Edelson PC v. Bandas Law Firm PC

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 PALMERPC d/b/a DARRELL PALMER LAW OFFICE, a suspended Californiaprofessional 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.

No. 16 C 11057

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

July 20, 2018

Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

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 ShowCause [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 assoon 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., Case 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 wascaught 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 Plai

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