Edelson PC v. The Bandas Law Firm PC et al
Filing
95
MEMORANDUM Opinion and Order : Signed by the Honorable Rebecca R. Pallmeyer on 2/6/2018. Mailed notice. (etv, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
EDELSON PC, an Illinois professional
corporation, individually, and on behalf
of all others similarly situated,
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)
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Plaintiff,
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v.
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THE BANDAS LAW FIRM PC, a Texas
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professional corporation, CHRISTOPHER
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BANDAS, an individual, LAW OFFICES OF )
DARRELL PALMER PC d/b/a DARRELL
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PALMER LAW OFFICE, a suspended
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California professional corporation,
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JOSEPH DARRELL PALMER, an individual, )
NOONAN PERILLO & THUT LTD, an
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Illinois corporation, C. JEFFREY THUT,
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an individual, GARY STEWART, an
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individual and JOHN DOES 1-20,
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Defendants.
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No. 16 C 11057
Judge Rebecca R. Pallmeyer
MEMORANDUM OPINION AND ORDER
Many of the parties in this case are frequent participants in class action litigation.
Plaintiff Edelson PC is an Illinois law firm whose attorneys have extensive experience bringing
class actions on behalf of consumer plaintiffs.
Defendant Christopher Bandas frequently
represents objectors to class action settlements. 1 In this lawsuit, Plaintiff alleges that Bandas’s
class-settlement-objection practice constitutes criminal racketeering.
The scheme Plaintiff
alleges works as follows: Bandas orchestrates the filing of meritless objections to proposed
class action settlements on behalf of purported class members. Bandas files the meritless
objections with the expectation that the trial court will overrule them, setting up a basis for
1
As a result of their litigation activities over the years, Edelson and Bandas have
developed divergent reputations within the legal profession. Edelson's attorneys are regarded
as "experienced and respected members of the plaintiff's class action bar." Aranda v.
Carribbean Cruise Line, Inc., No. 12 C 4069, 2017 WL 818854, at *4 (N.D. Ill. Mar. 2, 2017)
(Kennelly, J.). Bandas, by contrast, has been characterized as a "serial" objector who pursues
personal financial gain by routinely filing frivolous, bad-faith objections to proposed class
settlements and generally engaging in behavior "unfitting for any member of the legal
profession." Garber, 2017 WL 752183, at *5 (S.D.N.Y. Feb. 27, 2017).
1
appeal. Before appealing the ruling (or while an appeal is pending), Bandas offers to forego
appeal (or withdraw a pending appeal) in exchange for "attorney's fees." Though convinced that
the appeal would be meritless, class counsel often agrees to pay Bandas to avoid the delay in
payment to the class and class counsel that would result from the appeal process.
From
Plaintiff's perspective, when Bandas leverages the delay of a frivolous appeal on behalf of a
purported class member to demand payment for himself, he is engaging in extortion. Plaintiff
itself became the victim of Bandas's allegedly extortionate scheme when it paid Bandas
$225,000 to withdraw an appeal arising from class litigation in Illinois state court.
Plaintiff brings this putative class action against Bandas and his law firm (The Bandas
Law Offices) (collectively "Bandas"), as well as two attorneys, Jeffrey Thut and Darrell Palmer,
and their law firms (Noonan Perillo & Thut Ltd and Law Offices of Darrell Palmer) (collectively
"Thut" and "Palmer", respectively), who have assisted Bandas in finding potential objectors and
filing objections in courts throughout the country. Plaintiff has also sued Bandas's objector
clients, including Gary Stewart, the objector in the Illinois state court litigation that resulted in
Edelson's payment to Bandas.
Alleging that each Defendant has played an active role in
advancing Bandas's scheme, Plaintiff asserts claims against all of them for engaging in a
pattern of racketeering activity in violation of the Racketeering Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. § 1962(c). According to Plaintiff, Defendants' acts of
racketeering include extortion, mail and wire fraud, obstruction of justice, witness tampering,
bribery, and money laundering. Plaintiff also alleges that Defendants conspired to engage in
the pattern of racketeering activity, in violation of 18 U.SC. § 1962(d). In addition to the RICO
claims, Plaintiff asserts state-law claims for abuse of process and unauthorized practice of law.
Plaintiff also urges the court to label Bandas, Palmer, and Thut vexatious litigants and enjoin
their behavior pursuant to the All Writs Act, 28 U.S.C. § 1651.
Defendants Bandas [63], Thut [69], and Stewart [66] have moved to dismiss.
They
argue that Plaintiff has not alleged a single RICO predicate act, let alone a pattern of
2
racketeering activity. Once the court dismisses the federal RICO claims, the only remaining
claims will be state-law claims over which the court lacks jurisdiction, Defendants contend. In
any event, they argue, Plaintiff has failed to state a claim for abuse of process or unauthorized
practice of law.
For purposes of these motions, the court is required to accept Plaintiff’s troubling
allegations as true. Moreover, the court's own experience with Bandas and Thut, as well the
accounts of other courts that have condemned Bandas's practices, provide independent
grounds for crediting these allegations. See, e.g., In re Cathode Ray Tube (CRT) Antitrust
Litig., 281 F.R.D. 531, 533 (N.D. Cal. 2012) (noting that Bandas has been "excoriated by Courts
for [his] conduct"). The alleged conduct appears to be in bad faith, to have no genuine social
value, and to be inconsistent with the ethical standards of the legal profession. Gaming the
rules of the legal system solely for personal self-enrichment wastes the time and money of
courts and attorneys, wrests funds away from deserving litigants, and tarnishes the public's view
of the legal process. Nevertheless, as vexing as the court finds the behavior of Defendants and
other "serial objectors," the court is unable to find that the alleged conduct constitutes
racketeering activity.
For the reasons discussed in greater detail below, the court grants
Defendants' motions to dismiss with respect to Plaintiff's claims that arise under federal law and
directs Plaintiff to show cause why the state law claims should not be dismissed.
BACKGROUND
Plaintiff alleges it was injured by Defendants' conduct following the settlement of a class
action lawsuit in Illinois state court. Attorneys affiliated with Plaintiff acted as class counsel in
Clark v. Gannett Co. Inc., Case No. 16-CH-06603 (Cir. Ct. Cook Cty., Ill.), a case concerning
allegedly unlawful autodialed telephone calls. After years of litigation, the parties in Gannett
reached a classwide settlement, which the Circuit Court of Cook County preliminarily approved
in August 2016. (Pl.'s Combined Resp. to Mots. to Dismiss [76] (hereinafter "Pl.'s Resp.") at 7.)
Before the state court granted final approval of the settlement, Thut filed an objection on behalf
3
of Stewart, who purported to be a class member. (First Am. Compl. [50] (hereinafter "FAC") ¶¶
56, 132.) Plaintiff here alleges that Palmer solicited his friend Stewart as the class member who
could file the objection (id. ¶ 56), and that it was Bandas who actually coordinated and prepared
the objection. (Id. ¶ 259a.) Neither Palmer nor Bandas, however, filed an appearance with the
court in Gannett. (Id. ¶ 56.) According to Plaintiff, Stewart's objection was part of a scheme to
extract a payment from Plaintiff to Defendants.
Plaintiff has not provided details concerning the nature of Stewart’s objection. Plaintiff
does allege that in November 2016, the judge in the Gannett case overruled it. (Id.) According
to Plaintiff, Defendants expected, and even intended, that the objection would be overruled so
that they could threaten to appeal the ruling and demand payment from Plaintiff. (Id. ¶ 8.) Soon
after the court overruled Stewart's objection, Bandas communicated with Plaintiff via telephone
and e-mail and proposed that the parties enlist a professional mediator to assist them in
resolving Stewart's objection without pursuing the appeal process. (Id. ¶ 86.) Plaintiff accepted
Bandas's proposal and engaged in a telephone mediation session with Bandas and Bandas's
proposed mediator, Rodney A. Max, on December 1, 2016. (Id. ¶ 90.) Plaintiff avers that when
it agreed to participate in the mediation, it was not aware that Max and Bandas had worked
together before and that Max and Bandas would attempt to use a "confidentiality" agreement to
shield their conduct during the mediation from courts. (Id. ¶¶ 87–88.) 2 According to Plaintiff,
during the mediation, Bandas never proposed any changes to the class action settlement that
Plaintiff had negotiated on behalf of the class members.
(Id. ¶ 91.)
Instead, he simply
demanded tribute; he asked for payment of $400,000 in "attorneys' fees" from Plaintiff and
threatened to delay settlement payments to the class (and attorneys' fees to Plaintiff) by
pursuing an appeal if Plaintiff refused to pay. (Id. ¶ 92.) To avoid a delay in distribution of the
2
The complaint does not provide the terms of the alleged confidentiality
agreement; nor does it make clear whether Plaintiff was a party to the agreement. Plaintiff
simply alleges that Max "forwarded a 'confidentiality' agreement" and that "he and Bandas knew
[the agreement] would allow them to claim the [alleged] extortion could not be disclosed." (FAC
¶ 87.)
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settlement proceeds to the class, Plaintiff capitulated, agreeing to pay Bandas $225,000. (Id.
¶ 93.) Plaintiff claims it had no real choice other than to pay Bandas: The costs of delaying the
agreed settlement payments to the class and to class counsel, Plaintiff explains, would have
jeopardized the law firm’s ability to improve its infrastructure, cover operating its expenses, and
pay off existing debt. Delay would impose additional costs, as well, including the cost of staff
resources devoted to responding to class members awaiting the settlement recovery. (Id. at
¶ 6.)
Plaintiff alleges that when it informed Defendants that it would disclose the parties'
agreement and seek approval of the court, Bandas responded by falsely claiming that additional
terms still needed to be negotiated3 and demanding that nothing about the agreement be
reported to the court. (Id. ¶ 93.)
Plaintiff maintains that the $225,000 payout Defendants received from Plaintiff was the
product of an unlawful and extortionate scheme. Plaintiff also asserts that Defendants' conduct
in the Gannett litigation is not an isolated instance of unseemly behavior but is rather part of a
consistent pattern of racketeering activity conducted by an "objector enterprise."
(Id. ¶ 1.)
Plaintiff has identified at least fourteen other cases in which Bandas has engaged in similar
conduct—filing frivolous objections to class action settlements for the purpose of extorting the
attorneys representing the class. (Id. ¶ 109.) Bandas, according to Plaintiff, serves as the
"boss" of the enterprise, providing leadership and overall command. (Id. ¶ 120.) Associates like
Thut and Palmer allegedly coordinate with Bandas and each other to find objectors, sign
documents, file appearances, and appeal overruled objections. (Id. ¶ 121.) Bandas and Palmer
often "ghostwrite" the objections without signing the filed documents, or without even filing an
appearance in the case, according to Plaintiff, in order to avoid the risk that they might be
sanctioned by the court or to make it appear that the objections were filed pro se. (Id. ¶¶ 51, 82,
127.) Plaintiff also alleges that the objector clients, including Stewart, are participants in the
illegal enterprise. According to Plaintiff, objectors like Stewart agree to accept thousands of
3
Plaintiff does not explain what "additional terms" Bandas identified as still to be
negotiated.
5
dollars in return for acting as good-faith objectors to settlements, although they are not. (Id. ¶¶
180–81.)
Because the objectors will receive a portion of the enterprise's payout, Plaintiff
alleges, they withdraw their objections once class counsel agrees to the enterprise's payment
demands. (Id. ¶ 182.)
Plaintiff characterizes this conduct as a pattern of racketeering activity in violation of the
federal RICO statute, and Plaintiff lists a number of Defendants' alleged predicate RICO acts in
its complaint.
According to Plaintiff, by threatening to intentionally delay payment to class
members and class counsel, Defendants create a fear of economic harm and constitute
unlawful "extortion" under the Hobbs Act, 18 U.S.C. § 1951. Plaintiff also alleges that
Defendants committed wire fraud under 18 U.S.C. § 1343, and mail fraud under 18 U.S.C. §
1341, by using interstate wires and the United States mail as part of their scheme to mislead
Plaintiff and others into believing that the class objectors were good-faith objectors and that
Defendants intended to engage in good-faith mediation to resolve their objections. In addition,
Plaintiff asserts that the solicitation of objector clients to submit false and misleading objections
in exchange for payment constitutes obstruction of justice under 18 U.S.C. § 1503, witness
tampering under 18 U.S.C. § 1512, and bribery under both the federal bribery statute, 18 U.S.C.
§ 201(b)(3), and the Illinois bribery statute, 720 Ill. Comp. Stat. 5/33-1. Plaintiff also alleges that
Defendants' use of profits from prior extortionate schemes to pay for Max's mediation services
constitutes money laundering under 18 U.S.C. § 1956. In addition to asserting that Defendants
engaged in the above racketeering acts, Plaintiff claims that Defendants conspired with each
other to engage in a pattern of racketeering activity, in violation of 18 U.S.C. § 1962(d).
Defendants deny that their alleged conduct amounts to any pattern of racketeering
activity. They also emphasize that courts are reluctant to impose RICO liability on defendants
for actions taken during the course of litigation. Indeed, Defendants maintain that the so-called
Noerr-Pennington doctrine immunizes Defendants' litigation conduct from any RICO liability and
requires dismissal of the RICO allegations.
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The court should dismiss Plaintiff's RICO claims, Defendants contend, and will then lack
jurisdiction over Plaintiff's remaining claims. Plaintiff's effort to invoke the court's authority under
the All Writs Act fails, Defendants assert, because the All Writs Act itself does not provide any
private right of action, and therefore does not support entry of an injunction. Plaintiff has also
asserted state-law claims for unauthorized practice of law under the Illinois Attorney Act, 705 Ill.
Comp. Stat. 205/1, and for abuse of process; Defendants argue that the court lacks jurisdiction
over those claims because the parties are not completely diverse and Plaintiff has not satisfiedfy
the amount-in-controversy requirement of the Class Action Fairness Act ("CAFA"), 28 U.S.C. §
1332(d)(2).
In any event, Defendants argue, Plaintiff has not stated a claim for abuse of
process because Defendants' alleged scheme does not rely upon any "process" issued by the
court. Nor, they argue, does the Illinois Attorney Act authorize claims under that statute to be
filed in federal court. Contending that Plaintiff has failed to state a claim or that the court
otherwise lacks subject-matter jurisdiction over Plaintiff's claims, Defendants have moved under
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to dismiss Plaintiff's First Amended
Complaint in its entirety.
DISCUSSION
When reviewing a motion to dismiss, a court treats all well-pleaded allegations in the
complaint as true and draws all reasonable inferences in the plaintiff's favor. Jakupovic v.
Curran, 850 F.3d 898, 902 (7th Cir. 2017). Before addressing the state-law claims, the court
first considers whether Plaintiff has adequately alleged a claim under the federal RICO statute.
I.
RICO Claims
It is unlawful, under section 1962(c), "for any person employed by or associated with any
enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to
conduct or participate, directly or indirectly, in the conduct of such affairs through a pattern of
racketeering activity." 18 U.S.C. § 1962(c). Thus, to state a civil RICO claim under section
1962(c), a plaintiff must adequately allege four elements: "(1) conduct (2) of an enterprise (3)
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through a pattern (4) of racketeering activity." Bible v. United Student Aid Funds, Inc., 799 F.3d
633, 655 (7th Cir. 2015).
Section 1961(1) lists the criminal acts that are considered
"racketeering activity" under the RICO Act. 18 U.S.C. § 1961(1). In this case, Defendants'
alleged racketeering activities include extortion, mail and wire fraud, witness tampering,
obstruction of justice, bribery, and money laundering.
Defendants' primary challenge to Plaintiff's RICO allegations is that the alleged conduct
does not amount to criminal racketeering. As an initial matter, however, Defendants argue that
even if their alleged conduct were to be considered racketeering activity, the conduct took place
in the context of litigation and is therefore immunized from liability.
They argue that their
conduct is shielded by the Noerr-Pennington doctrine, which originated in the antitrust context
but has been extended to other domains and which safeguards the First Amendment right to
petition the courts by immunizing certain litigation activity from liability.
See, e.g., Octane
Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1757, 188 L. Ed. 2d 816 (2014)
(doctrine protects defendants "engaging in conduct (including litigation) aimed at influencing
decisionmaking by the government").
Thut, for his part, adds that litigation privileges
established by Illinois state law and federal common law shield him from liability for the alleged
conduct.
The court is not persuaded that any formal, absolute privilege or immunity doctrine
immunizes Defendants from liability. Plaintiff has alleged that Defendants acted to conceal their
settlement negotiations and agreements from court scrutiny. (See FAC ¶¶ 93, 168.) Given that
the purpose of the Noerr-Pennington doctrine is to protect communications with the
government, the doctrine should not be interpreted as protecting conduct Defendants engaged
in during the course of negotiations they tried to hide from courts.
The doctrine is also
inapplicable where the litigation at issue is a sham—"for example, a lawsuit designed to make
the other litigant bear the costs of mounting a defense, even though the suit has no chance of
success." Tri–Corp Hous. Inc. v. Bauman, 826 F.3d 446, 450 (7th Cir. 2016). Meritless class8
action objections designed to make the class bear the costs of defending the objection on
appeal appear to fit squarely within the "sham litigation" exception to the Noerr-Pennington
doctrine.
As for Thut's assertions of privilege, Illinois' state-law privilege "cannot defeat a
federal cause of action" and thus does not warrant dismissal of Plaintiff's RICO claims. See
Steffes v. Stepan Co., 144 F.3d 1070, 1074 (7th Cir. 1998). Thut also has not identified any
Seventh Circuit authority for the proposition that a federal common-law privilege exists to bar
claims other than defamation. Cf. NSB Techs., Inc. v. Specialty Direct Mktg., Inc., No. 03 CV
2323, 2004 WL 1918708, at *4 (N.D. Ill. Aug. 20, 2004) (recognizing litigation privilege under
federal common law for defamation claims arising from statements related to judicial
proceedings).
The reach of Noerr-Pennington is not the end of the inquiry, however.
Even if
Defendants' conduct is not protected per se because it relates to litigation, numerous courts
throughout the country have concluded that conduct similar to that of Defendants, though
reprehensible, is not criminal or actionable under RICO.
See, e.g., Deck v. Engineered
Laminates, 349 F.3d 1253, 1257–58 (10th Cir. 2003) (affirming dismissal of RICO claims
brought against defendant who threatened to "tie [the plaintiff] up in court" and allegedly initiated
meritless lawsuit using false and misleading allegations). Courts have declined to treat abusive
litigation tactics as criminal in part because of the possibility that doing so would chill valuable
litigation activity by "subject[ing] almost any unsuccessful lawsuit to a colorable . . . [RICO]
claim." Id. at 1258; see also United States v. Pendergraft, 297 F.3d 1198, 1208 (11th Cir. 2002)
("[P]rosecuting litigation activities as federal crimes would undermine the policies of access and
finality that animate our legal system.")
As noted above, the court perceives no social value in Defendants' alleged schemes.
Yet it is not clear that Defendants' conduct violates any of RICO's predicate criminal statutes,
and the rule of lenity favors interpreting those statues favorably for Defendants. See United
States v. Santos, 553 U.S. 507, 514 (2008) ("[Interpreting ambiguous criminal laws in
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defendants' favor] vindicates the fundamental principle that no citizen should be held
accountable for a violation of a statute whose commands are uncertain, or subjected to
punishment that is not clearly prescribed."). In addition, the merits of Defendants' own specific
conduct aside, objectors to class action settlements—even those who object regularly—can and
do play a legitimate role in the legal system. See Eubank v. Pella Corp., 753 F.3d 718, 720–21
(7th Cir. 2014) (noting the importance of objectors to judges evaluating fairness of settlement
agreement where parties to agreement are no longer in adversarial posture toward each other);
Edward Brunet, Class Action Objectors: Extortionist Free Riders or Fairness Guarantors, 2003
U. CHI. LEGAL F. 403, 409, 427–434 (2003) (noting potential costs objectors may impose on
administration of class actions and suggesting ways to curb "extortionist" or "free riding"
behavior, but concluding that objectors' ability to "create an adversary contest" can allow them
to "perform a positive function"). 4
Imposing RICO liability on objectors like Defendants could
chill valuable good-faith objections from class members with legitimate concerns by exposing
them to colorable RICO claims and associated treble damages awards. With this general
concern in mind, the court turns to discuss the specific predicate acts alleged in Plaintiff's
complaint.
A.
Hobbs Act
The Seventh Circuit has not addressed the question of whether abusive litigation
practices of the type alleged in this case can constitute extortion under the Hobbs Act. But the
overwhelming weight of authority from other circuits, as well as from courts within this district,
supports Defendants' position that bringing or threatening to bring wrongful litigation in order to
4
At least some commentators have suggested that one who views class actions
as themselves extortionate might conclude from a purely welfarist perspective that even
extortionate serial objectors could "produce net positive value" by deterring the filing of
extortionate class actions. John E. Lopatka & D. Brooks Smith, Class Action Professional
Objectors: What to Do About Them?, 39 FLA. ST. U. L. REV. 865, 888 (2012). The court notes,
however, that from the same perspective, extortionate class actions may themselves provide
positive value to the extent that they deter the illicit behavior of potential class action
defendants.
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extract money from the target of the litigation does not amount to a RICO predicate act of
criminal extortion. See, e.g., Deck v. Engineered Laminates, 349 F.3d 1253, 1258 (10th Cir.
2003) (joining "multitude of other courts in holding that meritless litigation is not extortion under
[the Hobbs Act]"); Vemco, Inc. v. Camardella, 23 F.3d 129, 134 (6th Cir. 1994) ("A threat of
litigation if a party fails to fulfill even a fraudulent contract . . . does not constitute extortion."); I.S.
Joseph Co. v. J. Lauritzen A/S, 751 F.2d 265, 267 (8th Cir. 1984) (groundless threat to sue,
made in bad faith, "may be tortious under state law, but we decline to expand the federal
extortion statute to make it a crime"); Harris Custom Builders, Inc. v. Hoffmeyer, No. 90 C 0741,
1994 WL 329962, at *4 (N.D. Ill. July 7, 1994) ("alleged scheme of filing lawsuits to enforce an
allegedly illegally obtained copyright does not constitute a predicate act of racketeering for
purposes of RICO."); Universal Mfg. Co. v. Douglas Press, Inc., No. 89 C 3354, 1991 WL
83156, at *2 (N.D. Ill. May 8, 1991) (following lead of other courts in finding that "the threat to file
a lawsuit, or filing a lawsuit, cannot constitute extortion under [the Hobbs Act]");
FindTheBest.com, Inc. v. Lumen View Tech. LLC, 20 F. Supp. 3d 451, 457 (S.D.N.Y. 2014)
(striking allegations of predicate acts premised on the Hobbs Act, including allegations that
defendants filed frivolous patent infringement lawsuits and demanded nuisance settlements,
because "the instigation of meritless litigation cannot constitute extortion under the Hobbs Act").
In a case involving extortion charges brought against a criminal defendant, the Eleventh
Circuit explained why bad-faith litigation threats are not criminal under the Hobbs Act. See
Pendergraft, 297 F.3d at 1205–08. The defendant in Pendergraft, a physician who operated an
abortion clinic, sued the local county officials for an injunction that would allow him to hire offduty police officers to protect the clinic from protestors. While the litigation was pending, the
physician and his business associate allegedly authored affidavits falsely accusing the county's
board chairman of making violent threats against the clinic and one of the physician's business
associates. The physician and his attorney then allegedly pressured the county to settle by
threatening to file an amended complaint, supported by the false affidavits, seeking millions of
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dollars in damages.
The government charged the physician with, among other things,
attempted extortion under the Hobbs Act.
As the Eleventh Circuit recognized, many of the courts to consider whether threats of
meritless litigation constitute predicate acts for civil RICO claims "have recharacterized the
extortion charges as actions for malicious prosecution" and rejected the notion that malicious
prosecution is racketeering activity. 297 F.3d at 1205. The court in Pendergraft, however, was
unwilling to recast the criminal extortion charges brought against the defendant in that case as
civil claims of malicious prosecution.
Id.
The Eleventh Circuit was therefore required to
confront directly the question of whether the Hobbs Act criminalizes bad-faith threats of
litigation. The court concluded that it does not, reasoning that threats to litigate—even bad-faith
threats supported by fabricated evidence—do not constitute "wrongful" threats under the Act.
See 18 U.S.C. § 1951(b)(2) (defining "extortion" as obtaining another's property through
"wrongful use of actual or threatened force, violence, or fear, or under color of right"). Where a
party threatens litigation in bad faith, the court explained, it is up to "the courts, and their timetested procedures" to reliably resolve the matter, "separating validity from invalidity, honesty
from dishonesty." Pendergraft, 297 F.3d at 1206. The court also expressed a concern that
"[a]llowing litigants to be charged with extortion would open yet another collateral way for
litigants to attack one another" and noted "[t]he reality . . . that litigating parties often accuse
each other of bad faith." Id. at 1207. Based on similar reasoning, in the context of a civil RICO
claim, the Tenth Circuit agreed with the court in Pendergast that the adjective "wrongful" in the
Hobbs Act was not intended to apply to allegations of bad-faith litigation, even if "it would be fair,
at least in other contexts," to characterize the alleged conduct as "wrongful." See Deck, 349
F.3d at 1258.
Plaintiff attempts to sidestep the authority cited above by distinguishing the filing of
frivolous civil lawsuits from the filing of meritless objections in class-action settlements, noting
that the Seventh Circuit has recognized the unique challenges that class litigation, and class
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settlements, can pose. See Pearson v. NBTY, Inc., 772 F.3d 778, 787 (7th Cir. 2014). But
Plaintiff has not explained why bad-faith objectors are so different from bad-faith litigants
generally that the former's conduct should be criminalized while the latter's is not. Although
there are differences between bringing a civil lawsuit and objecting to a class settlement, there
are important similarities: Both can result in economic loss, and thus the effect on the target of
the filing would be similar. It costs time and resources to defend against a civil lawsuit or to
respond to an objection to a class settlement, regardless of a complaint's or an objection's
merits. And an appeal in either situation can increase those costs by delaying a final resolution.
The court recognizes that, as Plaintiff observes, in assessing the cost of a delayed
resolution, class counsel must consider its fiduciary responsibility to the class members, as well
as the administrative costs of responding to class members asking when they will receive their
share of the settlement fund. But these potential additional costs of delay are different only in
degree, not in kind, from the delay costs faced by a traditional defendant in a civil lawsuit. In
addition to producing similar effects, both the filing of lawsuits and the raising of objections to
class settlements can have social value. Courts are thus appropriately wary of doctrines that
unnecessarily discourage that activity. In fact, although Plaintiff points out that the Seventh
Circuit in Pearson recognized the different challenges posed by class litigation and traditional
civil litigation, the court there recognized the value of class-action objectors, acknowledging that
"objectors play an essential role in judicial review of proposed settlements of class actions"
precisely because class actions diverge from the standard adversarial model once the
defendant and the class reach a settlement agreement. Id. at 787.
This court, too, declines to interpret the Hobbs Act as covering the alleged conduct in
this case where that might subject good-faith objectors like the one in Pearson to "a colorable
extortion (and often a RICO) claim" for every unsuccessful objection. Deck, 349 F.3d at 1258.
The objector in Pearson has, himself, objected to class action settlements "at least eleven
times" and has seen his arguments rejected by a number of other courts. Kumar v. Salov N.
13
Am. Corp., No. 14-CV-2411-YGR, 2017 WL 2902898, at *4 (N.D. Cal. July 7, 2017). It does not
follow from that history, however, that he has engaged in criminal extortion. Plaintiff's proposed
interpretation of the Hobbs Act sweeps too broadly: on Plaintiff's view, an objector with a losing
record who seeks to settle an objection out of court could face potential criminal and RICO
liability or an allegation that the objector acted in bad faith, which, the court notes, a plaintiff
need only allege generally. See FED. R. CIV. P. 9(b) ("Malice, intent, knowledge, and other
conditions of a person's mind may be alleged generally.").
In attempting to distinguish Defendants' conduct from other civil litigation and from the
conduct of good-faith objectors, Plaintiff emphasizes that an objector's "secret demand for
money . . . is not part of the class action paradigm" and that an objector who does not seek to
improve a settlement agreement but only seeks money does not provide any value. (Pl.'s Resp.
at 29; see id. ("There is never a legitimate reason for a class action objector or her counsel to
demand monetary compensation directly from class counsel, because the objector's role in the
lawsuit is not one that involves a demand for money.").) A demand for payment unaccompanied
by any substantive proposed amendment to the settlement agreement does appear to be
meretricious, but it is difficult to distinguish that alleged behavior from lawful hard bargaining.
Cf. Rennell v. Rowe, 635 F.3d 1008, 1011 (noting difficulty of distinguishing hard bargaining and
extortion in general). A party with a good-faith objection may similarly try to extract the most
favorable changes to the settlement agreement by initially taking the position that it is willing to
see the objection through an appeal and will only accept a large monetary payment to withdraw
the objection. Though that objector might ultimately be willing to accept smaller substantive
changes to the settlement in a subsequent round of negotiating, the objector would risk RICO
liability after the first round of negotiations under Plaintiff's proposed approach.
It is also difficult to distinguish the alleged settlement demands in this case from
demands to settle ordinary frivolous lawsuits, which courts do not consider extortion.
See
FindTheBest.com, 20 F. Supp. 3d at 454, 457. The court is skeptical, for example, of Plaintiff's
14
assertion that class actions are different because the objector's role, unlike the role of a plaintiff,
is not one that involves a demand for money. On the contrary, an objection to a class action
can often involve a claim that the objector and other class members are entitled to greater sums
of money because, for example, the portion of the settlement fund designated for attorney fees
is too high.
See, e.g., Aranda v. Caribbean Cruise Line, Inc., No. 12 C 4069, 2017 WL
1369741, at *1 (N.D. Ill. Apr. 10, 2017) (objector represented by Bandas seeking to reduce class
counsel's attorney fee award by millions of dollars). In theory, at least, all good-faith objections
have some value to the objectors, and objectors may therefore have legitimate reasons to
demand monetary compensation in exchange for withdrawing what they believe to be a
valuable objection. In short, though Plaintiff emphasizes the distinction between good-faith or
"bona fide" objectors and bad-faith objectors, courts have rejected the significance of that
distinction in the context of litigation threats generally.
See, e.g., Deck, 349 F.3d at 1259
("[A]llegations of bad-faith litigation do not state the predicate act of extortion.").
As the
Eleventh Circuit recognized in Pendergraft, it is simply too common and too easy for "litigation
parties [to] accuse each other of bad faith." 297 F.3d at 1207.
The court thus declines to depart from the long line of precedent under which demanding
payment while threatening to bring or continue litigation does not constitute a predicate act of
extortion. Attempting to distinguish that precedent, Plaintiff insists that courts "regularly find
litigation-related conduct to be wrongful extortion under the Hobbs Act where the defendant
knows that he does not have a claim of right to the money demanded." (Pl.'s Resp. at 24.) But
the fact that a claim of right precludes a finding of criminal extortion does not establish that a
demand for money absent a claim of right to that money is sufficient to establish wrongful
extortion. In the cases the court discussed above, for example, the courts assumed that the
defendants had no claim of right to the money demanded—and at least in the cases of
Pendergraft, Deck, and I.S. Joseph, assumed that the defendants knew they had no claim of
right—but nevertheless concluded that the litigation-related conduct did not constitute criminal
15
extortion. See, e.g., Deck, 349 F.3d at 1259 (finding no extortion despite threat of "meritless,"
"bad-faith" litigation); Pendergraft, 297 F.3d at 1208 (no extortion for threat to file litigation made
in bad faith and supported by false affidavits); Vemco, 23 F.3d at 134 (no extortion for
threatening litigation based on breach of a "fraudulent contract"); I.S. Joseph, 751 F.2d at 267
(assuming "threat to sue was groundless and made in bad faith" but declining "to expand the
federal extortion statute to make [that conduct] a crime").
The cases upon which Plaintiff relies are either distinguishable or unpersuasive.
In
United States v. Sturm, the First Circuit reversed a conviction for attempted extortion where the
defendant refused to return part of the collateral for a loan unless he was paid a fee to which the
defendant genuinely believed he was entitled. 870 F.2d 769, 774 (1st Cir. 1989). The court in
Sturm concluded that the defendant's genuine belief that he was entitled to a fee precluded a
conviction for attempted extortion, and opined that it would be “unjust” to convict a litigant of
extortion “unless she knew she had no claim to the property that she allegedly sought to extort."
Id.
Plaintiff seizes upon that last portion of the First Circuit's dictum as support for the
proposition that a conviction charge is proper against a party who does know he has no legal
claim to property but demands the property under threat of litigation. But the issue of whether
litigation activities can constitute extortion was not squarely before the court in Sturm, and the
First Circuit's discussion of a hypothetical lawsuit does not grapple with the public policy
concerns this court addressed above. The court’s observation that it would not be “unjust” to
convict someone of extortion for threatening meritless litigation does not require the conclusion
that such a conviction would be appropriate in any case or that the Hobbs Act was intended to
cover cases like this one.
Another case Plaintiff cites, Lemelson v. Wang Labs, Inc., 874 F. Supp. 430 (D. Mass.
1994), similarly contains little analysis of the issues presented here. In that case, the court
denied a motion to dismiss a RICO claim based on allegations that a party had extorted millions
of dollars in settlement funds through a pattern of litigation based on fraudulently obtained
16
patents. Id. at 434. The Lemelson court addressed the issues of whether a pattern of activity
existed, whether the alleged association constituted a RICO enterprise, and whether the party
asserting the claim had suffered an injury. See id. at 432–34. What the court did not address,
despite the fact that extortion was the alleged predicate act, was whether the alleged litigation
activities constituted criminal extortion. The case, therefore, is not particularly instructive. One
other district court has so noted, concluding that Lemelson does not support a claim that threats
to file lawsuits or other litigation activity could be RICO predicate acts. See B.V. Optische
Industrie De Oude Delft v. Hologic, Inc., 909 F. Supp. 162, 170 (S.D.N.Y. 1995). And to the
extent Sturm or Lemelson suggest that threats to initiate or continue litigation may constitute
criminal extortion, the First Circuit appears to have distanced itself from that notion by signaling
its agreement with the Eighth Circuit that "a threat to sue, if groundless and made in bad faith,
may be tortious under state law, [but] it is not extortion under federal law." Dias v. Bogins, No.
97-1612, 1998 WL 13089, at *1 (1st Cir. 1998) (unpublished opinion) (citing I.S. Joseph Co.,
751 F.2d 265).
Plaintiff relies on two other cases in which courts found that a RICO claim predicated on
extortion could be based in part on alleged litigation activities, but those cases involved unique
circumstances not present here. See La Suisse, Societe D'Assurances Sur La Vie v. Kraus, No.
06 CIV. 4404 CM GWG, 2014 WL 3610890, at *9 (S.D.N.Y. July 21, 2014); Hall Am. Ctr.
Assocs. Ltd. P'ship v. Dick, 726 F. Supp. 1083, 1097 (E.D. Mich. 1989). In Hall, the court found
that the plaintiffs had adequately alleged a RICO predicate act under the Hobbs Act for a
scheme in which the defendants filed lawsuits and notices of lis pendens against the plaintiffs as
part of a scheme to force a sale of plaintiffs' real property. 726 F. Supp. at 1097. But the court
emphasized that those litigation activities were only "part of an extortionate scheme to obtain
property to which they were not entitled."
Id. (emphasis in original).
The larger scheme
included "the defendants' interference with the [plaintiffs'] Joint Venture, the defendants' attempt
to involve the United States Attorney in the matter, and other harassment of third persons
17
involved with the Property [at issue]." Id. Hall is thus unlike this case, in which every aspect of
the alleged extortionate scheme is related to litigation activities and involves no other unrelated
threats or harassment.
LaSuisse also differs from this case. In LaSuisse, an insurance broker and a brokerage
firm allegedly used their control and influence over their policyholders to initiate policyholder
litigation against an insurer, "and otherwise threaten[ed the insurer] in an attempt to extort [the
insurer] into making payments directly to [the broker and the brokerage firm]." LaSuisse, 2014
WL 3610890, at *10. In finding that the lawsuits constituted extortion, the court in LaSuisse
acknowledged that courts are "nearly unanimous in the view that the pursuit of frivolous litigation
does not constitute the predicate RICO act of extortion." Id. at *9. But the court distinguished
the situation in LaSuisse from those other cases on the basis that only the policyholders in
LaSuisse could rightfully bring a lawsuit under the terms of the insurance policies, and thus the
threatened lawsuits had "no nexus to [the RICO defendants] or the personal payment
demanded by [them] to make them go away." Id.
The magistrate judge in LaSuisse reasoned that there was "no risk of a 'chilling' effect of
the sort posited by Deck" because the court would not be "punishing the parties who could
rightfully bring any lawsuit under the terms of the insurance policies at issue—the
policyholders." Id. According to that court, the case was more like one in which a defendant
who alleged the existence of an oral contract did not threaten to sue to enforce the contract "but
rather 'threatened unrelated lawsuits alleging sexual harassment.'" Id. (quoting United States v.
Tobin, 155 F.3d 636, 640 (3d Cir. 1998)). By contrast, in this case, there is no allegation that
Stewart, for example, was not entitled to raise his objection as a member of the Gannett class.
One could argue, using LaSuisse as an analogy, that allowing the RICO claims in this case to
proceed against Bandas, Thut, and Palmer (but not Stewart) would not have a chilling effect
because the court would only be punishing the attorneys who unjustly demanded payment
rather than "the parties who could rightfully bring" objections—the objectors. Appealing as that
18
proposal is, it does not appear to eliminate the risk of a chilling effect. Imposing RICO liability
on objectors' attorneys would discourage attorneys from representing good-faith objectors for
fear that attempts to settle objections that are ultimately overruled could be understood as badfaith attempts by the attorneys to demand money for which they "could not have any claim of
right." Id. at *10. Thus, to the extent the opinion in La Suisse is inconsistent with this court's
ruling, the court respectfully declines to follow it.
Plaintiff also relies on one case from the Seventh Circuit, in which the court cited the
definition of "extortion" from Black's Law Dictionary and noted that "[i]n the context of
intervening in a class action settlement, extortion would mean intervening not to increase the
value of the settlement, but in order to get paid to go away." Vollmer v. Selden, 350 F.3d 656,
660 (7th Cir. 2003). But the Seventh Circuit concluded only that "this would be an improper
purpose for intervening," not that it would constitute a crime. Id. There is no indication that the
Seventh Circuit was referring to the criminal definition of extortion in its discussion of
intervention, and the cited definition of extortion from Black's Law Dictionary was importantly
different from that found in the Hobbs Act. Compare id. ("Extortion is the act or practice of
obtaining something or compelling some action by illegal means, as by force or coercion."), with
18 U.S.C. § 1951(b)(2) ("The term 'extortion' means the obtaining of property from another, with
his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under
color of official right."). Thus the Seventh Circuit did not address the question of whether "the
adjective 'wrongful' in the [Hobbs Act] was not intended to apply to litigation."
Deck v.
Engineered Laminates, 349 F.3d 1253, 1258 (10th Cir. 2003). Again, for the reasons discussed
above, the court "join[s the] multitude of other courts" in concluding that conduct of the type
alleged here, however distasteful, does not amount to extortion under the Hobbs Act. Id.
B.
Mail and Wire Fraud
Plaintiff also characterizes aspects of Defendants' conduct as mail and wire fraud:
specifically, Plaintiff alleges that Defendants fraudulently used interstate wires and the mail
19
when they represented to Plaintiff that Stewart had a good-faith objection to the Gannett
settlement that could be resolved in mediation conducted by a neutral mediator. According to
Plaintiff, these representations were false and misleading because Stewart's objection was not
made in good faith, Defendants had no intention to resolve the objection through a change in
the settlement terms, and the proposed mediator was not neutral. (FAC ¶¶ 153, 168.)
In assessing whether these allegations support a fraud claim, the court notes, first, that
Plaintiff has not adequately alleged that the misrepresentations were "material" ones. See
Neder v. United States, 527 U.S. 1, 25 (1999) ("[M]ateriality of falsehood is an element of the
federal mail fraud, wire fraud, and bank fraud statutes."). Statements about the mediator's
purported neutrality or Defendants' own good faith were not obviously material to Plaintiff's
decision to pay Defendants. According to Plaintiff, it agreed to pay Defendants out of a fear of
economic harm, not out of faith in the neutrality of the mediator or confidence in the other side's
good faith. Indeed, by the time Plaintiff agreed to pay Defendants, Plaintiff certainly knew that
Defendants were not acting in good faith and that the mediation was a sham.
The court
concludes that Plaintiff has failed to allege that any of Defendants' purported misrepresentations
could form the basis for a federal mail or wire fraud charge.
In addition, to the extent Plaintiff's fraud allegations are based on purported
misrepresentations about Defendants' intentions or good faith, the fraud claims suffer from the
same infirmities that infect the Hobbs Act claim: "[s]ubjecting [the conduct] in issue to the mail
[and wire] fraud statute[s] would chill an attorney's efforts and duty to represent his or her client
in the course of pending litigation." Spiegel v. Cont'l Illinois Nat. Bank, 609 F. Supp. 1083, 1089
(N.D. Ill. 1985); see id. at 1088 (mail fraud statute not intended to cover scheme "to embezzle
thousands of dollars . . . under the guise of claiming it as attorneys' fees" even though scheme
was allegedly furthered by attorney's mailed letters). As discussed above, parties to litigation,
including objectors to class settlements, must have the freedom to negotiate and settle their
disputes outside of court, and criminalizing a person's lack of candor regarding negotiating
20
positions may compromise that freedom. See United States v. Weimert, 819 F.3d 351, 354 (7th
Cir. 2016) (bank executive who misrepresented how important his participation would be to the
success of a transaction deceived others about "negotiating positions" or "preferences, values,
and priorities" but did not engage in "material" deception for purpose of wire fraud). Put simply,
parties "will often try to mislead the other party about the prices and terms they are willing to
accept. Such deceptions are not criminal." Id. at 357. Treating Defendants' representations
about their good faith and willingness to negotiate as fraudulent could expose to RICO liability
numerous litigation parties who attempt to coax their opponents into settlement negotiations by
exaggerating the strength of their positions or their negotiating flexibility.
C.
Witness Tampering, Obstruction of Justice, and Bribery
Plaintiff also asserts that Defendants engaged in predicate acts of tampering with a
witness under 18 U.S.C. § 1512, obstruction of justice or influencing an officer under 18 U.S.C.
§ 1503, and bribery under 18 U.S.C. § 201(b)(3) and 720 Ill. Comp. Stat. 5/33-1. The same
basic allegation underlies each of these purported predicate acts: according to Plaintiff, Bandas
and his associates promised to pay clients in exchange for the clients' agreement to pose as
good-faith objectors acting of their own accord. (See FAC ¶¶ 172, 179, 181 190.) The federal
bribery statute prohibits "directly or indirectly, corruptly giv[ing], offer[ing], or promis[ing] anything
of value to any person, or offer[ing[ or promis[ing] such person to give anything of value to any
other person or entity, with intent to influence the testimony under oath or affirmation . . . as a
witness upon a trial, hearing, or other proceeding." 18 U.S.C. § 201(b)(3). 5 The Illinois statute
5
In its complaint, Plaintiff alleges that Defendants violated 18 U.S.C. § 201(b)(3)
but argues in its brief that the applicable provision in this case is section 201(c)(4). Plaintiff says
that the latter section describes a lesser included offense of the crime established in section
201(b)(3) and does not require the alleged offer or promise to be made "corruptly." The court
presumes that Plaintiff meant to refer to section 201(c)(3); there is no section 201(c)(4). But
even section 201(c)(3) is not applicable to this case. That section criminalizes the receipt of a
bribe; Plaintiff, by contrast, alleges that Defendants' enterprise offered bribes. Compare 18
U.S.C. § 201(c)(3) (applying to those who "demand[], seek[], receive[], accept[], or agree[] to
receive or accept" bribes), with (FAC ¶¶ 189–208 (describing promises to pay or actual
payments as the predicate acts of bribery)). The court therefore analyzes the sufficiency of
Plaintiff's allegations in light of section 201(b)(3), the provision identified in its complaint.
21
similarly prohibits "promis[ing] or tender[ing] to [a witness] any property or personal advantage
which he or she is not authorized by law to accept [with intent to influence the performance of
any act related to the witness' function]." 710 Ill. Comp. Stat. 5/33-1(a). Federal law also
prohibits tampering with a witness, including by "knowingly . . . corruptly persuad[ing] another
person, or attempt[ing] to do so . . . with intent to influence . . . the testimony of any person in an
official proceeding." 18 U.S.C. § 1512(b)(1). By Plaintiff's account, paying a witness to swear
falsely that he is a good-faith objector constitutes bribery and witness tampering. In addition,
because Plaintiff asserts that the alleged bribery was part of a scheme to delay court-ordered
payments to class counsel and the class, the bribery also constitutes obstruction of justice.
Plaintiff concedes that "merely filing a meritless lawsuit against another person might not
be criminal." (Pl.'s Resp. at 20.) Plaintiff contends, however, that promising to pay someone to
submit a meritless court filing can nevertheless constitute criminal racketeering. But Plaintiff
has not cited any other case in which the basis for a RICO claim was an attorney's act of
persuading a client to submit a frivolous court filing, 6 and the court is not inclined in this case to
find that a frivolous court filing can be criminal simply because the attorney and the client who
made the filing had an agreement about how proceeds from litigation would be shared. As
Plaintiff Edelson itself undoubtedly recognizes, it is common for plaintiffs and their attorneys to
enter into agreements about how a potential award from a lawsuit will be divided between the
client and the attorney. It is also likely the case that most plaintiffs bring lawsuits in the hope of
receiving some money, and monetary gain is not an improper motivation for filing a civil suit.
6
Plaintiff has identified a case in which an attorney who paid plaintiffs was
convicted of racketeering conspiracy. See In re Weiss, 58 A.D.3d 203, 203, 870 N.Y.S.2d 255,
256 (2008) (granting state disciplinary committee's petition to strike attorney's name from state
roll of attorneys and discussing attorney's conviction, upon his guilty plea, in the Central District
of California for violation of section 1962(d)). It does not appear, however, that the act of
payment in exchange for filing the suits was the basis of that conviction. Rather, in that case,
the plaintiffs who received payments falsely certified to the court "that they would not accept any
payment for serving as a representative party beyond their pro rata shares of recovery." Id. at
205, 870 N.Y.S.2d at 257. It was those false certifications that "constituted four racketeering
acts" supporting the attorney's RICO conviction. Id.
22
See Vollmer, 350 F.3d at 660.
As discussed above, filing a meritless lawsuit is not, by itself, a criminal act. That does
not change simply because the plaintiff filed suit with the hope of getting paid and entered into
an agreement with his attorney about how the proceeds from a successful suit would be shared.
The opposite conclusion would open the door to waves of RICO lawsuits against unsuccessful
plaintiffs and their attorneys who had contingency fee arrangements and economic motivations
for filing suit. The court is therefore unwilling to interpret 18 U.S.C. § 201(b)(3), 18 U.S.C. §
1512(b)(1), or 720 Ill. Comp. Stat. 5/33-1(a) in a way that would treat the alleged conduct as
constituting "corruptly . . . promis[ing]" a thing of value (section 201(b)(3)), "corruptly . . .
influenc[ing]" testimony (section 1512(b)(1)), or promising a witness a "personal advantage
which he . . . is not authorized by law to accept" (section 33-1(a)). 7 Because the alleged bribery
provides the basis for Plaintiff's obstruction of justice allegations, Plaintiff has also failed to
adequately allege obstruction as a RICO predicate act.
In one case cited by Plaintiff, an attorney was convicted of obstruction of justice in part
for filing meritless lawsuits with the purpose of advancing his and his client's own financial
interest. See United States v. Cueto, 151 F.3d 620 (7th Cir. 1998). But the financial interest at
stake in Cueto was not the mere interest in obtaining a settlement award from the litigation the
attorney initiated, and the litigation activities in that case formed only a part of the alleged
scheme. In Cueto, the attorney defendant was motivated by a personal financial interest in his
client's illegal gambling operation, and he attempted to use the power of his office to impede an
7
In its complaint, Plaintiff suggests that the objecting client would not be
authorized by law to accept the money promised to him because the money would come from
"attorneys' fees," which cannot be shared with non-lawyers. (FAC ¶¶ 65, 204 (citing ABA
MODEL RULES OF PROF. CONDUCT RULE 5.4(a) ("A lawyer or law firm shall not share legal fees
with a nonlawyer.").) But regardless of what Bandas allegedly calls the fees he demands (and
regardless of how the settlement funds Bandas targets have been characterized), it is not
apparent that the sum he extracts in consideration for dismissing his objection actually
constitutes "legal fees." The funds do not, for example, come from a client in exchange for legal
services and are not awarded by a court on the basis of representations about the attorney's
work. It is thus difficult to distinguish the fund from which Bandas allegedly promises to pay
objectors from traditional settlement payouts in everyday litigation.
23
FBI investigation into that illegal enterprise. Id. at 631–32. Those factors are significant. Cueto
does not hold that traditional litigation activities can be characterized as obstruction.
D.
Money Laundering
Plaintiff alleges that Bandas engaged in unlawful money laundering by using funds from
his previous extortionate schemes to promote additional schemes by paying the mediator to
conduct a sham mediation. See 18 U.S.C. § 1956(a)(1)(A)(i) (prohibiting knowingly conducting
financial transaction involving proceeds of unlawful activity "with the intent to promote the
carrying on of specified unlawful activity"). As explained above, however, the court has already
concluded that Defendants' alleged schemes do not constitute criminal extortion, or any other
RICO predicate act. Plaintiff has failed to adequately allege that the money provided to the
mediator was a "transaction involving proceeds of unlawful activity" within the scope of the
money laundering statute, and thus money laundering cannot serve as a predicate act in this
case.
II.
RICO Conspiracy
It appears to be well-established, and Plaintiff does not deny, that if a section 1962(d)
RICO conspiracy claim is based on the same allegations underlying a section 1962(c) claim, the
conspiracy claims "must fail if the substantive claims are themselves deficient." Nat'l Council on
Comp. Ins., Inc. v. Am. Int'l Grp., Inc., No. 07 C 2898, 2009 WL 466802, at *15 (N.D. Ill. Feb. 23,
2009) (quoting Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1191 (3d Cir. 1993), and citing
cases from other circuits).
Because the court concludes that Plaintiff has not adequately
alleged a claim under section 1962(c), and its section 1962(d) claims are based on alleged
agreements to commit the alleged acts underlying those section 1962(c) claims, Plaintiff's RICO
conspiracy claims must also be dismissed.
III.
All Writs Act
The All Writs Act authorizes federal courts to "issue all writs necessary or appropriate in
aid of their respective jurisdictions and agreeable to the usages and principles of law." 28
24
U.S.C. § 1651(a).
Plaintiff urges the court to use its authority under that Act to issue an
injunction labeling the Defendants as vexatious litigants and prohibiting them from engaging in
their abusive litigation practices Plaintiff alleges. (FAC ¶ 244.) The All Writs Act, however, does
not provide an independent basis for jurisdiction and does not create a private cause of action.
See West v. Spellings, 480 F. Supp. 2d 213, 218 (D.D.C. 2007). Thus the court may only
provide a remedy under the All Writs Act if it has some other basis for jurisdiction. As discussed
above, the court concludes that Plaintiff has failed to state a claim on its other federal causes,
and the court explains below why it appears to lack original subject-matter jurisdiction over
Plaintiff's state-law claims. Unless Plaintiff satisfies the court that there is jurisdiction over one
of the state-law claims, the court must dismiss the claim under the All Writs Act as well.
IV.
State-Law Claims
Having concluded that Plaintiff has not adequately pleaded any claim that would secure
federal-question jurisdiction, the court must consider whether it has subject-matter jurisdiction
over Plaintiff's remaining state-law claims. The "general rule is that, when federal-law claims
are dismissed before trial, the pendent claims should be left to the state courts." Wright v.
Associated Ins. Companies Inc., 29 F.3d 1244, 1252 (7th Cir. 1994). None of the parties in this
case has argued that considerations of "judicial economy, convenience, fairness[, or] comity"
weigh in favor of exercising pendent jurisdiction. Id. Instead, Plaintiff argues that the court has
original subject-matter jurisdiction over the state-law claims under CAFA because the parties
are minimally diverse. See 28 U.S.C. § 1332(d)(2)(A). Bandas (and Stewart, by incorporation)
responds that the court does not have original jurisdiction, even under CAFA, because Plaintiff
has not demonstrated that the amount in controversy is greater than CAFA's $5 million
requirement. See id. § 1332(d)(2). That requirement is satisfied, however, unless "there is a
legal certainty that [a potential] judgment will be less" than the statutory threshold. Kessler v.
Am. Resorts International's Holiday Network, Ltd., No. 05 C 5944, 2007 WL 4105204, at *10
(N.D. Ill. Nov. 14, 2007) (Kennelly, J.) (internal quotation marks omitted). Given that Plaintiff
25
allegedly suffered at least $225,000 in damages, the number of other potential class members
who allegedly suffered similar injuries, and the possibility of a significant punitive damages
award, there is no legal certainty here that damages would be less than $5 million.
Yet, for a different reason, the court remains uncertain that it has jurisdiction under
CAFA. The Act does not apply to class actions in which the number of proposed plaintiffs is
below 100. 28 U.S.C. § 1332(d)(5)(B). Regarding the number of plaintiffs in the putative class,
Plaintiff's complaint says only that "the exact number of members of the Class is unknown" but
"likely consists of at least 40 persons." It thus appears likely that the class is not sufficiently
numerous to allow the exercise of CAFA jurisdiction. None of the Defendants raised this issue
in their briefs, but "federal courts are obligated to inquire into the existence of jurisdiction sua
sponte." Evergreen Square of Cudahy v. Wisconsin Hous. & Econ. Dev. Auth., 776 F.3d 463,
465 (7th Cir. 2015). Where a court doubts its own jurisdiction, it is ordinarily prudent to "solicit
the parties' views on the subject prior to ruling." Id. The court therefore orders Plaintiff to show
cause within 21 days why the court should not dismiss Plaintiff's state-law claims for lack of
subject-matter jurisdiction.
V.
Alternative Remedies
Assuming the truth of the allegations in the complaint, Defendants have engaged in a
pattern of reprehensible conduct that has harmed Plaintiff and others and benefits no one other
than Defendants themselves.
The court is therefore troubled by the fact that its decision
appears to leave Plaintiff without a remedy, at least in federal court, for this apparent wrong.
Plaintiff's options may also be limited in state court.
As Plaintiff acknowledges, a suit for
malicious prosecution may be unavailable under Illinois law because the underlying class action
was not "prosecuted to its termination by [the party who would be the] defendant in the
malicious prosecution action." Withall v. Capitol Fed. Sav. of Am., 164 Ill. App. 3d 851, 855, 518
N.E.2d 328, 331 (1987). And as Defendants point out, Plaintiff may have difficulty satisfying the
elements of an abuse of process claim, which is "strictly construed" in Illinois. Neurosurgery &
26
Spine Surgery, S.C. v. Goldman, 339 Ill. App. 3d 177, 183, 790 N.E.2d 925, 930 (2003).
Specifically, it is not clear that Defendants' alleged scheme relied on the misuse of legal
process, defined as "any means used by the court to acquire or to exercise its jurisdiction over a
person or over specific property." Id.
Bandas has also managed to evade sanctions despite "strong indicia of his subjective
bad faith" by finding ways to proceed without filing appearances in the class actions where his
clients file objections.
Garber, 2017 WL 752183, at *6.
In a previous case, this court
recognized the harmful delay generated by Bandas’s decision to pursue what appeared to be a
doomed appeal. In an effort to shift the cost and discourage his frivolous appeal, the court set a
substantial appeal bond, but the Seventh Circuit swiftly reversed that decision, explaining that
"[s]pecial problems related to abuse by class action objectors must be handled in other ways[.]"
Allen v. J.P. Morgan Chase Bank, NA, No. 15-3425, 2015 WL 12714382, at *1 (7th Cir. Dec. 4,
2015) (unpublished opinion).
The Seventh Circuit suggested the primary way to deal with
appeals from abusive objectors is a motion for sanctions under Federal Rule of Appellate
Procedure 38. Id. The court notes that briefing a Rule 38 motion may itself impose a costly
delay of payments for the class and class counsel.
Where a federal appeal is truly frivolous, however, and is filed by an objector with a long
history of abusive conduct, class counsel's best option might be to place its trust in "the courts,
and their time-tested procedures," Pendergraft, 297 F.3d at 1206, by seeing the appeal of an
objection through to its resolution. After prevailing, class counsel can then recoup its expenses,
including the administrative costs associated with delay, by pursuing recovery of "damages and
single or double costs." FED. R. APP. P. 38. In cases involving meritless, bad-faith objections,
the likelihood of prevailing on appeal and recovering damages would likely be high. Rejecting a
bad-faith objector's demands would, therefore, be fully consistent with class counsel's fiduciary
obligations.
In cases where attorneys like Bandas avoid appearing or signing their name in cases in
27
which they participate, Plaintiff is free to seek sanctions against the attorneys who do appear. If
it is Bandas who is responsible for wrongdoing, those attorneys who file appearances and are
sanctioned will presumably have every incentive to seek contribution from Bandas and others of
his ilk.
Indeed, at the time the parties briefed this motion, Plaintiff itself had a motion for
sanctions against Thut pending in the Gannett case; the Gannett court ultimately denied the
motion for sanctions, finding that Thut did not file his objection with an improper purpose.
Commentators have proposed other approaches to dealing with the problem of serial objectors,
including amending the Federal Rules of Appellate Procedure to allow for more effective use of
appeal bonds to deter abuse. See Lopatka & Smith, supra, at 928. The court is hopeful that, if
there is ultimately no remedy for Plaintiff in this case, courts presiding over class actions will
craft effective means to deter the alleged behavior of Bandas, Palmer, and other attorneys who
seek private gain at the expense of deserving class members.
CONCLUSION
For the reasons stated above, the court grants Defendants' motions [63] [66] [69] to
dismiss except with respect to counts three and five of Plaintiff's complaint. Plaintiff is ordered
to show cause, in writing, by February 22, 2018, why those counts should not also be dismissed
for lack of subject-matter jurisdiction.
ENTER:
Dated: February 6, 2018
_________________________________________
REBECCA R. PALLMEYER
United States District Judge
28
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