Monco v. Zoltek Corp.
| Decision Date | 27 February 2019 |
| Docket Number | No. 17 C 6882,17 C 6882 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | DEAN A. MONCO; JOHN S. MORTIMER; WOOD, PHILLIPS, KATZ, CLARK & MORTIMER, Plaintiffs, v. ZOLTEK CORPORATION; ZSOLT RUMY; AND TORAY INDUSTRIES, INC., Defendants. |
MEMORANDUM OPINION AND ORDER
Plaintiffs Dean A. Monco, John S. Mortimer, and Wood, Phillips, Katz, Clark, & Mortimer seek recovery of legal fees from defendants Zsolt Rumy, Zoltek Corporation and Toray Industries, Inc. (which purchased Zoltek in 2014) under a quantum meruit theory for their representation of Zoltek in patent litigation spanning the course of 20 years. Plaintiffs also allege that Rumy tortiously interfered with Monco's expectancy of recovering legal fees from that litigation. Currently before the Court are Plaintiffs' motion to dismiss Zoltek's Counterclaim under Federal Rule of Civil Procedure 12(b)(6), R. 58, and Rumy's motion to dismiss Plaintiffs' Second Amended Complaint for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), R. 239. For the following reasons, the Court grants in part and denies in part both Plaintiffs' motion to dismiss Zoltek's Counterclaim, and Rumy's motion to dismiss the Second Amended Complaint as to him.
Defendant Zoltek is a carbon fiber manufacturer based in Missouri. R. 217 ¶ 9. Defendant Rumy, a Florida or Missouri citizen,2 was the founder and majority shareholder of Zoltek until defendant Toray, an international Japanese corporation, acquired Zoltek in 2014. Id. ¶¶ 10, 11. Plaintiff Wood Phillips is an Illinois law firm, and plaintiffs Monco and Mortimer are attorneys with Wood Phillips licensed to practice, and living, in Illinois. Id. ¶¶ 7, 8.
In 1996, Zoltek hired Monco and Mortimer to represent Zoltek in litigation conducted in Washington, D.C. to enforce a Zoltek patent ("Stealth litigation"). Id. ¶¶ 1-2, 18-20. That litigation lasted for 20 years. Id. ¶ 2. Monco and Mortimer were paid for their work largely on a contingency basis. Id. ¶ 3. In February 1996, Zoltek entered into a retainer agreement with Wood Phillips. Id. ¶ 19. In April 1996, Zoltek signed a second retainer agreement directly with Wood Phillips attorneys Monco and Mortimer. Id. ¶ 20. Plaintiffs maintain that the April 1996 agreement displaced the February 1996 agreement. Id. Then, in 2011, Monco, Mortimer and Zoltek signed a modification to the April 1996 retainer agreement. Id. ¶ 58. Rumy signed each agreement on behalf of Zoltek. Id. ¶¶ 99-100; R. 243-1; R. 243-2.
In each agreement, Zoltek, Wood Phillips, Monco and Mortimer (as applicable) agreed to:
submit themselves to the jurisdiction and venue of the Federal District Court for the Northern District of Illinois for resolution of any and all disputes under [the agreement].
R. 243-1 at 6; R. 243-2 at 7; R. 243-3 at 3.3 The February 1996 agreement provided in relevant part that if Zoltek terminated Wood Phillips:
ZOLTEK shall pay WOOD, PHILLIPS for no less than the value of legal services provided to ZOLTEK by WOOD, PHILLIPS, which payment shall be made from any future recoveries by ZOLTEK promptly upon receipt of such recoveries.
The April 1996 retainer agreement similarly provided that if Zoltek terminated Monco and Mortimer:
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. 243-2, at 5. The 2011 modification agreement provided that Monco and Mortimer would be paid $200 per hour for their time in exchange for a reduction in their percentage from any judgment or settlement from 45% to 38%. R. 243-3, at 2-3. The 2011 modification agreement also provided that 150% of any attorneys' fees paid by Zoltek to Plaintiffs would be deducted off of any recovery and credited to Zoltek before distribution of fees from the remainder under the April 1996 retention agreement, and stated:
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.
In late 2014, Toray purchased Zoltek, and Zoltek started operating as a wholly-owned subsidiary of Toray. R. 217 ¶ 9, 71. Plaintiffs allege that Toray acquired "all rights to the Zoltek Patent and any recovery from the lawsuit" in conjunction with the purchase. Id. ¶ 71.
Ultimately, the relationship between Zoltek and Monco and Mortimer deteriorated. During a crucial meeting in St. Louis in July 2016, Zoltek's other outside counsel, Missouri-based Thompson Coburn, told Monco and Mortimer that the April 1996 retainer agreement was being terminated and proposed paying them an hourly rate for their work going forward. Id. ¶¶ 75, 77. Rumy also allegedly made false statements about Monco and Mortimer to a Toray representative about the value of the Stealth litigation being zero and that Monco and Mortimer jeopardized the case by not taking damage discovery. Id. ¶¶ 102, 115. After the meeting, Zoltek terminated Monco and Mortimer as counsel, substituted another firm as lead counsel in the Stealth litigation, and refused to pay Monco and Mortimer for overdue bills. Id. ¶¶ 78-80. A few weeks later, the Stealth litigation settled for $20 million. Id. ¶ 87. Plaintiffs did not recover anything from the settlement.
Plaintiffs filed suit in September 2017. R. 1. Thereafter, in January 2018 Plaintiffs amended their complaint, asserting a claim against Rumy for tortious interference with prospective economic advantage, and a claim against Zoltek andToray for recovery under a quantum meruit theory. R. 28 ¶¶ 91-108. In February 2018, Rumy moved to dismiss the amended complaint for lack of personal jurisdiction, arguing that he had conducted his business entirely outside of the State of Illinois, only occasionally contacting the Illinois Plaintiffs by phone or email in his capacity as a Zoltek representative. R. 37. The Court agreed, granting Rumy's motion but expressly permitting Plaintiffs to further amend their complaint if they believed they could set forth a plausible basis for minimum contacts between Rumy and Illinois. R. 183. In the meantime, Zoltek answered the amended complaint and filed a Counterclaim against Plaintiffs. R. 40. Plaintiffs moved to dismiss Zoltek's Counterclaim in March 2018. R. 58.
Then, in October 2018, Plaintiffs filed a Second Amended Complaint. R. 217. The Second Amended Complaint repeats Plaintiffs' claim against Zoltek and Toray, alleging that they accepted Monco and Mortimer's services throughout the difficult and lengthy Stealth litigation and deserve to recover for those services on a quantum meruit basis (Count I). Id. ¶¶ 88-97. The Second Amended Complaint also adds a claim by all Plaintiffs against Rumy under quantum meruit (Count II). Id. ¶¶ 98-109. There, Plaintiffs allege that throughout the Stealth litigation, Rumy had regular contact with Plaintiffs in Chicago including regarding their payment (or non-payment) for services, and that while he agreed to personally assume responsibility for directing the Stealth litigation on Zoltek's behalf and resolving Plaintiffs' claim for fees, in actuality, motivated by his personal interests in the litigation, Rumy secured a substantial share of the settlement for himself, and has yet to pay Plaintiffs,notwithstanding the personal benefit he received from their services. Id. Finally, Plaintiffs replead Monco's claim against Rumy for tortious interference with prospective economic advantage (Count III), in which they allege that Rumy purposely interfered with Monco's expectation to earn substantial legal fees through the Stealth litigation by inducing Zoltek to terminate Monco as its attorney and negotiating a secret deal with Zoltek pursuant to which he would receive half of the Stealth litigation settlement, and from which he has yet to pay Monco. Id. ¶¶ 110-20.
Rumy again moved to dismiss for lack of personal jurisdiction. R. 239. This time, Plaintiffs allege the Court has jurisdiction over Rumy as to the tortious interference claim because Rumy signed the April 1996 retainer agreement on Zoltek's behalf as its largest shareholder, and thus that he is "so closely related" to the underlying dispute arising from that agreement that it was "foreseeable that Rumy would be bound by the jurisdiction/venue clause." R. 217 ¶¶ 13-14, 108. Plaintiffs also allege that this Court has specific jurisdiction over Rumy with respect to both the quantum meruit and tortious interference claims because he sent hundreds of emails and placed "likely" over a dozen telephone calls to Plaintiffs in Illinois throughout the course of the Stealth litigation. Id. ¶¶ 101, 103.4
For its part, Zoltek answered the Second Amended Complaint, and repeated its Counterclaim alleging Plaintiffs' professional negligence and breach of fiduciaryduty, and seeking a declaratory judgment that the April 1996 retainer agreement and 2011 modification agreement between Monco, Mortimer and Zoltek are void. R. 243 at 45-46. In so doing, Zoltek noted that its Counterclaim as plead in its answer to the Second Amended Complaint remained the same, and thus was still subject to the parties' briefing on Plaintiffs' earlier-filed motion to dismiss. Id. at 1. The Court will first address Plaintiffs' motion to dismiss Zoltek's Counterclaim, and then Rumy's motion to dismiss the Second Amended Complaint.
As noted, Zoltek asserts three counterclaims. Count I seeks a declaratory judgment that the April 15, 1996 retainer agreement and the 2011 modification agreement between Zoltek, Monco and Mortimer are void as impermissible modifications of a fee agreement. Count II alleges professional negligence by Plaintiffs. And Count III alleges...
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