Royce v. Michael R. Needle, P.C.
| Decision Date | 20 May 2019 |
| Docket Number | No. 15 C 259,15 C 259 |
| Citation | 381 F.Supp.3d 968 |
| Parties | Merle L. ROYCE, Plaintiff, v. MICHAEL R. NEEDLE, P.C. et al., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Alan R. Borlack, Bailey Borlack and Nadelhoffer LLC, Chicago, Il, for Plaintiff.
Frank Craig Fusco, Pro Hac Vice, Law Offices of Frank C. Fusco, Clifton, NJ, Thomas F. Burke, Attorney at Law, Timothy Kevin Travers, Tenney & Bentley, Richard J. Cochran, David Ryan Shannon, George N. Vurdelja, Jr., Harrison & Held, Howard J. Roin, Logan Ann Steiner, Michael John Thomas Downey, Sara Norval, Mayer Brown LLP, Chicago, IL, Robert M. Gamburg, Pro Hac Vice, Law Offices of Robert Gamburg, Phila, PA, for Defendants.
Attorneys Michael R. Needle and Merle Royce represented a group of plaintiffs in a RICO action filed in this court and settled in 2013. See Amari et al. v. Burgess et al. , No. 07 CV 1425 (N.D. Ill.). Both Needle and Royce are entitled to a share of attorneys' fees earned in that case. Before those funds were paid out, Royce brought this interpleader action against Needle's law firm, Michael R. Needle, P.C. ("MRNPC"), and the sixteen Amari plaintiffs, seeking an adjudication concerning the distribution of the settlement funds, now on deposit in the court's registry. While the interpleader action was pending, Needle gave a security interest in his firm's share of settlement funds to Mayer Brown LLP ("Mayer Brown.") Thereafter, Needle retained Cozen O'Connor ("Cozen") to represent MRNPC in the interpleader action. Cozen has since withdrawn, but now claims its own interest in MRNPC's share of the Amari fees.
Significantly, MRNPC's share of the fees is insufficient to satisfy both Mayer Brown's and Cozen's interests. The question before this court, therefore, is which of their claims takes priority. In an order dated February 4, 2019, the court determined that it has jurisdiction to adjudicate the dispute between Mayer Brown and Cozen, but that neither side had adequately briefed it. (February 2019 Order [1075], 1, 5-6.) The court therefore directed the parties to file supplemental briefs addressing the following questions: (1) What state law applies to this dispute? (2) Does the applicable law require that value be given to the debtor in return for a security interest? (3) At what point does each lien attach? (4) Which is superior, an Article 9 security interest or a valid attorney's lien? (Id. at 14.) Having reviewed the parties' supplemental briefs, the court concludes that Mayer Brown's security interest is superior to Cozen's lien. Mayer Brown's motion to enforce its prior perfected lien [963] is therefore granted, and Cozen's motion for immediate payment of funds from the court's registry [961] is denied.
The court assumes familiarity with the procedural and factual background in this case, which is summarized in the February 2019 Order. To further clarify the issues, the court adds the following details.
On August 20, 2015, Judge Milton Shadur (to whom this case was originally assigned) ruled on the share of the Amari settlement proceeds recoverable as attorneys' fees. (August 2015 Order [130].) Needle's position was that the attorneys—Needle and Royce—should collectively recover sixty percent of the settlement proceeds; but Judge Shadur sided with Royce on this issue, concluding that the attorneys were collectively entitled to one third of the settlement payout. (See id. at 1-2, 11; February 2019 Order 2.) After reassignment, on March 12, 2018, this court allocated the one-third attorneys' share between Royce and MRNPC. (March 2018 Order [874].) Specifically, the court awarded sixty percent of the one-third share to MRNPC and forty percent to Royce, over Needle's objection that he is entitled to more than sixty percent. (See id. at 3.) Needle has appealed both rulings. (February 2019 Order 2.)
John Cardullo and Sons ("Cardullo") was one of sixteen plaintiffs in the Amari litigation. (July 30, 2018 Affidavit of Michael Needle [971] ("Needle Aff.") ¶ 3.)1 Cardullo and fifteen other Amari plaintiffs were represented by Needle in that litigation. (Needle Aff. ¶ 3.) Needle no longer represents the other fifteen plaintiffs; his work for them ended after Amari concluded. (Id. ) Needle does still represent Cardullo for certain purposes (see MRNPC Second Amended Answer, Affirmative Defenses, and Counterclaims (Revised and Undredacted) ("MRNPC Second Am. Ans.") [382] ¶ 10), but does not and cannot represent Cardullo in the present interpleader action,2 presumably because Needle and Cardullo's interests are now in conflict: Cardullo would benefit from maximizing the plaintiffs' share of the Amari settlement, while Needle would benefit from reducing it. (See Needle Aff. ¶ 5 ().)3
In the summer of 2015, Needle sought representation for Cardullo and contacted Mayer Brown. (Needle Aff. ¶ 6.) Needle has not explained why he attempted to find counsel for Cardullo, nor why Cardullo was unable to do so on its own. Needle does assert, however, that after Amari settled, he "came to suspect that the plaintiffs' Management Committee and [Royce] were attempting to divert large amounts of the settlement fund to themselves to the detriment of MRNPC, Cardullo, and other Amari plaintiffs." (Id. ¶ 4.) Needle hoped that this interpleader action "would uncover what had occurred." (Id. ¶ 5.) Needle asserts his belief that "Cardullo's and MRNPC's interests were aligned because both were victims of the same scheme." (Id. ) Needle suggests that these factors motivated him to retain Mayer Brown for Cardullo. (See id. ¶¶ 4-6.)
"After discussions with Mr. Needle and Cardullo's principal, Pat Cardullo," Mayer Brown agreed to appear as local counsel for Cardullo. (Affidavit of Howard J. Roin in Support of Mayer Brown Motion to Enforce its Prior Perfected Lien [963-4] ("Roin Aff.") ¶ 4.) Cardullo made Mayer Brown its principal counsel in September 2016, after Cardullo "was served with a purported distribution schedule under which it would have received only a miniscule amount of the settlement." (Id. ¶ 5.)4 "Cardullo also authorized Mayer Brown to consult with Mr. Needle concerning the facts and background of the case." (Id. ) Cardullo, however, "quickly fell far behind in paying Mayer Brown's bills." (Id. ¶ 6.) At that time, Needle "still believe[d] that Cardullo's and MRNPC's interests largely were aligned," and thought that "it would benefit both Cardullo and MRNPC for Mayer Brown to continue to represent Cardullo." (Needle Aff. ¶ 9.)
In light of the interests that Mayer Brown purportedly shared with MRNPC,5 "MRNPC agreed to give Mayer Brown a lien on MRNPC's share of the underlying settlement fund with respect to Mayer Brown's bills." (Id. ) In agreeing to this proposal, Mayer Brown "stressed" to both Cardullo and MRNPC that Mayer Brown represents Cardullo, not MRNPC. (Roin Aff. ¶ 8.) Mayer Brown and Needle memorialized their agreement concerning the security interest in a letter dated July 27, 2017. (See Mayer Brown Motion to Enforce its Prior Perfected Lien [963] ("Mayer Brown Mot."), 2 ¶ 6.) By August 15, 2017, Mayer Brown's unpaid bills for representing Cardullo exceeded $ 700,000. (Id. at 3 ¶ 7.)
In contrast with its zeal in obtaining counsel for Cardullo, MRNPC has for lengthy periods proceeded in this case without independent counsel. Between August 2015 and October 2015, attorneys filed appearances for MRNPC but then quit in quick succession: MRNPC's original attorney withdrew from the case in August 2015; MRNPC obtained a new attorney in September 2015; and the new attorney moved to withdraw less than a month later. (See Appearance [14]; Motion to Withdraw [124]; Order Granting Motion to Withdraw [148]; Appearance [167]; Motion to Withdraw [192]; Order Granting Motion to Withdraw [203].) Additionally, in October 2015, Judge Shadur denied Needle's motion to appear pro hac vice to represent MRNPC. (See Order [191]; October 23, 2015 Hearing Tr. [200], 20.) Judge Shadur reasoned that because Needle operates MRNPC as its sole member and president, there is no real distinction between Needle and MRNPC; Needle was going to be a key witness in the case; and allowing Needle to serve as both an attorney and a witness would be inappropriate. (See October 23, 2015 Hearing Tr. 4-5, 12-20 (discussing lawyer-witness rule); see also September 19, 2016 Order [403] ("September 2016 Order"), 2 (discussing same).)
Dismayed by this ruling, Needle delayed for months in obtaining counsel for MRNPC, delaying the resolution of this case as well. (See September 2016 Order 2, stating that Needle's failure to obtain counsel "effectively shut[ ] down the ability of the lawsuit to proceed in a realistic manner".) On May 6, 2016, presumably to keep the litigation from coming to a standstill, Judge Shadur granted Needle leave to appear pro hac vice . (Order [279].) But because Needle engaged in "obstructionist," "inappropriate[ ]" conduct, Judge Shadur revoked his pro hac vice status on September 15, 2016. (September 2016 Order 2-3, 6.) Judge Shadur ordered Needle and MRNPC "to obtain responsible new counsel to represent" MRNPC by October 17, 2016. (Id. at 6.) He also struck, without prejudice, MRNPC's second amended answer, affirmative defenses, and counterclaims, and all earlier versions thereof. (See id. ) Needle did not meet the deadline. (See Order [424].) Judge Shadur relented in part, reinstating Needle's pro hac vice status for the limited purpose of "addressing the questions of law posed" by MRNPC's answer, affirmative defenses, and counterclaims. (Id. ) But he prohibited Needle from taking discovery "before the pleadings issues ha[d] been resolved." (Id. ) On January 13, 2017, Judge Shadur revoked Needle's pro hac vice status yet again. (Order [481].)
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