United States District Court, N.D. Illinois, Eastern Division
W. JAMES MAC NAUGHTON, Plaintiff,
SHAI HARMELECH, ETAN HARMELECH, USA SATELLITE & CABLE, INC., JUDITH HARMELECH, CHICAGO TITLE LAND TRUST COMPANY, JPMORGAN CHASE BANK, N.A., and CITIBANK, N.A., Defendants.
MEMORANDUM OPINION AND ORDER
James Mac Naughton holds two judgments against Shai Harmelech
and his company, USA Satellite & Cable, Inc. In this
diversity suit against Shai, Shai's son Etan Harmelech,
Shai's wife Judith Harmelech, USA Satellite & Cable,
Chicago Title Land Trust Company, JPMorgan Chase, and
Citibank, Mac Naughton seeks to collect on the judgments,
alleging that the Harmelechs fraudulently concealed
Shai's ownership interest in his home by putting the deed
in Etan's name and channeling the mortgage payments
through Etan. Shai, Etan, and USA Satellite & Cable move
to dismiss some claims as a sanction for misconduct by Mac
Naughton, and the remaining claims for lack of subject matter
jurisdiction under Federal Rule of Civil Procedure 12(b)(1).
Docs. 194, 200. The motions are granted.
May 7, 2009 to July 16, 2009, Mac Naughton defended Shai and
USA Satellite & Cable against a lawsuit brought by
Russian Media Group (“RMG”). See Russian
Media Grp., LLC v. Cable America, Inc., No. 06 C 3578
(N.D. Ill. filed June 30, 2006). That brief professional
relationship ended in a dispute over legal bills; Shai and
Mac Naughton resolved the dispute by executing a promissory
note requiring Shai to pay certain sums to Mac Naughton, but
Shai quickly defaulted. See Mac Naughton v.
Harmelech, 693 Fed.Appx. 154, 155 (3d Cir. 2017). In
October 2009, Mac Naughton filed suit against Shai in federal
court in New Jersey, where Mac Naughton lives, for breach of
the note. See Mac Naughton v. Harmelech, 2016 WL
3771276, at *2-5 (D.N.J. July 13, 2016).
suit ultimately settled, and in May 2011 the court entered a
stipulated judgment in favor of RMG against Shai and USA
Satellite for $286, 374.76. Doc. 100-6. Shai paid $141,
374.76 towards the judgment before he stopped making
payments. Doc. 208 at 8. In August 2014, in return for Mac
Naughton's agreement to dismiss a claim he brought
against RMG in New Jersey state court, RMG assigned to Casco
Bay Holdings, a company controlled by Mac Naughton, the
unpaid portion of RMG's judgment against Shai and USA
Satellite. Id. at 2-3. (Yes, reader, you read that
correctly: Mac Naughton's company purchased from RMG the
judgment that RMG had obtained from Mac Naughton's
clients in the very case in which Mac Naughton represented
those clients.) The assignment provided that Mac Naughton
would remit to RMG fifty percent of the first $50, 000 he
collected from Shai and USA Satellite and forty percent of
any amounts collected in excess of $100, 000, up to $43, 000
in total. Id. at 4.
Casco Bay obtained the judgment from RMG, Mac Naughton began
to research Shai's assets and found that Shai's son
Etan was listed as the buyer on the 2005 purchase deed for
Shai's residence in Highland Park, Illinois. Doc. 180 at
¶¶ 18, 22-26. After further research, Mac Naughton
found that the house was purchased for approximately $440,
000, and that Etan had been a college student working as an
unpaid intern at the time. Ibid.
December 14, 2014, Casco Bay and Mac Naughton brought this
suit against Shai, Etan, and USA Satellite & Cable,
alleging that Shai fraudulently conveyed his Highland Park
house to Etan in 2005, when he knew that the RMG lawsuit was
imminent, for the purpose of concealing his assets from
potential creditors. Doc. 1. The complaint alleged that Casco
Bay had standing to pursue the suit as owner of the RMG
judgment, id. at ¶ 45, and that Mac Naughton
had standing because he was pursuing three separate suits
against Shai in state and federal court in New Jersey,
including the above-referenced suit for breach of the
promissory note, id. at ¶¶ 25-38. Casco
Bay and Mac Naughton asked to attach the house in order to
satisfy their claims against Shai and USA Satellite &
Cable. Ibid. Casco Bay was represented by Mac
Naughton-who also represented himself in connection with his
personal claims against Shai- and another attorney, Steven
Ross. Docs. 3, 5.
moved to disqualify Mac Naughton (as lawyer) and Casco Bay
(as party) from pursuing assets to satisfy the RMG judgment,
arguing that Mac Naughton had violated New Jersey Rule of
Professional Conduct 1.9(a) when his company Casco Bay
obtained the RMG judgment. Doc. 21 at 1. Rule 1.9(a) states:
“A lawyer who has represented a client in a matter
shall not thereafter represent another client in the same or
a substantially related matter in which that client's
interests are materially adverse to the interests of the
former client unless the former client gives informed consent
Holderman, who presided over this case until his retirement,
held an evidentiary hearing on the disqualification motion.
Doc. 35. On March 17, 2015, Judge Holderman granted
Shai's motion to disqualify Mac Naughton from
representing Casco Bay, finding that “Mr. Mac Naughton
is engaging in a position materially adverse to the interests
of his former clients in a substantially related matter in
violation of New Jersey Rule of Professional Conduct 1.9(a),
” ibid., and ordering that “Mr. Mac
Naughton will have no further action in [Casco Bay's
efforts to pursue the RMG judgment], ” Doc. 100-16 at
15. Judge Holderman declined to disqualify Casco Bay from
pursuing the RMG judgment, and Casco Bay remained a plaintiff
with Ross as its sole counsel. Id. at 11-12. Judge
Holderman told Ross that he could obtain co-counsel,
“but not Mr. Mac Naughton.” Id. at 16.
Judge Holderman ordered that Casco Bay “proceed without
using any information that Mr. Mac Naughton obtained from his
prior representation of [Shai and USA Satellite], as well as
any information Mr. Mac Naughton may have later obtained as
an adversary to his former clients.” Doc. 35. Judge
Holderman further stated:
Once a lawyer takes on a representative obligation, that
lawyer has a continuing obligation to adhere to the code of
professional conduct. Mr. Mac Naughton did not do that here.
Mr. Mac Naughton cannot now insulate himself by creating a
company [Casco Bay]. The company he created cannot utilize
his improprieties to prosecute this action … .
Doc. 100-16 at 15. Shai did not question Mac Naughton's
ability to represent himself in his effort to collect on his
personal claims against Shai, and Mac Naughton continued
making filings on his own behalf in that part of the case.
September 2016, the New Jersey federal court entered a $71,
763 judgment for Mac Naughton in his suit against Shai for
breach of the promissory note. Doc. 196-1. Mac Naughton and
Casco Bay then filed a first amended complaint in this case,
in which Casco Bay sought to collect the RMG judgment and Mac
Naughton sought to collect the New Jersey breach-of-contract
judgment. Doc. 85. In late November 2017, Shai paid the New
Jersey breach-of-contract judgment, plus costs and
post-judgment interest. Doc. 196-19. The New Jersey federal
court then denied Mac Naughton's motion for attorney
fees, reasoning that he had brought the case pro se.
Mac Naughton v. Harmelech, 2017 WL 6372233 (D.N.J.
Dec. 12, 2017). Mac Naughton's appeal of that ruling is
currently before the Third Circuit. See Mac Naughton v.
Harmelech, No. 18-1047 (3d Cir.).
in September 2017, while motions to dismiss the first amended
complaint were pending in this case, Mac Naughton caused the
RMG judgment to be assigned from Casco Bay to himself.
See Russian Media Grp., No. 06 C 3578, Dkt. 438. Mac
Naughton, now representing himself as the sole plaintiff and
holder of both the RMG judgment and the New Jersey
breach-of-contract judgment, asked this court for leave to
file a second amended complaint. Doc. 153. The proposed
second amended complaint added as defendants Judith Harmelech
and the Chicago Title Land Trust Company in connection with a
newly discovered trust agreement, Doc. 153-1 at ¶¶
64-68, as well as Citibank and JPMorgan Chase, which held the
mortgages on the property, id. at ¶¶
69-74, and asked the court to invalidate both the trust
agreement and the mortgages.
court granted Mac Naughton's motion to amend without
prejudice to Defendants moving to dismiss the second amended
complaint. Doc. 179. The court asked the parties to address
“whether Mac Naughton's seeking in court to collect
the Russian Media Group judgment from his former clients
violates the [March 17, 2015] order entered in this case,
” and also “whether, putting aside any rules of
professional conduct, the court has the inherent authority to
prohibit … Mac Naughton from seeking in ...