Court Opinion

ID: 2709668
Source: CourtListenerOpinion
Date Created: 2014-08-05 15:18:59.469792+00
Date Added: 2024-06-11T12:36:09.050005
License: Public Domain

In the

United States Court of Appeals
                For the Seventh Circuit

No. 12-3756

A NIL G OYAL,
                                                    Plaintiff-Appellee,
                                  v.

G AS T ECHNOLOLGY INSTITUTE,
an Illinois corporation,
                                                             Defendant.
A PPEAL OF:

   B ARRY A. G OMBERG

             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
          No. 1:05-cv-05069—Rebecca R. Pallmeyer, Judge.

      S UBMITTED A PRIL 22, 2013—D ECIDED JUNE 3, 2013

 Before W OOD , T INDER, and H AMILTON, Circuit Judges.
  H AMILTON, Circuit Judge. Attorney-appellant Barry A.
Gomberg briefly represented appellee Anil Goyal in
settlement negotiations with a former employer over his
2                                            No. 12-3756

claims of retaliation for whistle-blowing. The settlement
negotiations did not produce an agreement, and Goyal
later retained new counsel to pursue litigation. Years
later, without the aid of any counsel, Goyal settled with
his former employer.
  Back when Gomberg had represented Goyal, though,
he had given Goyal’s employer notice of an attorney lien
on any settlement or judgment. So after Goyal settled,
Gomberg reappeared and demanded a share, and the
employer paid a portion of the settlement to Gomberg
rather than to Goyal. Goyal then sought to quash
Gomberg’s lien in the district court. The court granted
Goyal’s motion, effectively ordering Gomberg to pay
Goyal. Gomberg has appealed, claiming that his lien
on a portion of Goyal’s settlement was proper. We
affirm the order of the district court.

I. Factual and Procedural Background
  Anil Goyal was an engineer whose employment
with Gas Technology Institute (GTI) was suspended in
September 2003 and terminated in March 2004 after he
informed the chief executive officer that two of Goyal’s
superiors had engaged in fraud and that he believed
other members of upper management were involved
as well. We can assume the allegations had a good deal
of substance. The two accused upper-level managers
were indicted by a federal grand jury; one pled guilty
and the other died before his case could be resolved.
  After Goyal was suspended in September 2003, he
retained Barry A. Gomberg & Associates to represent
No. 12-3756                                              3

him during mediation with GTI. Goyal and Gomberg
signed a retainer agreement dated September 24, 2003,
which provided:
   Our fee is an initial flat non-refundable retainer of
   $2,500. . . . In addition to the aforementioned Retainer
   fee, effective immediately our fee includes a ten (10)
   percent contingency on all monies and items of
   value that we secure for you beyond what you have
   obtained from Gas Technology Institute to this
   date . . . .
   We have a lien on all funds secured by us. Should
   we [be] required to enforce this Agreement, we will
   be entitled to reasonable attorneys fees and costs
   for doing so. We do not guarantee success. This Agree-
   ment does not contemplate litigation.
   Gomberg began representing Goyal in mediation ses-
sions, beginning with a first session on November 21,
2003. Two weeks later, on December 2, 2003, Gomberg
sent a letter to GTI’s attorneys claiming an “attorneys
lien in the amount of $70,000 attached to any settlement,
verdict, judgment, payment, or Order entered and to
any monies recovered by Anil Goyal resulting from
his current claims or possible future litigation against
Gas Technology Institute.” (Gomberg told the district
court that he informed Goyal of this lien; Goyal claims
that Gomberg did not inform him about the lien until
after his representation ended. We need not resolve the
factual dispute.) In the district court and in this appeal,
Gomberg has not yet offered an explanation or basis for
the amount of $70,000, which was much more than the
4                                           No. 12-3756

agreed ten percent of even GTI’s largest and later offer
to Goyal while Gomberg was representing him.
  By March 2004, GTI had made a “final” offer to settle
for $375,000. Goyal rejected the offer and his employ-
ment was terminated on March 9. At that point,
Gomberg’s representation of Goyal ended, as indicated
in emails and letters. On March 12, 2004, Gomberg sent
Goyal a letter stating:
    Per your request, this letter evidences the conclu-
    sion of our representation. As you know, GTI has of-
    fered you $375[,000] in one lump sum with Mutual
    releases. They are willing to work with you re-
    garding tax relief. I have communicated the afore-
    mentioned to you. You have rejected this settlement.
    I remind you that we have filed an attorney’s lien
    for our fees.
   Goyal claims that this last quoted sentence is the
first time he learned of any lien filed by Gomberg for
attorney fees. He points to a letter he sent to Gomberg
in response on March 24, 2004. In the letter, Goyal
asked about the lien and stated his understanding that
“if no settlement is reached then you will not receive
any money other than the initial retainer money,” and
“since I have not received any money as of today as a
result of your representation, your share so far would
be only $2,500 of initial retainer fee which you have
already received from me.” Goyal and Gomberg then
went their separate ways.
  In September 2005, with assistance of new counsel,
Goyal sued GTI in the Northern District of Illinois for
retaliation in violation of the federal False Claims Act
No. 12-3756                                                  5

and Illinois common law. The district court eventually
denied summary judgment for GTI, see Goyal v. Gas
Technology Institute, No. 05-cv-5069, 2008 WL 4369332
(N.D. Ill. Sept. 23, 2008), and about a month before the
scheduled trial, Goyal’s counsel withdrew as counsel
citing irreconcilable differences with Goyal that had
arisen over the course of settlement negotiations. With-
out further representation by counsel, Goyal settled
with GTI for approximately $1.3 million in April 2009.1
Gomberg had not forgotten about the case, though, and
in December 2009, he sent GTI a request for payment
of $34,022.52 in attorney fees from Goyal’s settle-
ment funds.2

1
   After Goyal reached the settlement with GTI, the firm that
had represented Goyal in the district court asserted a lien on
the settlement. Goyal’s dispute with that firm was resolved
in an earlier appeal. Goyal v. Gas Technology Inst., 389
F. App’x 539 (7th Cir. 2010).
2
   The retainer agreement provided for a ten percent contingent
fee on any funds “secured” by Gomberg beyond what Goyal
had already been offered by GTI. When Goyal retained
Gomberg, he had already been offered 32 weeks of pay as
severance, which Gomberg calculated, based on Goyal’s
salary, to be $56,174.72. Gomberg subtracted that amount from
the $375,000 final offer GTI made during Gomberg’s representa-
tion (leaving $318,825.28 supposedly “secured” by Gomberg),
and divided by ten. Adding in an amount for time spent trying
to enforce the lien, Gomberg claimed he deserved $34,022.52
([$318,825.28 ÷ 10] ! $2,500 retainer + $4,640 in fees for en-
forcing the lien).
6                                                 No. 12-3756

  Goyal attempted to stop GTI’s attorneys from
honoring the lien and sought the assistance of a bar
association to resolve his dispute with Gomberg. In
January 11, 2010, though, GTI wired Gomberg the re-
quested amount to be held in escrow in Gomberg’s client
funds account. Goyal quickly filed a motion to quash
the lien with the district court. Magistrate Judge Keys
granted the motion to quash, finding that the retainer
agreement created an equitable assignment, but that
the plain terms of the agreement allowed such an assign-
ment only if Gomberg successfully negotiated a settle-
ment acceptable to and paid to Goyal, which did not
occur. Gomberg filed objections with District Judge
Pallmeyer, who overruled the objections and observed
that “obtaining an offer is not the same thing as ‘secur-
ing’ funds.” Gomberg now appeals the district court’s
grant of Goyal’s motion to quash the equitable lien.

II. Analysis
    A. Jurisdiction
  We have appellate jurisdiction to review the district
court’s grant of Goyal’s motion to quash the lien
because the order operated in substance as an inter-
locutory injunction under 28 U.S.C. § 1292(a)(1). See
Union Oil Co. of California v. Leavell, 220 F.3d 562, 566
(7th Cir. 2000) (even though district judge “did not use
the magic word ‘injunction,’ ” the order was injunctive
in nature and appeal was therefore within appellate
court’s jurisdiction); In re City of Springfield, 818 F.2d 565,
567 (7th Cir. 1987) (orders are “injunctions” under
No. 12-3756                                                  7

section 1292(a)(1) “if they effectively grant or withhold
the relief sought on the merits and affect one party’s
ability to obtain such relief in a way that cannot be
rectified by a later appeal”). Although the district court
did not label its order granting Goyal’s motion to quash
as an injunction, the order had the effect of an injunc-
tion because it both required Gomberg to return the
transferred funds and quashed an assignment to him of
an equitable legal right — the lien. See Home Fed. Sav. &
Loan Ass’n of Centralia v. Cook, 525 N.E.2d 151, 153-54
(Ill. App. 1988) (attorney liens create an “equitable assign-
ment of a portion of the recovery, as opposed to a mere
promise to pay” and can assert priority over other credi-
tors); see also Eastman v. Messner, 721 N.E.2d 1154, 1156 (Ill.
1999) (defining liens in Illinois as involving an equitable
assignment of debt with a right to priority over other
creditors). We therefore have appellate jurisdiction
under 28 U.S.C. § 1292(a)(1).
  Although not disputed by the parties, we must also
clarify the foundation of the district court’s jurisdiction
over Goyal’s motion to quash. District courts may
exercise supplemental jurisdiction over disputes be-
tween attorneys and clients concerning costs and fees
for representation in matters pending before the district
court. See Baer v. First Options of Chicago, Inc., 72 F.3d
1294, 1299-300 & n.5 (7th Cir. 1995) (collecting cases
and stating that “supplemental jurisdiction generally
has been asserted over attorney’s fee disputes when
the disagreement arises between the client and the law-
yer”). Supplemental jurisdiction does not extend, how-
ever, to attorney fee disputes after the case has been
dismissed and jurisdiction has been relinquished. See
8                                              No. 12-3756

Hill v. Baxter Healthcare Corp., 405 F.3d 572, 576-77 (7th
Cir. 2005) (district court did not retain supplemental
jurisdiction to resolve a dispute over a motion to quash
an attorney fee lien where the district court had
dismissed the case with prejudice, thus terminating
federal jurisdiction); Shapo v. Engle, 463 F.3d 641, 644-45
(7th Cir. 2006) (no supplemental jurisdiction to enforce
attorney-client master fee agreement after district court
approved settlement and dismissed case).
   In this case, although Goyal had settled with GTI, the
district court had not entered a final judgment when
it quashed Gomberg’s lien. The case remained pending
before the district court, and that distinction was vital
for purposes of supplemental jurisdiction over the fee
dispute. Cf. Hansen v. Bd. of Trustees of Hamilton South-
eastern School Corp., 551 F.3d 599, 607-08 (7th Cir. 2008)
(district court properly retained supplemental jurisdic-
tion over state law claims after granting summary judg-
ment against plaintiffs on Title IX claims where dis-
trict court had not yet dismissed the federal claims).
Because the case remained before the district court and
the motion to quash concerned a dispute over fees for
representation in the dispute before the court, the
district court properly exercised its supplemental juris-
diction under 28 U.S.C. § 1367 in deciding Goyal’s
motion to quash Gomberg’s lien.

     B. The Motion to Quash the Lien
     We review de novo the district court’s interpretation
of    the written retainer agreement as precluding
No. 12-3756                                            9

Gomberg’s lien. BKCAP, LLC v. CAPTEC Franchise Trust
2000-1, 572 F.3d 353, 358 (7th Cir. 2009). Goyal and
Gomberg executed the retainer agreement in Illinois for
services in Illinois, so we apply the laws of that state
in analyzing whether the agreement gave rise to a valid
equitable lien. See In re Motorola Securities Litig., 644
F.3d 511, 517 (7th Cir. 2011). “In Illinois, an attorney
acquires an equitable lien on a judgment if the agree-
ment between attorney and client makes an equitable
assignment of a portion of the recovery, as opposed to
a mere promise to pay. To make this determination re-
quires an examination of the exact language of the con-
tract.” Home Fed. Sav. & Loan Ass’n, 525 N.E.2d at 153.
We consider first the parties’ retainer agreement and
then Gomberg’s extra-contractual theories.

   1. The Terms of the Retainer Agreement
  Like Judge Pallmeyer, we agree with Judge Keys’ well
reasoned opinion that Gomberg does not hold a
valid lien on Goyal’s settlement. The retainer agreement
authorized an equitable lien on only the funds “secured
by us.” Gomberg’s representation put no cash in Goyal’s
hands. Gomberg argues, though, that GTI’s offer of
$375,000 in early 2004 constituted funds that he “se-
cured” for Goyal. In support he cites a dictionary’s de-
finition of “secure” as “to give a pledge of a payment to
(a creditor) or of (an obligation); to bring about, ef-
fect.” Gomberg seems to be relying on the part of the
definition that refers to securing repayment of a debt
10                                               No. 12-3756

with a promise to pay, but such “security” requires
an agreement between the relevant parties. That portion
of the definition has no application here, of course, for
the parties (GTI and Goyal) simply never reached an
agreement while Gomberg was involved.
  Gomberg argues further that he “secured” $375,000
for Goyal when GTI made the offer: “If Mr. Goyal had
accepted the settlement offer of $375,000.00, GTI would
have paid it. The offer was on the table. All it required
was Mr. Goyal’s agreement.” That’s true but legally
irrelevant. In our legal system, it is axiomatic that there
is no contract (and no settlement) without both offer
and acceptance. This is a fundamental principle of
contract law. See 2 Williston on Contracts § 6:1 (4th ed.)
(“Acceptance of an offer is necessary to create a simple
contract, since it takes two to make a bargain.”); Restate-
ment (Second) of Contracts § 3 (1981) (“An agreement
is a manifestation of mutual assent on the part of two
or more persons.”). GTI’s offer, alone, in no way “se-
cured” funds for Goyal and thus no funds were “se-
cured” by Gomberg. Another fundamental principle of
contract law dictates that an offer, once rejected, no
longer exists. See Minneapolis & St. Louis Ry. Co. v. Colum-
bus Rolling-Mill Co., 119 U.S. 149, 151 (1886) (“[N]o contract
is complete without the mutual consent of the parties,
an offer to sell imposes no obligation until it is accepted
according to its terms. . . . [A]nd either rejection or with-
drawal leaves the matter as if no offer had ever been
made.”). GTI’s offer of $375,000 was extinguished once
Goyal rejected it.
No. 12-3756                                            11

   To illustrate how unreasonable Gomberg’s position
is, suppose that one condition of GTI’s offer had been
Goyal’s agreement never to work in the industry again.
Receiving an offer with such an onerous condition
would not have meant that his attorney had “secured”
the offered funds. And Goyal retained the right to
reject any conditions of a proposed settlement, in-
cluding even the mutual releases that would be customary.
  Or suppose that GTI and Goyal had actually agreed
to settle for $375,000, with a written and signed settle-
ment agreement with mutual releases. And then
suppose that GTI had reneged on the agreement and
refused to pay. No attorney in his right mind would
claim that he had then “secured” $375,000 for Goyal
and was then entitled to immediate payment of a per-
centage of the unpaid settlement. See Restatement
(Third) of Law Governing Lawyers § 35(2) (2000)
(“Unless the contract construed in the circumstances
indicates otherwise, when a lawyer has contracted for
a contingent fee, the lawyer is entitled to receive the
specified fee only when and to the extent the client
receives payment.”). Gomberg did not take Goyal even
as far as an agreement, and yet he still claims a right to
a fee based on having obtained an unacceptable offer.
  The retainer agreement’s term “secured by us” is not
ambiguous as applied to the unaccepted offer. Gomberg
is not entitled to an equitable lien on funds that were
merely offered to Goyal on terms that were not ac-
ceptable to him.
12                                              No. 12-3756

     2. Extra-contractual Theories
  In the alternative, Gomberg attempts to establish a
legal right to a portion of Goyal’s settlement funds
under either Illinois’ statutory lien provision or the equi-
table remedy of quantum meruit. Neither entitles
Gomberg to any of Goyal’s settlement funds. The Illinois
Attorney’s Lien Act, 770 Ill. Comp. Stat. 5/1, grants
an attorney a lien “for the amount of any fee which
may have been agreed upon by and between such attor-
neys and their clients.” Id. For the reasons explained
above, Goyal and Gomberg’s retainer agreement did
not provide for a lien on ten percent of the settlement
offer GTI made during Gomberg’s representation. If
the attorney and client have not made a fee agreement,
the Act provides for reasonable fees and costs, but that
provision is not available when the attorney and client
entered into a fee agreement. 770 ILCS 5/1; In re Solis,
610 F.3d 969, 974 (7th Cir. 2010) (attorney could not rely
on Illinois lien statute to increase fee above amount
under valid fee agreement).
  As to quantum meruit, Illinois law provides an equitable
remedy for attorneys retained on a contingent fee basis
to “recover on a quantum meruit basis a reasonable fee
for services rendered before discharge.” Leoris and
Cohen, P.C. v. McNiece, 589 N.E.2d 1060, 1063-64 (Ill. App.
1992), citing Rhoades v. Norfolk & W. Ry. Co., 399 N.E.2d
969 (Ill. 1979). This mechanism protects attorneys from
the unfairness of being fired by a client on the brink of
settlement or victory. It permits attorneys to recover
reasonable fees even when clients inexplicably ter-
No. 12-3756                                                    13

minate their representation shortly before realizing the
financial benefit of their work. See Kannewurf v. Johns,
632 N.E.2d 711, 714-16 (Ill. App. 1994).
  Although Gomberg requested this relief in con-
clusory terms, he has not argued why the circumstances
of the termination of his representation of Goyal should
actually entitle him to such compensation. See id. at 715-
16 (quantum meruit compensation is available only
to attorneys who are discharged or who justifiably with-
draw from representation). He failed to develop the
argument before the magistrate judge and made
no argument on the point before the district judge. We
thus deem the argument waived.3

3
   We are also confident that any such claim would have no
merit. The factors to consider in determining reasonable value
of services under quantum meruit include the difficulty of the
work and the benefit to the client. See Ashby v. Price, 445 N.E.2d
438, 444 (Ill. App. 1983). Here, the terms of retainer agreement
limited the scope and complexity of Gomberg’s representa-
tion so as not to include litigation. Gomberg himself appears
to have believed that his responsibilities under the retainer
agreement required minimal time and effort. In two emails
Gomberg said that his services under the retainer agreement
did not even include legal research — he wanted extra pay-
ment for research. Judge Keys aptly pointed out that this
raised the question whether legal representation that does not
include legal research is legal representation at all. Goyal also
received no visible benefit from Gomberg’s representation.
Gomberg represented him in a brief course of negotiations
that produced only an unsatisfactory settlement offer that was
                                                    (continued...)
14                                                   No. 12-3756

III. Conclusion
  Attorney Gomberg is not entitled to any part of the
settlement funds Goyal secured from GTI in 2009. We
also believe Gomberg’s professional conduct is ques-
tionable in two distinct respects. First, for reasons we
explained above, his position that he “secured” funds
for Goyal when the opposing party made an unaccept-
able and unaccepted settlement offer is unreasonable to
the point of being frivolous and possibly warrants sanc-

3
   (...continued)
just one-fourth of what Goyal settled for on his own five
years later. Gomberg may have been disappointed with
what he perceived as a meager retainer for the little work he
did, but he might have prevented that disappointment by
asking for different fee terms at the outset. By drafting the
retainer agreement’s fee terms as he did, he accepted the
risk that he would receive no additional funds beyond the
initial retainer. See In re Solis, 610 F.3d at 974 (“The onus is on
the attorney to recognize the risks and to draft fee agree-
ments that clearly indicate the client’s fee responsibilities.”);
1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of
Lawyering: A Handbook on the Model Rules of Professional
Conduct § 8.6:8-15 (2001) (“The whole point of contingent
fees is to remove from the client’s shoulders the risk of being
out-of-pocket for attorney’s fees upon a zero recovery. Instead,
the lawyer assumes that risk . . . .”) (emphasis in original); id.
§ 8.4:8-12 (2001 & Supp. 2003) (“because the terms of a fee
agreement must be made clear to the client in advance, and
because the lawyer is responsible for drafting most fee agree-
ments, ambiguities are usually resolved against the lawyer”).
No. 12-3756                                           15

tions under Federal Rule of Appellate Procedure 38.
Second, even apart from a legal theory that we consider
specious, Gomberg’s assertion of a lien for $70,000 was
far greater than ten percent of even GTI’s unaccepted
(and not yet made) offer of $375,000. We see no
apparent basis for it.
   We recognize that attorneys and clients will have rea-
sonable and good faith disputes about fees, but we
believe that Rule of Professional Conduct 1.5 on attorney
fees includes an implicit requirement that an attorney
not assert unreasonable or baseless demands for attorney
fees contrary to his fee agreement, including asserting
a lien. Cf. Restatement (Third) of Law Governing Lawyers
§ 43, cmt. h (2000) (a “fee claim with respect to which a
lien is asserted must be advanced in good faith and with
a reasonable basis in law and fact”). We also recognize
that further factual development may clarify and per-
haps justify this course of conduct. We therefore order
Gomberg to show cause within 14 days why we should
not impose sanctions under Federal Rule of Appellate
Procedure 38 and why we should not forward a copy of
this opinion to the Illinois Attorney Registration and
Disciplinary Commission with a request that it deter-
mine whether his conduct warrants disciplinary action.
We compliment Mr. Goyal for his capable handling of
this matter before this court. Upon issuance of this
court’s mandate, which will not be delayed for resolu-
tion of the sanctions question, attorney Gomberg shall
immediately pay to Mr. Goyal the money he has been
holding, plus interest.
16                                           No. 12-3756

   The district court’s order quashing attorney Gomberg’s
lien is A FFIRMED.

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