Chicago Import, Incorporated v. Wolin & Rosen, Ltd. , 608 F. App'x 418 ( 2015 )

NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with
Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued June 10, 2015
Decided July 2, 2015
Before
DANIEL A. MANION, Circuit Judge
ANN CLAIRE WILLIAMS, Circuit Judge
DAVID F. HAMILTON, Circuit Judge
No. 14-2945
CHICAGO IMPORT, INC. Appeal from the United States District
Plaintiff-Appellee, Court for Northern District of Illinois,
Eastern Division.
v.
No. 09 CV 02885
AMERICAN STATES INSURANCE CO.,
Defendant, Manish S. Shah,
Judge.
APPEAL OF: WOLIN & ROSEN, LTD.
ORDER
In this interlocutory appeal, the law firm of Wolin & Rosen, Ltd., which formerly
represented plaintiff Chicago Import, Inc., challenges the district court’s order that the
firm turn over case-related files to its former client. When Chicago Import had
demanded those files, Wolin & Rosen asserted a retaining lien under Illinois common
law on the ground that the company owed the law firm about $60,000. The district
court, though, did not abuse its discretion in concluding that the client’s need for the
documents outweighed Wolin & Rosen’s need for immediate payment. Thus, we affirm.
No. 14-2945 Page 2
I.
Chicago Import and American States Insurance Company are embroiled in
insurance coverage litigation. Chicago Import had taken out a $5 million insurance
policy from American States Insurance for commercial property it owned in Chicago.
That property burned down in May 2007, and Chicago Import submitted a claim for $5
million in inventory losses and debris-removal costs. After two years had passed
without receiving payment from American States Insurance, Chicago Import sued in
federal court—under the court’s diversity jurisdiction—alleging breach of contract.
Chicago Import has changed lawyers multiple times. At the outset, it was
represented by Gordon & Rappold, LLC. When that firm moved to withdraw eight
months into the litigation, replacement counsel moved the district court to compel
Gordon & Rappold to turn over the case files. In response Gordon & Rappold asserted a
retaining lien. In Illinois, an attorney may assert a retaining lien on a client’s legal files if
that client has outstanding, unpaid legal bills. Johnson v. Cherry, 422 F.3d 540, 554 (7th
Cir. 2005); Twin Sewer & Water, Inc. v. Midwest Bank & Tr. Co., 720 N.E.2d 636, 639–40 (Ill.
App. Ct. 1999); Upgrade Corp. v. Michigan Carton Co., 410 N.E.2d 159, 160–61 (Ill. App.
Ct. 1980). A magistrate judge ordered Chicago Import to pay Gordon & Rappold
$63,440 or post security in exchange for the files.
Over the next four years, the case plodded through discovery, and Chicago
Import continued to swap counsel. It eventually retained the law firm of Wolin &
Rosen, Ltd., in November 2012. About a year and a half later, a new district judge was
assigned to the case, and Wolin & Rosen moved to withdraw as counsel, contending
that it and Chicago Import were unable to resolve billing disputes. Chicago Import,
represented by yet another firm, moved the district court to order Wolin & Rosen to
turn over its case files. The new firm argued that Wolin & Rosen had wrongly
asserted a retaining lien over 44 boxes of case files by falsely alleging that Chicago
Import owed the firm $60,000 in unpaid fees. The new firm asked the court to order the
files turned over to it because discovery was closed and the parties were ready to file
dispositive motions. The district court ordered Wolin & Rosen to turn over the files
without requiring Chicago Import to pay any outstanding fees or post security. The
court explained that it was following Johnson v. Cherry, 422 F.3d 540 (7th Cir. 2005),
where this court outlined how a district court should decide whether to order a lawyer
to turn over files to a client. Johnson held that a district court should follow three steps:
No. 14-2945 Page 3
First, determine the validity of the client’s debt and the law firm’s lien; second, assess
the client’s need for the documents and its ability to pay its debt; and third, balance the
firm’s need for payment against the client’s need for access. 422 F.3d at 555.
In applying Johnson, the court first noted that it was “content to assume without
deciding that the firm is owed money and that that amount is approximately $60,000.”
But it also found that a $60,000 debt to the firm was not particularly significant for the
firm when viewed against “the grand scheme of this case,” which the parties had been
litigating for five years and which generated “more than 40 boxes” of files. Second, the
court observed, the client furnished little information about its inability to pay, so that
counted “a little bit” against the client. But, the court added, Wolin & Rosen “at least
twice” conceded that the client needs the file. This concession, the court explained, was
“pretty obvious and reasonable” because, unlike the situation during earlier changes in
counsel, discovery in this “very old case” is now—and needs to remain—closed so the
court can finally resolve it. Third, the court balanced the firm’s interest in compensation
against the client’s need to have the files to proceed at once with “dispositive motions.”
It concluded that the need for the files outweighed the firm’s interest and ordered the
firm to turn over the client files immediately, without payment or security.
Consistent with its plan to resolve the case, the court ordered the parties to file
dispositive motions within about three months of the turnover order. Both parties did
so. They briefed their motions over the next two months, and just five weeks ago the
court granted and denied the motions in part. And at the last status hearing with the
district judge, the parties agreed to participate in a settlement conference.
II.
Wolin & Rosen’s appeal contests the district court’s order that the firm turn over
Chicago Import’s case files without requiring the company to pay up or post security.
We begin by observing that the district court had jurisdiction to address the fee dispute
between Chicago Import and non-party Wolin & Rosen. Lawyer-client fee disputes that
can affect the client’s recovery in the underlying litigation properly fall within the
court’s supplemental jurisdiction. See Humphrey v. United States, 2015 WL 2447724,
Nos. 14-3087, 14-3489 & 15-1065, at * 2 (7th Cir. May 22, 2015); Goyal v. Gas Tech. Inst.,
718 F.3d 713, 717 (7th Cir. 2013); Elusta v. City of Chicago, 696 F.3d 690, 694 (7th Cir.
2012). The order is also immediately appealable. See Habitat Educ. Ctr. v. U.S. Forest
Serv., 607 F.3d 453, 455 (7th Cir. 2010). So we proceed to the merits.
No. 14-2945 Page 4
This appeal turns on the correct interpretation of Johnson. In Wolin & Rosen’s
view, Johnson holds that, before ordering a turnover of files, a district court must require
the client to pay (or post security for) unpaid legal bills, unless the client proves that it
cannot pay, which Chicago Import did not do. The firm cites to a passage in Johnson
instructing that “until” the client supplies evidence of both its need for the documents
and its inability to pay, “the district court may not simply disregard the retaining lien.”
422 F.3d at 556.
But the district court did not “simply disregard” the lien. It carefully applied all
three of Johnson’s steps. First, it assumed that Wolin & Rosen was owed $60,000, but its
need for immediate payment was mitigated by the long history of the litigation, in
which Wolin & Rosen had itself been counsel for over eighteen months. Second, it
observed that Chicago Import “obvious[ly]” needed the files for the upcoming
dispositive motions, but the company had provided no evidence of an inability to pay.
In applying the third Johnson step, the court acted within the bounds of its discretion by
weighing these competing factors and concluding that Chicago Import’s immediate
need for the files, despite its possible ability to pay for them, outweighed the law firm’s
immediate need for the $60,000. Johnson, 422 F.3d at 554; First Wis. Mortg. Tr. v. First
Wis. Corp., 571 F.2d 390, 396 (7th Cir.), rev’d in part on other grounds on reh’g, 584 F.2d 201
(7th Cir. 1978) (en banc).
The court’s decision to order the turnover without payment or security was
reasonable. It was understandably concerned with the need to bring this “very old case”
to a conclusion. Reopening discovery to allow Chicago Import to recreate the files, or
ordering the company to post security or to pay Wolin & Rosen for the files before the
case could proceed, would have created further delays that the court could reasonably
refuse to tolerate. Furthermore, the court demonstrated its commitment to a speedy
resolution of the case by holding the parties to its post-turnover scheduling order that
called for prompt, dispositive motions and by quickly deciding those motions, bringing
the case close to final resolution. Given the court’s broad discretion to manage its
docket, see Keeton v. Morningstar, Inc., 667 F.3d 877, 884 (7th Cir. 2012), its decision to
order the files turned over immediately, before payment, was therefore reasonable.
Lastly, at oral argument the parties told us that Wolin & Rosen has initiated
collection proceedings in state court concerning the same attorney’s fees that are the
subject of the retaining lien. The firm therefore has the opportunity to be made whole
No. 14-2945 Page 5
without us disturbing the district court’s careful balancing of the equities and
discretionary docket management.
III.
For the foregoing reasons, the judgment of the district court is AFFIRMED.