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Angelopoulos v. Keystone Orthopedic Specialists, S.C.

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

July 23, 2018



          Robert M. Dow, Jr. United States District Judge.

         Before the Court is Plaintiff's motion for entry of judgment under Rule 58 [440]. The Court denied the motion without prejudice on January 18, 2018, to allow the parties time to conduct limited, targeted additional discovery concerning damages. With the benefit of the parties' supplemental submissions, the Court now proceeds to a ruling on Plaintiff's motion [440]. For the reasons explained below, Plaintiff's motion for entry of judgment under Rule 58 [440] is granted in part and denied in part. The Court awards Plaintiff $178, 954.29 in compensatory damages on Count 1 and denies Plaintiff's request for equitable relief on Count 3. Consistent with the jury's verdict, the award on Count 1 operates in favor of Plaintiff and against Defendants Hall and Keystone. The Court also awards Plaintiff prejudgment interest on the remaining counts and anticipates entering a final Rule 58 judgment order at the next status hearing in this case, which is set for July 18, 2018 at 10:00 a.m. Counsel are directed to confer and submit to the Proposed Order Box a proposed final judgment order-agreed, if possible- incorporating all of the jury's and the Court's rulings no later than July 16, 2018. The Court anticipates setting a briefing schedule on the anticipated Rule 59 motions at the July 18 status hearing.

         I. Background

         Plaintiff Dr. Nicholas Angelopoulos (“Plaintiff”), an anesthesiologist, brought suit against his former business partner, Dr. Martin Hall (“Hall”), a medical practice owned by Hall, Keystone Orthopedic Specialists, SC (“Keystone”), and a limited liability company formed by Plaintiff, Hall, and other physicians called WACHN LLC (“WACHN”) (collectively, “Defendants”) for fraudulently filing an information return in violation of the Internal Revenue Code, 26 U.S.C. § 7434 (Count 1), common law fraud (Count 2), breach of fiduciary duty (Count 3), breach of the WACHN operating agreement and Keystone Agreement (Counts 5 and 6), and unjust enrichment. These claims and their factual background are described in detail in the Court's prior rules on motions to dismiss and summary judgment, knowledge of which is assumed here. See [258], [303].

         On June 6, 2017, a jury returned a verdict in favor of Plaintiff on all of the counts that proceeded to trial-Counts 1, 2, 3, 5 and 6. By agreement of the parties, the issue of damages in the event of a verdict for Plaintiff on Count 1 was reserved for determination by the Court. Plaintiff now seeks a damages award on Count 1, as well as prejudgment interest on Counts 2, 3, 5, and 6 and equitable relief on Count 3-all of which Plaintiff would like incorporated into a Rule 58 final judgment order. Defendants oppose most of the relief sought by Plaintiff.

         II. Analysis

         A. Count 1 Damages

         In Count 1 of his complaint, Plaintiff sought recovery under 26 U.S.C. § 7434 based on allegations that Keystone and Hall caused a fraudulent IRS Form 1099 (“1099”) to be filed in Plaintiff's name reporting more than $159, 000 as taxable income for tax year 2007. Plaintiff acknowledged that approximately $38, 000 should have been reported on the 1099, but claimed that the excess amount was included by Keystone and Hall out of spite arising out of the larger disputes between the parties. The jury agreed with Plaintiff as to liability. By agreement of the parties, the calculation of damages will be done by the Court.

         Section 7434(b) governs “damages” for the filing of a “fraudulent information return.” It permits the Court to award either (1) a flat sum of $5, 000 or (2) the sum of (a) “any actual damages sustained by the plaintiff as a proximate cause of the filing of the fraudulent return (including any costs attributable to resolving deficiencies asserted as a result of such filing), ” (b) the “costs” of the civil action, and (c) “in the court's discretion, reasonable attorneys' fees.” Defendants insist that a minimal $5, 000 award is sufficient compensation, while Plaintiff seeks an award of more than $325, 000. Plaintiff's requested award includes all of the attorneys' fees and accounting expert expenses that he incurred in the underlying tax court proceedings as well as roughly 25% of certain categories of attorneys' fees and expert expenses in this litigation- amounts that Plaintiff submits “fairly pertained to proving Count 1 and that would have been necessary even if Count 1 had been the only count.” [440] at 12.

         In its January 18, 2018 order [476], the Court set out four principles that it intended to use in its analysis of Plaintiff's damages. First, the Court recognized that since a taxpayer may need to initiate costly proceedings to resolve the receipt of a fraudulently inflated 1099, it would be unjust not to compensate the taxpayer for the costs incurred in connection with such proceedings. Second, because distinguishing between a proper 1099 filing and a fraudulent one may require lay taxpayers to employ both legal and accounting assistance, attorneys' fees and expert witness fees properly lie within the scope of expenses potentially reimbursable to a wronged taxpayer. Third, the Court will not second-guess Plaintiff's decision to retain professional assistance to sort out any alleged deficiencies associated with his return. Fourth, the Court will use “reasonableness” as its touchstone in considering Plaintiff's request for fees.

         In its January 18, 2018 opinion, the Court rejected both Plaintiff's contention that damages could be determined based on the cursory records submitted with the briefs and Defendants' position (set forth in their motion for partial findings under Rule 52(c)) that Plaintiff waived any opportunity to develop arguments for a bench trial on Count 1 damages. Instead, the Court allowed limited and proportional discovery on Plaintiff's Count 1 damages claim, including short depositions of Plaintiff's lawyers and accountants, with a focus on justifying the reasonableness of the substantive work for which the individuals billed their time and the results achieved. The Court advised that additional information on the reasonableness of the fees and costs incurred in the tax proceeding would be critical to the Court's ability to assess Plaintiff's claim to reimbursement of those fees and costs, which amounts to more than $90, 000. The Court further recognized that the depositions may allow the lawyers in this case to provide additional insight into the extent to which Count 1 was a “central issue in the case” as Plaintiff contended, or a more peripheral one as Defendants contended. The Court's hope was that depositions would streamline the Count 1 bench trial considerably. It appears that they have, as counsel have agreed the Court that the Count 1 damages can be determined based on the parties' papers (briefs, transcripts, billing records).

         In cases involving the award of fees to prevailing plaintiffs in civil rights lawsuits, which guide the Court's analysis of reasonableness here, there is a “strong presumption that the lodestar figure-the product of reasonable hours times a reasonable rate-represents a ‘reasonable' fee.” Murphy v. Smith, ___ U.S. ___, 138 S.Ct. 784, 789 (2018) (quoting Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 478 U.S. 546, 565 (1986)) (internal quotation marks omitted). This is the “guiding light” of the Supreme Court's “fee shifting jurisprudence.” Id. (quoting Burlington v. Dague, 505 U.S. 557, 562 (1992)) (internal quotation marks omitted). Nonetheless, “the lodestar figure is just the ‘starting point, ” and “though it is presumptively reasonable, the figure may be excessive when ‘a plaintiff has achieved only partial or limited success.'” Thorncreek Apartments III, LLC v. Mich, 886 F.3d 626, 638 (7th Cir. 2018) (quoting Hensley v. Echerhart, 461 U.S. 424, 436 (1983)).

         “A reasonable hourly rate is based on the local market rate for the attorney's services.” Montanez v. Simon, 755 F.3d 547, 553 (7th Cir. 2014). “The best evidence of the market rate is the amount the attorney actually bills for similar work, but if that rate can't be determined, then the district court may rely on evidence of rates charged by similarly experienced attorneys in the community and evidence of rates set for the attorney in similar cases.” Id. Additionally, the Laffey Matrix-a guideline the United States Attorney's Office in Washington, D.C., has created to estimate reasonable attorneys' fees-”can assist the district court with the challenging task of determining a reasonable hourly rate.” Pickett v. Sheridan Health Care Center, 664 F.3d 632, 648 (7th Cir. 2011); see also, e.g., McDonough v. Briatta, 935 F.Supp.2d 897, 903 (N.D. Ill. 2013) (plaintiff's evidence was sufficient to show that his attorneys' hourly rate in civil rights harassment suit were reasonable where he submitted hourly rates for each attorney based on years of practice, the Laffey Matrix provided suggested hourly rates based on years of practice, and the rates charged by plaintiff's counsel were equal to the rates set out in the Laffey Matrix). However, the Laffey Matrix is “only one factor in determining a reasonable rate, ” and “has never formally [been] adopted” in the Seventh Circuit. Gibson v. City of Chicago, 873 F.Supp.2d 975, 983-84 (N.D. Ill. 2012). “The party seeking a fee award bears the burden of establishing the market rate for the work; if the lawyers fail to carry that burden, the district court can independently determine the appropriate rate.” Montanez, 755 F.3d at 553.

         The Seventh Circuit has “rejected the notion that the fees must be calculated proportionally to damages.” Sommerfield v. City of Chicago, 863 F.3d 645, 651 (7th Cir. 2017) (quoting Anderson v. AB Painting & Sandblasting, Inc., 578 F.3d 542, 545 (7th Cir. 2009)) (internal quotation marks omitted). It has also rejected the argument that a “prevailing party can never have a fee award that is greater than the damages award.” Schlacher v. Law Offices of Phillip J. Rotche & Assocs., P.C., 574 F.3d 852, 857 (7th Cir. 2009) (quoting Deicher v. City of Evansville, 545 F.3d 537, 546 (7th Cir. 2008)) (internal quotation marks omitted). But while there “is not a categorical ...

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