trustee.” (/d.) However, neither Cheung nor the trustee filed an arbitration demand in
the ensuing 30 days, nor in the ensuing years (D.E. 106, Ex. D { 4); indeed, Plaintiff has
not even offered to file an arbitration demand now.

On February 28, 2005, Mr. Russo, the bankruptcy trustee, notified the bankruptcy
court that “the [bankruptcy] case remains open because of a federal arbitration case in the
Federal District Court in Chicago” and that he was in frequent contact with Mr. Joyce.
(d., Ex. G.) Ina May 31, 2005 letter to the Bankruptcy Court regarding the remaining
claim against Deloitte, Mr. Russo stated that he “anticipate[s] that Mr. Joyce will either
negotiate a settlement or commence the appropriate [arbitration] within the next 60
days.” (Id., Ex. H.) However, no arbitration claim was ever filed by the Cheung estate
against Deloitte. (/d., Ex. A 2; id., Ex. H; D.E. 103 at 2.)

The final award of the arbitration tribunal and its statement of reasons, which
denied all of the Plaintiffs’ claims (save for Mr. Cheung, who did not file any arbitration
demand) was entered in December 2005 (D.E. 103, Ex. B at 10); this Court confirmed
the award in January 2006. (D.E. 99.)

DISCUSSION

Deloitte has moved to dismiss Cheung’s case with prejudice for want of
prosecution. (D.E. 94.) In response to Deloitte’s motion, Cheung has argued that he did
not have standing to sue when he filed the action in April 2002, and thus the Court should
dismiss the action for lack of subject matter jurisdiction. (D.E. 104 at 1.) In accordance
with precedent, the Court considers the subject matter jurisdiction issue prior to other
issues. See, e.g., Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 93-94

(1998).



now seeks be without prejudice, especially given the trustee’s express and longstanding
knowledge of this case, given that Article III standing is satisfied and that what is at issue
are belatedly-raised prudential standing issues. See, e.g., Kelly E., 207 F.3d at 934
(collecting precedents); Ensley, 171 F.3d at 320.
I. Want of Prosecution

Defendant has moved to dismiss Cheung’s claims with prejudice for want of
prosecution pursuant to Fed. R. Civ. P. 41(b). (D.E. 94.) The District Court’s authority
to dismiss in this manner “has generally been considered an ‘inherent power,” governed
not by rule or statute but by the control necessarily vested in courts to manage their own
affairs so as to achieve the orderly and expeditious disposition of cases.” Link v. Wabash
R.R. Co., 370 U.S. 626, 630-31 (1962); see also id. at 629 (“The authority of a federal
trial court to dismiss a plaintiff's action with prejudice because of his failure to prosecute
cannot seriously be doubted.”) (footnote omitted). “Once a party invokes the judicial
system by filing a lawsuit, it must abide by the rules of the court; a party can not decide
for itself when it feels like pressing its action and when it feels like taking a break
because trial judges have a responsibility to litigants to keep their court calendars as
current as humanly possible.” James v. McDonald’s Corp., 417 F.3d 672, 681 (7th Cir.

2005) (quoting GC/U Employer Ret. Fund v. Chicago Tribune Co., 8 F.3d 1195, 1198-99

litigation in this Court and orders related thereto. Specifically, in September 2004, all of
the Plaintiffs in this case (including Mr. Cheung, and Mr. Russo, as Trustee of the
bankruptcy estate of Moses Cheung) moved with Defendants Jeffries and Weinhuff to,
inter alia, dismiss all claims against Defendants Jeffries and Weinhuff and to confirm a
settlement, (/d., Ex. D at 6.) The Court dismissed not only any claims of Mr. Cheung
personally, but also any claims belonging to his bankruptcy estate, as represented by the
trustee. (/d., Ex. E.) Under that order, the proceeds of the settlement were distributed,
and Mr. Cheung’s estate received $241,675, before costs and attorney’s fees. (Id., Ex. F.)

10



(9th Cir. 2000) (“injury in fact” requirement satisfied when insurer’s failure to defend
allegedly resulted in plaintiffs’ filing for bankruptcy). Likewise, the causation
requirement is satisfied because the Amended Complaint describes a direct relationship
between Defendant’s alleged conduct and Plaintiff's alleged injuries. Lujan, 504 U.S. at
560; D.E. 12 in Case 02-3088 at 5-6, 31-36, 38-39. The alleged injury is also redressable
by the requested relief because money damages would compensate Plaintiff for his
financial losses. See Pershing Park Villas Homeowners Ass’n, 219 F.3d at 900.5

The question of whether Plaintiff could actually obtain damages, i.e., whether he has a
valid cause of action, is immaterial to the Article Il inquiry. See, e.g., Bd. of Educ. of
Oak Park & River Forest H.S. Dist. No. 200 y. Kelly E., 207 F.3d 931, 934 (7th Cir.
1999) (rejecting a standing challenge and noting that “a party’s failure to establish a
claim for relief differs from a deficiency in subject-matter jurisdiction”) (collecting
cases); see also Pershing Park Villas Homeowners Ass’n, 219 F.3d at 900 (“[NJor can
there be any question that these injuries were literally ‘suffered by’ the [plaintiffs],
though the right to sue on them may have passed to their bankruptcy estates by operation
of the bankruptcy laws.”) (citing Citizens for a Better Environment, 523 U.S. at 103);
accord Dunmore v. United States, 358 F.3d 1107, 1112 (9th Cir. 2004) (plaintiff that
filed for bankruptcy after cause of action accrued satisfied Article III standing

requirement even though her claim for tax refund belonged to bankruptcy estate); Ensley

5 With respect to Article III injury and redressability, the Court notes that a person
who has declared Chapter 7 bankruptcy can receive money at the conclusion of the
bankruptcy process under the provisions of the Bankruptcy Code if there are sufficient
funds—e.g., if substantial recoveries came in via a successful lawsuit. See 11 U.S.C. §
726(a)(6) (providing that, after various other claims are satisfied, property of the
bankruptcy estate in the Chapter 7 bankruptcy is distributed to the debtor).

7



I Standing to Sue

Plaintiff maintains that he does not have standing to sue because he filed for
Chapter 7 protection after his cause of action accrued, and thus the asserted cause of
action is the property of his bankruptcy estate. (D.E. 104 at 1.) Plaintiff further argues
that, because he lacked standing when he filed suit, the Court lacks subject matter
jurisdiction over the suit. (/d. at 3.)

Standing generally has two aspects—constitutional (Article III) standing and
prudential considerations of standing, which involve judicially self-imposed limits on the
exercise of federal jurisdiction. See, e.g., Warth v. Seldin, 422 U.S. 490, 498-499 (1975).
Precedent instructs that “the core component of standing is an essential and unchanging
part of the case-or-controversy requirement of Article III.” Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560 (1992). Specifically, Article III standing is comprised of
three elements: (1) injury in fact; (2) causation; and (3) redressability. See id. at 560-61.
Because issues of Article III standing relate to a court’s subject matter jurisdiction over a
matter, they must be addressed whenever they are present. See, e.g., Bender v.
Williamsport Area Sch. Dist., 475 U.S. 534, 541-542 (1986).

An “injury in fact” is a harm suffered by the plaintiff that is “concrete” and
“actual” or “imminent,” as opposed to “conjectural” or “hypothetical.” See, e.g., Lujan,
504 U.S. at 560 (collecting cases; internal quotation marks and citations omitted). The
Amended Complaint states that Plaintiff suffered extensive financial losses from
Defendant’s allegedly fraudulent scheme. (D.E. 12 in Case 02-3088 at 25, 31-36, 38-39.)
These alleged injuries are undoubtedly concrete for Article III purposes. See, e.g.,

Pershing Park Villas Homeowners Ass'n v. United Pacific Ins. Co., 219 F.3d 895, 900

6



See Ensley, 171 F.3d at 320; see also Tate v. Snap-On Tools Corp., No. 90 C 4436, 1997
WL 106275, at *4 (N.D. Ill. Feb. 11, 1997) (Pallmeyer, M.J.) (“{Constitutional] standing
turns on whether the plaintiff can show an injury in fact traceable to the conduct of the
defendant and likely to be redressed by the relief sought . . . [while] designation of the
real party in interest entails identifying the person who possesses the particular right
sought to be enforced.”). Objections to standing based upon prudential considerations
are waived if not timely raised. See, e.g., Kelly E., 207 F.3d at 934 (collecting
precedents); see also Ensley, 171 F.3d at 320 (Rule 17(a) objection waived when it was
raised too late). Plaintiffs objection relates to prudential considerations, specifically,
whether a debtor is a real party in interest under Rule 17(a), not Article III standing.
Consequently, this objection was waived when not raised in a timely fashion, at least in
with respect to the issue of whether any dismissal must be without prejudice because of
the “jurisdictional” grounds asserted by Plaintiff concerning the suit he initiated.
Moreover, to the extent necessary to address Rule 17 issues (and to protect other parties
than the Plaintiff), this Court could allow the bankruptcy estate to be added or
substituted, if that is required to ensure that the Defendant is protected via any dismissal
and/or the proper parties are compensated from any putative recoveries that flow through

the bankruptcy estate.* None of these concerns requires that the dismissal that Plaintiff

s In this regard, the Court notes that when Mr. Joyce accepted appointment in the
bankruptcy court, upon motion of the trustee, as special counsel to pursue the claims that
Mr. Cheung filed in this Court, Mr. Joyce signed an affidavit referencing this action and
representing that “any future representation . . . in pursuit of the above referenced causes
of action will be on behalf of the interest of the Chapter 7 trustee and of the debtor’s
estate.” (D.E. 106, Ex. B.) Accordingly, pursuit of the claims in this case, and pursuant
to Judge Gettleman’s arbitration order, will enure to the benefit of the estate and none of
the Chapter 7 creditors will be prejudiced. The Court further notes that the trustee was
well aware of this case, and in fact has expressly benefitted (as has the estate) from the

9



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
CONRAD P. LEE, et al., )
)
Plaintiffs, )
) No. 02 C 3087

v. )
)

DELOITTE & TOUCHE LLP, et al., ) Judge Mark Filip
)
Defendants. )

MEMORANDUM OPINION AND ORDER

This is a multi-party, consolidated action in which one of the plaintiffs, Moses
Cheung (“Plaintiff” or ““Cheung”), has alleged that he was fraudulently induced into
participating in an unsuccessful business transaction—specifically, a “roll-up” of several
companies into a larger corporate entity.’ (D.E. 12 in Case 02-3088 at 2.) Defendant
Deloitte & Touche (“Defendant” or “Deloitte”) moves to dismiss Cheung’s claims with
prejudice for want of prosecution. (D.E. 94.) Plaintiff responded to Defendant’s motion
by suggesting that the case should be dismissed without prejudice for lack of subject
matter jurisdiction. (D.E. 104.) For the reasons stated below, the Court concludes that
Plaintiff's suggestion that the Court lacks subject matter jurisdiction is incorrect, and thus
the Court declines to dismiss the case pursuant to Fed. R. Civ P. 12(h)(3). (/d.) As also
explained below, although the Court likely would be within its discretionary authority to
dismiss the case with prejudice for want of prosecution, the Court will afford Plaintiff

one last chance to initiate an arbitration, as he indicated he would long ago. (See, e.g.,

1 Docket entries in Case 02-3087 are designated as“D.E. __,” followed by the
appropriate district court docket number. Docket entries prior to the consolidation are
designated as “D.E. inCase_.”



Nonetheless, this Court has never expressly warned Mr. Cheung that his case
would be subject to dismissal for want of prosecution if he did not initiate the arbitration
proceeding. See Aura Lamp & Lighting, 325 F.3d at 908. In an abundance of caution,
the Court will give Plaintiff one last chance to initiate the arbitration; if he does not do so
within twenty-one days of entry of this order, the case will be dismissed with prejudice
for want of prosecution.’

Finally, the Court does not wish to suggest that any delay in initiating the
arbitration has necessarily been an imprudent decision. In the time since this overall case
was ordered to arbitration, the other Plaintiffs have spent substantial resources arbitrating
their claims against Deloitte. In the eventual twenty-eight day hearing, nearly sixty
witnesses testified, including experts, and over 1,200 exhibits were introduced. That
arbitration led to a complete rejection of the co-Plaintiffs’ claims against Deloitte by a
unanimous three-member arbitration tribunal. Under the circumstances, further pursuit
of the Cheung claims may (or may not) be imprudent. In either event, if another
arbitration is to occur, it must be initiated within twenty-one days of entry of this order,

or the case will be dismissed with prejudice for want of prosecution.

° In this case, the issue of potential prejudice to Defendant because of delay is less

significant than it typically would be. Specifically, this case is in the atypical posture of
having been the subject of extensive discovery (taken in connection with the arbitration
of the other Plaintiffs’ unsuccessful claims against Deloitte) and a full hearing
concerning the bulk of the allegations at issue. Were the playing field more skewed
because of the delay, the Court might not give Mr. Cheung this final chance to initiate the
arbitration.

12



(7th Cir. 1993), and affirming dismissal of case with prejudice, after plaintiff had delayed
one year and had not yet initiated arbitration) (further internal quotation marks and
citation omitted); accord, e.g., Morris v. Morgan Stanley & Co., 942 F.2d 648, 652 (9th
Cir. 1991) (affirming dismissal with prejudice for want of prosecution, after party
delayed in initiating arbitration for almost two years after court’s ruling that the case was
subject to arbitration); Gonino v. Unicare Life & Health Ins. Co., No. Civ.A.
302CV2501G, 2005 WL 608158, at *2-3 (N.D. Tex. Mar. 16, 2005) (dismissing case
with prejudice for want for prosecution after party delayed initiating arbitration for
nineteen months after court ordered that case was subject to arbitration).

Since dismissal with prejudice is a severe sanction, Seventh Circuit precedent
instructs that a court should not dismiss for want of prosecution without giving a plaintiff
notice that the Court is contemplating dismissal. See, e.g,, Aura Lamp & Lighting, Inc. v.
Int'l Trading Corp., 325 F.3d 903, 908 (7th Cir. 2003) (citing Ball v. City of Chicago, 2
F.3d 752, 760 (7th Cir. 1993)). It is not clear that such a warning is required when, as in
the instant case, the plaintiff is also seeking dismissal and has, for all practical purposes,
conceded that he had failed to prosecute the case. (See generally D.E. 104 (raising
standing objection but otherwise failing to respond to merits of Defendant’s motion to
dismiss).) In addition, Deloitte long ago expressly and in writing reserved the right to
move for dismissal with prejudice of Cheung’s claims if he did not proceed to initiate the
arbitration process. (See D.E. 103, Ex. A at 2 (March 2004 joint status report, in which
Deloitte states that, “Cheung has taken no steps to commence an arbitration promptly
after Judge Gettleman’s order was entered in 2002,” and that Deloitte reserved the “right

to seek dismissal of this action for want of prosecution”).)

11



v. Cody Resources, Inc., 171 F.3d 315, 319 (5th Cir. 1999) (shareholder had Article III
standing to sue for diminution in share value even though state law imposed prudential
limitation on shareholder’s “standing” to sue).

Even if a plaintiff has Article II standing, prudential considerations may limit a
plaintiff's ability to invoke federal jurisdiction. See, e.g., Warth, 422 U.S. at 499-500.
Prudential standing is comprised of both judicially-created limitations, such as the
prohibition on third-party standing, see id., and statutorily-imposed limitations, such as

the Rule 17(a) requirement that suits must be maintained by the real party of interest.’

6 Plaintiff cites a couple of district court cases, West v H&R Block Tax Serv., Inc.,
No. 03 C 4289, 2003 WL 22995158 (N.D. Ill. Dec. 15, 2003), and Ball v. Nationscredit
Fin. Servs. Corp., 207 BR 869 (N.D. Ill. 1997), in which district courts dismissed cases
for lack of standing in response to defense objections when a plaintiff, who was in
bankruptcy, tried to assert a claim that was property of the bankruptcy estate. The Court
does not believe the results of these cases are inconsistent with the federal appellate
precedent discussed above; however, to the extent the cited district court decisions speak
of “jurisdiction,” it appears that they should be understood to speak in terms of prudential
standing and not Article III standing. See Pershing Park Villas Homeowners Ass'n v.
United Pacific Ins. Co., 219 F.3d 895, 900 (9th Cir. 2000) (citing Steel Co. v. Citizens for
a Better Environment, 523 U.S. 83, 103 (1998)); Dunmore v. United States, 358 F.3d
1107, 1112 (9th Cir. 2004); Ensley v. Cody Resources, Inc., 171 F.3d 315, 319 (Sth Cir.
1999); see also Citizens for a Better Environment, 523 U.S. at 90 (“‘Jurisdiction,’ it has
been observed, ‘is a word of many, too many, meanings””) (quoting United States v.
Vanness, 85 F.3d 661, 663 n.2 (D.C. Cir. 1996)). Moreover, in the cited district court
decisions, the objections as to prudential jurisdiction issues were timely made (not
untimely made, as here) and were advanced by defendants, not a plaintiff arguably
seeking to avoid any potential consequences of unreasonable inaction. If an Article II
standing defect is present, then it obviously cannot be waived; however, if, as the
appellate precedent cited and followed herein teaches, Article II standing concerns are
satisfied with respect to Plaintiff, the factual distinctions between this case and the other
cited district court cases allow all of the results to be reconciled.

7 Rule 17(a) provides that “[nJo action shall be dismissed on the ground that it is
not prosecuted in the name of the real party in interest until a reasonable time has been
allowed after objection for ratification of commencement of the action by, or joinder or
substitution of, the real party in interest; and such ratification, joinder, or substitution
shall have the same effect as if the action had been commenced in the name of the real
party in interest.” Fed. R. Civ. P. 17(a).



as special counsel and to approve the contingent fee compensation arrangement. (Id., Ex.
C.)

In April 2003, all of the Plaintiffs save for Cheung submitted their disputes with
numerous Defendants, including Deloitte, to binding arbitration. (/d., Ex D ] 3.) These
arbitrating Plaintiffs (which did not include Mr. Cheung) and two of the Defendants
(Jeffries and Weinhuff) reached a settlement prior to the completion of the arbitration.
(Id. 45.) Cheung’s bankruptcy estate received a share of the settlement proceeds and the
Joyce Firm was paid a contingency fee for its work on the matter. (Id. at 4; see also id.,
Ex. F at 3-5.) The arbitration process also proceeded: the hearing lasted twenty-eight
days, with the parties presenting some sixty witnesses, including expert witnesses, either
live or via deposition testimony. (D.E. 103, Ex. B at 2-3.) Almost 1,200 exhibits were
received in evidence, and the parties submitted post-hearing briefs to the three-member
arbitration panel, which also heard arguments. (/d., Ex. B at 3.) At the conclusion of the
arbitration, the arbitration panel ruled, in a ten-page single-spaced written ruling, that the
Plaintiffs had failed to prove any of their allegations and that “[a]ll claims for relief of all
claimants are... DENIED.” (/d.,, Ex. B at 10 (ruling of December 2005).)

In March 2004, before the arbitration had convened, this case was reassigned to
this Court. (D.E. 33.) On March 22, 2004, the parties filed a joint status report. (D.E.
103, Ex. A.) The joint status report stated that Cheung had “not yet filed [his] demand
for arbitration before JAMS because ownership of the claim [had] not yet been resolved
by the bankruptcy court.” (/d. 2.) The joint status report further provided that
“resolution [of the ownership issue] is expected within the next 30 days [i.e., in April
2004], at which time an arbitration will be filed”—“most likely by the bankruptcy

4



(D.E. 1, 12 in Case 02-3088.) Cheung did not notify the Bankruptcy Court of his claim
nor did he notify his attorney, Edward Joyce (“Joyce”) of the law firm Edward T. Joyce
& Associates, P.C. (“Joyce Firm”), that he had recently filed for Chapter 7 protection.
(D.E. 104 at 1-2.)

In July and October 2002, Judge Gettleman, who was then presiding over the
case, granted Defendants’ motions to stay the claims of Moses Cheung and other
Plaintiffs and to compel arbitration of those claims. (D.E. 22, 42.) Cheung moved for
reconsideration on the grounds that arbitration would be too costly, but Judge Gettleman
denied his motion. (D.E. 26 in Case 02-3088.)

Albert Russo (“Russo”) was appointed by the New Jersey Bankruptcy Court to
serve as the trustee for Cheung’s estate. (D.E. 106, Ex. A.) Russo discovered Cheung’s
omission regarding the Illinois claim at some point in 2003. (/d. at 3.) Russo then
allegedly took steps to take control of the claim that properly belonged to the bankruptcy
estate, although he never moved to substitute the estate as the real party of interest. (/d.)
On December 24, 2003, Russo notified the New Jersey Bankruptcy Court of Cheung’s
suit, “which may result in a recovery to the estate.” (D.E. 103, Ex. D { 2.)

Russo also requested authorization from the bankruptcy court to retain the Joyce
Firm as special counsel to represent the estate in the prosecution of the action. (/d., Ex.
D4.) In support of Russo’s request, Joyce provided an affidavit to the New Jersey
Bankruptcy Court representing that any future representation by the Joyce Firm with
respect to Cheung’s suit would be on behalf of the trustee, not Cheung. (D.E. 106, Ex.

B.) On January 5, 2004, the bankruptcy court granted the motion to retain the Joyce Firm

at 1.)



D.E. 103, Ex. A.) If such an arbitration is not initiated within twenty-one days of this
order, the case will be dismissed with prejudice for want of prosecution.
BACKGROUND

In this consolidated case, the complaints, including Mr. Cheung’s, allege a fraud
scheme conducted by Deloitte, and others acting in concert, to form and operate a
company called EPS Solutions Corp. (“EPS”).’ (D.E. 12 in Case 02-3088 at 1-2.)
Plaintiff alleges that Deloitte and others misled investors regarding the financial
condition of many of the rolled-up companies in order to attract investments. (/d. at 10-
11.) EPS ultimately collapsed, allegedly because the roll-up included a number of
companies that were not economically viable. (Jd. at 22.*)

On April 18, 2002, Cheung filed a petition for bankruptcy under Chapter 7 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey.
(D.E. 106, Ex. A.) Cheung did not disclose any potential claims relating to the EPS roll-
up to the trustee or to the bankruptcy court. (D.E. 104 at 1-2.)

On April 30, 2002, Cheung filed a seven-count complaint in the Northern District

of Illinois; he subsequently filed an amended complaint containing similar allegations.‘

2 A more detailed account of the underlying litigation is available in Hoffman v.

Deloitte & Touche, LLP, 143 F. Supp. 2d 995 (N.D. Ill. 2001) (Gettleman, J.).

3 The Court obviously takes no position as to the truth or falsity of the allegations.
The Court notes, however, that the allegations were, as discussed further below, the
subject of a prior arbitration by the other Plaintiffs in this case. At the end of twenty-
eight days of hearings and testimony, which included the presentation of testimony,
either live or via deposition, from almost sixty witnesses, the three-member arbitration
tribunal rejected all of the allegations and ruled for Deloitte as to every claim. See D.E.
103, Ex. B at 2-3, 10.

‘ Cheung sued individually and/or as successor in interest or assignee of MKC

Enterprises, Inc., formerly known as The Oxxford Group, Inc. (D.E. 12 in Case 02-3088
2



CONCLUSION
For the reasons stated above, the Court rejects Plaintiff's suggestion that the
Court lacks subject matter jurisdiction over Cheung’s claims. In order to avoid dismissal
with prejudice, Plaintiff must, within twenty-one days, initiate the arbitration as indicated
would be done long ago.

So ordered.

Mark Filip
United States District Judge
Northern District of Illinois

Date: fou 20, 2006

13