Monco v. Zoltek Corp.
| Decision Date | 25 July 2019 |
| Docket Number | No. 17 C 6882,17 C 6882 |
| Citation | 397 F.Supp.3d 1165 |
| Parties | Dean A. MONCO; John S. Mortimer; Wood, Phillips, Katz, Clark & Mortimer, Plaintiffs, v. ZOLTEK CORPORATION and Zsolt Rumy, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Dylan Michael Brown, Patrick F. Solon, Vitale, Vickrey, Niro, Solon & Gasey LLP, Lee F. Grossman, Grossman Law Offices, Chicago, IL, for Plaintiffs.
David B. Jinkins, Matthew A. Braunel, Alan Hugh Norman, Robyn H. Ast-Gmoser, Thompson Coburn LLP, St. Louis, MO, Vincent P. Schmeltz, III, Scott Timothy Peloza, Barnes & Thornburg LLP, Chicago, IL, for Defendants.
Honorable Thomas M. Durkin, United States District Judge 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.
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 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 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. ¶¶ 110-120. 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 45-46.
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 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).
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 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, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This standard "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (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, 127 S.Ct. 1955. 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, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). " ‘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, 129 S.Ct. 1937 ). 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).
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. , 402 Ill.App.3d 961, 341 Ill.Dec. 913, 931 N.E.2d 810, 825-26 (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 , 289 Ill.App.3d 937, 224 Ill.Dec. 860, 682 N.E.2d 421, 427 (1997) ; see also Wildman, Harrold, Allen & Dixon v. Gaylord , 317 Ill.App.3d 590, 251 Ill.Dec. 420, 740 N.E.2d 501, 509 (2000) (...
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Monco v. Zoltek Corp.
...v. Zoltek Corp., No. 17-cv-06882, 2018 WL 5311904 (N.D. Ill. Oct. 26, 2018); 2019 WL 952138 (N.D. Ill. Feb. 27, 2019); 397 F. Supp. 3d 1165 (N.D. Ill. July 25, 2019). These decisions describe the background facts and procedural history in additional detail. The court restates those facts on......