The opinion of the court was delivered by: David R Herndon Chief Judge United States District Court
I. Introduction, Procedural Background and Facts
Now before the Court is Defendants' motion to dismiss (Docs. 73 & 74). Specifically, Defendants argue that Carr's claims are barred by res judicata and that Carr has failed to state a valid RICO claim. Obviously, Carr opposes the motion (Doc. 89). Based on the pleadings and the case law, the Court grants the motion to dismiss.
The parties in this case have a long litigatious history that began after the dissolution of the former law-firm, Carr, Korein, Tillery, Kunin, Montroy, Cates, Katz and Glass, LLC, ("CKT") in March 2003. This current dispute, which Rex Carr filed as a racketeering case, is his latest lawsuit against his former law partners, Stephen Tillery, Steven Katz and Douglas Sprong, regarding the distribution of legal fees.
On April 25, 2007, Carr commenced this suit (Doc. 2). Shortly thereafter, Carr filed a First Amended Complaint before Defendants responded to the original complaint (Doc. 6). On August 6, 2007, Defendants filed a motion to dismiss and for sanctions pursuant to 28 U.S.C. § 1927 (Doc. 17). That same day, Defendants also filed a motion for judicial notice in support of motion to dismiss and for sanctions pursuant to 28 U.S.C. § 1927 (Doc. 19). Subsequently, Carr filed a motion for leave to file Second Amended Complaint Non-Compliant with Local Rule 15.1 on September 13, 2007 (Doc. 24). Thereafter, Carr filed his response to the motion to dismiss on October 5, 2007 (Doc. 37).
On November 18, 2007, Carr filed a motion for sanctions under Rule 11 of Federal Rules of Civil Procedure (Doc. 46) to which Defendants filed a response on November 16, 2007 (Doc. 46) and Carr filed a reply on November 26, 2007 (Doc. 50). Carr filed an additional motion for sanctions under Rule 11 of the Federal Rule of Civil Procedure on December 12, 2007 (Doc. 51); Defendants filed an opposition to that motion for sanctions on December 21, 2007 (Doc. 53) and Carr filed a reply on January 3, 2008 (Doc. 56). On January 14, 2008, the Court granted Defendants' motion to take judicial notice (Doc. 61). On February 4, 2008, the Court granted Carr's motion for leave to file a Second Amended Complaint (Doc. 63). That same day, Magistrate Judge Wilkerson allowed the parties to conduct limited discovery by the way of interrogatories and requests to admit (Doc. 64).
Thereafter, Carr filed a Second Amended Complaint (Doc. 65). On February 5, 2008, the Court denied as moot Defendants' motion to dismiss and for sanctions pursuant to 28 U.S.C. § 1927 because Carr filed his Second Amended Complaint on February 4, 2008 (Doc. 66). On February 25, 2008, Defendants filed a motion to dismiss and for sanctions pursuant to 28 U.S.C. § 1927 (Doc. 73); a renewed motion to stay discovery and initial disclosures (Doc. 75) and a motion for hearing on the motion to stay discovery and motion to dismiss (Doc. 76). Carr responded to the motion to dismiss on March 28, 2008 (Doc. 89). On April 4, 2008, the Court granted Defendants' motion to stay discovery and initial disclosures (Doc. 92). On April 16, 2008, Carr, with leave of the Court, filed supplemental authority in opposition to the motion to dismiss (Doc. 96) and Defendants filed their reply memorandum on April 27, 2008 (Doc. 97).
On April 30, 2008, Carr filed a motion for leave to file sanctions under Rule 11 of the Federal Rules of Civil Procedure (Doc. 98). Defendants filed their opposition to that motion on May 2, 2008 (Doc. 99) and Carr filed a reply to that response on May 5, 2008 (Doc. 100). Thereafter on May 19, 2008, Carr filed another motion for sanctions under Rule 11 of the Federal Rules of Civil Procedure (Doc. 101). Defendants filed an opposition to the motion on June 6, 2008 (Doc. 102). On June 13, 2008, Carr filed another motion regarding sanctions: this time he filed a motion to withdraw his motion for sanctions that he filed on May 19, 2008 (Doc. 109); Defendants filed a response to this motion on June 16, 2008 (Doc. 110) and Carr filed his reply on June 18, 2008 (Doc. 111). In the meantime, both parties filed supplemental authority/responses as to their positions regarding the pending motion to dismiss. (Docs. 103, 105, 107, 112, & 114). Just recently, Carr filed a motion to lift the stay regarding discovery (Doc. 115) and Defendants filed a response (Doc. 117).
The Second Amended Complaint contains four counts: Counts One through Three are brought under the civil Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § § 1341, 1343, 1346, 1349, 1503, 1951, 1952, 2314, 2315, and 1962 (a), (c) and (d), and Count Four is an Illinois state law claim for civil conspiracy. Carr claims that Defendants, deprived him of property, business and honest services in CKT's pension fee cases through Defendants' pattern of racketeering activity. Carr seeks treble the amount of $20,196,248.00 in damages sustained to his business and property interests; treble the amount of consequential damages; prejudgment interest; and reasonable attorney fees on the RICO counts and $20,000,00.00 in compensatory damages and $20,000,000.00 in exemplary and punitive damages on the civil conspiracy count. Despite the Second Amended Complaint being 96 pages long, the gist of the Second Amended Complaint is that Defendants have and are stealing money from Carr each time that they use an allegedly fraudulent formula to distribute legal fees. In doing so, Defendants have conspired and schemed to steal and to extort money from Carr, thereby, violating the civil RICO statutes.
The Second Amended Complaint, inter alia, alleges the following. Paragraph 15 of the Second Amended Complaint states:
The Dissolving Members of CKT, Carr, Tillery, Cates and Katz, entered into an agreement (Principles of Dissolution, Exhibit 4,) governing the winding-up of CKT, to be effective until the final Articles of Dissolution were filed with the State of Illinois. The Dissolving Members agreed that upon collecting a fee from a CKT case that had been distributed to that member for handling by CKT, the handling member would pay that fee to CKT, which would receive and hold that fee and would act as disbursing agent, provide an accounting as to how the fee was to be allocated among the Dissolving Members under Section 4.4 of the Restrictive Agreement (Exhibit 2) and would within 48 hours, if no objection to its allocations was received, disburse the fee and costs to the Dissolving Members. If an objection to the proposed allocations was made, the Principles of Dissolution required that disbursement would be postponed and that CKT would not disburse the fee until the Dissolving Members reached an agreement on the allocations of the fee. A fiduciary and trust relationship existing, thereby, between CKT, Defendants, Cates, and Carr with CKT, as disbursing agent, holding the fee in trust for them. (Doc. 65: ¶ 15, p. 5). The Second Amended Complaint further alleges:
"During said period of time CKT, received fees from Katz, the handling member to whom the cases had been distributed by CKT for handling, in the following amounts, from, respectively: Berger -- $69,000,000; McClintock -- $20,000,000; Cooper -- $91,000,000; and Clevenger -- $10,150,000. After disbursement of certain amounts to outside and referring counsel, CKT retained the net amount of $109,584,000.00 to be allocated and distributed by CKT, as disbursing agent, to the members of CKT. (Doc. 65: ¶ 17, p. 6).
Sometime after March 10, 2003, and continuing to the present time, in ongoing schemes and plans, Defendants conspired together to increase their shares of the fees by theft, fraud and/or extortion from CKT, Carr, Korein, and Cates. Defendants intended to do so by stealing fees directly from CKT, the disbursing agent; by taking from Carr, Korein and Cates their intangible right to Defendants' honest services; by misusing their fiduciary relationship in fraudulently manipulating the allocation of fees received and by making fraudulent representations to CKT, Carr, Korein and Cates and others relying upon such representations as truth and fact, including various courts in which the class action cases were being processed, through the use of the mail and wire and corrupt endeavors to influence the due administration of justice; and, in addition in so far as Carr is concerned, financial exploitation of Carr by schemes to misappropriate his assets and resources, by schemes to violate the fiduciary relationship between them, by using his assets contrary to the law, by scheming to attempt to extort, and by schemes to extort, Carr's property rights in said fees and costs by the wrongful use of fear of economic harm and to use such funds obtained by fraud, attempted extortion and extortion in the operation of CKT and Korein Tillery, LLC, RICO enterprises, engaged in interstate commerce. (Doc. 65: ¶ 22, ps. 7-8). It also alleges:
On February 4, 2004, Defendants fraudulently represented to CKT, through Lisa Waligorski, its agent, the Administrator/Bookkeeper of Korein Tillery, LLC, employed by CKT pursuant to the Principles of Dissolution to calculate and distribute fees received from handling members, that the Berger case retention date was September 21, 2000, and not May 24, 2000, and that the formula to be used to calculate and allocate the net Berger fee of $44,266,333.33 received by CKT, was not either the Redemption Agreement/Katz/Sprong Pension Fee Plan alone, or the Restrictive Agreement alone, but, was a mix of parts of the Redemption Agreement with parts of the Restrictive Agreement, such mix increasing the share of the Defendants by millions of dollars over the use of either the Redemption Agreement or the Restrictive Agreement alone. CKT and Waligorski accepted and relied upon those representations, used the fraudulent formula and the false case retention date and prepared a spread sheet, (Exhibit 9) reducing the shares to be distributed to Korein, Cates and Carr and increasing the shares of the fee to be paid to the Defendants. The fee share to be paid Korein was reduced from $2,207,066.00 to $1,790,993.59; the fee share to be paid to Cates was reduced from $7,053,221.00 to $4,519,509.61 and the Carr fee share was reduced from $8,755,874.00 to $5,610,522.45, as shown by Exhibit 10, prepared under paragraph 4.4 of the Restrictive Agreement. If calculated under the Redemption Agreement Katz/Sprong Pension Fee Plan, Carr's share would be $8,721,816.00 as shown by Exhibit 11. The mix of the Restrictive Agreement with the Redemption Agreement as used by Defendants in their spread sheet, however, would cause a reduction of over $3,000,000.00 in Carr's share, as compared to the use of either the Restrictive Agreement or the Redemption Agreement alone. The effect of falsely claiming that the case retention date was September 21, 2000 instead of May 24, 2000, was to increase the Katz share of the fee from 34% to 50%, or by $7,000,000.00, if the fee was subject to the Redemption Agreement The fraudulent spread sheet, Exhibit 9, using both the false case retention date and the improper mix of the two agreements was E-mailed by Waligorski and CKT from St. Louis, Missouri, to Rex Carr in East St. Louis, Illinois, and to Cates in Swansea, Illinois on February 4, 2004. Korein and Cates relied upon the fraudulent spread sheet and accepted the allocations as true and correct without protest or objection. (Doc. 65: ¶ 24, ps. 8-10). Furthermore, paragraph 31 avers:
Katz and Tillery misrepresented the Berger case retention date and violated their duty to give honest services, breaching their fiduciary duty to Korein, Cates and Carr as part of their scheme, because the Redemption Agreement provided that in pension class cases with a case retention date after September 18, 2000, the Katz share of the Berger fee would increase from 34% to 50% and the Defendants would obtain more money ($7,000,000.00) from the Korein, Cates and Carr shares of the Berger fee, if the victims believed the lies and dishonest statements and agreed that the Berger case retention date was September 21, 2000. (Doc. 65: ¶ 31, ps. 12-13). Paragraph 33 further avers:
When Carr refused to agree to the September 21, 2000, date, and to the fraudulent formula used in the fee allocation, Tillery falsely asserted: (a) that Tillery, Katz and Cates (Katz' sister) could ratify the allocation to Katz; (b) could change the percentages of any fee to which a member was entitled to any percentage they wanted; (c) could allocate portions of fees any way they pleased; (d) that Carr had fraudulently dissolved CKT so as to prevent his percentage share of income from being reduced by Defendants; and, (e) that Carr had retired because he had produced only $841.25 in fees to the firm in the preceding eleven months since the dissolution; and, (f) that Carr's share of all fees, including his share of the Berger fee, would be reduced by 50%, if Carr did not agree to the use of the case retention date proposed by Katz and agree that the formula based upon a mix of the Redemption and Restrictive Agreements would be used to allocate his share of the fee in the Berger case and in the calculation of all future fees received in ...