Thomas Planera & Assocs., Ltd. v. CLR Auto Transp. Corp., 18 C 15

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Docket NumberNo. 18 C 15,18 C 15
Decision Date11 October 2018


No. 18 C 15


October 11, 2018

Chief Judge Rubén Castillo


In this one-count diversity action, Thomas Planera & Associates, Ltd. ("Plaintiff") alleges that CLR Auto Transport Corp. ("Defendant") breached a contingent fee agreement between the parties by refusing to pay over $600,000 in attorney's fees and by refusing to allow an accounting of fees owed. (R. 22, Am. Compl. ¶¶ 58-61, 68-74.) Defendant moves for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). (R. 25, Mot.) The Court has subject matter jurisdiction under 28 U.S.C. 1332(a).1 For the reasons stated below, Defendant's motion is denied.


The parties' dispute arises from Defendant's efforts to secure a contract with Volkswagen Group of America, Inc. ("VWGA"). In 2016, VWGA solicited bids for storing and maintaining diesel vehicles it had repurchased from owners pursuant to a vehicle recall. (R. 22, Am. Compl. ¶ 17.) Defendant prepared a proposal to submit to VWGA and engaged Plaintiff to review it. (Id.

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¶ 18.) Plaintiff advised Defendant that it did not meet VWGA's requirements for a bid due to lack of "proper equipment, staff, back office administration, financing, and land," but offered that Plaintiff could "utilize its business contacts" to restructure Defendant, procure the necessary personnel and assets, and prepare a new proposal which would satisfy VWGA's requirements. (Id. ¶ 19.) Defendant at first declined Plaintiff's offer, but after VWGA rejected its initial proposal, Defendant returned to Plaintiff to restructure its proposal and take the steps necessary to satisfy VWGA's requirements. (Id. ¶¶ 22-23.) After some negotiation, the parties agreed to a "modified contingent fee arrangement" whereby Plaintiff would be compensated only if Defendant was successful in securing the contract with VWGA. (Id. ¶¶ 24-25.) The retainer agreement provided that, if Defendant was successful, Defendant would pay Plaintiff the greater of the following each month: (1) 20% of "all income derived from and collected as receivable" on the VWGA contract; or (2) $10,000 plus specified hourly rates for work performed by Plaintiff's lawyers and staff. (Id. ¶ 24; R. 22-1, Retainer Agreement § 1.) Thus, once Defendant's income from the VWGA contract exceeded approximately $50,000 in a given month, Defendant would begin paying 20% of its contract-related income; until that time, Defendant would pay a fixed sum of $10,000 plus fees for time worked. (R. 22, Am. Compl. ¶ 24.) In addition, the retainer required Defendant to "report all income derived from the [VWGA] Contract . . . to [Plaintiff] no later than quarterly per year." (Id. ¶ 69; R. 22-1 Retainer Agreement § 2.)

After the parties executed the retainer agreement, Plaintiff retained a network of outside consultants and experts to restructure Defendant and provide the staffing, administration, land, and financing necessary to meet VWGA's requirements. (R. 22, Am. Compl. ¶¶ 26-27.) This included securing a lease of more than 20 acres of vacant land in Chicago Heights, Illinois, developing proprietary software to support Defendant's operations, and securing staffing to

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prepare and coordinate the submission of Defendant's proposal to VWGA. (Id. ¶¶ 30-32.) Plaintiff alleges that Defendant had no knowledge of or access to the consultants and experts who provided this assistance, and therefore was entirely reliant on Plaintiff. (Id. ¶ 28.) Plaintiff alleges, for example, that 12th Street Properties, LLC ("12SP"), which provided financing to Defendant, was not willing to engage in a transaction directly with Defendant, but would instead participate only if Plaintiff's retained consultant acted as an escrow agent to intermediate the transaction. (Id. ¶ 29.) With the assistance of Plaintiff and its network of consultants and experts, Defendant submitted a second proposal to VWGA, which was approved by VWGA in September 2016. (Id. ¶¶ 33-34.)

In late October 2016, Plaintiff issued its first billing statement to Defendant, seeking payment of $10,000 per month plus hourly fees for the months of August, September, and October 2016. (Id. ¶ 41; R. 22-4, Invoice at 1-4.) Defendant did not pay the invoice, instead informing Plaintiff that it had spent all its funding on operations and needed additional funding. (Id. ¶ 42.) By this point, in November 2016, Defendant had not yet received any vehicles from VWGA and thus had no revenue from the VWGA contract. (Id. ¶ 44.) As a result, Plaintiff alleges, Defendant did not have sufficient cash on hand to continue operating, and requested Plaintiff's assistance in securing additional financing. (Id. ¶ 45.) Plaintiff assisted in securing an additional $87,000 in financing from 12SP and another lender, John Kwasny (Id. ¶¶ 46, 48.)

In early December 2016, Defendant began receiving vehicles from VWGA for storage. (Id. ¶ 47.) In February 2017, VWGA requested additional space for storing vehicles with Defendant and sought to extend Defendant's original contract. (Id. ¶ 49.) However, Defendant lacked the financing and resources to accommodate VWGA's requests. (Id. ¶ 50.) As a result, in March 2017, Plaintiff assisted in securing additional financing and further land in excess of 10

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acres to store additional vehicles as VWGA had requested, including negotiating with the landlord to establish leases for Defendant's benefit. (Id. ¶¶ 51-54.) In May 2017, Defendant began receiving payments from VWGA of approximately $960,000 per month pursuant to the vehicle storage contract. (Id. ¶¶ 56-58.) These payments triggered the contingency fee under the parties' agreement, as 20% of Defendant's gross income from the VWGA contract now vastly exceeded $10,000 plus Plaintiff's hourly fees. (Id. ¶ 58.) In July 2017, Plaintiff issued an invoice to Defendant based on an estimated $4 million in gross payments Defendant had received up to that point from VWGA. (Id. ¶ 60.) Plaintiff estimated that it was owed $800,000 as 20% of the gross income from the VWGA contract, minus $180,150 that Defendant had already paid, resulting in an invoice balance of $619,850. (Id. ¶¶ 60-61.) Plaintiff alleges that Defendant never previously objected to Plaintiff's billing statements or its right to receive 20% of Defendant's monthly gross income from the VWGA contract, but that Defendant nevertheless refused to pay the balance of the July 2017 invoice. (Id. ¶¶ 61-62.) In August 2017, Plaintiff issued a demand for the invoiced amount and also requested that Defendant provide an accounting of its gross income from the VWGA contract, in order to confirm the correct amount of the 20% contingent payment, but Defendant refused and has never tendered documentation to allow an accounting. (Id. ¶¶ 63-66.)

Plaintiff then filed this suit in the Circuit Court of Cook County, Illinois, on December 14, 2017, asserting multiple claims against Defendant and two of its officers. (R. 1-1 at 5, Compl. at Law.) On January 2, 2018, the case was removed to this Court pursuant to 28 U.S.C. § 1446(a). (R. 1, Notice of Removal at 1.) Plaintiff filed an amended complaint on April 2, 2018, which is now the operative pleading. (R. 22, Am. Compl.) In the amended complaint, Plaintiff asserts just one claim: "breach of contract and accounting" against Defendant based on

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Defendant's refusal to pay the balance owed under the retainer agreement or allow for an accounting. (Id. ¶¶ 68-79.)

On April 9, 2018, simultaneous with the filing of its answer and affirmative defenses, Defendant filed a motion for judgment on the pleadings.2 (R. 25, Mot.) Defendant admits that it retained Plaintiff and executed the retainer agreement attached to Plaintiff's amended complaint. (R. 26, Mem. at 2.) Defendant contends, however, that the contingency fee provision is void and unenforceable because it violates the prohibition on excessive fees under Rule 1.5(a) of the Illinois Rules of Professional Conduct (the "Rules"), as well as the prohibition on acquiring an "ownership, possessory, security or other pecuniary interest adverse to a client" under Rule 1.8(a). (Id. at 4-11.) Defendant argues that judgment on the pleadings is appropriate on either basis. (Id.)

Plaintiff responds with several arguments. (R. 30, Resp.) First, Plaintiff argues that Illinois courts will uphold contingency fees once the client has reaped the benefits of the agreement, even if they violate ethical rules. (Id. at 2-3.) Second, Plaintiff argues that the Rules cannot be enforced by a private party in civil litigation, or, to put it differently, that only the Illinois Attorney Registration and Disciplinary Commission ("ARDC") has standing to enforce the Rules. (Id. at 3-6.) Third, Plaintiff argues that the contingency fee here is not unreasonable as a matter of law. (Id. at 6-13.) Last, Plaintiff argues in the alternative that genuine issues of fact as to the reasonableness of the contingency fee preclude judgment on the pleadings. (Id. at 13-14.)

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Rule 12(c) permits a party to move for judgment on the pleadings after the complaint and answer have been filed, but early enough to not delay trial. FED. R. CIV. P. 12(c); Fed. Deposit Ins. Corp. v. FBOP Corp., 252 F. Supp. 3d 664, 671 (N.D. Ill. 2017). The customary function of a Rule 12(c) motion is to dispose of a case based on the substantive merits of the parties' claims and defenses, so far as they are revealed in the pleadings and other information subject to judicial notice. Fed. Deposit Ins. Corp., 252 F. Supp. 3d at 671-72; see also 5C WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1369 (2018 ed.) (explaining the "essential function" of Rule 12(c) as "permitting the summary disposition of cases that do not involve any substantive dispute that justifies a full trial"). A court may grant...

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