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Edelson PC v. The Bandas Law Firm PC

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

July 20, 2018

EDELSON PC, an Illinois professional corporation, individually, and on behalf of all others similarly situated, Plaintiff,
v.
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.

          MEMORANDUM OPINION AND ORDER

          REBECCA R. PALLMEYER, UNITED STATES DISTRICT JUDGE

         The parties to this case are all involved in class action litigation, but the two sides play very different roles. Plaintiff Edelson PC is an Illinois law firm that frequently represents consumers in class action lawsuits. Defendants regularly involve themselves in these case by filing what Plaintiff alleges are frivolous objections in order to leverage lucrative payoffs. Plaintiff alleges that class counsel agree to these payoffs because the alternative is unacceptable: the price to be paid for resisting demands of these “professional objectors” is delayed relief for class members and a long and costly appeals process. Plaintiff brings this suit on behalf of itself and others similarly affected by the Defendants' allegedly extortionate practices. Defendants in this case include Texas attorney Christopher Bandas and his firm, The Bandas Law Firm PC (collectively, “Bandas”); California attorney Joseph Darrell Palmer and his firm, Law Offices of Darrell Palmer PC (collectively “Palmer”); and Illinois attorney C. Jeffrey Thut and his firm, Noonan Perillo & Thut Ltd. (collectively, “Thut”). Plaintiff has also sued numerous other non-attorneys- California resident Gary Stewart and twenty additional John Doe Defendants-who allegedly aided Bandas, Palmer, and Thut by identifying class action lawsuits and serving as class objectors.

         Although courts nationwide have denounced Defendants' behavior-and, in the case of Palmer, suspended him from the practice of law-Plaintiff alleges that Defendants' conduct amounts to something more: criminal racketeering. Plaintiff sued Defendants for violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, 18 U.S.C. §§ 1961-68, alleging a pattern of racketeering activity that includes extortion, bribery, and money laundering, among other offenses. (First Am. Compl. [50] (“FAC”), ¶¶ 9-10.) Plaintiff also asserted claims under Illinois state law for abuse of process and the unauthorized practice of law. (Id.) Finally, Plaintiff urged the court to label Bandas, Thut, and Palmer “vexatious litigants” and issue a permanent injunction pursuant to the All Writs Act, 28 U.S.C. § 1651. (Id.) Defendants Bandas [63], Thut [69], and Stewart [66] moved to dismiss Plaintiff's claims under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).

         In a previous opinion, this court granted Defendants' motions in part and dismissed Plaintiff's federal RICO claims for failure to allege predicate acts of racketeering. See Edelson PC v. Bandas Law Firm PC, No. 16 C 11057, 2018 WL 723287, at *2 (N.D. Ill. Feb. 6, 2018). The court reserved judgment on Plaintiff's state law claims, however, pending further briefing on whether it had subject-matter jurisdiction to hear them, following dismissal of the related federal claims.[1] Id. at *13. In response to the court's order to show cause, Plaintiff argues that its state law claims are properly before the court under either supplemental jurisdiction, 28 U.S.C. § 1367, or traditional diversity jurisdiction, 28 U.S.C. § 1332(a). (Plaintiff's Response to Order to Show Cause [96] (“Pl.'s Juris. Br.”), 2.) Defendant Bandas responds that supplemental jurisdiction is improper because Illinois courts remain open to Plaintiff and the putative class, and, further, that Plaintiff cannot meet the $75, 000 amount in controversy threshold required to bring this suit in diversity. (Bandas's Response in Opposition to Pl.'s Juris. Br. [101] (“Bandas's Juris. Resp.”), 2.)

         For the reasons stated, the court is satisfied that it has subject-matter jurisdiction to hear Plaintiff's state-law claims. On their merits, the Defendants' motions to dismiss the Plaintiff's state-law claims are granted in part and denied in part.

         BACKGROUND

         This court discussed the details of the Defendants' alleged scheme at length in its previous opinion, and will include only a brief overview of the relevant facts here. Defendants Bandas, Palmer, and Thut are, according to Plaintiff, some of the most prolific “professional” (or “serial”) objectors to class action settlements in the United States. (FAC ¶¶ 37-38.) They abuse the nation's courts by filing frivolous, last-minute objections on behalf of purported class members that seek nothing in the way of substantive changes to the terms of the proposed class settlement. (Id.) Rather, the Defendants exploit the nuisance value of the objection-and of the appeal after the objection is inevitably overruled-in leveraging demands for hundreds of thousands of dollars from class counsel at secret mediation sessions. (See generally Id. at ¶¶ 31, 37-60.) Far from benefitting the purported class on whose behalf they filed the objection, however, the Defendants keep nearly all of their ill-gotten gains for themselves as “attorneys' fees.” (Id. at ¶¶ 42, 65-69.) Furthermore, Plaintiff claims that the objecting class members-often friends, family members, or business associates of Bandas and his partners-are themselves in on the scheme. (Id. at ¶ 64.) These individuals pretend to act in good faith, but have little to no understanding of the issues at hand or their reasons for objecting. (Id. at ¶¶ 61-74.) Instead, they withdraw their objections as soon as the Defendants have extracted their unearned “attorneys' fees” from class counsel, in exchange for a nominal cut of the proceeds.[2] (Id. at ¶¶ 42, 179-82.)

         Plaintiff has identified fifteen cases since 2009 in which Defendants have repeated this same basic pattern-frivolously object, appeal its denial, settle out of court, withdraw-and suggests that, because the Defendants have hidden their activities in various cases, the true number is much larger. (Id. at ¶¶ 37-41, 109-10.) The subterfuge allegedly includes “ghostwriting” objections without signing the filed documents, failing to file appearances, and pretending that the objectors are acting pro se. (Id. at ¶¶ 51, 82, 111-13, 127.) Plaintiff believes that Defendants do all of this to avoid the risk of court sanctions. Nevertheless, courts across the country have excoriated Defendants' exploitative, rent-seeking behavior in cases in which their involvement has come to light. See, e.g., In re Cathode Ray Tube (CRT) Antitrust Litig., 281 F.R.D. 531, 533 (N.D. Cal. 2012); In re Oil Spill by Oil Rig Deepwater Horizon, 295 F.R.D. 112, 159 n. 40 (E.D. La. 2013); Garber v. Office of Comm'r of Baseball, No. 12-CV-03704 (VEC), 2017 WL 752183, at *4-6 (S.D.N.Y. Feb. 27, 2017).

         Plaintiff claims to have been injured by the Defendants' scheme in a recent class action lawsuit in Illinois state court regarding autodialed telemarketing calls: Clark v. Gannett Co., No. 16-CH-06603 (Cir. Ct. Cook Cty., Ill.). Attorneys affiliated with Plaintiff served as class counsel in Gannett, and in August 2016 the parties involved reached a classwide settlement. Before the court could approve the settlement, however, Thut filed an objection on behalf of Stewart. (Id. at ¶¶ 56, 132.) Although neither Bandas nor Palmer filed appearances in the Gannett litigation, Plaintiff claims that Bandas orchestrated the entire scheme: Bandas prepared the objection, enlisted Thut as local counsel, and got Palmer to recruit Stewart, a friend, to act as the supposed class member. (Id. at ¶¶ 56, 254, 259.) Palmer's lack of candor is particularly troublesome considering he was (and still is) suspended from practicing law. Shortly after he was caught ghostwriting a purportedly pro se objection in another Illinois class action suit, the Review Department of the California State Bar suspended his license in January 2016 for “gross negligence” and “moral turpitude.” (Id. at ¶¶ 51-54.) Plaintiff does not provide the details of Thut and Stewart's objection to the Gannett settlement other than mentioning that it was riddled with factual errors. (Id. at ¶ 83.) When Plaintiff called Thut to discuss the objection, Thut reportedly admitted that Bandas wrote the objection. Thut himself knew little about the dispute aside from the reported dollar value of the settlement: $5 million. (Id.)

         Regardless of what the disputed terms were, the judge in the Gannett litigation overruled the Defendants' objection and granted final approval of the settlement on November 14, 2016. (Id. at ¶ 56.) This, according to Plaintiff, was exactly what Defendants intended:

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. at ¶ 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. at ¶ 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. at ¶¶ 87-88.) 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. at ¶ 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. at ¶ 92.) To avoid a delay in distribution of the settlement proceeds to the class, Plaintiff capitulated, agreeing to pay Bandas $225, 000. (Id. at ¶ 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 its operating 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 [unspecified] additional terms still needed to be negotiated and demanding that nothing about the agreement be reported to the court. (Id. at ¶ 93.)

Edelson, 2018 WL 723287, at *2 (footnotes omitted). Plaintiff filed this lawsuit against Bandas and his associates on December 5, 2016-just four days after the mediation session. Plaintiff asserted that the Defendants' so-called “attorneys' fees” are little more than “protection money, ” and that the agreed-upon $225, 000 payout was the product of Defendants' overall scheme to extort counsel in class action lawsuits. (FAC ¶¶ 1-2.)

         The core of Plaintiff's complaint is that the Defendants violated the RICO Act by conducting, and conspiring to conduct, their “objector enterprise” through a pattern of racketeering activity (Counts I and II, respectively). Plaintiffs alleges that Defendants committed numerous predicate acts of racketeering in the course of their scheme, including extortion, mail and wire fraud, obstruction of justice, witness tampering, bribery, and money laundering. Next, Plaintiff requests that the court enjoin Bandas, Palmer, and Thut (the “Attorney Defendants”) pursuant to the All Writs Act: labeling them “vexatious litigants” and prohibiting them from objecting in class action lawsuits without prior court approval (Count III). Finally, Plaintiff brings state-law claims for common law abuse of process (Count IV) and the unauthorized practice of law in violation of the Illinois Attorney Act, 705 ILCS 205/1 (Count V).[3]

         Defendants Bandas, Thut, and Stewart all moved to dismiss the complaint for the failure to allege actionable “racketeering activity” punishable under the RICO Act. (See, e.g., Memorandum in Support of Bandas's Motion to Dismiss [64] (“Bandas's MTD Br.”), 1.) Defendants also claimed that, absent the federal causes of action, this court would lack subject-matter jurisdiction to hear the Plaintiff's remaining state-law claims. (Id. at 3.) Defendants cited the general rule that federal district courts should relinquish jurisdiction over pendent state-law claims when all federal claims are dismissed before trial. (Id. at 31-32) (citing Wright v. Assoc. Ins. Cos., 29 F.3d 1244, 1251 (7th Cir. 1994)). Defendants also challenged Plaintiff's assertion that the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d)(2), provided an independent basis for jurisdiction. (Bandas's MTD Br. 3.) Even assuming that jurisdiction does exist, Defendants argued, Plaintiff also failed to state claims for relief under Illinois law for abuse of process or the unauthorized practice of law. (Id. at 32-33.)

         In an opinion dated February 6, 2018, this court partially agreed with the Defendants' arguments and dismissed Plaintiff's RICO claims. The court acknowledged the bad faith in Defendants' alleged conduct, but declined to characterize it as “racketeering activity.” Edelson, 2018 WL 723287, at *2. Defendants had argued that a variety of privileges and immunity doctrines bar this suit, but the court deemed Plaintiff's RICO claims insufficient for a simpler reason: the Defendants' scheme did not amount to criminal “extortion.” The court's conclusion was in line with “the overwhelming weight of authority” holding that threatened or actual bad-faith litigation is not criminalized by the Hobbs Act, 18 U.S.C. § 1951. Id. at *5-9. Furthermore, the court took note of the important role of legitimate objections in class action lawsuits, and expressed concern that extending criminal liability in this context could have a chilling effect on good-faith objectors and on settlement discussions in general. Id.

         The other predicate racketeering acts alleged in the complaint fared no better. Many of Plaintiff's allegations-witness tampering, obstruction of justice, bribery, and money laundering- overlapped with the Hobbs Act extortion claim. See Id. at *11-12. Because the underlying act of filing a bad faith objection for pecuniary gain is not a crime, the existence of an attorney-client agreement to share the proceeds of that objection could not constitute criminal bribery. Id. at *12. In a similar vein, Defendants' use of the proceeds of their frivolous objections to pay for further sham mediations did not constitute money laundering. Id. Finally, Plaintiff's claims that Defendants committed mail and wire fraud required a showing that Defendants' misrepresentations were “material” to Plaintiff's decision to yield to their demands. Instead, however, Plaintiff alleged that:

. . . it agreed to pay Defendants out of a fear of economic harm, not out of faith in the neutrality of the mediator or confidence in the other side's good faith. Indeed, by the time Plaintiff agreed to pay Defendants, Plaintiff certainly knew that Defendants were not acting in good faith and that the mediation was a sham.

Id. at *10. As a result, the court was compelled to dismiss Counts I and II of Edelson's complaint. See Id. at *12 (citing Nat'l Council on Comp. Ins., Inc. v. Am. Int'l Grp., Inc., No. 07 C 2898, 2009 WL 466802, at *15 (N.D. Ill. Feb. 23, 2009) (“Numerous courts have held that ‘[a]ny claim under section 1962(d) based on conspiracy to violate the other subsections of section 1962 necessarily must fail if the substantive claims are themselves deficient.'”)).

         Next, the court turned to the Plaintiff's remaining federal claim: the petition for an injunction under the All Writs Act. The court agreed with Defendants that the All Writs Act does not provide an independent basis for jurisdiction or create a private cause of action. Edelson, 2018 WL 723287, at *13 (citing West v. Spellings, 480 F.Supp.2d 213, 218 (D.D.C. 2007)). The court concluded that ...


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