MANISH S. SHAH, District Judge.
In 2007, Yusen Logistics (Americas) Inc., a transportation-services company, had the law firm of Rodriguez O'Donnell Ross on retainer to address customs issues as they arose. Thomas O'Donnell, an attorney at the firm, met with some of Yusen's representatives in July 2007 to discuss a pending class-action lawsuit concerning antitrust violations in the air-cargo shipping industry. O'Donnell knew that Yusen was a member of the putative class, and suggested to Yusen's representatives that the Rodriguez firm represent Yusen in the antitrust litigation. Yusen agreed, and executed on November 3, 2007, an engagement letter to that effect. Yusen committed to paying the firm 25% of any monies recovered by Yusen in the suit. Yusen ultimately paid the firm over $478,000 in fees from several settlements. Before an additional settlement was distributed, however, Yusen terminated its relationship with the Rodriguez firm (with respect to the antitrust case). The firm sued Yusen for quantum meruit, and Yusen filed a counterclaim for fraud and fiduciary breach against the firm and its shareholders. Counter-defendants move to dismiss the claims against them. For the reasons discussed below, the motion is granted in part and denied in part.
Rule 8(a)(2) of the Federal Rules of Civil Procedure requires that a claim for relief contain "a short and plain statement of the claim showing that the pleader is entitled to relief." In general, the complaint (or, here, counterclaim) need not include specific facts, but it must provide the defendant with fair notice of what the claim is, and the grounds upon which it rests. Olson v. Champaign Cnty., Ill., 784 F.3d 1093, 1098-99 (7th Cir. 2015) (citing Erickson v. Pardus, 551 U.S. 89, 93 (2007); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The pleading must present enough factual matter, accepted as true, that the claim to relief "is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). Where the claim to relief sounds in fraud, however, it must be pleaded with particularity, Fed. R. Civ. P. 9(b), including the "who, what, when, where, and how" of the fraud, Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 950 (7th Cir. 2013) (citation omitted). In considering a motion to dismiss under Rule 12(b)(6), a district court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in the plaintiff's favor. Id. at 946 (7th Cir. 2013) (quoting Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010)).
Yusen Logistics is a logistics and transportation-services firm. [7] ¶ 1.
O'Donnell continued to talk to Yusen about the antitrust action over the next several months, and in October 2007, O'Donnell met with the customs supervisor, and one of Yusen's customs brokers, to further discuss the issue. See id. ¶¶ 11, 14-16. At the meeting, O'Donnell again offered to represent Yusen in the class-action suit, and proposed a contingent-fee arrangement whereby the law firm would be awarded 25% of any monies recovered by Yusen in the antitrust litigation. See id. ¶ 16. (Yusen claims that the proposal was a departure from the company's past dealings with the firm, as the firm usually billed at an hourly rate or sought a fixed retainer fee for its services. See id.) On October 26, another attorney at the firm (Henry Gonzalez) filed an appearance in the antitrust case on Yusen's behalf. See id. ¶ 18.
A week later, on November 2, 2007, O'Donnell sent a formal engagement letter to Yusen. See id. ¶ 19. The letter stated:
November 2, 2007 Letter from Thomas J. O'Donnell to Mark Hogan, [1-1] at 17-18 (referenced in Yusen's counterclaim at [7] ¶ 19).
On October 29, 2013, and again on April 10, 2014, the Rodriguez firm sent invoices to Yusen, each seeking payment of 25% of settlements recovered by Yusen in the antitrust action. See id. ¶ 33. Yusen paid the firm $478,783.90 in response to these demands. See id. ¶ 34. Yusen received notice in September 2014 of an additional settlement (the fourth thus far), which was anticipated to exceed $362 million in funds for the class. See [7-C] ¶ 30. In October 2014, before any funds from the new settlement were distributed, Yusen contacted the Rodriguez firm and demanded that, moving forward, the firm bill only on an hourly basis. See id. ¶ 29.
The Rodriguez firm sued Yusen in March 2015 in Illinois state court, bringing claims under Illinois law for quantum meruit, unjust enrichment, and promissory estoppel. [1-1]. Yusen removed the case to federal court on the basis of diversity jurisdiction
Yusen's fraud claim is presented in two parts. The first is based on representations that the Rodriguez firm made in the November 2007 engagement letter; the second is based on facts that Yusen says the law firm concealed from the company.
To state a claim for fraudulent misrepresentation in Illinois, the plaintiff must allege: (1) a false statement of material fact; (2) that the party making the statement knew of its falsity; (3) an intent to induce the plaintiff to act; (4) that the plaintiff reasonably relied on the truth of the statement; and (5) damages to the plaintiff as the result of their reliance. See Antonacci v. Seyfarth Shaw, LLP, 39 N.E.3d 225, 238 (Ill. App. Ct. 2015) (citing Neptuno Treuhand-Und Verwaltungsgesellschaft MBH v. Arbor, 295 Ill.App.3d 567, 571 (1998)).
Counter-defendants are correct that a statement of opinion generally cannot support a fraud claim. See, e.g., Antonacci, 39 N.E.3d at 238 (citing Neptuno, 295 Ill.App.3d at 572)); Merrilees v. Merrilees, 998 N.E.2d 147, 160 (Ill. App. Ct. 2013) (citing Duhl v. Nash Realty, Inc., 102 Ill.App.3d 483, 489 (1981)). The same is true of promises or predictions about future conduct (as these are often just opinions about what will or will not occur). See Madison Assocs. v. Bass, 158 Ill.App.3d 526, 540 (1st Dist. 1987) (explaining that a party has no right to rely on another's conjecture (citing Hofner v. Glen Ingram & Co., 140 Ill.App.3d 874 (1985))); see also Illinois Non-Profit Risk Mgmt. Ass'n v. Human Serv. Ctr. of S. Metro-East, 378 Ill.App.3d 713, 723 (4th Dist. 2008) (citing Ault v. C.C. Servs., Inc., 232 Ill.App.3d 269, 271 (1992)). Here, the engagement letter states that the law firm will perform all services needed to maximize Yusen's recovery in the antitrust litigation. This is, in a broad sense, a promise of future conduct, but it is not a promise that Yusen claims was broken. There is no allegation that the law firm failed to satisfy its general obligation to do all that was necessary for Yusen in the pending lawsuit. Yusen instead complains that what was "necessary" was not all that O'Donnell promised it would be. This "promise" is also a statement of future conduct: it is a statement of what representing Yusen in the antitrust case will entail.
False promises are actionable as fraud, however, if they were made as part of a scheme to defraud. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 570 (7th Cir. 2012) (applying Illinois law). If the Rodriguez firm knowingly overrepresented the kind of legal work it would perform for Yusen in order to persuade the latter to pay a higher fee, this kind of misrepresentation would be grievous enough to invoke the scheme-to-defraud exception. See id. (observing that "one particularly egregious fraudulent statement" may establish a scheme to defraud (quoting BPI Energy Holdings, Inc. v. IEC (Montgomery), LLC, 664 F.3d 131, 136 (7th Cir. 2011))). It is in the particular province of the attorney to know what class-action suits involve procedurally and, therefore, to know what kinds of legal services (if any) may be needed from non-class counsel in such cases. Leveraging this knowledge to engage in deceptive bargaining for a larger contingent fee is a form of fraudulent billing— and thus a breach of a lawyer's duty to his client, see Cripe v. Leiter, 184 Ill.2d 185, 198 (1998). Here, the bargain was presumptively fraudulent because of Yusen's preexisting relationship with the Rodriguez firm. See Maksym v. Loesch, 937 F.2d 1237, 1241-42 (7th Cir. 1991) (explaining that, when a lawyer enters into a bargain with an existing client, the law presumes that the transaction was a result of the attorney's self-dealing and undue influence) (applying Illinois law); see also In re Marriage of Pagano, 154 Ill.2d 174, 185 (1992); Lustig v. Horn, 315 Ill.App.3d 319, 325-26 (1st Dist. 2000).
But is this what Yusen has alleged? Yusen says that it relied on the statements in the engagement letter, and suffered damages from that reliance, "in retaining [the Rodriguez firm] and making or authorizing payments to [the firm] from the monies Yusen recovered from settlement funds that had been procured for Yusen [by] class counsel in the Antitrust Litigation." Id. ¶ 38. It is unclear what Yusen means by this. Yusen could not have relied on the engagement letter when retaining the firm, since, before Yusen even received the letter, a Rodriguez attorney entered an appearance for Yusen in the case—and Yusen does not allege that the appearance was entered without its consent. See [7] ¶¶ 15-16, 18. Perhaps the letter contained new representations not yet discussed—such as statements about the precise scope of the legal representation—and Yusen relied on those statements in agreeing to pay the 25% fee. The letter could in that case form the basis of a promissory-fraud claim (assuming, that is, that Yusen did not agree to the fee when it was first proposed at the meeting with O'Donnell in October 2007).
The second part of Yusen's fraud claim is based not on the law firm's misrepresentations, but on the concealment of certain facts from its client. To plead a fraudulent-concealment claim, a counter-plaintiff must allege: (1) the counter-defendant concealed a material fact under circumstances that created a duty to speak; (2) the counter-defendant intended to induce a false belief; (3) the counter-plaintiff could not have discovered the truth through reasonable inquiry or inspection, or was prevented from making a reasonable inquiry or inspection, and justifiably relied upon the counter-defendant's silence as a representation that the fact did not exist; (4) the counter-plaintiff would have acted differently had they been aware of the concealed information; and (5) the counter-plaintiff's reliance resulted in damages. Abazari v. Rosalind Franklin University of Medicine and Science, 40 N.E.3d 264, 274 (Ill. App. Ct. 2015) (quoting Bauer v. Giannis, 359 Ill.App.3d 897, 902-03 (2005)). Yusen alleges that the Rodriguez firm concealed from it the following facts: that the actual scope of the firm's services was not as promised, and consisted instead of submitting and responding to inquiries about claim forms; that on December 31, 2012, the firm ceased operating as a law firm and delegated its work in the antitrust case to attorneys at another firm; and that the 25% contingent fee was unreasonable under the circumstances. See [7] ¶ 39; see also id. ¶¶ 23, 25, 27, 29, 32.
Whether a fee arrangement is "reasonable" under the circumstances is an opinion or legal conclusion, not a fact whose concealment may support a claim of fraud. Whether a firm is operating as a law firm, or whether its attorneys have delegated their work to another firm, are facts, and a third party could conceivably rely on a belief arising from the concealment of those facts. But even supposing that Yusen relied on such a belief here, Yusen has not alleged any damages from this reliance.
Yusen alleges that, as of January 2013, the Rodriguez firm was no longer authorized to provide legal services in Illinois, so its principals went elsewhere— O'Donnell and Williams to Clark Hill PLC in Chicago, and Rodriguez and Gonzalez to firms in Washington, D.C.—to practice law. See id. at ¶¶ 29, 39(C). Because the Rodriguez firm could no longer provide legal services, says Yusen, the firm delegated to Clark Hill any remaining work required under the engagement agreement. See id. ¶¶ 32, 39(D). Counter-defendants do not disagree that, under the Illinois Rules of Professional Conduct, a lawyer may not delegate to an attorney from another firm any work for a particular client without first obtaining that client's informed consent. See ILL. RULES OF PROF'L CONDUCT R. 1.2(e). Nor do counter-defendants dispute that the Rodriguez firm ought to have disclosed (indeed, had a duty to disclose) to Yusen that the firm was contemplating such a delegation here. See id.; see also id. R. 1.4(a)(1) (mandating that lawyers "promptly inform the[ir] client of any decision or circumstance with respect to which the client's informed consent . . . is required"); cf. D'Attomo v. Baumbeck, 36 N.E.3d 892, 913 (Ill. App. Ct. 2015) (explaining that "a duty to speak arises if the [parties] are in a fiduciary . . . relationship," which "exists as a matter of law between . . . attorneys and clients") (citations omitted). But where is the injury to Yusen from the concealment of these facts?
Yusen says that the Rodriguez firm withheld the above information to deceive Yusen into paying the firm from settlements recovered in the case, which Yusen did. See [7] ¶¶ 39-40. However, the payments Yusen made—and thus the basis for its damages in the present action—were from the first three settlements in the antitrust litigation. The attorneys from Clark Hill worked on preparing and submitting claim forms in connection with the fourth settlement, and the funds from that settlement had not yet been distributed as of the counterclaim's filing. See id. ¶ 35; [7-C] ¶¶ 17-18. Thus, to the extent Yusen believed that the invoices it paid were invoices for fees earned by the Rodriguez firm instead of Clark Hill, this was not a false belief, and did not result in any damages.
Yusen also claims that it falsely believed the firm would perform or had performed the specific legal services outlined in the engagement letter. Instead of handling discovery and filing or responding to motions, says Yusen, the Rodriguez firm needed only to prepare and submit several claims forms (and to respond to inquiries made by the claims administrator), see [7] ¶ 39(A)—information that the firm knowingly withheld from Yusen beginning in October 2007, see id. ¶ 25 (incorporated into Count I at id. ¶ 36). It is not evident from the pleading, however, how exactly Yusen claims to have relied on the firm's silence. In pleading reliance here, Yusen employs the same ambiguous language addressed above with respect to the fraudulent-misrepresentation claim. See id. ¶ 40 (alleging that Yusen relied on its false beliefs when it "retained . . . and made or authorized payments" to the Rodriguez firm from monies recovered in the antitrust suit). What precisely Yusen means by this statement is still unclear. To state a fraudulent-concealment claim with the requisite particularity, Yusen must explain with specificity the actions it would not have taken—and thus the injuries it would not have sustained—but for the counter-defendants' concealment. And if the concealment occurred at more than one point in time, and affected Yusen's actions differently as time progressed, the pleading must be precise about that, too. As currently drafted, the counterclaim lacks this kind of precision. Yusen's fraudulent-concealment claim does not pass muster under Rule 9(b).
To state a claim for fiduciary breach, Yusen must allege: (1) the existence of a fiduciary relationship; (2) a breach of the duties imposed by that relationship; and (3) damages from the breach. See Kovac v. Barron, 6 N.E.3d 819, 833 (Ill. App. Ct. 2014) (citations omitted). Yusen brings two fiduciary-breach claims—one alleging breach by O'Donnell, acting on behalf of himself and "the former Rodriguez Law Firm" (Count II), and the other alleging, in the alternative, a breach by the firm (Count III). See [7] ¶¶ 47, 54. With Count II Yusen seeks damages from shareholders O'Donnell, Williams, Rodriguez, and Gonzales, jointly and severally. See id. at 58. Under Count III Yusen seeks damages from the same individuals and the firm (now known as Rodriguez O'Donnell Gonzalez & Williams, P.C.), also jointly and severally. See id. at 63. The claims are otherwise identical, and the parties do not distinguish between them in their briefs. (Though defendants do argue that there is a kind of "group pleading" problem, addressed below at Part C.) For simplicity, the counts (and conduct) are treated collectively.
The fiduciary-breach claims are based on much the same conduct as the conduct underlying the fraud claims. See id. ¶¶ 47(A)-(D), (F), (I)-(J); id. ¶¶ 54 (A)-(D), (F), (I)-(J). Fraudulent conduct by an attorney violates the latter's duty to act with honesty and good faith—obligations that all lawyers owe to their clients as a matter of law, see Pippen v. Pederson & Houpt, 986 N.E.2d 697, 704 (Ill. App. Ct. 2013) (citing Metrick v. Chatz, 266 Ill.App.3d 649, 656 (1994)); see also Coughlin v. SeRine, 154 Ill.App.3d 510, 515 (1st Dist. 1987) ("[I]t is incumbent upon the attorney that he exercise the utmost good faith and fairness in dealing with the client." (citing Drake v. Becker, 14 Ill.App.3d 690, 696 (1973))); cf. Burdett v. Miller, 957 F.2d 1375, 1381 (7th Cir. 1992) ("A fiduciary duty is the duty of an agent to treat his principal with the utmost candor, rectitude, care, loyalty, and good faith . . . .") (citations omitted). As Yusen has not adequately pleaded injury from the frauds, however, the conduct alleged in support of those claims similarly cannot support a claim for fiduciary breach.
The absence of injury likewise renders inadequate Yusen's claim that the firm breached its fiduciary duty by demanding to be reinstated as Yusen's counsel after it was fired. According to Yusen, after it terminated its relationship with the Rodriguez firm (with respect to the antitrust litigation), the firm demanded to be brought back on as counsel. This demand, says Yusen, was part of the firm's scheme to deceive Yusen into believing that the former was still able to provide legal services. See [7] ¶¶ 47(H), 54(H). Yusen did not agree to the reinstatement, however, see [7-C] ¶¶ 37-38; and, as far as can be gleaned from the pleadings, Yusen had already made the fee payments from which it now claims financial injury by the time the discussion about reinstatement even took place, compare [7] ¶¶ 33-34 (alleging that Yusen paid invoices dated October 29, 2013 and April 10, 2014) with [7-C] ¶ 37 (agreeing that the firm sought reinstatement through a letter dated November 5, 2014). Yusen has pleaded no reliance on—and thus no damages from— this alleged deception.
Yusen also claims that the Rodriguez firm committed a fiduciary breach by obtaining through undue influence Yusen's agreement to pay the 25% contingent fee—an unreasonable fee, which Yusen ultimately did pay. See [7] ¶¶ 47(E), (G); id. ¶¶ 54(E), (G). Attorneys are prohibited from overcharging their clients, see Cripe, 184 Ill.2d at 198; Coughlin, 154 Ill.App.3d at 515, and the presumption of undue influence leads me to assume, for now, that the fee Yusen agreed to and did pay was excessive in this case. (Whether the fee was actually excessive is a factual question that cannot be resolved at this stage of the litigation.) Inasmuch as Yusen bases Count II or III on the firm's exercise of undue influence to collect an unreasonably-high fee, that claim may proceed.
In a case with multiple counter-defendants, to comply with Rule 8 or 9(b), the counter-plaintiff generally must plead sufficient facts to notify each counter-defendant of what he or she supposedly did wrong. See United States v. Sanford-Brown, Ltd., 788 F.3d 696, 705 (7th Cir. 2015) (citation omitted); Bank of America, N.A. v. Knight, 725 F.3d 815, 818 (7th Cir. 2013). Counter-defendants here argue that Yusen has not satisfied this requirement as to Williams, Rodriguez, or Gonzales. See [12] at 7; [18] at 13. But Yusen does not contend that Williams, Rodriguez, or Gonzales is liable because he himself committed unlawful acts. Yusen instead claims that these individuals are liable by operation of Illinois Supreme Court Rule 721(d), which provides:
Ill. S. C. Rule 721(d). "Minimum insurance" is in turn defined as a professional-liability insurance policy for wrongful conduct, applicable to the conduct of the corporation, its owners, or employees, in amounts set forth in the Rule. See Ill. S. C. Rule 722(b)(1). "Proof of financial responsibility" refers to funds specifically designated and segregated for the satisfaction of any judgments of wrongful conduct against the corporation, its owners, or employees. Ill. S. C. Rule 722(b)(3).
Yusen alleges that the Rodriguez firm, a corporation organized under Illinois statute, does not maintain minimum insurance as defined in Illinois Supreme Court Rule 722(b)(1). See [7] ¶¶ 2, 43, 50, 57. Accordingly, says Yusen, the firm's shareholders—which include Williams, Rodriguez, and Gonzales—are now liable under Rule 721(d) for the misdeeds of other employees or shareholders, such as O'Donnell, as set forth in the counterclaim. See [17] at 11-12. Counter-defendants do not argue otherwise, and the issue is waived. See Bonte v. U.S. Bank, N.A., 624 F.3d 461, 466 (7th Cir. 2010) ("Failure to respond to an argument . . . results in waiver." (citing United States v. Farris, 532 F.3d 615, 619 (7th Cir. 2008))).
Counter-defendants also argue that Yusen's counterclaim is barred under the voluntary-payment doctrine. The voluntary-payment doctrine provides that, "[a]bsent fraud, coercion or mistake of fact, monies paid under a claim of right to payment but under a mistake of law are not recoverable." Spivey v. Adaptive Mktg. LLC, 622 F.3d 816, 822 (7th Cir. 2010) (quoting Randazzo v. Harris Bank Palatine, N.A., 262 F.3d 663, 668 (7th Cir. 2001)) (applying Illinois law); see also King v. First Capital Financial Services Corp., 215 Ill.2d 1, 27-31 (2005). The doctrine is a corollary to the mistake-of-law doctrine, and reflects the principle that one who voluntarily pays another with full knowledge of the facts is not entitled to restitution. Randazzo, 262 F.3d at 667-68 (citations omitted).
Counter-defendants assert that the doctrine applies to Yusen's claims here, because Yusen paid the Rodriguez firm more than $478,000 "with full knowledge of what occurred prior to agreeing to those payments." [12] at 7. Even if this is true, the doctrine is inapplicable here. Voluntary payment does not bar suits based on excessive attorney fees—the gist of Yusen's surviving claim. See Coughlin, 154 Ill.App.3d at 515.
Yusen's claims are subject to a two-year statute of limitations, which began to run when Yusen knew or reasonably should have known of its injuries. See 735 ILCS 5/13-214.3(b) (governing actions against attorneys arising out of acts or omissions in the performance of professional services).
This question cannot be answered from the pleadings—nor need it be. Statute-of-limitations defenses are affirmative defenses, and thus plaintiffs and counter-plaintiffs need not anticipate or overcome them in their complaints. See Sidney Hillman Health Ctr. of Rochester v. Abbott Labs., Inc., 782 F.3d 922, 928 (7th Cir. 2015) (explaining that these defenses "typically turn on facts not before the court at [the motion-to-dismiss] stage") (citations omitted). Dismissal based on a statute-of-limitations defense is proper at the pleadings stage only where the claimant has alleged facts establishing the claim's tardiness. See id. (citations omitted). Yusen has not done so here.
For the reasons discussed above, counter-defendants' motion to dismiss the counterclaim, [11], is granted in part and denied in part. The motion to dismiss Counts II and III is denied to the extent Yusen bases either claim on the Rodriguez firm's exercise of undue influence in extracting from Yusen an unreasonably-high fee. The motion is otherwise granted. The parts of the counterclaim that are dismissed may be cured through re-pleading, and are dismissed without prejudice.
[1-1] at 17. The pronoun "this," as it is used to begin the second sentence above, is presumed to refer to the nearest reasonable antecedent, i.e., the firm's "assist[ance] in obtaining [a] maximum possible monetary recovery." In other words, the letter states that the law firm's "assistance" includes filing motions, etc.—not that Yusen's general request for legal assistance includes a more specific demand that certain activities be performed.
