U.S. Satellite & Cable, Inc. v. W. James Mac Naughton & Casco Bay Holdings, LLC
| Decision Date | 28 August 2018 |
| Docket Number | Case No. 15 C 6331 |
| Parties | USA SATELLITE & CABLE, INC., Plaintiff, v. W. JAMES MAC NAUGHTON and CASCO BAY HOLDINGS, LLC, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
The present lawsuit by USA Satellite & Cable, Inc. represents a short chapter in a long saga of litigation involving USA Satellite and its former attorney, W. James Mac Naughton and the corporate entity he operates, Casco Bay Holdings, LLC. USA Satellite has sued Mac Naughton and Casco Bay for breach of fiduciary duty and intentional interference with a business relationship. The defendants have moved for summary judgment.
The Court presumes familiarity with the lengthy litigation between the parties, which spans multiple suits. USA Satellite was a provider of satellite TV services in New Jersey. Mac Naughton represented USA Satellite in a case litigated in this district. See Russian Media Grp. LLC v. Cable Am., Inc., No. 06 C 3578 (N.D. Ill.) (the RMG litigation). USA Satellite and Mac Naughton began to squabble over his fees, and USA Satellite found other counsel. The RMG litigation ended in a stipulated judgment in RMG's favor for $261,374, of which USA Satellite paid $141,374. To try to collect on the fees he believed he was owed, Mac Naughton acquired RMG's interest in the remaining judgment. See D.E. 226, Pl.'s Ex. A at 3 (Settlement Agreement and Release). Mac Naughton then filed numerous suits against USA Satellite to collect on the RMG judgment.
In one such suit, Mac Naughton, through Casco Bay, claimed a lien on the settlement of a separate litigation between USA Satellite and several of its customers. To sort out the conflicting claims, the customers filed an interpleader naming USA Satellite and Casco Bay. In the interpleader, USA Satellite filed claims against Casco Bay and Mac Naughton, giving rise to the present suit. The case was originally assigned to Judge Amy St. Eve. In May 2018, the case was reassigned to the undersigned judge.
The defendants have moved for summary judgment on USA Satellite's claims. "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment is warranted if the non-moving party cannot "make a showing sufficient to establish the existence of an element essential to that party's case." Modrowski v. Pigatto, 712 F.3d 1166, 1168 (7th Cir. 2013) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)).
The Court first considers USA Satellite's breach of fiduciary duty claim. To prevail on a claim for breach of fiduciary duty, the plaintiff must prove (1) the existenceof a fiduciary duty, (2) breach, and (3) damages proximately caused by the breach. Huang v. Brenson, 2014 IL App (1st) 123231 ¶ 44, 7 N.E.3d 729, 739. It is undisputed that Mac Naughton, as an attorney, owed a fiduciary duty to his client, USA Satellite. In re Gerard, 132 Ill.2d 507, 529, 548 N.E.2d 1051, 1059 (1989) (). The issue is whether a reasonable jury could find, as USA Satellite alleges, that Mac Naughton breached that duty by employing confidential information in his litigation against USA Satellite.1
The Court concludes no reasonable jury could find in USA Satellite's favor. USA Satellite has certainly presented evidence that Mac Naughton obtained confidential information while serving as counsel: both the owner of USA Satellite and Mac Naughton testified to that fact. See D.E. 221, Defs.' Ex. B at 55 (Harmelech Dep.); id., Defs.' Ex. G at 12 (Mac Naughton Dep.). USA Satellite, however, has not presented any evidence by which a reasonable jury could find that Mac Naughton used confidential information to collect the RMG judgment. USA Satellite contends that Mac Naughton knew to sue its customers based on a confidential customer list, but Shai Harmelech, the owner of USA Satellite, concedes that this information was in the public record. Id., Defs.' Ex. B at 120. Beyond generalized allegations of misconduct, USASatellite has not provided evidence sufficient to permit a reasonable fact finder to determine that Mac Naughton used confidential information in breach of his fiduciary duties to his former client.
USA Satellite presents a second, closely-related argument: Mac Naughton's acquisition of the interest in the RMG judgment itself violated his fiduciary duty. Specifically, USA Satellite contends that Mac Naughton violated his fiduciary duty because, through his interest in the RMG judgment, he would "profit[] at the client's expense through knowledge acquired during his representation of the client." Resp. Mem. in Opp. to Counter-Defs.' Mot. for Summ. J. at 9. But this argument runs aground on the same shoals as the prior argument. USA Satellite has not shown that Mac Naughton relied on confidential information to obtain or prosecute the judgment or that he violated some other fiduciary duty by acquiring and litigating the interest. This distinguishes Mac Naughton from the defendants in the cases upon which USA Satellite relies, as there is no evidence that Mac Naughton relied on confidential information during the litigation of the RMG judgment. See, e.g., Kelly v. Weir, 243 F. Supp. 588, 596-97 (E.D. Ark. 1965) (). In short, USA Satellite has shown neither a breach of Mac Naughton's fiduciary duty nor any damages resulting from the breach, both necessary elements of a claim for breach of fiduciary duty.
Similarly, Court is not persuaded by USA Satellite's reliance on Oil, Inc. v. Martin, 381 Ill. 11, 44 N.E.2d 596 (1942). In Martin, the attorney, Mary Martin, represented Oil, Inc. in a negotiation to acquire a gas and oil lease from a third party. Id. at 13, 597-98.Rather than acquire the lease for Oil, she obtained it for her own use. Id. at 17, 599. The Illinois Supreme Court held that Martin's acquisition of a property interest adverse to her own client was a breach of fiduciary duty. Id. at 13-14, 598. Martin—who acquired a property interest adverse to her client, while representing the client, and acted based on information obtained during the representation—is unlike Mac Naughton: he did not take an interest that was adverse to his client's property interest, he no longer represented the client, and USA Satellite has no evidence that his conduct was based on confidential information. For these same reasons, the Court does not find compelling Gaffney v. Harmon, 405 Ill. 273, 90 N.E.2d 785 (1950), which relies upon Martin. Id. at 277, 90 N.E. at 788. USA Satellite also relies upon a 114-year-old Sixth Circuit decision, Garinger v. Palmer, 126 F. 906 (6th Cir. 1904), which held that an attorney could not undercut the validity of a judgment he helped effect through reliance on privileged information. Id. at 915 (). Garinger is distinguishable, as a case in which the defendant actually possessed and employed confidential information against his client, something USA Satellite has not shown here.
USA Satellite's remaining arguments do not alter the Court's conclusion. First, USA Satellite notes that Judge James Holderman, in another proceeding, found that Mac Naughton's litigation against USA Satellite violated rules of professional conduct. D.E. 226, Pl.'s Ex. C at 11 (). But neither Illinois nor New Jersey treat an attorney's violation of a rule of professional conduct as legal malpractice. See Vandenberg v. Brunswick Corp., 2017 IL App (1st) 170181 ¶ 34, 90 N.E.3d 1048, 1057; Camden Iron &Metal, Inc. v. Klehr, Harrison, Harvey, Branzberg & Ellers, LLP, 384 N.J. Super. 172, 178, 894 A.2d 94, 98 (2006). Second, even if the Court considered Mac Naughton's breach of the professional rules of conduct as professional negligence, the argument conflates Mac Naughton's professional duties with his fiduciary duties; there is a "subtle and important difference" between the two. Wende C. v. United Methodist Church, 6 A.D.3d 1047, 1055, 776 N.Y.S.2d 390, 397 (2004). A violation of a professional duty does not necessarily amount to a breach of a fiduciary duty.
Next, USA Satellite attempts to apply to its fiduciary duty claim a presumption used in the context of attorney disqualification proceedings. When an attorney is alleged to have a conflict of interest in a proceeding based on a prior representation, Illinois applies an irrebuttable presumption that the attorney acquired relevant confidential information in the prior proceeding. Franzoni v. Hart Schaffner & Marx, 312 Ill. App. 3d 394, 403-04, 726 N.E.2d 719, 726 (2000). The Court acknowledges that there is some support for applying this presumption in the context of a breach of fiduciary duty claim. See Morris v. Margulis, 307 Ill. App. 3d 1024, 1035, 718 N.E.2d 709, 718 (1999), rev'd on other grounds, 197 Ill. 2d 28, 754 N.E.2d 314 (2001). But Morris addressed this issue in passing and without analysis. Id. The Court concludes that the rationale justifying the presumption does not survive once removed from the environment of a disqualification proceeding. The presumption applies because, in assessing whether disqualification is proper, the law attempts to preclude the possibility of a conflict of interest in the subsequent proceeding. It is a prospective analysis. See Analytica, Inc. v. NPD Research, Inc., 708 F.2d 1263, 1269 (7th Cir. 1983) (...
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