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Philos Techs., Inc. v. Philos & D, Inc.

United States District Court, N.D. Illinois, Eastern Division

April 8, 2014

PHILOS TECHNOLOGIES, INC., Plaintiff,
v.
PHILOS & D, INC., et al., Defendants

Page 834

For Philos Technologies, Inc., Plaintiff: David Lesht, LEAD ATTORNEY, Law Offices of Eugene M. Cummings, P.C., Chicago, IL; Adam B Goodman, Goodman Tovrov Hardy & Johnson LLC, Chicago, IL; Gabriel P. Hardy, Goodman Law Offices LLC, Chicago, IL; Jeffrey Robert Moran, Jr., Thomas A. Vickers, Vanek, Vickers & Masini, P.C., Chicago, IL; Panasarn Aim Jirut, Law Offices Eugene M Cummings PC, Chicago, IL.

For Philos & D Inc., Jaehee Park, Don-Hee Park, Defendants: John W. Moss, LEAD ATTORNEY, Winston & Strawn LLP (DC), Washington, DC; Brian Joseph Nisbet, Michael David Bess, Winston & Strawn Llp, Chicago, IL.

OPINION

Page 835

MEMORANDUM OPINION AND ORDER

Milton I. Shadur, Senior United States District Judge.

This memorandum opinion and order is the final chapter at the District Court level of this lengthy legal drama, although the appeal on the merits has been pending for a goodly period.[1] This chapter ends with an assessment of fees and expenses properly awarded to Philos & D, Don-Hee Park and Jaehee Park (collectively " Philos & D" ) as a sanction imposed against plaintiff Philos Technologies, Inc. (" Philos Tech" ).

This Court's September 25, 2012 findings of fact and conclusions of law (" Findings and Conclusions," Dkt. 116) dismissed this action for lack of personal jurisdiction. Later this Court's May 8, 2013 memorandum opinion and order (" Opinion," 943 F.Supp.2d 880) granted Philos & D's motion for sanctions pursuant to Fed.R.Civ.P. (" Rule" ) 11 and ordered Philos Tech to compensate Philos & D for defendants' attorney's fees and expenses (together with a " delay factor" to account for the cost of money). For the reasons outlined below, Philos Tech is ordered to pay Philos & D's

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fees and expenses in the amount of $729,832.72.

Background

Given the comprehensive factual account provided in the Findings and Conclusions,[2] there is no need to recount in detail the entire history of this dispute. What follows instead in this section is an abbreviated summary of the facts relevant to a determination of properly compensable fees and expenses.

PLS Tech Korea (" PLS Korea" ) is a South Korean company, founded by Jong Ho Philos Ko (" J. Ko" ), that specializes in heat treatment technology (F. ¶ 1). On December 20, 2007 Don-Hee and Jaehee Park (referred to singularly by their first names and collectively as " the Parks" ) entered into two written agreements (the " Agreements" ) with PLS Korea to establish a company -- Philos & D -- to manufacture and sell knives and shears using a particular type of surface treatment technology (F. ¶ ¶ 3-6). Fully eight months later (on August 18, 2008) J. Ko sent Philos & D a letter on behalf of PLS Korea unilaterally purporting to cancel both Agreements (F. ¶ 17).

S. Ko -- J. Ko's son and the sole shareholder in and President of Illinois company Philos Tech -- was not present at the signing of the Agreements, nor was Philos Tech a party to those Agreements (F. ¶ 11). Nonetheless S. Ko brought suit against Philos & D and the Parks in 2008 in this Northern District of Illinois on behalf of Philos Tech. Philos Tech's Complaint alleged that Philos Tech -- and not PLS Korea -- had entered into a joint venture with the Parks (Dkt. 1 ¶ 15). Incredibly the Complaint totally omitted any mention of the existence of either PLS Korea or the Agreements.

Unsurprisingly the Parks took exception to Philos Tech's claims and denied the existence of personal jurisdiction over them in this District Court. In a February 13, 2009 letter to the Honorable William Hibbler (to whose calendar this action was originally assigned), the Parks revealed the existence of the Agreements and denied the existence of any later agreement with Philos Tech (Dkt. 11). Philos Tech responded by moving for a default judgment, which Judge Hibbler granted based on S. Ko's allegations (Dkt. 25).

Next Philos & D moved to vacate that default judgment based on an asserted lack of personal jurisdiction. Although Judge Hibbler denied the motion to vacate, our Court of Appeals reversed that ruling and held that Philos & D's method of challenging personal jurisdiction -- through the February 2009 letter -- was acceptable (see generally Philos Techs., Inc. v. Philos & D, Inc., 645 F.3d 851 (7th Cir. 2011)). But the Court of Appeals declined to rule on the issue of personal jurisdiction in the first instance, remanding the case to the District Court to do so (id. at 859).

On remand Philos & D resubmitted its motion to vacate (Dkt. 79) and sent a Rule 11 letter, warning its opponents that Philos & D would seek sanctions if Philos Tech did not withdraw the Complaint. Philos & D there cited the " material misrepresentations and omissions" contained in the Complaint and readvanced in later pleadings, which it argued falsely supported personal

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jurisdiction in this District. Despite that shot across its bow, Philos Tech refused to drop the Complaint, insisting that the Agreements were only provisional in nature and that the controlling agreement was an asserted oral one between Philos & D and Philos Tech.

After the untimely death of Judge Hibbler and ensuing transfer of the case, this Court held an evidentiary hearing to determine the existence of personal jurisdiction. That hearing led to the inevitable conclusion that the purported " oral rescission" of the Agreements never took place, that Philos Tech merely helped to carry out PLS Korea's contractual obligations under the Agreements and that Philos Tech's " evidence" of a joint venture with the Parks merely implemented the parties' joint scam to receive South Korean financial benefits obtainable by companies with a foreign investor (F. ¶ ¶ 30-39).

In light of its Findings and Conclusions, this Court granted Philos & D's motion to vacate and dismissed the action for want of personal jurisdiction. Following that dismissal Philos & D filed a motion for sanctions against Philos Tech and its attorneys under Rule 11 (as to both Philos Tech and the attorneys) and 28 U.S.C. § 1927 (" Section 1927" ) (as to the attorneys only). Because -- among other untruths -- Philos Tech falsely claimed that the Parks had contracted with Philos Tech to form a joint venture and failed even to mention the existence of the Agreements, this Court concluded that S. Ko was bent on obfuscation from the very start (Op. at 888 (emphasis in original)):

So the long and short of it is that Philos Tech fabricated a story about an oral agreement that supposedly superseded the contemporaneous written agreements -- a fabrication that was needed to support Philos Tech's bid to settle a dispute with the Parks in this United States District Court rather than in a South Korean court. Hence it made its submissions to this District Court with an improper purpose and with a faulty factual basis.

That of course is sanctionable behavior, and this Court therefore ordered Philos Tech to pay those attorneys' fees and expenses of its opponents that flowed from the sanctionable submissions -- which is to say the entirety of the fees and expenses reasonably incurred by Philos & D in this case (id.). This Court nevertheless gave the benefit of the doubt to Philos Tech's attorneys, assuming that they did not know of their client's falsehoods and therefore declining to impose sanctions against them (id. at 889-91). After a number of hiccups in the process, both sides have now fully briefed the issue of an appropriate fee award, rendering the matter ripe for resolution.

Standard of Review

Rule 11 sanctions aim primarily to deter future rule violations, and the scope of such sanctions must therefore be limited to what is necessary to deter sanctionable conduct (Rule 11(c)(4)). But " [c]ompensation and deterrence are not only not mutually exclusive, they are sometimes compatible" (Brandt v. Schal Assocs., Inc., 960 F.2d 640, 646 (7th Cir. 1992)), and a district court may therefore impose sanctions by ordering a rule violator to make good its opponent for the harm caused by its violation (see, among other cases, Divane v. Krull Elec. Co., 319 F.3d 307, 314 (7th Cir. 2003)).

In a case such as this one, in which a complaint was filed and pursued in bad faith from the get-go, a reasonably accurate measure of the harm Philos Tech has caused is what it has cost its opponent (Brandt, 960 F.2d at 647). Sanctions must be limited to those fees and expenses " directly

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resulting from the violation" (Rule 11(c)(4)) -- but that requirement poses no obstacles where, as here, all expenses borne by Philos & D stem from Philos Tech's sanctionable Complaint and its pursuit thereof. Even when considering fees and expenses directly resulting from sanctionable conduct, a court " must ensure that the time was reasonably devoted to the litigation" (see Szopa v. United States, 460 F.3d 884, 886 (7th Cir. 2006)).

Fees Incurred on Appeal and in South Korean Litigation

Before turning to the meat of Philos & D's petition -- fees and expenses generated in litigation before this District Court -- this opinion must first address a significant threshold matter. Philos & D has included in hits petition substantial fees (totaling $280,479.27) incurred in litigating this case before our Court of Appeals and in defending itself in South Korean proceedings brought against it to enforce the previously-awarded judgment. Philos & D argues that those expenses resulted directly from Philos Tech's Rule 11 violation and are therefore compensable.

That contention may perhaps have force as a matter of pure logic, but it remains settled law that this Court may not award fees under Rule 11 for expenses incurred on appeal -- and that reasoning would appear to apply a fortiori to fees incurred in a separate action in a foreign court. Cooter & Gell v. Hartmarx Corp, 496 U.S. ...


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