June 14, 2011), which states that “a court may disqualify an attorney for
failing to avoid even the appearance of impropriety,” James asserts that Arnstein &
Lehr should be disqualified from representing Mark in order to avoid the
appearance of impropriety. O’Malley, however, was quoting International Business
Machines Corp. v. Levin, 579 F.2d 271, 283 (3d Cir. 1978), which relied on the ABA
Model Code of Professional Responsibility. The Model Code has since been replaced
by the ABA Model Rules of Professional Conduct. Waters v. Kemp, 845 F.2d 260, 265
(11th Cir. 1988). “Under the Model Rules, the appearance of impropriety is not a
ground for disqualifying a lawyer from representing a party to a lawsuit.” Id.
James’s general assertion of impropriety is not a sufficient basis to disqualify
Arnstein & Lehr.
James has not met the heavy burden of establishing a substantial
relationship between Arnstein & Lehr’s estate planning work for him and its
current representation of Mark in the RICO action. In absence of that showing, the
motion to disqualify is denied because disqualification is a “drastic measure which
courts should hesitate to impose except when absolutely necessary.” Cromley, 17
F.3d at 1066. But the motion to disqualify was not frivolous and its denial should
not be viewed as an endorsement of Arnstein & Lehr’s conduct.
James Bartlett’s motion to disqualify plaintiff’s counsel, , is denied.
Manish S. Shah
United States District Judge
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