Judges on the 7th Circuit Court of Appeals appeared sympathetic to victims of former attorney William Conour during oral arguments Wednesday over legal fees that a District Court judge ordered paid to a Conour creditor rather than to defrauded clients who were shut out of the case.
Arguments before the court in Chicago also revealed the Indianapolis law firm that inherited many of Conour’s former cases continues to hold in trust about $2.1 million in legal fees earned from those cases, pending the outcome of legal challenges.
Judge Tanya Walton Pratt in the U.S. Court for the Southern District of Indiana last August ordered Ladendorf Law P.C. to pay almost $775,000 in legal fees it earned to ACF 2006 Corp., whose parent company had extended a line of credit to Conour’s law firm. Conour defaulted on the loan after he was charged with wire fraud. He later pleaded guilty to one count of wire fraud and admitted to defrauding 36 former clients of more than $6 million of settlement money. He was sentenced to 10 years in federal prison.
Ladendorf Law attorney Timothy Devereux had worked at a Conour law firm before the one-time high-profile personal injury and wrongful death attorney’s Ponzi scheme collapsed. When Devereux left, many of his clients followed him to Ladendorf. Pratt’s ruling represented her judgment of the division of legal fees in those cases under a quantum meruit distribution, and the total that Conour would have been entitled to under Indiana law. She ruled ACF was entitled to receive those fees.
Arguing before the 7th Circuit Wednesday, Devereux contested Pratt’s division of fees in key cases, arguing that rather than help in some cases, Conour had hindered them. He argued Pratt erred in ruling that in one significant case, Conour’s firm was entitled to 40 percent of fees. He testified Conour had obstructed the transfer of the case and refused a court order to turn over case files and evidence.
“We ended up having to go over with the sheriffs, forcibly, into his office and take physical possession,” Devereux testified. Conour “did everything in his power to prevent the case from moving forward.
“It’s hard to believe under a quantum meruit approach that requires … clean hands, that the court can find Mr. Conour’s now entitled to an additional $120,000 out of the subsequent settlement that was procured only through the efforts of myself and the Ladendorf Law Firm,” Devereux said.
Under Pratt’s ruling, those fees and the additional $657,000 in her order, go to ACF, which was assigned Conour’s line of credit from Advocate Capital. But Davis and Loretta Beals and their daughter Kristen claim they were wrongly blocked from intervening in this suit. Conour won a settlement for the Bealses, who were injured in a deadly crash involving a tractor-trailer, but the Bealses are still trying to collect about $500,000 of the money Conour stole from them.
“At the bottom of all of this,” Judge Ilana Diamond Rovner said to Devereux, “What do you think about the fee allocation issue if we agree that the Bealses were improperly dismissed from the case at summary judgment?”
Deverex said the issue remains whether Conour would be allowed to recover. “His own misconduct would be a bar to the recovery of fees,” regardless of who subsequently was entitled to them.
“I agree Mr. Conour did bad acts,” argued the Bealses’ attorney, James Fisher. “But I’m having trouble with the concept that because Mr. Conour did bad acts, Mr. Conour’s portion of the fees should be given to Mr. Devereux, that’s the part we object to. … Mr. Conour should forfeit his fees, but he should forfeit them to his victims.”
Fisher said the theft of funds from the Bealses dates to 1996, when he said Conour failed to fund a structured settlement that was designed as an annuity to pay annual proceeds through the year 2047.
“The Bealses were clients of Mr. Conour whose settlement funds were stolen by him,” Fisher said. “It was our belief claims of victims whose settlement funds had been embezzled by Mr. Conour had a priority over subsequent commercial transactions.” Fisher also said he believes the funds could be traced to subsequent firms Conour established.
“If we agree the Bealses were improperly dismissed from this case in summary judgment … does the District Court have to go back to square one at that point?” Rovner asked Fisher. He replied that a new trial wouldn’t be requested, and that the Bealses’ lien of about $500,000 is less than the sum Pratt awarded to ACF.
But Roger Jones, representing ACF, argued the Bealses were rightly terminated from the case at summary judgment because they presented only evidence of the civil suit filed against Conour personally and his former firm, along with a default judgment in the Bealses’ favor. These didn’t meet the requirements to defeat summary motion.
“The Bealses had zero evidence in the record to support their claim – zero, nothing,” Jones argued.
But it appeared at least two of the three jurists on the panel found error in Pratt’s ruling.
“We have case after case that says you don’t have to plead the legal theory in the complaint,” Rovner said to Jones. “Why wasn’t it error for Judge Pratt to say the Beals intervenors were stuck with the legal theory they cited in their complaint?”
Jones replied the Bealses’ complaint was more than a theory, it stated the basis for which they made a claim on legal fees, and those assets belong to Conour Law Firm LLC, which was organized in 2007. When Jones said he didn’t think the District Court’s view was the complaint had to plead legal theory, it drew a strong response from Judge Frank Easterbrook.
“The District Court said so. … It’s part of the opinion,” Easterbrook said. “You don’t have to defend errors by the District Court when you’ve got an alternative ground.”
Meanwhile, Senior Judge Daniel Manion asked Devereux whether there was any actual money available, to which he replied about $2.1 million in fees from former Conour cases is being held in Ladendorf Law’s IOLTA account. Devereux also said that because all interest on those funds goes to the Indiana Bar Foundation, Pratt also erred in ordering interest paid on the fees awarded to ACF. He noted ACF never pled nor sought prejudgment interest.
Wednesday’s oral arguments in the case, ACF 2006 Corp. v. Timothy Devereux, et al., 15-3048, can be heard here.