Royce v. Michael R. Needle P.C.
| Decision Date | 20 February 2020 |
| Docket Number | Nos. 18-2850,18-2851,& 19-1054,18-3725,s. 18-2850 |
| Citation | 950 F.3d 939 |
| Parties | Merle L. ROYCE, Plaintiff-Appellee, v. MICHAEL R. NEEDLE P.C., Defendant-Appellant, v. Amari Company, Inc., et al., Defendants-Appellees, and Richard Joseph Cochran, et al., Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Alan R. Borlack, Attorney, Bailey, Borlack, Nadelhoffer & Carroll, Chicago, IL, for Plaintiff-Appellee.
Frank C. Fusco, Attorney, Law Offices of Frank C. Fusco, Clifton, NJ, Michael R. Needle, Attorney, Michael R. Needle P.C., Philadelphia, PA, for Defendant-Appellant Michael R. Needle P.C.
Richard Joseph Cochran, Attorney, Tenney & Bentley, LLC, Chicago, IL, for Defendant-Appellees Amari Company, Inc., Bradley M. Griffin, Inc., and Chamberlain Industries, Inc. in 18-2850.
Richard Joseph Cochran, Attorney, Tenney & Bentley, LLC, Chicago, IL, for Defendant-Appellees Amari Company, Inc., Bradley M. Griffin, Inc., Chamberlain Industries, Inc., Compsolution VA, Inc. in 18-2851.
Richard Joseph Cochran, Attorney, Tenney & Bentley, LLC, Chicago, IL, for Defendant-Appellees Amari Company, Inc., and Bradley M. Griffin, Inc. in 18-3725, and 19-1054.
Howard J. Roin, Sara Norval, Attorneys, Mayer Brown LLP, Chicago, IL, George N. Vurdelja, Jr., Attorney, Harrison & Held, LLP, Chicago, IL, for Defendant-Appellee John Cardulo & Sons, Inc.
Richard Joseph Cochran, Attorney, Pro Se.
Alan R. Borlack, Attorney, Bailey, Borlack, Nadelhoffer & Carroll, Chicago, IL, for Appellee Bailey Borlack and Nadelhoffer LLC in 18-3725, and 19-1054.
Before Wood, Chief Judge, and Rovner and St. Eve, Circuit Judges.
This dispute over attorney’s fees has a long, tortured history. Not because it is unduly complex or involves novel legal issues, but because one of the attorneys—Michael R. Needle—protracted it every step of the way. He routinely and unapologetically tested the district court’s patience, disregarded court orders, and caused unnecessary delays. As a result, the district court sanctioned Needle multiple times for "obstructionist and vexatious" tactics.
The fee dispute arose only because Needle steadfastly took an objectively frivolous position that he and his co-counsel, Merle L. Royce, were entitled to the lion’s share—almost sixty percent—of their clients’ settlement in an underlying suit as attorney’s fees. Even Royce rejected Needle’s position because the plain language of the contingent fee agreement provided that attorney’s fees shall be one-third of the settlement. The district court found the same, and then decided a sub-dispute over the division of the aggregate attorney’s fee between Royce and Needle under a separate co-counsel agreement. The court awarded Needle sixty percent and Royce forty percent of the aggregate attorney’s fee.
Needle appeals both decisions relating to the attorney’s fee, the sanctions assessed against him, and a host of other perceived errors. We affirm the judgment in all respects because the district court’s rulings were correct, the sanctions were appropriate, and Needle’s other arguments are baseless.
At its core, this is a simple contract dispute. It became protracted, however, and devolved into a three-and-a-half-year row with over a thousand docket entries. Many, if not most, of the filings were unrelated to resolving the merits. Our job, however, is made considerably easier because the district court—first Judge Shadur and then Judge Pallmeyer—effectively managed this problematic litigation.
This case stems from an underlying civil Racketeer Influenced and Corrupt Organizations (RICO) action filed in 2007, Amari Inc., et al. v. John Burgess, et al. , No. 07-cv-1425 (N.D. Ill.). Though not initially plaintiffs’ counsel, Needle and two Illinois attorneys eventually came to represent the Amari plaintiffs—a group of sixteen individuals and companies. Needle is a Pennsylvania attorney and the "sole attorney, shareholder, officer and employee" of his law firm, Michael R. Needle P.C. ("Needle P.C."). (In every practical sense, Needle and Needle P.C. are the same.) The three attorneys drafted and executed a contingent fee agreement with their clients. According to Needle, the fee agreement went through five drafts.
The two Illinois attorneys would both later withdraw from the representation, so Needle recruited another Illinois attorney to serve as his co-counsel and local counsel, Royce. Needle and Royce entered into a co-counsel agreement that set forth their division of any attorney’s fee received in the RICO action. Specifically, they agreed to split half of any fee equally and the other half proportional to the time each spent on the matter.
Together Needle and Royce litigated the Amari suit for several years before successfully settling the case in November 2013. Pursuant to a confidential settlement agreement, the parties settled the RICO action for $4.2 million. Importantly, the settlement agreement provided only for a single lump-sum settlement amount of $4.2 million (payable in installments according to a set schedule), without any further provisions relating to attorney’s fees, costs, expenses, or the like. All payments were made to Royce as escrow agent.
Instead of bringing an end to the matter, Needle was not happy with his cut of the settlement. He asserted that the attorneys, he and Royce, were entitled to a greater fee amount than Royce and the client group did. Specifically, Needle wanted $2.5 million, or approximately sixty percent, of the settlement amount as attorney’s fees, leaving the plaintiffs—his clients—with $1.7 million. Needle and Royce also disagreed over the appropriate division of the attorney’s fee between themselves. The conflict froze the settlement proceeds in escrow, so Royce filed an interpleader action seeking a determination of the correct disbursements under the contingent fee agreement and the co-counsel agreement.
In the interpleader action over the attorney’s fee, Needle P.C. was initially represented by Cafferty Clobes Meriwether & Sprengel LLP, a local law firm. Needle P.C. answered the complaint and filed extensive, multicount counterclaims against both Royce and the Amari plaintiffs. In the counterclaims, Needle P.C. sought a constructive trust on the escrow account; a declaratory judgment regarding the division of the settlement fund between the plaintiffs and the attorneys and between Royce and Needle; and a declaratory judgment that section IV.1(A) of the contingent fee agreement (as opposed to section IV.1(B)) governed the attorney’s fee. Needle P.C. also brought claims against Royce for misrepresentation and conversion. We are centrally concerned with Needle P.C.’s counterclaim that section IV.1(A) of the fee agreement controls the contingent fee dispute.
The core of Needle P.C.’s position—which underlies this entire litigation—was that the attorney’s fee was "separately negotiated" during the RICO suit settlement negotiations and included in the lump-sum settlement amount, thus triggering subparagraph (A) of the fee provision: "(A) any fee paid to us ... pursuant to any settlement agreement." The district court expressed to Needle P.C. on at least three different occasions that it had serious concerns that Needle P.C. could present this claim consistent with Federal Rule of Civil Procedure 11(b). Needle P.C. did not heed the warning and continued to assert the counterclaim. So Royce and the Amari plaintiffs moved to dismiss the claim and also for Rule 11 sanctions.
The district court dismissed the count asserting that section IV.1(A) governed the attorney’s fee determination, finding that Needle P.C.’s arguments were "not merely wrong but frivolous, disregarding what anyone having taken a first-year contracts class could identify as the pivotal legal issues" and "utterly devoid of merit." The dismissal came with an award of sanctions against Needle P.C. and Cafferty Clobes, which is discussed later.
Following briefing on the motion to dismiss and sanctions, Cafferty Clobes moved to withdraw as Needle P.C.’s counsel.1 Two months passed before a new attorney sought to appear only as local counsel and Needle moved for leave to appear pro hac vice on behalf of Needle P.C. The motion was immediately met with opposition. Royce raised a concern that Needle’s representation of Needle P.C. would implicate the lawyer–witness rule, while the Amari plaintiffs pointed out an alleged inaccuracy—or outright false representation—in Needle’s application for admission. The pro hac vice form asks if the applicant is "currently the subject of an investigation of the applicant’s professional conduct." Needle checked the box for "No." According to the Amari plaintiffs, this was false because at the time there were two active complaints and investigations pending before the Pennsylvania attorney disciplinary board. Though Needle attached an addendum to his application explaining that during a telephone call with a disciplinary board staff attorney he was "informed" and "believed" there was no active investigation relating to him, he never received written notification of a disposition of either complaint. The Amari plaintiffs also contacted the disciplinary board and were informed that both investigations of Needle were still active.
The district court attempted to address Needle’s pro hac vice application and the attendant issues at a status conference on October 19, 2015. It did not go well. The court permitted Needle to appear telephonically, at Needle’s request, so that he did not have to travel from Philadelphia to Chicago. But Needle failed to call the court at the scheduled time. When Needle’s local counsel then called him from the courtroom, Needle blamed court staff for giving him the wrong number. The bigger problem, however, was that Needle took the call on his cell phone in public from a courthouse...
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