Edelson PC v. Girardi
| Decision Date | 19 July 2021 |
| Docket Number | 20 C 7115 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | EDELSON PC, Plaintiff, v. THOMAS GIRARDI, GIRARDI KEESE, ERIKA GIRARDI, EJ GLOBAL LLC, GIRARDI FINANCIAL, INC., DAVID LIRA, KEITH GRIFFIN, JOHNSON HUTCHINSON & LIRA LLP, ROBERT FINNERTY, ABIR COHEN TREYZON SALO, LLP, CALIFORNIA ATTORNEY LENDING II, INC., STILLWELL MADISON, LLC, and JOHN DOE 1-10, Defendants. |
Edelson PC brought this suit seeking to recover money it contends it is owed and disgorgement of money owed to clients in an underlying matter. Defendants David Lira and Keith Griffin have moved to dismiss the claims against them. Pursuant to Federal Rule of Civil Procedure 12(b)(2), Griffin contends that the Court lacks personal jurisdiction over him. Lira under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(3) asserts that the Court lacks subject matter jurisdiction this district is an improper venue for litigating these claims; and the claims against him must be automatically stayed under the Bankruptcy Code.[1]
Background[2]
Edelson alleges that Lira and Griffin, then attorneys at the law firm Girardi Keese, worked together with Thomas Girardi to embezzle settlement proceeds, commingled those proceeds with attorneys' fees that belonged to Edelson, and shared in the illicit profits.
At the center of the parties' dispute is litigation that followed a tragedy. In October 2018, as the result of a fundamental system failure, Lion Air Flight 610 plunged into the Java Sea. All 189 people on board were killed. Investigators determined that the aircraft's anti-stall system had malfunctioned. The malfunction that caused Flight 610 to crash was attributed to design defects and other failures by the Boeing Company, the plane's designer and manufacturer.
Nearly a dozen families of those who perished retained Girardi Keese, a California-based firm, to represent them in litigation against Boeing.[3] Because the litigation took place in Chicago, Girardi Keese contracted with Edelson so that Edelson's attorneys would serve as local counsel and assist in the litigation and settlement process.
Two contracts governed the relationship between Girardi Keese and Edelson. The first contract provided that Edelson would receive 50 percent of the total attorneys' fees recovered by a specific portion of the clients. Griffin presented and executed this contract. The second contract guaranteed that Edelson would receive 20 percent of the total attorneys' fees recovered for another set of clients. Lira presented and executed the second contract.
In 2020, the parties finalized individual settlements for each of the families Girardi Keese and Edelson represented. The litigation against Boeing was dismissed on February 24, 2020. Girardi Keese maintained total and exclusive control over communications with the clients throughout the litigation and the post-settlement process. Therefore, Boeing transferred the clients' settlement payments to Girardi Keese, whose attorneys were responsible for disbursing funds to the clients.
Between February 2020 and December 2020, Edelson attorneys were in frequent communication with Lira and Griffin about the status of the settlement. Initially, through April and May, Griffin and Lira maintained that Girardi Keese had not received any settlement funds because Boeing would fund the settlements only after it had received all the clients' executed settlement agreements and releases. When Boeing signaled publicly that it would consider bankruptcy, an Edelson attorney expressed concern about the delay in finalizing the settlements. Lira responded by e-mail and repeated that Boeing would release the settlement funds after receiving the agreements and releases. Lira further explained that the settlement funds were paid by Boeing's insurer and were secured in an escrow account.
In June 2020, Lira informed Edelson that he had left Girardi Keese. During a phone call with an unidentified person at Edelson, Lira said the settlement had been funded and that "the bulk of the funds were received and held by" Girardi Keese. Lira wondered which firm should be held responsible for paying Edelson's share of the attorneys' fees-Girardi Keese or his new firm. Edelson asked whether the clients had received their proceeds from the settlements, but Lira "failed to provide a coherent answer." Compl. ¶ 46. Then, in July 2020, Lira sent a letter to Edelson asserting that some of the firms' clients had received their settlement proceeds, and some had not. With his letter, Lira included a portion of the attorneys' fees owed to Edelson and indicated that this was a partial payment of what was owed to the firm.
Edelson did not cash the check. Instead, it sent a letter to both Girardi and Lira inquiring on the status of the settlement payouts and declining to "accept any monies until [it was] given adequate assurances that each and every one of our collective clients . . . received the entirety of the monies owed." Id. ¶ 47. Lira responded but did not say which clients had received full settlement payments and whether any clients were still owed money. He further explained that because he was no longer with Girardi Keese, he no longer had any ongoing involvement in the cases. Lira directed further questions to Griffin and Girardi, Girardi Keese's sole equity partner.
In July 2020, Edelson's managing partner, Rafi Balabanian, took the lead in communicating with Girardi Keese. When Balabanian contacted Girardi and Griffin, he received many of the same answers Edelson's other attorneys had already received. Griffin said that though Boeing had fully funded the settlements, the clients had not yet received the full amount owed to them. He estimated that the clients were still owed about half of the settlement amount. Griffin said he could not explain why the clients had not received their full settlements or when they would receive the remaining proceeds because Thomas Girardi had exclusive control over the firm's bank accounts, including the client trust accounts. And, Griffin said, Girardi was not available to answer questions about this matter because he was unavailable due to serious illness.
Later in July, Balabanian was finally able to speak with Girardi. To the extent Girardi provided an explanation for the delay, he blamed his illness and his clients' late submission of the settlement agreements and releases. He promised to disburse the remaining money within a few days and said he would follow up once he had done so. Girardi kept neither promise. Balabanian spoke to Girardi again in August 2020-after several unsuccessful attempts to touch base. Girardi took umbrage at Balabanian's inquiries but nevertheless reported that he had made arrangement for his clients to receive the remainder of the money owed.
In September 2020, Griffin told Balabanian that Girardi Keese had wired half of the outstanding amount to clients, with the other half ready to be sent the next week. But although Griffin said he would send proof of the wired funds, he never did. Regardless, Edelson attorneys were under the impression that the clients had been paid and all that remained to be paid were its own fees. In November 2020, Lira wrote Edelson that Girardi had transferred some portion of the attorneys' fees generated from the litigation to a litigation funder. Edelson expressed concern, again.
When Balabanian talked with Griffin next-Girardi was again receiving medical treatment-he learned that Girardi had not paid his clients the remaining amount due. Worse, Griffin said that he was skeptical that Girardi or the Girardi Keese firm had the financial means to satisfy the firm's obligations to its clients or to Edelson. In the final analysis, a substantial portion of the settlement funds were never disbursed to Girardi Keese's clients, and Edelson was never paid the share of the attorneys' fees it was owed.
In December 2020-after Edelson filed the complaint in this case-a number of Girardi Keese's creditors filed involuntary Chapter 7 bankruptcy petitioners against the firm and Girardi in the United States Bankruptcy Court for the Central District of California. The bankruptcy court opened Chapter 7 cases against the firm and Girardi, and trustees have been appointed to manage the respective estates. Neither Lira nor Griffin has filed for bankruptcy.
Before turning to the merits, the Court addresses the standards for considering the defendants' motions. Griffin challenges the sufficiency of Edelson's complaint under Rule 12(b)(2). A complaint is not deficient just because facts demonstrating personal jurisdiction are not included among the complaint's allegations. Purdue Rsch. Found. v Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). When a defendant moves to dismiss a complaint under Rule 12(b)(2), however, the plaintiff must establish the existence of jurisdiction. Curry v. Revolution Lab'ys, LLC, 949 F.3d 385, 392 (7th Cir. 2020) (internal quotation marks omitted). When, as here, a court has not held an evidentiary hearing (Griffin did not seek one), the plaintiff only bears "the burden of making a prima facie case for personal jurisdiction." Id. at 393.
When considering a Rule 12(b)(2) motion, the Court is permitted to consider affidavits, but "in evaluating whether the prima facie standard has been satisfied, the plaintiff is entitled to the resolution in its favor of all disputes concerning relevant facts presented in the record." Id. (alterations accepted) (internal quotation marks omitted). Therefore, though the Court must accept as true "any facts in the defendants' affidavits that do not conflict with anything in the record," id. "[t]he plaintiff...
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