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Edelson PC v. Bandas Law Firm PC

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

February 6, 2018

EDELSON PC, an Illinois professional corporation, individually, and on behalf of all others similarly situated, Plaintiff,
THE BANDAS LAW FIRM PC, a Texas professional corporation, CHRISTOPHER BANDAS, an individual, LAW OFFICES OF DARRELL PALMER PC d/b/a DARRELL PALMER LAW OFFICE, a suspended California professional corporation, JOSEPH DARRELL PALMER, an individual, NOONAN PERILLO & THUT LTD, an Illinois corporation, C. JEFFREY THUT, an individual, GARY STEWART, an individual and JOHN DOES 1-20, Defendants.



         Many of the parties in this case are frequent participants in class action litigation. Plaintiff Edelson PC is an Illinois law firm whose attorneys have extensive experience bringing class actions on behalf of consumer plaintiffs. Defendant Christopher Bandas frequently represents objectors to class action settlements.[1] In this lawsuit, Plaintiff alleges that Bandas's class-settlement-objection practice constitutes criminal racketeering. The scheme Plaintiff alleges works as follows: Bandas orchestrates the filing of meritless objections to proposed class action settlements on behalf of purported class members. Bandas files the meritless objections with the expectation that the trial court will overrule them, setting up a basis for appeal. Before appealing the ruling (or while an appeal is pending), Bandas offers to forego appeal (or withdraw a pending appeal) in exchange for "attorney's fees." Though convinced that the appeal would be meritless, class counsel often agrees to pay Bandas to avoid the delay in payment to the class and class counsel that would result from the appeal process. From Plaintiff's perspective, when Bandas leverages the delay of a frivolous appeal on behalf of a purported class member to demand payment for himself, he is engaging in extortion. Plaintiff itself became the victim of Bandas's allegedly extortionate scheme when it paid Bandas $225, 000 to withdraw an appeal arising from class litigation in Illinois state court.

         Plaintiff brings this putative class action against Bandas and his law firm (The Bandas Law Offices) (collectively "Bandas"), as well as two attorneys, Jeffrey Thut and Darrell Palmer, and their law firms (Noonan Perillo & Thut Ltd and Law Offices of Darrell Palmer) (collectively "Thut" and "Palmer", respectively), who have assisted Bandas in finding potential objectors and filing objections in courts throughout the country. Plaintiff has also sued Bandas's objector clients, including Gary Stewart, the objector in the Illinois state court litigation that resulted in Edelson's payment to Bandas. Alleging that each Defendant has played an active role in advancing Bandas's scheme, Plaintiff asserts claims against all of them for engaging in a pattern of racketeering activity in violation of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c). According to Plaintiff, Defendants' acts of racketeering include extortion, mail and wire fraud, obstruction of justice, witness tampering, bribery, and money laundering. Plaintiff also alleges that Defendants conspired to engage in the pattern of racketeering activity, in violation of 18 U.SC. § 1962(d). In addition to the RICO claims, Plaintiff asserts state-law claims for abuse of process and unauthorized practice of law. Plaintiff also urges the court to label Bandas, Palmer, and Thut vexatious litigants and enjoin their behavior pursuant to the All Writs Act, 28 U.S.C. § 1651.

         Defendants Bandas [63], Thut [69], and Stewart [66] have moved to dismiss. They argue that Plaintiff has not alleged a single RICO predicate act, let alone a pattern of racketeering activity. Once the court dismisses the federal RICO claims, the only remaining claims will be state-law claims over which the court lacks jurisdiction, Defendants contend. In any event, they argue, Plaintiff has failed to state a claim for abuse of process or unauthorized practice of law.

         For purposes of these motions, the court is required to accept Plaintiff's troubling allegations as true. Moreover, the court's own experience with Bandas and Thut, as well the accounts of other courts that have condemned Bandas's practices, provide independent grounds for crediting these allegations. See, e.g., In re Cathode Ray Tube (CRT) Antitrust Litig., 281 F.R.D. 531, 533 (N.D. Cal. 2012) (noting that Bandas has been "excoriated by Courts for [his] conduct"). The alleged conduct appears to be in bad faith, to have no genuine social value, and to be inconsistent with the ethical standards of the legal profession. Gaming the rules of the legal system solely for personal self-enrichment wastes the time and money of courts and attorneys, wrests funds away from deserving litigants, and tarnishes the public's view of the legal process. Nevertheless, as vexing as the court finds the behavior of Defendants and other "serial objectors, " the court is unable to find that the alleged conduct constitutes racketeering activity. For the reasons discussed in greater detail below, the court grants Defendants' motions to dismiss with respect to Plaintiff's claims that arise under federal law and directs Plaintiff to show cause why the state law claims should not be dismissed.


         Plaintiff alleges it was injured by Defendants' conduct following the settlement of a class action lawsuit in Illinois state court. Attorneys affiliated with Plaintiff acted as class counsel in Clark v. Gannett Co. Inc., No. 16-CH-06603 (Cir. Ct. Cook Cty., III.), a case concerning allegedly unlawful autodialed telephone calls. After years of litigation, the parties in Gannett reached a classwide settlement, which the Circuit Court of Cook County preliminarily approved in August 2016. (Pl.'s Combined Resp. to Mots. to Dismiss [76] (hereinafter "Pl.'s Resp.") at 7.) Before the state court granted final approval of the settlement, Thut filed an objection on behalf of Stewart, who purported to be a class member. (First Am. Compl. [50] (hereinafter "FAC") ¶¶ 56, 132.) Plaintiff here alleges that Palmer solicited his friend Stewart as the class member who could file the objection (id. ¶ 56), and that it was Bandas who actually coordinated and prepared the objection. (Id. ¶ 259a.) Neither Palmer nor Bandas, however, filed an appearance with the court in Gannett. (Id. ¶ 56.) According to Plaintiff, Stewart's objection was part of a scheme to extract a payment from Plaintiff to Defendants.

         Plaintiff has not provided details concerning the nature of Stewart's objection. Plaintiff does allege that in November 2016, the judge in the Gannett case overruled it. (Id.) According to Plaintiff, Defendants expected, and even intended, that the objection would be overruled so that they could threaten to appeal the ruling and demand payment from Plaintiff. (Id. ¶ 8.) Soon after the court overruled Stewart's objection, Bandas communicated with Plaintiff via telephone and e-mail and proposed that the parties enlist a professional mediator to assist them in resolving Stewart's objection without pursuing the appeal process. (Id. ¶ 86.) Plaintiff accepted Bandas's proposal and engaged in a telephone mediation session with Bandas and Bandas's proposed mediator, Rodney A. Max, on December 1, 2016. (Id. ¶ 90.) Plaintiff avers that when it agreed to participate in the mediation, it was not aware that Max and Bandas had worked together before and that Max and Bandas would attempt to use a "confidentiality" agreement to shield their conduct during the mediation from courts. (Id. ¶¶ 87-88.)[2] According to Plaintiff, during the mediation, Bandas never proposed any changes to the class action settlement that Plaintiff had negotiated on behalf of the class members. (Id. ¶ 91.) Instead, he simply demanded tribute; he asked for payment of $400, 000 in "attorneys' fees" from Plaintiff and threatened to delay settlement payments to the class (and attorneys' fees to Plaintiff) by pursuing an appeal if Plaintiff refused to pay. (Id. ¶ 92.) To avoid a delay in distribution of the settlement proceeds to the class, Plaintiff capitulated, agreeing to pay Bandas $225, 000. (Id. ¶ 93.) Plaintiff claims it had no real choice other than to pay Bandas: The costs of delaying the agreed settlement payments to the class and to class counsel, Plaintiff explains, would have jeopardized the law firm's ability to improve its infrastructure, cover operating its expenses, and pay off existing debt. Delay would impose additional costs, as well, including the cost of staff resources devoted to responding to class members awaiting the settlement recovery. (Id. at ¶ 6.) Plaintiff alleges that when it informed Defendants that it would disclose the parties' agreement and seek approval of the court, Bandas responded by falsely claiming that additional terms still needed to be negotiated[3] and demanding that nothing about the agreement be reported to the court. (Id. ¶ 93.)

         Plaintiff maintains that the $225, 000 payout Defendants received from Plaintiff was the product of an unlawful and extortionate scheme. Plaintiff also asserts that Defendants' conduct in the Gannett litigation is not an isolated instance of unseemly behavior but is rather part of a consistent pattern of racketeering activity conducted by an "objector enterprise." (Id. ¶ 1.) Plaintiff has identified at least fourteen other cases in which Bandas has engaged in similar conduct-filing frivolous objections to class action settlements for the purpose of extorting the attorneys representing the class. (Id. ¶ 109.) Bandas, according to Plaintiff, serves as the "boss" of the enterprise, providing leadership and overall command. (Id. ¶ 120.) Associates like Thut and Palmer allegedly coordinate with Bandas and each other to find objectors, sign documents, file appearances, and appeal overruled objections. (Id. ¶ 121.) Bandas and Palmer often "ghostwrite" the objections without signing the filed documents, or without even filing an appearance in the case, according to Plaintiff, in order to avoid the risk that they might be sanctioned by the court or to make it appear that the objections were filed pro se. (Id. ¶¶ 51, 82, 127.) Plaintiff also alleges that the objector clients, including Stewart, are participants in the illegal enterprise. According to Plaintiff, objectors like Stewart agree to accept thousands of dollars in return for acting as good-faith objectors to settlements, although they are not. (Id. ¶¶ 180-81.) Because the objectors will receive a portion of the enterprise's payout, Plaintiff alleges, they withdraw their objections once class counsel agrees to the enterprise's payment demands. (Id. ¶ 182.)

         Plaintiff characterizes this conduct as a pattern of racketeering activity in violation of the federal RICO statute, and Plaintiff lists a number of Defendants' alleged predicate RICO acts in its complaint. According to Plaintiff, by threatening to intentionally delay payment to class members and class counsel, Defendants create a fear of economic harm and constitute unlawful "extortion" under the Hobbs Act, 18 U.S.C. § 1951. Plaintiff also alleges that Defendants committed wire fraud under 18 U.S.C. § 1343, and mail fraud under 18 U.S.C. § 1341, by using interstate wires and the United States mail as part of their scheme to mislead Plaintiff and others into believing that the class objectors were good-faith objectors and that Defendants intended to engage in good-faith mediation to resolve their objections. In addition, Plaintiff asserts that the solicitation of objector clients to submit false and misleading objections in exchange for payment constitutes obstruction of justice under 18 U.S.C. § 1503, witness tampering under 18 U.S.C. § 1512, and bribery under both the federal bribery statute, 18 U.S.C. § 201(b)(3), and the Illinois bribery statute, 720 Ill. Comp. Stat. 5/33-1. Plaintiff also alleges that Defendants' use of profits from prior extortionate schemes to pay for Max's mediation services constitutes money laundering under 18 U.S.C. § 1956. In addition to asserting that Defendants engaged in the above racketeering acts, Plaintiff claims that Defendants conspired with each other to engage in a pattern of racketeering activity, in violation of 18 U.S.C. § 1962(d).

         Defendants deny that their alleged conduct amounts to any pattern of racketeering activity. They also emphasize that courts are reluctant to impose RICO liability on defendants for actions taken during the course of litigation. Indeed, Defendants maintain that the so-called Noerr-Pennington doctrine immunizes Defendants' litigation conduct from any RICO liability and requires dismissal of the RICO allegations.

         The court should dismiss Plaintiff's RICO claims, Defendants contend, and will then lack jurisdiction over Plaintiff's remaining claims. Plaintiff's effort to invoke the court's authority under the All Writs Act fails, Defendants assert, because the All Writs Act itself does not provide any private right of action, and therefore does not support entry of an injunction. Plaintiff has also asserted state-law claims for unauthorized practice of law under the Illinois Attorney Act, 705 Ill. Comp. Stat. 205/1, and for abuse of process; Defendants argue that the court lacks jurisdiction over those claims because the parties are not completely diverse and Plaintiff has not satisfiedfy the amount-in-controversy requirement of the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d)(2). In any event, Defendants argue, Plaintiff has not stated a claim for abuse of process because Defendants' alleged scheme does not rely upon any "process" issued by the court. Nor, they argue, does the Illinois Attorney Act authorize claims under that statute to be filed in federal court. Contending that Plaintiff has failed to state a claim or that the court otherwise lacks subject-matter jurisdiction over Plaintiff's claims, Defendants have moved under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to dismiss Plaintiff's First Amended Complaint in its entirety.


         When reviewing a motion to dismiss, a court treats all well-pleaded allegations in the complaint as true and draws all reasonable inferences in the plaintiff's favor. Jakupovic v. Curran, 850 F.3d 898, 902 (7th Cir. 2017). Before addressing the state-law claims, the court first considers whether Plaintiff has adequately alleged a claim under the federal RICO statute.

         I. RICO Claims

         It is unlawful, under section 1962(c), "for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c). Thus, to state a civil RICO claim under section 1962(c), a plaintiff must adequately allege four elements: "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 655 (7th Cir. 2015). Section 1961(1) lists the criminal acts that are considered "racketeering activity" under the RICO Act. 18 U.S.C. § 1961(1). In this case, Defendants' alleged racketeering activities include extortion, mail and wire fraud, witness tampering, obstruction of justice, bribery, and money laundering.

         Defendants' primary challenge to Plaintiff's RICO allegations is that the alleged conduct does not amount to criminal racketeering. As an initial matter, however, Defendants argue that even if their alleged conduct were to be considered racketeering activity, the conduct took place in the context of litigation and is therefore immunized from liability. They argue that their conduct is shielded by the Noerr-Pennington doctrine, which originated in the antitrust context but has been extended to other domains and which safeguards the First Amendment right to petition the courts by immunizing certain litigation activity from liability. See, e.g., Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1757, 188 L.Ed.2d 816 (2014) (doctrine protects defendants "engaging in conduct (including litigation) aimed at influencing decisionmaking by the government"). Thut, for his part, adds that litigation privileges established by Illinois state law and federal common law shield him from liability for the alleged conduct.

         The court is not persuaded that any formal, absolute privilege or immunity doctrine immunizes Defendants from liability. Plaintiff has alleged that Defendants acted to conceal their settlement negotiations and agreements from court scrutiny. (See FAC ¶¶ 93, 168.) Given that the purpose of the Noerr-Pennington doctrine is to protect communications with the government, the doctrine should not be interpreted as protecting conduct Defendants engaged in during the course of negotiations they tried to hide from courts. The doctrine is also inapplicable where the litigation at issue is a sham-"for example, a lawsuit designed to make the other litigant bear the costs of mounting a defense, even though the suit has no chance of success." Tri-Corp Hous. Inc. v. Bauman, 826 F.3d 446, 450 (7th Cir. 2016). Meritless class- action objections designed to make the class bear the costs of defending the objection on appeal appear to fit squarely within the "sham litigation" exception to the Noerr-Pennington doctrine. As for Thut's assertions of privilege, Illinois' state-law privilege "cannot defeat a federal cause of action" and thus does not warrant dismissal of Plaintiff's RICO claims. See Steffes v. Stepan Co., 144 F.3d 1070, 1074 (7th Cir. 1998). Thut also has not identified any Seventh Circuit authority for the proposition that a federal common-law privilege exists to bar claims other than defamation. Cf. NSB Techs., Inc. v. Specialty Direct Mktg., Inc., No. 03 CV 2323, 2004 WL 1918708, at *4 (N.D. Ill. Aug. 20, 2004) (recognizing litigation privilege under federal common law for defamation claims arising from statements related to judicial proceedings).

         The reach of Noerr-Pennington is not the end of the inquiry, however. Even if Defendants' conduct is not protected per se because it relates to litigation, numerous courts throughout the country have concluded that conduct similar to that of Defendants, though reprehensible, is not criminal or actionable under RICO. See, e.g., Deck v. Engineered Laminates, 349 F.3d 1253, 1257-58 (10th Cir. 2003) (affirming dismissal of RICO claims brought against defendant who threatened to "tie [the plaintiff] up in court" and allegedly initiated meritless lawsuit using false and misleading allegations). Courts have declined to treat abusive litigation tactics as criminal in part because of the possibility that doing so would chill valuable litigation activity by "subject[ing] almost any unsuccessful lawsuit to a colorable . . . [RICO] claim." Id. at 1258; see also United States v. Pendergraft, 297 F.3d 1198, 1208 (11th Cir. 2002) ("[P]rosecuting litigation activities as federal crimes would undermine the policies of access and finality that animate our legal system.")

         As noted above, the court perceives no social value in Defendants' alleged schemes. Yet it is not clear that Defendants' conduct violates any of RICO's predicate criminal statutes, and the rule of lenity favors interpreting those statues favorably for Defendants. See United States v. Santos, 553 U.S. 507, 514 (2008) ("[Interpreting ambiguous criminal laws in defendants' favor] vindicates the fundamental principle that no citizen should be held accountable for a violation of a statute whose commands are uncertain, or subjected to punishment that is not clearly prescribed."). In addition, the merits of Defendants' own specific conduct aside, objectors to class action settlements-even those who object regularly-can and do play a legitimate role in the legal system. See Eubank v. Pella Corp., 753 F.3d 718, 720-21 (7th Cir. 2014) (noting the importance of objectors to judges evaluating fairness of settlement agreement where parties to agreement are no longer in adversarial posture toward each other); Edward Brunet, Class Action Objectors: Extortionist Free Riders or Fairness Guarantors, 2003 U. Chi. Legal F. 403, 409, 427-434 (2003) (noting potential costs objectors may impose on administration of class actions and suggesting ways to curb "extortionist" or "free riding" behavior, but concluding that objectors' ability to "create an adversary contest" can allow them to "perform a positive function").[4] Imposing RICO liability on objectors like Defendants could chill valuable good-faith objections from class members with legitimate concerns by exposing them to colorable RICO claims and associated treble damages awards. With this general concern in mind, the court turns to discuss the specific predicate acts alleged in Plaintiff's complaint.

         A. ...

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