Interclaim Holdings v. Ness, Motley, Loadholt

• Citation: 298 F.Supp.2d 746
• Decision Date: 08 January 2004
• Docket Number: No. 00 C 7620.,00 C 7620.
• Parties: INTERCLAIM HOLDINGS LIMITED and Interclaim Recovery Limited, Plaintiffs, v. NESS, MOTLEY, LOADHOLT, RICHARDSON & POOLE, Defendant.
• Court: United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)

298 F.Supp.2d 746

INTERCLAIM HOLDINGS LIMITED and Interclaim Recovery Limited, Plaintiffs, v. NESS, MOTLEY, LOADHOLT, RICHARDSON & POOLE, Defendant.

No. 00 C 7620.

United States District Court, N.D. Illinois, Eastern Division.

January 8, 2004.

COPYRIGHT MATERIAL OMITTED

Gregory Campbell Jones, John R. McCambridge, Matthew J. Hayek, Jacqueline Elise Goldberg, Laura K. McNally, Grippo & Elden, Chicago, IL, for plaintiffs.

Jeffrey Neal Cole, Cole & States, Ltd., Robert Patrick Cummins, Thomas Cusack Cronin, Cummins & Cronin, LLC, Anthony J. Tunney, Price Tunney Reiter, P.C., Chicago, IL, for defendant.

MEMORANDUM OPINION AND ORDER

PALLMEYER, District Judge.

Interclaim Holdings Limited and Interclaim Recovery Limited ("Interclaim") is in the business of identifying, tracing, and freezing assets that have been laundered by financial criminals, and then getting those assets liquidated and distributed as restitution to the criminals' victims and as compensation to Interclaim. In this case, Interclaim retained the law firm of Ness, Motley, Loadholt, Richardson & Poole ("Ness Motley") to bring class action proceedings on behalf of victims of a complex criminal network run by James Blair Down ("Down" or "Down Group"). Without notice to or consent from Interclaim, Ness Motley began settlement negotiations with Down and, at Down's insistence, excluded Interclaim from the discussions. Ultimately, Ness Motley withdrew as Interclaim's counsel citing a conflict of interest, and pursued a settlement arrangement that would limit Down's financial exposure to Ness Motley's remaining clients while providing a large fee to the law firm. Interclaim filed suit against Ness Motley alleging breach of fiduciary duty and breach of the parties' retainer agreement. Interclaim also alleged a separate claim of misappropriation of confidential information but opted not to argue that claim at trial.

A jury found in favor of Interclaim, awarding $8.3 million in compensatory damages and $27.7 million in punitive damages. Ness Motley now seeks a new trial, judgment as a matter of law, and remittitur with respect to both awards. For the reasons set forth here, the motions are denied.

BACKGROUND

The evidence presented at trial substantially confirmed the allegations in Interclaim's complaint, which this court detailed in its October 21, 2001 Memorandum Opinion and Order ("Order"). See Interclaim Holdings Ltd. v. Ness, Motley, Loadholt, Richardson & Poole, No. 00 C 7620, 2001 WL 1313799, at *1-7 (N.D.Ill. Oct. 29, 2001). This opinion assumes the reader's familiarity with the earlier decision and will summarize the relevant facts here only briefly.

Interclaim is an international business that acquires and enforces complex, multi-jurisdictional liquidated claims, judgments, or debts, paying the owners of such claims cash or a contingent amount payable upon successful enforcement. In cases involving hundreds or thousands of fraud victims, Interclaim first seeks court approval for compensation for services performed on behalf of all the victims. The company then gathers information about suspected criminals and their assets to find money rightfully belonging to the criminal's victims, and seeks judicial orders to preserve or "freeze" those assets pending a showing that they stem from criminal dealings. (Def. Mem., at 2; Tr. 220-23.)

In June of 1998, after being contacted by the Federal Bureau of Investigation and the U.S. Attorney in Seattle, Interclaim agreed to help recover the monies lost by hundreds of thousands of U.S. citizens to the Down Group's enterprise, namely, the illegal use of mass mail solicitation and telemarketing to sell shares or other interests in large pools of foreign and domestic lottery tickets and other contests. Interclaim, 2001 WL 1313799, at *1-2, (Tr. 91-92, 117, 226-27.) U.S. and Canadian authorities had pursued Down for several years. He violated at least 22 U.S. Postal Service cease and desist orders, and in 1997, a federal grand jury in Seattle indicted Down on 145 counts of interstate gambling, conspiracy, and money laundering. Down fought extradition from Canada to the U.S. and after protracted negotiations, he pled guilty to a federal gambling felony and agreed to spend six months in prison and forfeit $12 million he had in a Seattle account. (Def. Mem., at 2; PX 212; Tr. 135-36.) The U.S. Attorney used that money as a restitution fund for approximately 450 of 900 identified victims of Down's enterprise. (Tr. 417.)

In an effort to help Interclaim recover additional funds stolen by Down, the U.S. Attorney in Seattle introduced Interclaim to a number of his victims, and Interclaim entered into power of attorney agreements with 29 of them (the "Interclaim victims"). Interclaim obtained the authority to prosecute claims and recover monies Down had stolen from the 29 individuals, who themselves represented a larger group of victims. Interclaim, 2001 WL 1313799, at *2, (Tr. 125-26, 250-51.)

Over the next few months, Interclaim successfully located $100 million of Down's assets around the world and obtained court orders freezing those assets. (Tr. 127.) Interclaim also purchased $670,000 of the Down Group's outstanding trade debt to a data processing and mass mailing company, a printing company, and a telephone company. Through this purchase, Interclaim acquired an electronic list of 418,256 names and addresses of victims of Down's criminal enterprise. Interclaim, 2001 WL 1313799, at *2; (Uncontested Facts, Ex. A to Def. Mem. ¶¶ 23, 24.) That list provided details on more than $28.5 million Down took from the identified victims. (Tr. 258-59.)

Sometime before the end of 1998, Interclaim retained Canadian law firms to commence involuntary bankruptcy proceedings against the Down Group in Vancouver, British Columbia and Calgary, Alberta. At Interclaim's request, the Canadian court appointed Arthur Andersen, Inc. ("Andersen") as interim receiver and approved an International Claims Enforcement Agreement ("ICEA") between Andersen and Interclaim. Interclaim, 2001 WL 1313799, at *2, (PX 23, Tr. 406.) Under that agreement, Interclaim committed to fund the operations of Andersen up to $3 million and to assist it in identifying, locating, and recovering the illicit proceeds worldwide. In return, Interclaim was to receive a return of its direct costs plus fifty percent of any assets recovered in the bankruptcy, up to a maximum of fifty percent of the proven claims of creditors. Id.

The proceedings in Canada did not go well. In August 1999, the bankruptcy proceedings were dismissed on the ground that the power of attorney and trade debt purchase agreements assertedly violated the English common law doctrine against champerty.¹ In November 1999, the Alberta court struck the class action portion of Interclaim's representative proceeding on grounds that Alberta lacks a class action procedure. Shortly thereafter in January 2000, the Alberta court drastically reduced the amount of the Down Group's frozen assets concerning the representative proceeding but maintained the asset preservation power of Andersen with respect to the other pending bankruptcy proceeding. Interclaim, 2001 WL 1313799, at *3.

In response to these setbacks, Interclaim decided to commence a class action suit in the United States in the hopes of obtaining a judgment from an American court and using it to facilitate the liquidation of Down's assets in Canada. Interclaim, 2001 WL 1313799, at *2-3, (Tr. 461-67.) Interclaim retained Ness Motley to bring the class action proceedings in the U.S. and provided the firm with information and documents it had developed in the case. On February 14, 2000, Interclaim and Ness Motley executed a Retainer Agreement in which Ness Motley acknowledged that it was relying on Interclaim's detailed information and work in accepting the retainer. (PX 72, at 1-14.) The agreement required Ness Motley to "keep all documents and information provided to it by Interclaim in confidence." Interclaim, 2001 WL 1313799, at *3-4.

On March 10, 2000, Ness Motley filed a class action complaint against Down, his sister-in-law Cindy Whitehead-Down, and two others in Madison County, Illinois. (PX 84.) On August 7, 2000, the Circuit Court in Madison County entered a TRO barring the defendants from disposing of or transferring any interests in the $50-$60 million in assets previously frozen in the Canadian bankruptcy proceeding. Interclaim, 2001 WL 1313799, at *5, (PX 120.) Approximately one week later on August 15, 2000, Interclaim representatives met with Blair Hahn of Ness Motley in St. Louis, Missouri to prepare for a preliminary injunction hearing. When the Interclaim representatives arrived, Hahn informed them for the first time that the firm had agreed to engage in settlement talks with Down and postpone the hearing. Id.; (Tr. 342-43.) On August 17, 2000, Ness Motley met with Down's attorneys without Interclaim representatives present and reached a tentative agreement to (a) employ a low $5 million "trigger" allowing Down to call off the settlement if the victims' claims exceeded that amount; (b) provide a large $2 million fee to Ness Motley; and (c) exclude Interclaim and the 29 victims it represented from participating in the settlement negotiations. (PX 150, 147; Tr. 364-65, 716-17.)

During a break in discussions with Down, Hahn informed the Interclaim representatives about the proposed settlement terms. The representatives told Hahn that Interclaim objected to the proposed terms and outlined facts calling into doubt Down's representations about the case and the extent of his assets. (Tr. 153, 363-64, 957.) Hahn explained that he had already provisionally agreed to Down's demand and that Ness Motley may have a conflict of interest in representing Interclaim and the 29 Interclaim victims in addition to the other class members. (Tr. 154.) Hahn told Interclaim that the firm would take no action until it resolved the potential ethical...