Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-03048/USCOURTS-ca7-15-03048-0/pdf.json

Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 

---

In the

United States Court of Appeals

For the Seventh Circuit ____________________

Nos. 15-3037 & 15-3048

ACF 2006 CORP.,

Plaintiff-Appellee,

v.

MARK C. LADENDORF, ATTORNEY AT LAW, P.C., and TIMOTHY 

F. DEVEREUX,

Defendants-Appellants,

and

DAVID L. BEALS, SR., et al.,

Intervening Defendants-Appellants.

____________________

Appeals from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

No. 1:13-cv-01286-TWP-DML — Tanya Walton Pratt, Judge.

____________________

ARGUED APRIL 13, 2016 — DECIDED JUNE 23, 2016

____________________

Before EASTERBROOK, MANION, and ROVNER, Circuit Judges.

EASTERBROOK, Circuit Judge. Attorney William F. Conour 

stole more than $4.5 million from clients’ trust funds, was 

convicted of fraud, and is serving ten years in prison. Shortly 

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
2 Nos. 15-3037 & 15-3048

before these crimes came to light, attorney Timothy Devereux left Conour Law Firm, LLC, and took 21 clients with 

him to Mark Ladendorf’s law firm. These clients ultimately

produced attorneys’ fees aggregating some $2 million. This 

appeal presents a three-corner fight about who gets how 

much of that money. The contestants are Devereux and the 

Ladendorf Firm (collectively the Lawyers), several persons 

from whom Conour stole (collectively the Victims), and ACF 

2006 (the Lender), whose parent corporation Advocate Capital, Inc., made a loan to the Conour Firm to finance the legal 

work and out-of-pocket expenses that a contingent-fee law 

firm must bear while suits are in progress.

There are two principal questions. First, how much of the 

$2 million goes to the Conour Firm for the services it performed before Devereux left? Second, how are the funds to 

which the Conour Firm is entitled to be divided between the 

Victims and the Lender? After a bench trial, the district court 

concluded that the Conour Firm is entitled to some $775,000 

under principles of quantum meruit. 2015 U.S. Dist. LEXIS

112772 (S.D. Ind. Aug. 25, 2015). The judge also decided that 

the Lender has priority over the Victims. 2015 U.S. Dist. 

LEXIS 10942 (S.D. Ind. Jan. 30, 2015), reconsideration denied 

2015 U.S. Dist. LEXIS 21709 (S.D. Ind. Feb. 24, 2015). We start 

with the Lawyers’ appeal, because it determines how much 

is available for division between the Victims and the Lender.

In Indiana, as in other states, clients may discharge their 

lawyers for any reason. If newly hired counsel pursues the 

case to a successful conclusion, the original lawyer is entitled 

to be paid for the value of the work done. See Galanis v. Lyons & Truitt, 715 N.E.2d 858, 861 (Ind. 1999). That’s the doctrine of quantum meruit. At the bench trial, the parties conCase: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
Nos. 15-3037 & 15-3048 3

tested the value of the different lawyers’ contributions to 11

of the 21 cases that Devereux took from the Conour Firm to 

the Ladendorf Firm. Only two cases remain in dispute. The 

parties refer to them by initials: L.B. and R.S.

L.B. was a products-liability suit arising from the failure 

of a gear puller and the severe injury that the failure caused. 

Whether the gear puller was defective was the principal dispute. If so, L.B. stood to receive a substantial award (with a 

potential contest about how much); if not, L.B. would receive 

nothing. The Conour Firm filed a complaint, served standard interrogatories, and hired an expert who examined the 

location of the accident but could not perform scientific tests 

on the gear puller until the defendant turned it over, which 

happened at 5 p.m. on the day before Devereux moved from 

the Conour Firm to the Ladendorf Firm. On the same day, 

the defendant took two-hour depositions of two witnesses.

The real work of discovery began with testing, which occurred on the Ladendorf Firm’s watch and revealed that the 

gear puller’s metal was brittle because it had been exposed 

to hydrogen during manufacture. That scientific analysis 

(embodied in the expert’s report) was followed by more discovery (including a deposition of the defense expert) and a

settlement for $3.550 million on the eve of trial. The Ladendorf Firm had prepared a detailed trial plan and had more 

than 70 exhibits and 21 witnesses ready to go. The plaintiff’s 

contingent-fee contract with the Ladendorf Firm entitled it to 

almost $1.4 million in fees, plus about $40,000 in costs.

The district court concluded that the Conour Firm gets

40% of this $1.4 million, plus its own expenses of $3,000, for 

a total of roughly $600,000. The court gave a one-sentence 

explanation: “This is based upon the fact that the Conour 

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
4 Nos. 15-3037 & 15-3048

Firm engaged in discovery, hired an investigator to interview witnesses, took two depositions, inspected the facility, 

obtained the defective part at issue, began developing the 

destructive testing protocol, and prepared the settlement 

statement and the demand letter.” 2015 U.S. Dist. LEXIS

112772 at *24. What the judge did not explain is why the 

Conour Firm’s work, though valuable to the client, was anywhere close to 40% of either the effort expended or the value 

provided. The bulk of the work—both the scientific analysis 

and the legal time—was performed by the Ladendorf Firm 

after the gear puller became available for testing.

Three witnesses at trial put the value of the Conour 

Firm’s work at 10% of the total. No one testified differently. 

If we use expenses as a proxy for work done, the Ladendorf

Firm could have claimed a larger share. (It incurred $40,000 

of the $43,000 total expenses, or 93%.) Any estimate of the 

value of legal work is bound to be imprecise. Still, the fact 

that three witnesses chose 90% without contradiction (the 

Lender did not present a legal expert’s analysis of the relative value of the two law firms’ work) provides a starting 

point. Yet the district court did not mention that estimate or 

justify the 40% ratio it chose. And the Lender does not defend it substantively. Instead the Lender relies entirely on 

the standard of appellate review.

Appellate review of findings in a bench trial is deferential, see Fed. R. Civ. P. 52(a)(6), and the answer to “who provided what part of the value?” is a proposition of fact. Still, 

Rule 52(a) allows a court of appeals to reverse a finding

when the court has a definite and firm conviction that a mistake has been made. See Anderson v. Bessemer City, 470 U.S. 

564, 573 (1985); United States v. United States Gypsum Co., 333 

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
Nos. 15-3037 & 15-3048 5

U.S. 364, 395 (1948). We have such a conviction with respect 

to the allocation of fees for the L.B. matter. The Lender has 

not argued that it is entitled to a new trial if we disagree 

with the district court’s findings. Because the Lender has not 

attempted to justify any ratio other than 40%, we order the 

award reduced to 10% (roughly $140,000 plus $3,000 in expenses).

The R.S. case was another products-liability matter, settled for a total of $520,000. One defendant paid $20,000 while 

the Conour Firm was handling the case, and the remaining 

defendants paid $500,000 after Devereux moved to the 

Ladendorf Firm. The Ladendorf Firm received a contingent 

fee of $200,000, or 40% of the $500,000 collected while it had 

the case. The district court found that the Conour Firm is entitled to 60% of that $200,000, or $120,000. 2015 U.S. Dist. 

LEXIS 112772 at *22–24.

That allocation seems generous to the Ladendorf Firm, 

because the judge found that the Conour Firm did essentially all of the work and that the case settled promptly after 

Devereux moved to the Ladendorf Firm. Nonetheless the 

Lawyers tell us that 60% is too high—that, indeed, the Conour Firm should get nothing. This is not because of any estimate of the amount of work done; the Lawyers concede 

that almost all of the legal work occurred while Devereux

was at the Conour Firm. Instead the Lawyers insist that the 

Conour Firm should be docked for damaging the plaintiff’s 

prospects in two ways: (a) accepting only $20,000 from one 

defendant, and (b) not paying all of the expert witness’s invoice. (The Conour Firm told R.S. that it was holding on to 

the entire $20,000 to cover costs already incurred, but apparently some of that money found its way to Conour’s pocket.)

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
6 Nos. 15-3037 & 15-3048

Although the Lawyers assert that settling with one defendant for $20,000 decreased the total recoveries obtainable 

from the case, they do not explain how. Damages would 

have been joint and several; other defendants remained liable (if liable at all) for the full injury. As for the failure to pay 

the expert’s entire bill: the Ladendorf Firm didn’t pay either, 

and Devereux testified that he had decided that an expert 

was unnecessary. Whether either or both firms stiffed the 

expert would be important in a suit by the expert seeking 

full compensation, or a demand by R.S. for some of the 

$20,000 that the Conour Firm kept, but it does not affect how 

the $200,000 fee should be divided between the two law 

firms.

The Lawyers raise one more issue. The district court added 8% prejudgment interest to the award. 2015 U.S. Dist. 

LEXIS 112772 at *31–32. The Lawyers maintain that this is inappropriate because all of the disputed fees had been held in 

an IOLTA account pending the district court’s decision. 

IOLTA stands for interest on lawyers’ trust account, and in 

Indiana that interest must be paid to groups that will use the 

money to secure legal representation for those who cannot 

afford it. Ind. R. Prof. Conduct 1.15(f). The Lawyers contend 

that they should not be required to pay prejudgment interest 

when they did not receive any interest to begin with. Interest 

is compensation for the time value of money and is therefore 

part of complete compensation. See West Virginia v. United 

States, 479 U.S. 305, 310 & n.2 (1987); In re Oil Spill by the 

Amoco Cadiz off the Coast of France on March 16, 1978, 954 F.2d 

1279, 1331–37 (7th Cir. 1992). But if a given pot of money has 

no time value (at least to law firms), then there is nothing to 

apportion between the parties—no reason why the Conour 

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
Nos. 15-3037 & 15-3048 7

Firm should be compensated for delay in payment when the 

Ladendorf Firm is not.

Indiana law appears to support the Lawyers’ position. 

Kummerer v. Marshall, 971 N.E.2d 198, 202 (Ind. App. 2012). 

Once again, the Lender has chosen not to engage on the merits. Its brief does not discuss Kummerer or otherwise defend 

the substance of the district court’s decision. Instead the 

Lender contends that the Lawyers waived this point by not 

calling it to the district judge’s attention.

The Lawyers have a good reason for this, however: The

Lender never asked for prejudgment interest. The court added interest unbidden (sua sponte as lawyers like to say). The 

Lawyers might have filed a motion to amend the judgment 

under Fed. R. Civ. P. 59(e), but the opportunity to file such a 

motion is an option rather than a command. A litigant is 

never required to remonstrate with the judge (to take an exception) once a decision has been made. Fed. R. Civ. P. 46. It 

is enough to present one’s views on contested issues before 

the decision is made. As neither the Lender nor the Victims 

requested prejudgment interest, the Lawyers had no reason 

to think that this was an open issue and therefore were not 

obliged to address the subject before the judge issued her 

decision. The award of prejudgment interest was a misstep 

that must be undone on remand.

It follows from this discussion that the Lawyers owe the 

Conour Firm less than the current value of the Conour 

Firm’s indebtedness to the Lender—and substantially less 

than what Conour owes to the Victims. The outcome thus 

turns on priority between the Lender and the Victims; one or 

the other will receive everything the Lawyers must disgorge.

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
8 Nos. 15-3037 & 15-3048

Advocate Capital made a loan in 2008 and filed a financing statement under the Uniform Commercial Code. Its lien 

dates to that year. (The transfer from Advocate to ACF does 

not affect priority.) The Victims did not get a judgment 

against Conour, either directly or via the restitution awarded 

in the criminal prosecution, until 2014. It follows, the district 

court held, that the Lender has priority under the UCC. 2015 

U.S. Dist. LEXIS 10942 at *14–30.

The Victims contend that Ind. Code §30-4-3-22 gives 

them priority as the victims of a breach of trust. The district 

court rejected this argument on the ground that neither the 

legal theory nor the statute had been identified in the Victims’ complaint. 2015 U.S. Dist. LEXIS 10942 at *29–30; 2015 

U.S. Dist. LEXIS 21709 at *5–6. That is not a satisfactory reason. Complaints plead claims, which is to say grievances. The 

Victims’ grievance was stated, as Fed. R. Civ. P. 8 contemplates, plainly and without unnecessary detail: Their trust 

funds were plundered, and they want recompense. The reasons why they believe that they have priority over the Lenders need not be pleaded, because complaints need not cite 

authority or set out a line of legal argument. See, e.g., Johnson 

v. Shelby, 135 S. Ct. 346 (2014); Bartholet v. Reishauer A.G. (Zürich), 953 F.2d 1073 (7th Cir. 1992). The Victims have a single 

claim for relief; multiple legal theories in support of that 

claim differ from multiple claims that must be separately 

pleaded. See, e.g., Frank v. Walker, 819 F.3d 384, 387–88 (7th 

Cir. 2016). Making legal arguments in support of one’s claim 

comes after the pleadings. The Victims raised Ind. Code §30-

4-3-22 at the right time, and in the right way.

The district court concluded, in the alternative, that §30-

4-3-22 does not support the Victims to the extent they seek 

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
Nos. 15-3037 & 15-3048 9

relief against funds held by the Conour Firm, as opposed to 

Conour personally. 2015 U.S. Dist. LEXIS 21709 at *7–9. That 

conclusion has more support.

If a trustee wrongfully removes money (or other property) from a trust, Ind. Code §30-4-3-22(b) and (c)(1) provide 

ways for the court to order the assets returned. But the Victims are not trying to retrieve what Conour took or funds 

that can be traced to his theft. The money generated by the 

Lawyers has never been held in trust for the Victims and is 

unrelated to Conour’s crimes. The Victims therefore must 

rely on §30-4-3-22(c)(2), which provides for situations in 

which the trust’s assets “cannot be traced and identified”:

(A) In a case of commingling of funds or property, the beneficiary is entitled to a lien against the trustee’s individual property 

from the date and in the amount of the fund or the value of the 

property at the time of the commingling.

(B) In a case of conversion of property, the beneficiary is entitled 

to a lien against the trustee’s individual property from the date 

and according to the value of the property at the time of the conversion.

Conour converted the Victims’ trust funds before Advocate 

Capital made its loan, so if the Victims have a lien under this 

statute it comes ahead of the Lender’s interest. But the district court thought that the Victims lose because subparagraphs (A) and (B) both say that the lien is “against the trustee’s individual property”. Funds held by the Conour Firm, 

or to which the Conour Firm becomes entitled, are not William Conour’s “individual property”. Nor was the Conour 

Firm the trustee; William Conour was trustee of all client 

funds held in trust, so “individual property” refers to Conour’s personal property.

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
10 Nos. 15-3037 & 15-3048

Conour had (and may still have) an interest in the Conour Firm as a member of the limited liability company, but 

Conour and the LLC are distinct entities. (The Victims have 

not argued that Indiana’s standards for veil-piercing are satisfied.) It was the LLC, not Conour, that employed Devereux

and borrowed money from Advocate Capital. The Victims 

have not asked the court to transfer to them the value of 

Conour’s membership interest in the LLC, which does not 

appear to have any monetary value (and, if it does, may 

have been seized already to provide restitution in the criminal prosecution). Instead the Victims want the benefit of 

funds that the Lawyers owe to the Conour Firm, and §30-4-

3-22(c)(2) does not create such a remedy. Not directly, anyway. Not without the aid of another statute.

The Conour Firm is a professional-services business, 

which in Indiana is subject to a rule that the use of a corporate form does not change the relation between lawyer (or 

physician) and client. The Victims rely on Ind. Code §23-1.5-

2-7:

(a) The relationship between an individual performing professional services as an employee of a professional corporation and 

a client or patient is the same as if the individual performed such 

services as a sole practitioner.

(b) The relationship between a professional corporation performing professional services and the client or patient is the same as 

between the client or patient and the individual performing the 

services.

If William Conour had operated his law practice as a proprietorship or partnership, then under §30-4-3-22(c)(2) all of its 

assets would be available to aggrieved clients, and a claim

based on a breach of trust would come ahead of a lender’s 

interest if the breach predated the loan. Section 23-1.5-2-7 

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
Nos. 15-3037 & 15-3048 11

tells us that the client has the same rights vis-à-vis a professional corporation as it does against a solo practitioner—and 

one of those rights is to recompense for breach of trust.

As far as we can tell, Indiana’s judiciary has yet to consider the effect of §23-1.5-2-7 in the 36 years since its enactment, though it did say that the law’s predecessor was designed to prevent the corporate form from changing the traditional relation between a professional and a client or patient. See Birt v. St. Mary Mercy Hospital of Gary, Inc., 175 Ind. 

App. 32, 39–43 (1977). That seems to give the Victims the 

upper hand in their contest with the Lender. We can imagine 

some possible responses. Perhaps Indiana’s legislature 

meant the word “corporation” literally, so that a lawyer who 

arranges for his assets to come to an LLC avoids the application of §23-1.5-2-7. Perhaps something about the relation between §30-4-3-22(c)(2) and §23-1.5-2-7 means that the former 

trumps the latter. Neither of these possibilities seems likely. 

But we don’t have to decide because, continuing a pattern of 

refusing to engage on the merits, the Lender does not make 

either argument. Indeed, the Lender’s brief does not cite §23-

1.5-2-7 or consider the possibility that assets of a professional 

LLC are imputed to the lawyer (or the professional debts of 

a lawyer imputed to the LLC) for the purpose of statutes 

such as §30-4-3-22(c)(2).

The norm that victims of a lawyer’s breach of trust have a 

remedy notwithstanding the later grant of a security interest 

to a commercial lender is one of long standing and is reflected in Indiana by §30-4-3-22(c)(2). Section 23-1.5-2-7 tells us 

that the use of the corporate form to hold assets of a legal 

practice does not change that norm. It follows that the VicCase: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12
12 Nos. 15-3037 & 15-3048

tims have priority over the Lender in the funds that the 

Conour Firm is entitled to receive from the Lawyers.

The judgment of the district court is reversed, and the 

case is remanded for the entry of judgment consistent with 

this opinion.

Case: 15-3048 Document: 51 Filed: 06/23/2016 Pages: 12