Monco v. Zoltek Corporation et al
Filing
288
MEMORANDUM Opinion and Order: For the foregoing reasons, Rumy's motion to dismiss, R. 259 , is granted with prejudice, and Zoltek's motion for partial summary judgment, R. 196 , is denied. Signed by the Honorable Thomas M. Durkin on 7/25/2019. Mailed notice (cn).
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DEAN A. MONCO; JOHN S. MORTIMER;
WOOD, PHILLIPS, KATZ, CLARK &
MORTIMER,
Plaintiffs,
v.
ZOLTEK CORPORATION AND ZSOLT RUMY,
Defendants.
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No. 17 C 6882
Judge Thomas M. Durkin
MEMORANDUM OPINION AND ORDER
Plaintiffs Dean A. Monco, John S. Mortimer, and Wood, Phillips, Katz, Clark,
& Mortimer (“Wood Phillips”) seek recovery of legal fees from defendants Zsolt Rumy
and Zoltek Corporation under a quantum meruit theory for their representation of
Zoltek in patent litigation spanning the course of 20 years. Currently before the Court
are Rumy’s motion to dismiss Plaintiffs’ quantum meruit claim against him under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, R. 259, and
Zoltek’s motion for partial summary judgment on Plaintiffs Monco and Mortimer’s
quantum meruit claim against it for lack of standing and because they are not the
real parties in interest under Federal Rule of Civil Procedure 17, R. 196. For the
following reasons, the Court grants Rumy’s motion to dismiss and denies Zoltek’s
motion for summary judgment.
BACKGROUND 1
Defendant Zoltek is a carbon fiber manufacturer. Defendant Rumy was the
founder and majority shareholder of Zoltek until Toray Industries, Inc., an
international Japanese corporation, acquired Zoltek in 2014. 2 Plaintiff Wood Phillips
is a law firm, and plaintiffs Monco and Mortimer are attorneys who were partners or
of counsel with Wood Phillips at all times relevant to this lawsuit.
In 1996, Zoltek hired Plaintiffs to represent it in litigation conducted in
Washington, D.C. to enforce a Zoltek patent (“Stealth litigation”). That litigation
lasted for 20 years. The work was done largely on a contingency basis under a series
of agreements. The first retainer agreement was executed by Zoltek (through Rumy)
and Wood Phillips in February 1996 (“February 1996 Agreement”). Then, in April
1996, Zoltek (through Rumy) executed a second retainer agreement directly with
Wood Phillips attorneys Monco and Mortimer (“April 1996 Agreement”). Plaintiffs
maintain that the April 1996 Agreement displaced the February 1996 Agreement.
Finally, in 2011, Monco, Mortimer and Zoltek (again, through Rumy) signed a
modification to the April 1996 Agreement (“2011 Modification”).
The Stealth litigation proceeded in and out of various stages of litigation
through the years. Ultimately, following a three-day trial, the Court of Federal
Claims held in March 2014 that Zoltek’s patent was invalid. Thereafter, Rumy told
Additional background facts are set forth in the Court’s three previously issued
opinions in this case. See R. 183; R. 221; R. 257.
1
Toray Industries, Inc., a former defendant in this lawsuit, was terminated from the
case through the Court’s October 26, 2018 order granting its motion to dismiss under
Federal Rule of Civil Procedure 12(b)(2). R. 221.
2
2
Monco and Mortimer that they would have to “handle the appeal on their own dime,”
because Zoltek would not pay. Monco and Mortimer went on to brief and argue the
appeal before the Federal Circuit. R. ¶ 69.
Meanwhile, Toray purchased Zoltek in late 2014, and Zoltek started operating
as its wholly-owned subsidiary. Plaintiffs allege that Toray acquired “all rights to the
Zoltek Patent and any recovery from the lawsuit” in conjunction with the purchase.
Id. ¶ 71. Then, in February 2016, the Federal Circuit reversed the Court of Federal
Claims, holding that Zoltek’s patent was not invalid. But the relationship between
Zoltek and Monco and Mortimer deteriorated. During a July 2016 meeting, Zoltek’s
other outside counsel told Monco and Mortimer that the April 1996 Agreement was
being terminated and proposed paying them an hourly rate for their work going
forward. Rumy also allegedly made false statements about Monco and Mortimer to a
Toray representative, and suggested that Monco and Mortimer’s actions had
jeopardized the case. Id. ¶¶ 102, 115. After the meeting, Zoltek terminated Monco
and Mortimer as counsel, refusing to pay overdue bills, and substituted another firm
as lead counsel in the Stealth litigation. A few weeks later, the Stealth litigation
settled for $20 million. Plaintiffs did not recover anything from the settlement.
Plaintiffs filed this lawsuit in September 2017. R. 1. The Court entertained a
variety of motions to dismiss, and twice allowed Plaintiffs to amend their complaint.
Plaintiffs’ operative complaint, the Second Amended Complaint (“SAC”), alleges that
Zoltek accepted Plaintiffs’ services throughout the difficult and lengthy Stealth
litigation and that Plaintiffs deserve to recover for those services on a quantum
3
meruit basis (Count I), Id. ¶¶ 88-97. The SAC also states a quantum meruit claim by
all Plaintiffs against Rumy (Count II). Id. ¶¶ 98-109. There, Plaintiffs allege that
while Rumy agreed to personally assume responsibility for directing the Stealth
litigation on Zoltek’s behalf and resolving Plaintiffs’ claim for fees, he actually was
motivated by his own interests, secured a substantial share of the settlement for
himself, and has yet to pay Plaintiffs. Id. Monco also asserted a claim against Rumy
for tortious interference with prospective economic advantage (Count III). Id. ¶¶ 110120. For its part, Zoltek made counterclaims of professional negligence and breach of
fiduciary duty, and seeking a declaratory judgment that the April 1996 Agreement
and 2011 Modification between Monco, Mortimer and Zoltek are void. R. 243 at 4546.
On February 27, 2019, the Court rejected Monco’s claim against Rumy for
tortious interference with prospective economic advantage (Count III) and Zoltek’s
counterclaim for declaratory judgment that the April 1996 Agreement and 2011
Modification are void (Count I of the Counterclaim). Therefore, only Plaintiffs’
quantum meruit claims against Zoltek (Count I of the SAC) and Rumy (Count II of
the SAC), and Zoltek’s counterclaims against Plaintiffs for breach of fiduciary duty
and negligence (Counts II and III of the Counterclaim) remain. R 257. In denying
Rumy’s motion to dismiss the quantum meruit claim against him under Rule 12(b)(2),
the Court cautioned Plaintiffs that the viability of their claim turned on whether a
personal attorney-client relationship existed between Plaintiffs and Rumy, as
opposed to Plaintiffs and Zoltek. Id. at 30-31. The Court invited Rumy to file a
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separate motion to dismiss under Rule 12(b)(6) on that basis if he believed he had a
credible basis to do so, and Rumy did. Id. at 31; R. 259. The Court will address that
motion first, and then turn to Zoltek’s motion for partial summary judgment arguing
that Monco and Mortimer lack standing to seek quantum meruit on an individual
basis, and are not the real parties in interest for purposes of Federal Rule of Civil
Procedure 17(a).
ANALYSIS
I.
Rumy’s Motion to Dismiss
Rumy contends that the quantum meruit claim against him should be
dismissed with prejudice because there has been no allegation that Rumy and
Plaintiffs enjoyed a personal attorney-client relationship pursuant to which they may
seek relief directly from him, as opposed to Zoltek. See generally R. 260; R. 280. In
response, Plaintiffs argue that Rumy “made himself Plaintiffs’ client for purposes of
quantum meruit” when he “pressed Plaintiffs to take the [Stealth litigation] appeal
on their own dime” to advance Rumy’s “personal stake in the suit,” which ultimately
amounted to half of a $20 million judgment. R. 265.
A.
Standard
A Rule 12(b)(6) motion challenges the “sufficiency of the complaint.” Berger v.
Nat. Collegiate Athletic Assoc., 843 F.3d 285, 289 (7th Cir. 2016). A complaint must
provide “a short and plain statement of the claim showing that the pleader is entitled
to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to provide defendant with “fair notice” of
the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
This standard “demands more than an unadorned, the-defendant-unlawfully5
harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While “detailed
factual allegations” are not required, “labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.
The complaint must “contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly,
550 U.S. at 570). “‘A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.’” Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d
362, 366 (7th Cir. 2018) (quoting Iqbal, 556 U.S. at 678). In applying this standard,
the Court accepts all well-pleaded facts as true and draws all reasonable inferences
in favor of the non-moving party. Tobey v. Chibucos, 890 F.3d 634, 646 (7th Cir. 2018).
B.
Analysis of Rumy’s 12(b)(6) Motion
To recover under a quantum meruit theory, Plaintiffs must prove that: (1) they
performed a service to benefit Rumy, (2) they did not perform this service
gratuitously, (3) Rumy accepted this service, and (4) no contract existed to prescribe
payment for the service. Bernstein & Grazian, P.C. v. Grazian & Volpe, P.C., 931
N.E.2d 810, 825-26 (Ill. App. Ct. 2010). But “[t]he right to attorney fees based on
quantum meruit does not exist unless there is an underlying attorney-client
relationship where the client expressly or impliedly agrees to pay fees.” In re Chicago
Flood Litigation, 682 N.E.2d 421, 427 (Ill. App. Ct. 1997); see also Wildman, Harrold,
Allen & Dixon v. Gaylord, 740 N.E.2d 501, 509 (Ill. App. Ct. 2000) (prima facie case
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for attorney’s fees based on quantum meruit “includes proof of . . . the existence of an
attorney-client relationship”).
Plaintiffs argue—with minimal citation to the SAC—that the SAC sets forth
the following theory, through which they state a quantum meruit claim against
Rumy. In February 2014, Rumy sold Zoltek to Toray, which Plaintiffs allege “changed
[Rumy’s] relationship to Plaintiffs and to Zoltek.” R. 265 at 1, 3. In negotiating that
sale, Rumy represented to Toray that the Stealth litigation had zero value, which
Plaintiffs allege was part of Rumy’s plan to obtain personal ownership of all or a
significant share of the litigation. Id. at 3 (citing R. 217 ¶ 102). Then, having lost the
Stealth litigation and the Court of Federal Claims having invalidated Zoltek’s patent
in March 2014, Toray wanted Zoltek out of the litigation, and Rumy wanted the case
“for himself.” Id. at 2, 3. Rumy needed an attorney to assist with the appeal “or he
would certainly get nothing,” since the stock sale to Toray divested Rumy’s large
stake in Zoltek, “separating him from any benefit Zoltek might get from the case.” Id.
at 3, 4. But Plaintiffs contend that Rumy knew Toray would not pay for an appeal
and that Monco and Mortimer would likely be hesitant to handle it because Zoltek
had not paid recent invoices. Id. at 2, 4. According to Plaintiffs, Rumy also knew that
if he personally hired a lawyer, he would personally be on the hook for payment. So
in 2014 he convinced Plaintiffs to take the appeal “on their own dime” despite also
informing Plaintiffs that “Zoltek would not honor its payment obligations” under the
2011 Modification. Id. at 2, 4 (citing R. 217 ¶ 103). The appeal was successful, and in
December 2016 and with no further litigation, the parties tentatively agreed to a $20
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million judgment. Id. at 2; R. 217 ¶ 86. That same month, Rumy signed an agreement
with Zoltek formalizing an oral agreement they had reached in June 2016 pursuant
to which Rumy recovered half of the judgment and would pay half of the fees. Id. at
2; R. 217 ¶¶ 105-07. Accordingly, Plaintiffs argue that Rumy owes quantum meruit
because he “demanded that Plaintiffs pursue the successful appeal” in 2014 “in
pursuit of [his] own personal stake in the suit” and acted in that capacity “separate
from Zoltek, through 2016.” R. 265 at 2, 4.
Rumy argues that not only do Plaintiffs fail to plead this theory in the SAC,
but also that even if they had, it still would not state a quantum meruit claim. More
specifically, Rumy contends that the SAC fails to plead, as it must, that there was a
meeting of the minds between Plaintiffs and Rumy regarding any representation of
Rumy individually, and in fact states the opposite, making clear Plaintiffs represent
Zoltek, not Rumy. See generally R. 260; R. 280. Rumy argues further that Plaintiffs
have not plead that there was a direct benefit to Rumy because of Plaintiffs’ work. Id.
The Court agrees that the SAC does not plead the theory Plaintiffs now allege,
but that even if it did, it still would fail. Rumy is correct that Plaintiffs admit in the
SAC that they represented Zoltek, not Rumy. R. 217 ¶ 76 (SAC alleging that Monco
and Mortimer represented Zoltek at the July 2016 meeting and Rumy was
represented by separate counsel). Other documents on the docket in this matter are
in accord. See, e.g., R. 190 at 3 (Monco’s discovery motion stating “While [Rumy] may
have invited an attorney-client relationship with Plaintiffs, the subject matter posed
a conflict with the interests of Plaintiffs’ actual client, Zoltek”) (emphasis added); R.
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213 at 4 (Magistrate Judge Cole’s November 10, 2018 opinion on the same discovery
motion noting that “as the plaintiffs concede, there was no dual representation” of
Zoltek and Rumy). Plaintiffs statements prevent them from claiming a personal
attorney-client relationship with Rumy. See Keller v. United States, 58 F.3d 1194,
1198 n. 8 (7th Cir. 1995) (“Judicial admissions are formal concessions in the
pleadings, or stipulations by a party or its counsel, that are binding upon the party
making them. They may not be controverted at trial or on appeal.”); see also Higgins
v. Mississippi, 217 F.3d 951, 955 (7th Cir. 2000) (“a judicial admission is in the nature
of a waiver”).
Without a personal attorney-client relationship, Plaintiffs cannot state a
plausible claim for quantum meruit relief against Rumy. See Rubin and Norris, LLC,
v. Panzarella, 51 N.E.3d 879, 891 (Ill. App. Ct. 2016) (“The attorney-client
relationship [including for purposes of a quantum meruit claim] is a voluntary,
contractual relationship that requires the consent of both the attorney and client.”
(quoting In re Chicago Flood Litigation, 289 Ill. App. 3d at 941 (emphasis added))).
And while Plaintiffs attempt to persuade the Court that Rumy benefitted
personally from Plaintiffs’ work and that they state a claim because of it, the Court
is unconvinced. Just because Plaintiffs work benefited Rumy does not mean they did
the work to benefit Rumy. Plaintiffs have neither alleged nor even argued that they
performed services specifically for Rumy’s benefit. Nor could they; Rumy’s Stealth
Litigation recovery was through his separate arrangement with Zoltek, not Plaintiffs.
This indirect benefit to Rumy is not enough. See Friedman & Friedman, Ltd. v. Basic,
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2012 WL 6962866, at *6 (Ill. App. Ct. Nov. 30, 2012) (discussing In re Chicago Flood
Litigation, 289 Ill. App. 3d 937 (Ill. App. Ct. 1997), holding class counsel was not
entitled to attorney fees under quantum meruit theory in part because “class counsel
did not argue that they did work solely for the benefit of the opt-out plaintiffs.”); see
also In re Chicago Flood Lit., 289 Ill. App. 3d at 945 (plaintiff could not recover under
quantum meruit theory from opt-out plaintiffs who retained their own attorneys
because there was no attorney-client relationship; that class counsel may have
conferred some benefit on opt-out plaintiffs “does not automatically entitle counsel to
fees.”); Bernstein and Grazian, P.C., 931 N.E.2d at 826 (“The mere fact that a person
benefits another is not of itself sufficient to require the other to make restitution”
when no personal attorney-client relationship exists (quoting Hayes Mech., Inc. v.
First Indus., L.P., 812 N.E.2d 419 (Ill. App. Ct. 2004))).
Plaintiffs contend that the unpublished opinion in Friedman & Friedman, Ltd.
v. Basic, 2012 WL 6962866 (Ill. App. Ct. Nov. 30, 2012) is “the Illinois decision most
analogous to the facts here,” and compels the Court to deny Rumy’s motion. R. 265 at
6. It is true that in Friedman, as here, a law firm plaintiff sought recovery under a
quantum meruit theory from a corporate employer and corporate employee for patent
work. 2012 WL 6962866, at *1. But the similarities end there. The law firm’s work in
Friedman consisted of filing and maintaining patents in the corporate employee’s
name, and that work continued after the corporate employee transferred his personal
rights, title and interest in certain existing and future patents to another company
as part of a consulting agreement he executed with it. While that company initially
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paid for plaintiff’s continued work, it ultimately stopped. Id. The law firm filed suit
to recover fees, naming the corporate employee and (original) corporate employer.
Both defendants contended that any right to recovery plaintiff had was against the
new company alone because there no longer existed an attorney-client relationship
between them. But in affirming the award for plaintiff, the Illinois appellate court
reasoned that the corporate employee continued to request work by the plaintiff law
firm, not all of the patents fell within the reassignment he made through his
consulting agreement, and he assigned neither his obligations nor his liabilities
under even those patents that did. Id. at 8.
While Rumy similarly directed Plaintiffs’ work, unlike the employee-defendant
in Friedman who had a direct interest in the patents filed in his name (and
maintained his obligations and liabilities with respect to some patents, and all of his
interests in others), Rumy had a mere hope of recovering from the Stealth litigation
and Zoltek’s patent through his separate arrangement with Zoltek unknowable to
Plaintiffs. And more to the point, unlike Rumy, the corporate employee in Friedman
had an attorney-client relationship with the plaintiff law firm—both personally, and
through his company—and maintained that relationship throughout. Id. at *1, *2,
*7. In contrast, Rumy’s interest in the litigation was tied to his separate agreement
with Zoltek, and his dealings with Plaintiffs originated solely from his role as a Zoltek
officer. Indeed, Plaintiffs admit in their brief that Rumy “was never up front with
Monco about his deal with Toray,” “was not fully forthcoming about the details of his
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separate stake in the case,” and that his “intentions were only partially disclosed to
Monco.” R. 265 at 2, 4, 7. Friedman does not change the result here.
Finally, Plaintiffs seek leave to amend should the Court grant Rumy’s motion.
But Plaintiffs fail to demonstrate that any amendment would cure the deficiencies
apparent: there simply is no basis upon which to hold Rumy liable to Plaintiffs even
if Plaintiffs’ characterization of the SAC were correct. Accordingly, the Court grants
Rumy’s motion to dismiss—Rumy’s third such motion—with prejudice.
II.
Zoltek’s Motion for Partial Summary Judgment
Zoltek argues that individual plaintiffs Monco and Mortimer lack standing as
to their quantum meruit claim against it and are not the real parties in interest under
Federal Rule of Civil Procedure 17(a). The gist of Zoltek’s argument is that Monco
and Mortimer’s rights are only derivative of Wood Phillips’ as attorneys of that firm,
and they thus have no separate right to proceed against Zoltek individually. Only
Monco disagrees; indeed, in Mortimer and Wood Phillips’ joint response to Zoltek’s
motion, filed separately from Monco’s response, they concede that Mortimer lacks
standing and that Wood Phillips—not the individual plaintiffs—is the real party in
interest. 3 See generally R. 225. At its core, Monco’s argument to the contrary stems
from the fact that the most recent client engagement agreement and subsequent
modification thereto named him (and Mortimer) as the exclusive recipients of any
However, Mortimer and Wood Phillips contend in the alternative that if the Court
finds that Monco has standing, then it should conclude that Mortimer does also. R.
225 at 7.
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contingency award, giving him (and Mortimer) the right to seek relief directly from
Zoltek. See generally R. 230.
A.
Standard
Summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317,
322-23 (1986). The Court considers the entire evidentiary record and must view all of
the evidence and draw all reasonable inferences from that evidence in the light most
favorable to the nonmovant. Horton v. Pobjecky, 883 F.3d 941, 948 (7th Cir. 2018). To
defeat summary judgment, a nonmovant must produce more than a “mere scintilla of
evidence” and come forward with “specific facts showing that there is a genuine issue
for trial.” Johnson v. Advocate Health and Hosps. Corp., 892 F.3d 887, 894, 896 (7th
Cir. 2018). Ultimately, summary judgment is warranted only if a reasonable jury
could not return a verdict for the nonmovant. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986).
B.
Relevant Facts
Unless otherwise noted, the following facts are undisputed or uncontroverted
for purposes of resolving Zoltek’s motion. 4 Wood Phillips is a legal partnership, the
The briefing on Zoltek’s motion is somewhat unorthodox. Only Monco contests the
motion. He filed a response brief to that effect, along with a response to Zoltek’s Rule
56.1 statement of undisputed material facts and a Rule 56.1 statement of additional
facts. But plaintiffs Mortimer and Wood Phillips also jointly filed a response brief and
prepared responses to Zoltek’s Rule 56.1 statement, as well as their own separate
Rule 56.1 statement of additional facts. Presumably because it is Zoltek’s motion
alone and notwithstanding their differing positions on Zoltek’s arguments, Monco did
not respond to Wood Phillips and Mortimer’s (joint) Rule 56.1 statement of additional
4
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operations of which are governed by a partnership agreement that is amended from
time to time. ZSOF ¶¶ 11, 12. 5 At all times relevant to this lawsuit, Mortimer was a
Wood Phillips partner, as was Monco until his transition to “of counsel” in 2010. 6 Id.
¶¶ 14-16.
Retainer agreements. In February 1996, Zoltek and Wood Phillips (through
Monco, Mortimer, and the chairman of Wood Phillips’ executive committee) executed
the February 1996 Agreement, a retainer agreement that included a contingency
structure for Wood Phillips’ representation of Zoltek in the Stealth litigation. Id. ¶ 7.
A month later, Wood Phillips filed the Stealth litigation on Zoltek’s behalf. Id. ¶ 8.
Then, in April 1996, Zoltek executed the April 1996 Agreement, a new retainer
agreement also based on a contingency structure, but this time signed by Monco and
Mortimer individually, both of whom were Wood Phillips partners at the time and
were identified as such therein. Id. ¶¶ 9, 14. According to Wood Phillips, this change
was made because Wood Phillips “did not want responsibility to handle the litigation
if Mortimer and Monco left the Firm during the [Stealth] litigation.” R. 232, Ex. U at
facts, and nor did Wood Phillips and/or Mortimer respond to his. Accordingly, the
facts outlined here are drawn primarily from Zoltek’s 56.1 statements, Wood Phillips
and Mortimer’s and Monco’s separate responses thereto, and Monco’s additional
statements of fact, including as responded to by Zoltek.
For purposes of this opinion: “ZSOF” refers to R. 198, Zoltek’s Rule 56.1 statement
of material facts; “MRZSOF” refers to those portions of R. 231 that represent Monco’s
response to Zoltek’s Rule 56.1 statement; “MSAF” refers to those portions of R. 231
that represent Monco’s Rule 56.1 statement of additional facts; and “ZRMSAF” refers
to R. 235, Zoltek’s response to Monco’s Rule 56.1 statement of additional facts.
5
6
As of October 30, 2018, Monco left Wood Phillips. R. 232 ¶ 26.
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2 (Wood Phillips’ answer to Zoltek’s interrogatories). A transmittal letter to Zoltek
accompanying the new agreement explained:
[T]he Agreement is now between Zoltek and us as individuals rather
than between Zoltek and Wood, Phillips. This change was made for
internal purposes within our firm.
ZSOF ¶ 10 and Ex. 1 at 1.
Section 2(a) of the April 1996 Agreement provided that MONCO/MORTIMER
(instead of Wood Phillips, as under the February 1996 Agreement) would receive a
percentage of the net recovery that varied depending on the stage of litigation at
which the case was resolved. The provision did not mention Wood Phillips at all. R.
232, Ex. D at 2.
Section 5 concerned Zoltek’s right to terminate the litigation and included an
option for Monco and Mortimer to carry it on and obtain any recovery for themselves,
stating:
ZOLTEK may terminate any litigation undertaken under this
Agreement at any time, in its sole discretion, upon giving thirty (30)
days prior written notice to MONCO/MORTIMER. Within thirty days
MONCO/MORTIMER shall have the right to carry on the litigation on
ZOLTEK’s behalf. MONCO/MORTIMER shall then be solely
responsible for payment of all reasonable and necessary disbursements
as set out in 2(b), above, and shall have exclusive right to make decisions
regarding the conduct of any litigation and settlement thereof. Any
recoveries in litigation carried on under this section shall be disbursed
entirely to MONCO/MORTIMER. ZOLTEK shall provide whatever nonfinancial assistance MONCO/MORTIMER reasonably require to
conclude this litigation.
ZSOF ¶ 40; R. 232, Ex. D at 6. This provision was not included in the February 1996
Agreement. See generally R. 232, Ex. S. The transmittal letter to Zoltek
accompanying the April 1996 Agreement explained that this section:
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pertains to the situation wherein Zoltek, for whatever reason, decides
not to expend any further effort or monies in the litigation and to simply
“pull the plug.” This paragraph gives us the option to assume the
responsibilities for representing Zoltek, and to have the right to any
recovery received.
ZSOF ¶ 39.
Next, Section 6 of the April 1996 Agreement, entitled “Termination By
Settlement,” provided:
Any litigation undertaken under this Agreement may be settled under
terms mutually agreed to by MONCO/MORTIMER and ZOLTEK. No
claim or other civil proceeding involving the PATENTS shall be brought
or settled without the express written approval of ZOLTEK. In the event
that MONCO/MORTIMER and ZOLTEK cannot agree to the terms of a
settlement, the decision on the terms of a settlement shall be made by a
third party selected by mutual agreement of MONCO/MORTIMER and
ZOLTEK. The decision of that third party shall be final and, once made,
unchallengeable by either party.
R. 232, Ex. D at 6. This provision was also new. Compare R. 232, Exs. D and S.
Consistent with the terms of the February 1996 Agreement (except that it substituted
“MONCO/MORTIMER” for “WOOD, PHILLIPS”), the April 1996 Agreement further
provided that if terminated by Zoltek:
MONCO/MORTIMER shall be entitled to receive from ZOLTEK no less
than the reasonable value of its services performed on ZOLTEK’s behalf
up to the date of termination, to be paid from funds received by ZOLTEK
upon completion or termination of the litigation.
R. 232, Ex. D at 5; R. 232, Ex. S at 5. The transmittal letter accompanying the April
1996 Agreement recommended that Zoltek:
review this Retainer Agreement with your attorneys, and let us have
your comments and input at your earliest convenience. If you have any
questions regarding any matters in the enclosed Retainer Agreement,
please contact us.
16
ZSOF, Ex. 1 at 2. Zoltek (through Rumy) signed the April 1996 Agreement without
requesting any changes. MSAF ¶ 21.
Years later in October 2009, Rumy expressed dissatisfaction with the direction
of the ongoing Stealth litigation, and engaged another firm as lead counsel. Id. ¶ 23.
Monco and Mortimer withdrew their appearances in the lawsuit, but continued as
support counsel until May 2011 when Rumy asked Monco and Mortimer to return as
lead counsel. Id. ¶¶ 24, 25. After further discussions, Monco and Mortimer agreed
and signed the 2011 Modification to the April 1996 Agreement, which set forth a
reduced hourly rate in exchange for a reduction in percentage from any judgment or
settlement in the Stealth Litigation as follows:
MONCO/MORTIMER will be paid $200 per hour for their legal services.
Associates of the Wood Phillips Law Firm working on the case will be
bill [sic] at a rate of $200 per hour.
…
One hundred fifty percent (150%) of any attorneys’ fees paid by ZOLTEK
after October 1, 2011 to MONCO/MORTIMER and the Wood, Phillips
Firm shall be deducted off the top of any recovery and credited to
ZOLTEK before distribution of fees from the remainder under the [April
1996 Agreement].
…
Section 2(a) of the [April 1996 Agreement] . . . shall be modified as
follows: As attorneys’ fees, MONCO/MORTIMER shall receive thirtyeight percent (38%) of the NET RECOVERIES actually received by
ZOLTEK in connection with their representation of ZOLTEK in the
pending lawsuits and appeals.
R. 232, Ex. F at 2-3. The 2011 Modification also provided:
ZOLTEK and MONCO/MORTIMER each acknowledge that they have
reviewed this MODIFICATION to the Retainer Agreement with counsel
prior to signing, and that each has entered into it freely, voluntarily and
knowingly.
17
Id. at 3. All other relevant terms from the April 1996 Agreement—including
regarding Monco and Mortimer’s option to continue the litigation for themselves
notwithstanding Zoltek’s wish to terminate it, and regarding settlement—remained
in effect. Id.
Internal Wood Phillips agreements and handling of Stealth litigation.
Wood Phillips’ partnership agreement provides for the division of expenses related to
staff and overhead. ZSOF ¶ 13. The partnership agreement also dictates the handling
of unpaid invoices by Wood Phillips clients. Id. ¶ 23. All Stealth litigation invoices
were at all times issued by Wood Phillips. Id. ¶ 28. All Zoltek payments for the Wood
Phillips invoices were at all times made to Wood Phillips. Id. ¶ 30. All Stealth
litigation expenses were processed through Wood Phillips. Id. ¶ 27.
Wood Phillips also has an internal agreement regarding the distribution of
funds from contingent fee cases (the “Contingent Fee Agreement”). That agreement
provides in relevant part that:
It is the understanding of the Firm and the Partners who participate in
any Contingent Fee Case that the Contingent Fee Case involves a
combination of the Firm and the individual participating Partners, and
the shares of the Recovery distributed to the Partners participating in
the Contingent Fee Case as set forth above are not at any time assets of
the Firm.
R. 232, Ex. E ¶ 8; ZSOF ¶ 21. The Contingent Fee Agreement further specifies the
order and method for distributing any contingent fee recovery amongst Wood Phillips
and its partners, with the amount of any individual partner’s fee award contingent
upon, among other things, the size of the overall recovery. R. 232, Ex. E ¶ 7. The
18
parties dispute whether the Contingent Fee Agreement applies to the Stealth
litigation after Monco and Mortimer signed the April 1996 Agreement. ZSOF ¶ 21;
MRSOF ¶ 21. But they agree that when Monco transitioned from partner to “of
counsel” in 2010, he executed an agreement with Wood Phillips (the “Of Counsel
Agreement”), which states in relevant part:
[A]ny and all legal services performed by Monco will be on behalf of
[Wood Phillips] and will be invoiced by [Wood Phillips].
Id. ¶¶ 15, 17, 18 and Ex. 4. The Of Counsel Agreement further provides that:
Any and all existing contingency fee arrangements, specifically
including existing agreements with: a) Zoltek Corporation regarding
pending litigation against the United States and Lockheed Martin
Corporation; . . . shall be governed solely and exclusively by the terms of
the currently existing agreements as well as the Firm’s related
contingent fee agreement between the partners. Monco’s change in
status shall not in any way impact or alter the terms of the agreements
identified in this paragraph.
Id. ¶ 22 and Ex. 4.
All told, Monco reported spending nearly 8,159 hours representing Zoltek in
the Stealth litigation, and Mortimer reported 2,359 hours on the case. MSAF ¶ 34.
Additionally, at least 15 other Wood Phillips attorneys together spent approximately
1,567 hours assisting with the Stealth litigation, and paralegals also recorded hours
to Wood Phillips. ZSOF ¶ 25; MSAF ¶ 34. Court filings utilized the Wood Phillips
signature block. ZSOF ¶ 25. And correspondence from Monco to Zoltek was on Wood
Phillips letterhead. Id. ¶ 26. Both Monco and Mortimer were protected under Wood
Phillips’ malpractice insurance policy at all relevant times. Id. ¶ 20. There is no
evidence that either Monco or Mortimer maintained separate insurance.
19
Resolution of the Stealth Litigation. The parties dispute whether Zoltek
terminated its representation by Wood Phillips or Monco and Mortimer in summer
2016, although they agree that the relationship terminated at that time. ZSOF ¶ 31
(stating “Zoltek terminated Wood Phillips in the summer of 2016”); MRZSOF ¶ 31
(“the Amended Complaint states that Monco/Mortimer were terminated in the
Summer of 2016”). Zoltek settled the Stealth litigation shortly thereafter, and
Plaintiffs recovered nothing.
C.
Analysis of Zoltek’s Partial Motion for Summary Judgment
“Article III of the Constitution limits federal judicial power to certain ‘cases’
and ‘controversies,’ and the ‘irreducible constitutional minimum’ of standing contains
three elements.” Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015) (quoting Lujan
v. Defs. of Wildlife, 504 U.S. 555, 559-60 (1992)). Specifically, the plaintiff must have
“(1) . . . suffered an ‘injury in fact’ that is (a) concrete and particularized and (b) actual
or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the
challenged action of the defendant; and (3) it is likely, as opposed to merely
speculative, that the injury will be redressed by a favorable decision.” Friends of the
Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000). “As a
jurisdictional requirement, the plaintiff bears the burden of establishing standing.”
Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443 (7th Cir. 2009). That a
plaintiff “must suffer an invasion of a legally protected interest is a principal of
federal law. But the nature and extent of [the plaintiff’s] interest . . . , and therefore,
whether that interest can form the basis of a federal suit, depend on the law that
defines [the plaintiff’s] rights.” Scanlan v. Eisenberg, 669 F.3d 838, 842 (7th Cir.
20
2012). Here, the parties agree that Illinois state law governs any claim for quantum
meruit in this case, and therefore also governs the standing determination. R. 197 at
3; R. 230 at 8.
Separate from the jurisdictional Article III case-or-controversy requirement is
the prudential limitation set forth in Federal Rule of Civil Procedure 17(a), providing
that “[e]very action must be prosecuted in the name of the real party in interest,” Fed.
R. Civ. P. 17(a), and “requir[ing] that the complaint be brought in the name of the
party to whom that claim ‘belongs’ or the party who ‘according to the governing
substantive law, is entitled to enforce the right.’” Rawoof v. Texor Petroleum Co., Inc.,
521 F.3d 750, 756 (7th Cir. 2008) (quoting Oscar Gruss & Son, Inc. v. Hollander, 337
F.3d 186, 193 (2d Cir. 2003)); see also RK Co. v. See, 622 F.3d 846, 850 (7th Cir. 2010)
(“the real party in interest rule is only concerned with whether an action can be
maintained in the plaintiff’s name,” and is “similar to, but distinct from,
constitutional . . . standing”). Put another way, Rule 17(a) is “a codification of the
principle that a litigant cannot sue in federal court to enforce the rights of third
parties—in other words, a prudential limit on standing.” Act II Jewelry, LLC v.
Wooten, 301 F. Supp. 3d 905, 911 (N.D. Ill. 2018). The real party in interest is “the
one who by the substantive law, possesses the right sought to be enforced, and not
necessarily the person who will ultimately benefit from the recovery.” Id. at 910
(quoting Checkers, Simon & Rosner v. Lurie Corp., 864 F.2d 1338, 1343 (7th Cir. 1988)
(internal citations omitted)). The purpose of the rule is to “protect the defendant
21
against a subsequent action by the party actually entitled to recover.” RK Co., 622
F.3d at 850 (citing Fed. R. Civ. P. 17(a) advisory committee note (2009)).
Here, Zoltek challenges both Monco and Mortimer’s standing, and whether
they are the real parties in interest under Rule 17. But Zoltek’s motion and briefs
largely conflate the two issues, focusing primarily on the real party in interest inquiry
as opposed to the Article III case-or-controversy question. Accordingly, and because
Monco and Mortimer appear to have constitutional standing in any case—having
suffered an actual concrete and particularized injury (failure to be compensated for
work on behalf of Zoltek), traceable to Zoltek (the client for whom the work was
performed), and which would be redressed by a decision awarding fees in quantum
meruit—the Court’s analysis focuses on Rule 17. 7
Even an indirect injury can establish Article III standing, although it may not
suffice for Rule 17 purposes. See, e.g., Rawoof, 521 F.3d at 756 (in shareholder
derivative suit, plaintiff “satisfie[d] the minimum requirements of constitutional
standing by virtue of an asserted indirect injury as [corporation’s] sole shareholder,”
but was not the real party in interest). While Zoltek argues that Freed v. JP Morgan
Chase Bank, 2012 WL 3307091 (N.D. Ill. Aug. 13, 2012) holds otherwise, Freed was
not decided on constitutional standing grounds. To the contrary, there, as in Rawoof,
the court found that the plaintiff had Article III standing (in this case, to assert a civil
conspiracy to commit fraud claim as a partner in an LLC and on its behalf), but that
he was not a real party in interest under Rule 17. 2012 WL 3307091, at *5 (“It bears
mentioning that this holding does not turn on ‘standing’ in the constitutional sense.
Freed certainly suffered an injury-in-fact if the LLC in which he has a stake was
wrongfully deprived of its funds. Rather, the question turns on ascertaining the real
party in interest under Rule 17(a),” and concluding that partner was not because “the
harm [wa]s a general one inflicted upon the company, rather than directly on a
specific stockholder or officer.”).
7
22
1.
Rule 17
Ultimately, the parties dispute whether Monco and Mortimer’s representation
of Zoltek after the execution of the April 1996 Agreement was on behalf of Wood
Phillips. Zoltek argues that it was, and that Monco and Mortimer are not proper
plaintiffs here because, as attorneys with Wood Phillips, their only claim for recovery
from Zoltek is through Wood Phillips. R. 197 at 4. Monco argues that it was not,
relying upon the April 1996 Agreement and 2011 Modification to which he and
Mortimer are signatories and which by their terms grant a right in Monco and
Mortimer alone to certain compensation. See generally R. 230. Although only Monco
and Mortimer’s claims to quantum meruit relief are the subject of Zoltek’s motion,
the Court addresses both Wood Phillips’ claim and Monco and Mortimer’s individual
claims in an effort to dispel the confusion that arose in the briefs, beginning with
Wood Phillips’.
Wood Phillips. There can be no dispute that Wood Phillips at all times
maintained an interest in the Stealth litigation, and thus that it has the right to seek
recovery from Zoltek as a real party in interest. Indeed, despite Monco and Mortimer’s
signatures on the April 1996 Agreement, the letter to Zoltek accompanying the April
1996 Agreement makes clear that the change in signatories was “for internal
purposes within our firm,” hardly supporting a finding that the Stealth litigation
shifted away from Wood Phillips entirely. See ZSOF ¶ 10 and Ex. 1 (emphasis added).
Neither did the parties treat the engagement differently thereafter. Indeed, the
evidence shows that Monco and Mortimer continued to act in all respects as attorneys
23
of the Wood Phillips firm, and that each of the parties comported itself with the
understanding that the Stealth litigation was Wood Phillips’ case. All expenses went
through Wood Phillips, not Monco or Mortimer. All invoices were sent from Wood
Phillips, not Monco or Mortimer. All Zoltek payments were to Wood Phillips, not
Monco or Mortimer. Correspondence came on Wood Phillips letterhead, not Monco or
Mortimer’s. Court documents were filed in Wood Phillips’ name. Further, through the
years, Monco and Mortimer utilized firm staff and resources, including Wood Phillips
secretaries and paralegals, who assisted with the Stealth litigation as they would any
other firm matter. And 15 different Wood Phillips attorneys collectively billed over
1,500 Wood Phillips hours to assist Monco and Mortimer in the Stealth litigation—
no doubt time they could have spent on other firm matters.
Plaintiffs’ internal agreements also make clear that the Stealth litigation was
at all times a Wood Phillips case. First, the Contingent Fee Agreement provides that
contingent fee cases “involve[ ] a combination of the Firm and the partners,” and
therefore not any individual attorneys alone. R. 232, Ex. E ¶ 8 (emphasis added).
While Monco contends that the Contingent Fee Agreement did not apply to the
Stealth litigation after he and Mortimer executed the April 1996 Agreement,
MRZSOF ¶ 24 and R. 230 at 7, his argument is belied by his Of Counsel Agreement,
which indicates that each contingency fee arrangement would be governed by the
terms of the existing contingency agreement with the client “as well as the Firm’s
related contingent fee agreement between the partners,” specifically referencing and
including the Stealth litigation. ZSOF ¶ 22 and Ex. 4 (emphasis added). The
24
agreement further provides that Monco’s status change to “of counsel” would not “in
any way impact or alter the terms of the agreements identified.” Id. But even more
compelling is the Of Counsel Agreement’s prohibition of the kind of “side deal” Monco
contends occurred through the April 1996 Agreement. See id. ¶ 18 and Ex. 4 (“[A]ny
and all legal services performed by Monco will be on behalf of [Wood Phillips] and will
be invoiced by [Wood Phillips]”). Accordingly, there can be no reasonable inference
other than that the Stealth litigation was always a firm case, and Wood Phillips is a
real party in interest under Rule 17(a).
Monco and Mortimer. But Monco and Mortimer are also real parties in
interest for purposes of Plaintiffs’ quantum meruit claim. Indeed, Section 2(a) of the
April 1996 Agreement refers to contingency recovery only by Monco and Mortimer,
not Wood Phillips, creating privity as to Monco and Mortimer for compensation
purposes. See Kaplan v. Shure Bros., Inc., 266 F.3d 598, 602 (7th Cir. 2001) (“Privity
of contract has been defined as ‘mutual or successive relationship to the same rights
of property,” and “may arise by operation of law, by descent, or by voluntary or
involuntary transfer” (quoting Collins Co., Ltd. v. Carboline Co., 125 Ill.2d 498, 511
(1988) (emphasis added))). And while the 2011 Modification refers to Wood Phillips
and Wood Phillips associates in the paragraphs concerning hourly billable rates, as
under the April 1996 Agreement, only Monco and Mortimer are potential recipients
of any contingency recovery. Further, the April 1996 Agreement provides that Monco
and Mortimer, not Wood Phillips, would be entitled to the reasonable value of their
services if Zoltek terminated the agreement—a provision unaffected by the 2011
25
Modification. And it is undisputed that the omission of Wood Phillips’ name from the
signature line was no accident: Wood Phillips sought to withdraw its name from the
client agreement to further its own interests. See MSAF ¶ 17; R. 232, Ex. U at 3;
ZRMSAF ¶ 12. As such, Wood Phillips cannot now be heard to complain about the
effects of that decision. Accordingly, Monco and Mortimer, with privity for purposes
of compensation, are real parties in interest along with Wood Phillips. See In re Nat’l
Underground Const. Co., Inc., 40 B.R. 1020, 1021 (N.D. Ill. 1984) (“only a party to a
contract or those in privity may enforce the contract”); see also Act II Jewelry, LLC,
301 F. Supp. 3d at 911-12 (“There may be multiple real parties in interest for a given
claim.” (quoting 1 Federal Rules of Civil Procedure, Rules and Commentary Rule
17(a) (internal quotations omitted))).
Zoltek nevertheless contends that the quantum meruit claim is Wood Phillips’
alone, arguing that the April 1996 Agreement (and 2011 Modification thereto): (1) is
void as against public policy, R. 230 at 4-5; R. 237 at 3-4; and 2) was terminated when
Zoltek terminated the attorney-client relationship even if it was not void. R. 237 at 23. The Court notes at the outset that Zoltek’s arguments implicitly acknowledge that
the April 1996 Agreement created a direct relationship between Zoltek and Monco
and Mortimer for compensation purposes. Zoltek does not meaningfully argue
otherwise. And Zoltek’s voidness arguments do not take aim at the compensation
provisions at issue in any case. Instead, Zoltek’s focus is on the provisions prohibiting
Zoltek from settling or ending the Stealth litigation without Monco and Mortimer’s
consent (Section 6), and giving Monco and Mortimer the right to carry on the
26
litigation on Zoltek’s behalf but “solely to the benefit of Monco and Mortimer” (Section
5). 8 Id. at 5 (citing Illinois Ethics Rules 1.2(a), stating “A lawyer shall abide by a
client’s decision whether to settle a matter,” and 1.8, precluding business transactions
by an attorney with the client to a client’s detriment). Monco responds that any
technical violation of the ethics rules is excused by Monco (and Mortimer’s) repeated
recommendations that Zoltek consult separate counsel prior to signing the
agreements. R. 230 at 14-15. But even assuming these provisions are void ab initio
against public policy, the privity Monco and Mortimer enjoy for compensation
purposes under quantum meruit remains intact. 9 See Edens View Realty &
Zoltek argues that Monco and Mortimer actually exercised their right to take over
the Stealth litigation via Section 5 of the April 1996 Agreement through a November
3, 2014 email. See ZSOF ¶ 41 (“Monco and Mortimer exercised Section 5” through the
email). Monco disagrees. See MRZSOF ¶ 41 (the email merely “invited further
discussion”). But there is no dispute that Monco and Mortimer continued to represent
Zoltek until Zoltek terminated the relationship in 2016. Accordingly, Monco and
Mortimer could not have exercised this right.
8
In its February 27, 2019 opinion, the Court dismissed Zoltek’s counterclaim seeking
a declaratory judgment that the April 1996 Agreement and 2011 Modification were
void as impermissible modifications of a fee agreement. In addition to holding that
Zoltek’s counterclaim was moot because the agreements had been terminated, the
Court held that Zoltek failed to state a plausible claim that the agreements were void,
given Zoltek’s status as a sophisticated client that never sought to rescind the
agreements about which it now complains, and failure to cite a single case even
remotely analogous that concluded otherwise. R. 257 at 10-13. Here, Zoltek relies on
those same cases, along with three “new” cases: an 1897 Illinois Supreme Court
opinion, North Chicago Street Railroad Company v. Ackley, 171 Ill. 100 (Ill. 1897),
and Illinois appellate court opinions from 1922 and 1986, Barnes et al. v. Barnes et
al., 225 Ill. App. 68 (Ill. App. Ct. 1922) and Herbster v. North American Company for
Life and Health Insurance, 501 N.E.2d 343 (Ill. App. Ct. 1986), respectively. But while
North Chicago and Barnes do state that contingency agreements prohibiting
settlement absent attorney consent are void, neither concern a sophisticated client
like Zoltek. See N. Chi. R.R. Co., 171 Ill. at 101 (personal injury client); see also
Barnes, 225 Ill. App. at 69 (client settling deceased husband’s estate). And the issue
was not before the Herbster court. See Herbster, 501 N.E.2d at 347-48 (discussing a
9
27
Investment, Inc. v. Heritage Enterprises, Inc., 408 N.E.2d 1069, 1075 (Ill. App. Ct.
1980) (for an agreement voided by statute, recovery under quantum meruit possible
where such recovery would not circumvent the statutory provisions that prohibited
the agreement); see also Progressive Realty Advisors, Inc. v. Great-West Life Assur.
Co., 783 F. Supp. 1114, 1120 (N.D. Ill. 1991) (a plaintiff may recover for services
rendered under quantum meruit theory even though underlying contract is void
(citing Edens View Realty & Investment, Inc., 408 N.E.2d at 1075)).
And to the extent Zoltek argues that the April 1996 Agreement and 2011
Modification are terminated even if not void, that argument does not doom Monco’s
(and Mortimer’s) quantum meruit claim. There can be no debate that “[w]hen a client
fires an attorney who was retained on a contingency fee contract, that contract ceases
to be effective and the attorney can no longer recover under it.” Dobbs v. Depuy
Orthopaedics, Inc., et al., 885 F.3d 455, 457 (7th Cir. 2018) (citing Thompson v.
Buncik, 961 N.E.2d 280, 283 (Ill. 2011)). “But the discharged attorney can recover a
reasonable sum for services rendered based on quantum meruit (‘as much as he
deserves’).” Id. at 457-58. Here, and again as the Court has previously explained,
Plaintiffs do not seek relief other than through quantum meruit. R. 217; R. 257 at 10.
client’s right to settle in dicta before holding that a retaliatory discharge tort is not
available to an attorney-plaintiff). But more to the point, none of these cases prohibit
a party from using such an agreement to establish its right to quantum meruit relief.
And that makes sense: after all, “[q]uantum meruit is a quasi-contract doctrine that
allows the Court to imply the existence of a contract in order to prevent injustice.”
Langone v. Miller, 631 F. Supp. 2d 1067, 1071 (N.D. Ill. 2009); see also Keck Garrett
& Assoc. v. Nextel Commc’ns, Inc., 517 F.3d 476, 487 (7th Cir. 2008) (Illinois law does
not permit recovery under quantum meruit when an actual contract governs the
issue).
28
Thus, in actuality, Monco relies on the April 1996 Agreement only as evidence of an
alleged individual right to proceed against Zoltek for fees. See generally R. 217 and
R. 230. In other words, as evidence of an attorney-client relationship between Zoltek
and Monco and Mortimer as individuals for purposes of an award based on quantum
meruit. See Wildman, Harrold, Allen & Dixon, 740 N.E.2d at 509 (prima facie case
for attorney’s fees based on quantum meruit “includes proof of . . . the existence of an
attorney-client relationship”).
Finally, Zoltek is correct that two of the three cases Monco relies upon do not
in fact require the Court to deem Monco (or Mortimer) a real party in interest under
Rule 17(a). Indeed, while both Dobbs v. Depuy Orthopedics, Inc. et al., 842 F.3d 1045
(7th Cir. 2016) and Bernstein and Grazian, P.C. v. Volpe, P.C., 931 N.E.2d 810 (Ill.
App. Ct. 2010) concern an individual attorney recovering under a quantum meruit
theory, neither discuss Rule 17(a) (or Article III standing), and nor do they discuss
whether the plaintiff was a party to any agreement with his firm or the client
regarding payment or distribution of fees, or how the suit came to be filed in the
individual attorney’s name. See generally Dobbs, 842 F.3d 1045 (vacating and
remanding quantum meruit award in case by attorney against former client on behalf
of himself and his former law firm because the trial court had not analyzed the factors
relevant to calculating reasonable attorneys’ fees under quantum meruit); 10 see also
Those factors include “the time and labor required, the attorney’s skill and
standing, the nature of the cause, the novelty and difficulty of the subject matter, the
attorney’s degree of responsibility in managing the case, the usual and customary
charge for that type of work in the community, and the benefits resulting to the
10
29
Bernstein and Grazian, P.C., 931 N.E.2d 810 (reversing quantum meruit award to
attorney and law firm in suit against former partner and new firm for a share of fees
recovered from their work because plaintiff-attorney had not provided enough
evidence to determine the reasonable value of his work).
But Monco’s reliance on In re Estate of Callahan, 578 N.E.2d 985 (Ill. 1991)—
a case in which a law firm assigned its claim for attorney fees in quantum meruit to
one of its individual members—is closer to the mark. While Monco does not argue
directly that an assignment was made here, the change in the beneficiaries of the
compensation provisions from Wood Phillips to Monco and Mortimer (at Wood
Phillips’ direction) sure seems like one. So construed, there is little question about
Monco and Mortimer’s status as plaintiffs. See Sprint Comms. Co., L.P. v. APCC
Servs., Inc., 554 U.S. 269, 285 (2008) (“Lawsuits by assignees . . . are ‘cases and
controversies of the sort traditionally amenable to, and resolved by, the judicial
process’” (quoting Vermont Agency of Natural Res. v. United States ex rel. Stevens,
529 U.S. 765, 777-78 (2000))); see also Overseas Dev. Disc. Corp. v. Sangamo Const.
Co., Inc., 686 F.2d 498, 505 n.17 (7th Cir. 1982) (“[t]he federal courts . . . and all of
the state courts . . . have been in full accord in holding that the unconditional assignee
of a complete chose of action is the real party in interest [under Rule 17]” (quoting 3A
Moore’s Federal Practice ¶ 17.09(1.-1) at 17-84)).
client.” Dobbs, 842 F.3d at 1049-50 (quoting Will v. Nw. Univ., 881 N.E.2d 481, 50405 (Ill. App. Ct. 2007)).
30
In sum, and despite Zoltek’s voidness arguments, Zoltek cannot sidestep the
fact that the agreements evidence a right in Monco and Mortimer to any contingency
recovery. This is enough to solidify Monco and Mortimer’s individual claims for
quantum meruit relief. Indeed, the agreements—terminated though they may be—
together with the undisputed evidence of Monco and Mortimer’s performance
thereunder establish that Monco and Mortimer performed services for Zoltek on a
non-gratuitous basis, that Zoltek accepted the services, and that, because Monco and
Mortimer were individual signatories to the agreements of which they were the sole
beneficiaries of any contingency award—an attorney-client relationship existed
between them and Zoltek, other than through Wood Phillips. See Bernstein &
Grazian, P.C., 931 N.E.2d at 825-26 (“To recover under a quantum meruit theory, the
plaintiff must prove that: (1) he performed a service to benefit the defendant, (2) he
did not perform this service gratuitously, (3) the defendant accepted this service, and
(4) no contract existed to prescribe payment for this service.”); see also In re Chicago
Flood Litigation, 682 N.E.2d at 427 (“The right to attorney fees based on quantum
meruit does not exist unless there is an underlying attorney-client relationship where
the client expressly or impliedly agrees to pay fees.”). Accordingly, Monco and
Mortimer are real parties in interest under Rule 17.
2.
Rule 19
Monco also argues that summary judgment is improper because he is a
necessary party under Federal Rule of Civil Procedure 19(a)(1)(B). R. 230 at 12-13.
In response, Zoltek contends that Monco’s recovery is determined by his internal
31
agreements with Wood Phillips—essentially the same argument it makes with
respect to Rule 17(a). But because the Court has determined that Monco (and
Mortimer) are real parties in interest under Rule 17(a), the Court need not also
examine Rule 19(a)(1). See In re Chicago Flood, 1993 WL 116756, at *2 (N.D. Ill. Apr.
15, 1993) (“The Seventh Circuit regards Fed. R. Civ. P. 17(a) as an independent
authority for compulsory joinder, thus the prerequisites of Rule 19(a) need not be
satisfied before joinder is appropriate under Rule 17(a).”); see also Forza Techs., LLC
v. Premier Research Labs, LP, 2013 WL 6355383, at *4 (N.D. Ill. Dec. 5, 2013) (“Given
the court’s conclusion [that Fitness Arts was a real party in interest under Rule
17(a)], the court need not address the defendants’ argument that Fitness Arts is a
necessary party pursuant to Rule 19(a)(1)”).
D.
Summary
The undisputed evidence demonstrates that each of Zoltek, Wood Phillips, and
Monco and Mortimer regarded Zoltek as a Wood Phillips client and the Stealth
litigation as Wood Phillips’ case. As such, Wood Phillips is a real party in interest
entitled to reasonable attorney’s fees under quantum meruit. But the evidence also
shows that Monco and Mortimer are real parties in interest and may seek relief other
than through Wood Phillips, having signed the most recent client agreements at
Wood Phillips’ urging. Accordingly, and to guard against the injustice the doctrine of
quantum meruit was designed to prevent, the Court denies Zoltek’s partial motion for
summary judgment as to Monco and Mortimer. See Langone, 631 F. Supp. 2d at 1071
(“Quantum meruit is a quasi-contract doctrine that allows the Court to imply the
32
existence of a contract in order to prevent injustice.” (citing Hayes Mech., Inc., 812
N.E.2d at 426)).
CONCLUSION
For the foregoing reasons, Rumy’s motion to dismiss, R. 259, is granted with
prejudice, and Zoltek’s motion for partial summary judgment, R. 196, is denied.
ENTERED:
Honorable Thomas M. Durkin
United States District Judge
Dated: July 25, 2019
33
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