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Dremco, Inc. v. Diver

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

July 7, 2014

DREMCO, INC., AS BENEFICIARY OF STATE BANK OF COUNTRYSIDE, AS TRUSTEE UNDER TRUST AGREEMENT DATED DECEMBER 4, 2009 AND KNOWN AS TRUST NO. 09-3125, Plaintiff,
v.
ELIZABETH A. COSGROVE DIVER; SADIA ANSARI; ASIM ANSARI; STEPHEN D. DALEY, GEORGANNA DALEY; LILLIAN KOCH; ROY KOCH; KAREN RUSSO; TANUJA BIJLANI; MAHESH BIJLANI; SHARON L. HAMILTON; MARK WITKOWSKI; and DEBORAH WITKOWSKI, Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS M. DURKIN, District Judge.

The Court previously dismissed Dremco's Racketeer Influenced and Corrupt Organizations Act ("RICO") action, 18 U.S.C. § 1961, et seq., under Federal Rule of Civil Procedure 12(b) for failure to state a claim on May 3, 2013. R. 22. The Defendants have since filed a motion for sanctions, asking that the entirety of the fees and costs paid by the Defendants to their attorneys be assessed against Plaintiff's attorneys.[1] R. 23; 30. For the reasons set forth below, the motion is granted in part and denied in part.[2]

BACKGROUND

The Court has already discussed in detail the factual background behind this case, so another elaborate explanation is unnecessary. See R. 22 at 2-5. In short, this case involves a dispute regarding Maple Woods Estates, a townhome subdivision located in Glen Ellyn, Illinois. Some of the lots belong to the Defendants-Elizabeth Cosgrove Diver, Karen Russo, Sadia and Asim Ansari, Tanjua and Mahesh Bijlani, Stephen and Georganna Daley, Sharon Hamilton, Lillian and Roy Koch, and Deborah and Mark Witkowski. The remaining lots belong to Dremco.

Dremco alleges that the Defendants improperly took control of the homeowners' association and violated the terms of the original Declaration of Covenants, Conditions, Easements and Restrictions for Maple Woods Estates. As a result, Dremco sued the homeowners and the homeowners' association on March 3, 2011, in the Circuit Court of DuPage County. That case spawned counterclaims and third-party claims, was well underway in October 2012, and as far as the Court knows, is still ongoing.

On October 30, 2012, Dremco filed this case against the same group of Defendants. The complaint's language is copied nearly verbatim from Dremco's state court complaint. But here, the case was brought under 18 U.S.C. § 1962(c), as Dremco alleged that the homeowners' association is an "enterprise, " 18 U.S.C. § 1961(4), and that the homeowners are all members of the association and engaged in a pattern of racketeering activity.

The Daley Defendants moved for dismissal pursuant to Rule 12(b), later joined by their co-Defendants, which the Court granted on May 3, 2013. From the time the suit was initially filed, the Defendants have voiced their skepticism towards the merits and the rationale behind its filing, as discussed in more detail below. Both at the initial status conference in the case and in its dismissal order, the Court expressed similar concerns.

The Daley Defendants filed their motion for sanctions on May 3, 2013. R. 23. It was against Dremco, as a party, and its counsel Richard Jones, personally. Id. at 10. The motion did not personally name Mark Daniel, another attorney who has filed an appearance on behalf of Dremco and whose name appeared on the complaint, though the Daley Defendants have contended at various points that the sanction should be imposed against him as well. See, e.g., R. 78. The Daley Defendants requested attorneys' fees ($54, 337.41) and costs ($6, 132.02) in the amount of $60, 469.43. Id. The Daleys' co-Defendants sought to join the Daley Defendants' motion, requesting attorneys' fees in the amount of $4, 140.00. R. 30 at 2. Dremco filed a response, disputing the Defendants' contention that sanctions are proper as well as claiming that Defendants' counsel's requests for fees are excessive. R. 32; R. 39. Mr. Jones also asked the Court to "consider the impact of the sanctions upon the attorney" and his ability to practice law. R. 39 at 5. The two groups of Defendants filed replies, both increasing the amount of fees requested. R. 40 (Co-Defendants: $4, 140.00 to $6, 690); R. 41 (Daley Defendants: $60, 469.43 to $74, 173.13). Dremco moved to strike the Daley Defendants' reply because it included certain information about Mr. Jones, including his residential address, the vehicles he owns, and other property tax bills. R. 42. The Court denied that motion, concluding that it was all publicly-available information, R. 77, but invited Dremco and Mr. Jones to file additional relevant information regarding their ability to satisfy any sanctions award. R. 44.

In July 2013, Dremco retained new counsel who filed a supplemental response to the Defendants' motion. R. 46; R. 47; R. 52. Dremco argued in its supplemental response that any sanctions award the Court imposed should only be against Dremco's prior attorneys-i.e., Mr. Jones and Mr. Daniel-not Dremco. R. 52. On October 2, 2013, the Court granted Mr. Daniel's motion to withdraw as Dremco's attorney. R. 62. The Court granted Mr. Jones's motion to withdraw as Dremco's attorney on October 23, 2013. An evidentiary hearing was scheduled for, so the Court could assess Dremco's culpability regarding the filing of the this case and what its principal knew or should have known about the Court's preliminary statements on the case's merits and the possibility of sanctions. The issue also was whether Dremco had knowledge of the letters from the Defendants stating that they would move for sanctions if the federal complaint was not withdrawn.

The evidentiary hearing was held on November 20, 2013. Edward McGowan, the largest shareholder of Dremco, testified on Dremco's behalf. Mr. Jones also testified about what information he shared with anyone at Dremco about this lawsuit and the Rule 11 letters he received. At the conclusion of the hearing, the Court denied the Defendants' motion for sanctions against Dremco as a party. The Court found credible Mr. McGowan's testimony that he did not see any of the correspondence between his attorneys and the Defendants' attorneys and that Mr. McGowan was simply relying on the advice of his counsel on how to get a quicker resolution of the matter and did not suggest that a second lawsuit be initiated in federal court. R. 77; R. 78. The Court also instructed the attorneys that it would not be inclined to award attorney's fees for the hearing or for any further briefing on the motion. R. 78.

On January 17, 2014, Mr. Jones filed another response to the Defendants' motion for sanctions, again arguing that the charges from the Daley Defendants' counsel were excessive and that no attorneys' fees should be awarded to the Daleys' co-Defendants. R. 79. Mr. Daniel filed a position statement with the Court on January 21, 2014. R. 86. In the position statement, Mr. Daniel argues that he "was not involved in the decision to file the claim, the RICO research, communication with [opposing] counsel, the defense of the pleading or the decision not to propose an amendment-if not for the sole purpose of suffering a denial of leave while explaining to the Court how the specific matters supported the claim." Id. at 2. Mr. Daniel claims that he "did not practice with any frequency in the RICO area" and that "[Mr.] Jones remained responsible for the RICO substance and research" despite Mr. Daniel's own personal participation in the case. Id. at 3-4. Furthermore, Mr. Daniel claims that he was not named in the Defendants' motion for sanctions and, thus, did not have an adequate opportunity to respond to any Rule 11 violation allegation. Id. at 9-16. The Daley Defendants filed a reply to the position statement on January 30, 2014, generally focusing on the case as a whole as opposed to anything particular regarding Mr. Daniel's personal conduct. R. 90. The Daley Defendants also noted that they had by that time incurred and paid $145, 322.28 in costs and fees defending the case and pursuing the sanctions motion. Id. at 4. On January 31, 2014, the Court stated that it would not accept any further briefing on the motion for sanctions. R. 91.

ANALYSIS

I. Appropriateness of Sanctions Against Mr. Jones & Mr. Daniel

This case was doomed from the start. Countless Seventh Circuit opinions have explained what is, and what is not, the purpose of a civil RICO case. RICO "is a unique cause of action that is concerned with eradicating organized, long-term, habitual criminal activity. " Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir. 2006) (emphasis added). This case comes nowhere close to satisfying that explanation. Even more disturbing, and as particularly relevant to this Order, is the fact that the parties were already engaged in a state court action at the time this suit was filed regarding the exact same facts at issue here. Neither Dremco nor its attorneys have provided the Court with a single legitimate reason as to why filing this additional suit was proper when another cause of action involving the same underlying facts was already ongoing, despite repeatedly being given the opportunity to do so. See R. 22 at 15 ("Dremco's response to the Court's inquiry as to why this case is in federal court appears to suggest that this lawsuit is little more than retaliation for the homeowners defending themselves in Dremco's state court case (or perhaps an attempt by Dremco to gain leverage and drive up legal fees for a small group of homeowners)."); see also Jennings v. Auto Meter Prods., Inc., 495 F.3d 466, 472 (2007) (explaining that the RICO statute "was never intended to allow plaintiffs to turn garden-variety state law... claims into federal RICO actions"). As set forth in the opinion dated May 3, 2013, R. 22, the timing of when this suit was filed, coupled with the alleged facts that cannot arguably be viewed as supporting a RICO claim, demonstrates the suit was brought in bad faith and filed for an improper purpose. See In re TCI., Ltd., 769 F.2d 441, 445 (7th Cir. 1985) ("If a lawyer pursues a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound, the conduct is objectively unreasonable and vexatious. To put this a little differently, a lawyer engages in bad faith by acting recklessly or with indifference to the law, as well as by acting in the teeth of what he knows to be the law.").

Furthermore, it was not as if Mr. Jones and Mr. Daniel, Dremco's counsel, blindly pursued the RICO claim without an understanding of the consequences. Throughout the pendency of the proceedings, they were consistently told the suit was utterly devoid of merit. For example, shortly after Dremco filed its Complaint, the Daley Defendants sent Dremco's counsel a letter on November 30, 2012, stating that the Complaint should be withdrawn and dismissed, and if it was not, they would move for sanctions against Dremco under Rule 11. R. 24-1. The letter gave correct legal reasons as to why the complaint was facially deficient. Id. Dremco responded on December 17, 2012, asserting that it believed the case was "appropriate for application of the RICO statute." R. 32-7. The case carried on. The Daley Defendants sent a second letter on December 19, 2012, which contained similar language to the November 30 letter. R. 24-2. Neither side has directed the Court to a Dremco response to the December 19 letter. The Daley's co-Defendants also sent Dremco a safe-harbor letter on January 22, 2013, stating that the complaint should be dismissed because a RICO claim could not be established under the alleged facts. R. 30-1. Then, on January 23, 2013, at an initial status hearing on the case, the Court explained to the parties' attorneys:

I'm puzzled why this case is in federal court. I read the motion to dismiss. I'm not going to pass judgment on it until I've heard from [Plaintiff's counsel] and give[n] him some time to respond, but I would like him to respond ...

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