Hughes Socol Piers Resnick & Dym, Ltd. v. G3 Analytics, LLC
Hughes Socol Piers Resnick & Dym, Ltd. v. G3 Analytics, LLC
Opinion of the Court
Currently pending is Petitioners Hughes Socol Piers Resnick & Dym, Ltd.
*926("Hughes") and Cohen Law Group, P.C.'s ("Cohen Law") amended petition pursuant to the Federal Arbitration Act ("FAA"),
BACKGROUND
I. RELATIONSHIP BETWEEN THE PARTIES
The following facts are uncontested and are generally drawn from the Award and amended petition. Petitioners are law firms with principal places of business in Cook County, Illinois specializing in the prosecution of qui tam litigation, which involves filing claims under state and federal false claims statutes in the hopes of receiving a portion of the recovery. (Award at PageID # :39; Am. Pet. ¶ 1.) See G3 Analytics, LLC v. Hughes Socol Piers Resnick & Dym Ltd. ,
As relevant here, the Agreement sets forth an Attorneys' Fees and Costs section that generally states that the Petitioners will work on a "contingency fee basis," unless Respondents terminate representation or withdraw as set forth in paragraphs 8 and 9 of the agreement. (Agreement ¶ 4.) Paragraph 9 of the agreement, entitled the Client Withdrawal clause, states:
In the event our Law Firms [Petitioners] are willing to proceed with the Unclaimed Property Litigation and you [Respondents] determine to withdraw, you agree to pay our Law Firms for all costs and expenses we have incurred, plus fees incurred to the date of your withdrawal ....
(Id. ¶ 9.) Finally, the Agreement contains an Alternative Dispute Resolution ("ADR") provision stating:
Any disputes relating to this Agreement ... will be resolved by alternate dispute resolution. Alternative dispute resolution means that you and our Law Firms agree to submit all disputes to an independent mediator mutually agreed upon.... In the event the parties are unable to resolve their disputes through mediation, the parties agree that the mediator shall require the parties to submit their disputes to an independent arbitrator selected by the mediator. The mediator will have the right to appoint himself as arbitrator in that proceeding. The parties shall be bound by the decision of the arbitrator and such decision shall be final and not subject to review *927except as to the issue of malfeasance or bias on the part of the arbitrator.
(Id. ¶ 22.)
At all relevant times, Respondents were parties to a consulting agreement with a third party, Total Assets Recovery System ("TARS"), "an organization of attorneys that were relators in qui tam actions regarding unremitted life insurance proceeds." (Award at PageID # :39.) The parties were concerned about the "effect of the TARS consulting agreement on the potential litigation under discussion," and the parties agreed that TARS' involvement in the contemplated unclaimed property filings would cause an "ethical conflict" and would "bankrupt the litigation." (Id. at PageID # :41.) The parties initially agreed that TARS had no claim to the litigation contemplated by the parties. (Id. )
Accordingly, for a number of months in 2014, Petitioners investigated and worked on Respondents' claims and were ready to file lawsuits in Illinois and Delaware by June 2014. (Id. )
Apparently concerned about TARS' interference, Respondents notified Petitioners by email on August 13, 2014 that they were "exercising [their] option to withdraw (item # 9) from our engagement and fee agreement." (Id. ; Resp. (Dkt. No. 12) at 5 ("Elder chose not to pay off TARS or proceed with the litigation.").) On September 14, 2014, Petitioners sent Respondents a bill for $233,597.26 in legal expenses, which remains unpaid. (Id. )
II. PROCEDURAL HISTORY
When Respondents did not pay the $233,597.26 invoice, Petitioners demanded mediation pursuant to the ADR clause of the Agreement. (Id. ) In response, on April 6, 2015, Respondents filed suit in the Circuit Court of Cook County seeking a declaratory judgment that the Agreement was unenforceable. (Id. at PageID # :42.) See also G3 Analytics, LLC ,
The parties then held an unsuccessful mediation pursuant to the terms of the Agreement, and proceeded to arbitration, which occurred on September 19 and 20, 2017 before the Arbitrator, retired Judge Susan Zwick. (Award at PageID # :38.) The arbitration included discovery, two days of evidentiary hearings, and post-hearing briefing. (Id. ) On December 21, *9282017, the Arbitrator issued the Award, finding that Petitioners were entitled to recover $233,597.26 in attorneys' fees and costs from Respondents based on paragraph 9 of the Agreement. (Id. at PageID # :46-47.) In issuing the Award, the arbitrator considered and rejected Respondents' arguments that the Agreement was unenforceable based on alleged violations of the Illinois Rules of Professional Conduct. (Id. at Page ID # :42-45 (outlining Respondents' arguments that the Agreement violated Illinois Rules of Professional Conduct 1.5(a), 1.5(e), and 1.8 ).)
On April 19, 2018,
LEGAL STANDARD
The FAA "governs the enforcement, validity, and interpretation of arbitration clauses in commercial contracts in both state and federal courts" and generally "creates a strong presumption in favor of arbitration." Jain v. de Mere ,
The court's review of an arbitrator's award is extremely limited. See Halim v. Great Gatsby's Auction Gallery, Inc. ,
ANALYSIS
I. PETITIONERS MEET § 9 REQUIREMENTS FOR CONFIRMATION
Petitioners seek an order confirming the Award in their favor under § 9 of the FAA. (Am. Pet. ¶¶ 3-5.) Pursuant to § 9, "at any time within one year after the award is made any party to the arbitration may apply to the court ... for an order confirming the award ... and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title."
*930Here, Petitioners filed their petition well within a year of the December 21, 2017 issuance of the Award by the Arbitrator. Furthermore, the parties did not specify a court in the Agreement, and Petitioners properly filed this action in the district where the Award was made, Chicago, Illinois. (See Agreement ¶ 22 ("The decision of the arbitrator may be enforced in any court of competent jurisdiction.").) By statute, we accordingly "must grant" the present petition unless the award has been vacated, modified, or corrected under §§ 10 and 11 of the FAA.
II. PUBLIC POLICY CHALLENGE
Respondents nevertheless argue that public policy concerns pursuant to § 2 of the FAA preclude the confirmation of the arbitration award. (Resp. at 1; Surreply (Dkt. No. 15-1).) Respondents allege Petitioners "coerce[d] [their] client to take an action to improve profitability of [a] contingent case, under the threat that otherwise the contingency counsel will refuse to file the case and charge the client $233,000 in hourly fees." (Resp. at 1.) Specifically, Respondents suggest that Petitioners required they meet with a third party, TARS, and apparently wanted Respondents to pay TARS a sum of money to waive their interest in the contemplated litigation. (Id. ) Respondents argue this "coercion against a client violates five separate Illinois Rules of Professional Conduct," specifically Rules 1.2(a), 1.3, 1.5(b)-(c), and 1.8(b). (Id. at 1, 9-14.) As the Rules of Professional Conduct have the force of law, Respondents argue Petitioners' actions thus go against "clear public policy" and render the Award of legal fees unenforceable.
Section 2 allows courts to refuse to enforce arbitration agreements "upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C § 2. Respondents do not assert their public policy arguments fall under the §§ 10 or 11 grounds for vacation or amendment of an award and admit §§ 10 and 11"do not mention public policy at all." (Resp. at 8.) Instead, they represent that challenges to an arbitration award under § 2 should be considered a "prerequisite" to enforcement under § 9. (Surreply at 4.)
In reply to Respondents' public policy argument, Petitioners argue that Respondents are barred from challenging the validity of the Award based on public policy because the three-month statute of limitations period under § 12 expired in March *9312018, months before Respondents raised their present protestations about the validity of the Award itself. (Reply at 2 (Dkt. No. 13) ("The Award has not been vacated, modified or corrected, and it is too late to do so now.").) Citing our limited scope of review at this stage, Petitioners further assert that Respondents cannot rely on § 2 of the FAA to argue against confirmation pursuant to § 9, as §§ 10 and 11 of the FAA provide the only grounds upon which the Court may vacate or modify the Award. (Id. at 4 (citing
We agree with Petitioners that Respondents cannot avoid confirmation of the Award based on public policy concerns. First, § 12 of the FAA clearly requires any party wishing to "vacate, modify, or correct an award" to serve notice of that motion "within three months after the award is filed or delivered."
Respondents argue that public policy arguments under § 2 have no time limits because public policy grounds are not mentioned in §§ 10 and 11. They claim public policy arguments can be raised at any time as a "prerequisite" to confirmation of an arbitration award. (See Surreply at 4-6 ("Illegal awards do not get more legal with the passage of time.").) Section 12, however, does not only apply to motions to vacate or modify pursuant to §§ 10 and 11. Instead, the language of § 12 is broad and applies to any "motion to vacate, modify, or correct an award" under the FAA, including defenses raised against petitions to confirm awards. See Cigna Ins. Co. v. Huddleston ,
Beyond being inconsistent with the statutory text, allowing for challenges under § 2 at any time would frustrate the core purpose of the FAA, which is to provide finality and prompt enforcement of arbitration awards. Chauffeurs, Teamsters, Warehousemen and Helpers, Local Union No. 135 v. Jefferson Trucking Co. ,
Even if Respondents' § 2 argument was timely, Respondents cannot raise a public policy challenge to the Agreement at issue. Courts have consistently held public policy arguments against enforcement pursuant to § 2 apply only to collective bargaining agreements. Hyatt Franchising, L.L.C. v. Shen Zhen New World I, LLC , No.
Further, the public policy grounds cannot be used to challenge the instant Award because no third parties are affected by the Award. As explained by the Seventh Circuit, the public policy exception against enforcement of an arbitration award aims to protect third parties:
[T]he sort of "public policy" that judges may use to annul an award is policy designed to protect the public against the parties to the arbitration.... [I]n a contest between a truck driver and an employer, an arbitrator could not conclude that a driver whose license has been revoked can continue to drive a truck. The parties cannot use arbitration to get around rules designed for the protection of people who have not agreed to arbitrate.... But when the *933parties are free under the law to agree on some outcome, the arbitrator's decision as their agent does not violate public policy.
Hyatt Franchising, L.L.C. ,
CONCLUSION
For the aforementioned reasons, we hereby grant Petitioners' amended petition, and enter judgment that Respondents Kenneth Elder and G3 Analytics are liable for $233,597.26 in attorneys' fees to Petitioners Hughes and Cohen Law. It is so ordered.
Petitioners represent they "invested hundreds of hours of time and substantial resources" in investigating Respondents' potential claims. (Am. Pet. ¶ 9.)
Petitioners initially filed their petition to confirm the award on March 22, 2018. (Dkt. No. 1.)
The FAA does not grant federal courts subject matter jurisdiction; instead, there must be an independent basis of jurisdiction over each dispute. Hall St. Assocs., L.L.C. v. Mattel, Inc.,
Section 10 of the FAA provides a court may vacate an award if (1) "the award was procured by corruption, fraud, or undue means"; (2) "there was evident partiality or corruption in the arbitrators"; (3) "the arbitrators were guilty of misconduct in refusing to postpone the hearing ... or in refusing to hear evidence pertinent and material to the controversy; or any other misbehavior" that prejudiced a party's rights; or (4) "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made."
Section 11 provides three grounds for modifying or correcting an award to "effect the intent" of and "promote justice" between the parties: (1) when there was "an evident material miscalculation of figures or an evident material mistake in the description" of a person, thing, or property that the award refers to; (2) when the arbitrator "ha[s] awarded upon a matter not submitted to them"; or (3) when the "award is imperfect in matter of form not affecting the merits of the controversy."
In their surreply, Respondents admit that they waived arguments pursuant to Rules 1.3 and 1.5(b)-(c), as these arguments were not raised before the Arbitrator. (Surreply at 6.) See Ganton Techs., Inc. v. Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am., U.A.W., Local 627 ,
Further, Respondents petitioned the Illinois Supreme Court for leave to appeal the appellate court decision, but their petition was denied. G3 Analytics, LLC v. Hughes Socol Piers Resnick & Dym, Ltd. ,
Reference
- Full Case Name
- HUGHES SOCOL PIERS RESNICK & DYM, LTD. and Cohen Law Group, P.C. v. G3 ANALYTICS, LLC and Ken Elder
- Cited By
- 1 case
- Status
- Published