Court Opinion

ID: 9442819
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:00:53.569571+00
Date Added: 2024-06-11T17:29:15.013346
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 22-2691
W. JAMES MAC NAUGHTON,
                                                  Plaintiff-Appellant,
                                 v.

ASHER VENTURES, LLC, et al.,
                                               Defendants-Appellees.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
           No. 1:17-cv-4050 — Martha M. Pacold, Judge.
                     ____________________

      ARGUED MAY 17, 2023 — DECIDED AUGUST 3, 2023
                ____________________

   Before RIPPLE, SCUDDER, and LEE, Circuit Judges.
    LEE, Circuit Judge. William James Mac Naughton, a New
Jersey attorney, represented Shai Harmelech and his com-
pany, USA Satellite & Cable, in a lawsuit filed by the Russian
Media Group (“RMG”) against them in 2006 (the “RMG Ac-
tion”). Mac Naughton stopped representing Harmelech and
USA Satellite after they failed to pay his legal fees. The RMG
Action eventually settled, and the settlement agreement was
converted to a judgment (the “RMG Judgment”).
2                                                    No. 22-2691

    A few years later, Mac Naughton purchased from RMG
the rights to the unpaid portion of the settlement judgment.
He then filed a torrent of actions in the Northern District of
Illinois against his former clients, seeking to collect the RMG
Judgment. In one of those actions, Mac Naughton sought to
set aside Harmelech’s conveyance of his Highland Park, Illi-
nois home to his son Etan, claiming it was a fraudulent trans-
fer under Illinois law. We will refer to this lawsuit as the
“Sunnyside Action” because the home is located on a street
called Sunnyside Avenue.
    The defendants in the Sunnyside Action moved to dis-
qualify Mac Naughton pursuant to New Jersey Rule of Pro-
fessional Conduct 1.9(a), which states that a lawyer who has
represented a client in a matter “shall not thereafter represent
another client in … a substantially related matter in which
that client’s interests are materially adverse to the interests of
the former client.” In 2015, Judge James Holderman granted
the disqualification motion and entered an order barring
Mac Naughton from acting as counsel in further eﬀorts to col-
lect the RMG Judgment (the “Holderman Order”).
    Undeterred by the Holderman Order, Mac Naughton con-
tinued prosecuting the Sunnyside Action. What is more, he
filed several similar actions before diﬀerent judges in the
Northern District of Illinois. While the named defendants and
legal claims in those other actions varied, the actions all were
further attempts on Mac Naughton’s part to collect the RMG
Judgment, in direct contravention of the Holderman Order.
After Judge Holderman retired, Judge Gary Feinerman took
over the Sunnyside Action. He dismissed the action with prej-
udice as a sanction for Mac Naughton’s continued defiance of
the Holderman Order. Mac Naughton v. Harmelech, 338 F.
No. 22-2691                                                  3

Supp. 3d 722 (N.D. Ill. 2018). Other judges with cases filed by
Mac Naughton imposed similar sanctions.
    These dismissals (four total) came before us on a consoli-
dated appeal in 2019. Mac Naughton insisted that the Holder-
man Order was wrong because Judge Holderman had misap-
plied Rule 1.9(a). But as we told Mac Naughton then, he was
not free to disobey the Holderman Order simply because he
disagreed with it. Regardless of the Holderman Order’s legal
correctness, Mac Naughton was bound to follow it “unless
and until it was undone through proper channels, such as re-
consideration by the district judge or vacatur by us.”
Mac Naughton v. Harmelech, 932 F.3d 558, 565 (7th Cir. 2019).
Because Mac Naughton had never properly appealed the
Holderman Order or asked Judge Holderman (or Judge
Feinerman) to reconsider it, we aﬃrmed the dismissals, rea-
soning that Mac Naughton’s refusal to obey a binding court
order merited the sanctions. Id.
    That brings us to the present case. Mac Naughton sued
Harmelech, his son Sam Harmelech (“Sam”), and others,
seeking to set aside the purportedly fraudulent transfer of
some stock. The details are not important for our purposes.
What matters is that Mac Naughton is again attempting to col-
lect the RMG Judgment, in clear defiance of the Holderman
Order, which still has not been undone. Judge Martha Pacold,
as did her colleagues before her, dismissed the action with
prejudice as a sanction for Mac Naughton’s continued non-
compliance with the Holderman Order. Our 2019 decision in
Harmelech makes clear that Judge Pacold properly exercised
her discretion in doing so.
  Mac Naughton argues otherwise. He insists that the
Holderman Order only applied to the Sunnyside Action. But
4                                                   No. 22-2691

we rejected that contention in Harmelech, where we aﬃrmed
not only Judge Feinerman’s dismissal of the Sunnyside Action
but also the dismissals by the other judges of the other actions,
all on the basis of the Holderman Order. We could not have
been clearer in Harmelech that the Holderman Order bars
Mac Naughton from all eﬀorts “to assert the RMG Judgment
against the Harmelech Defendants, other Defendants, De-
fendants’ current and former customers, and [Shai] Harmel-
ech’s family.” 932 F.3d at 562 (stating that the Holderman Or-
der “did not pertain only” to the Sunnyside Action); see also
Harmelech, 338 F. Supp. 3d at 726 (Feinerman, J.) (explicitly
stating that the Holderman Order disqualified Mac Naughton
from “appearing as counsel in connection with any attempt to
collect the RMG judgment”) (emphasis added). Judge Pacold
properly determined that Mac Naughton’s lawsuit was yet
another attempt to circumvent the Holderman Order, a prac-
tice we said in Harmelech warrants dismissal with prejudice.
    Mac Naughton also argues that Judge Pacold erred by
prohibiting him from amending his complaint in this case.
The amendment attempts to substitute a new plaintiﬀ and
name Sam as the sole defendant. But as Judge Pacold recog-
nized, the underlying suit was just another attempt by
Mac Naughton to collect the RMG Judgment: Mac Naughton
would have represented the new plaintiﬀ as counsel, and he
would have retained a financial interest in the case’s outcome.
Because Mac Naughton’s proposed amendment would have
been futile (the amended complaint would have merited the
same sanction of dismissal with prejudice), Judge Pacold did
not err in denying leave to amend. See Runnion ex rel. Runnion
v. Girl Scouts of Greater Chi. & Nw. Ind., 786 F.3d 510, 524 (7th
Cir. 2015).
No. 22-2691                                                          5

    Lastly, Mac Naughton contends that Judge Pacold should
have stayed the action pending the resolution of a disciplinary
proceeding against him in New Jersey (arising out of his re-
peated eﬀorts to collect the RMG Judgment from his former
clients). Mac Naughton once again argues that he did not vi-
olate Rule 1.9(a), and he expects the New Jersey proceeding
to prove that. But Judge Pacold’s dismissal of this action was
based on Mac Naughton’s violation of the Holderman Order,
not Rule 1.9(a). Whether or not Mac Naughton has violated
his ethical duties as a New Jersey lawyer, he has an entirely
separate duty to comply with orders issued by courts of this
Circuit. He has breached that duty by ignoring the Holder-
man Order repeatedly.
    That does it for the merits.1 But we are not done, for Sam
has asked us to sanction Mac Naughton pursuant to Federal
Rule of Appellate Procedure 38. That rule gives us discretion
to award “just damages and single or double costs” to a pre-
vailing appellee, if we conclude that an appeal is frivolous.
We follow a two-step process in deciding whether to award
Rule 38 sanctions. First, we determine whether the appeal is
in fact frivolous. Second, we determine, in our discretion,
whether sanctions are appropriate under the circumstances.
Colosi v. Electri-Flex Co., 965 F.2d 500, 504 (7th Cir. 1992). We
hold that this appeal is frivolous and that sanctions are war-
ranted.
   First, as explained above, we squarely held in Harmelech
that district court judges may dismiss Mac Naughton’s at-
tempts to enforce the RMG Judgment as punishment for

   1 Mac Naughton raises a few additional arguments in his briefing. We
have considered those arguments, and they lack merit.
6                                                   No. 22-2691

violating the Holderman Order. Judge Pacold, faced with yet
another attempt by Mac Naughton to collect on the RMG
Judgment, imposed the same sanction of dismissal that we ex-
pressly endorsed in Harmelech. Mac Naughton’s briefs barely
even acknowledge Harmelech. He does not attempt to explain
how the arguments he now oﬀers on appeal are consistent
with that decision. He also does not ask us to reconsider or
overrule the decision, even though we would have to do so to
find in his favor. We have held repeatedly that appellants risk
Rule 38 sanctions when they litigate in the face of controlling
adverse authority that they pretend does not exist. Mars Steel
Corp. v. Cont’l Bank N.A., 880 F.2d 928, 938–39 (7th Cir. 1989)
(en banc); Hill v. Norfolk & W. Ry. Co., 814 F.2d 1192, 1198 (7th
Cir. 1987) (stating that this “ostrich-like tactic” is “as unpro-
fessional as it is pointless”); In re Hendrix, 986 F.2d 195, 200–
01 (7th Cir. 1993) (“If the appeal is blocked by authorities that
the appellant ignored, the appellant is sanctioned without in-
quiry into whether the authorities if acknowledged might
have been contested.”).
    Second, we conclude that sanctions are appropriate in this
case. In doing so, we consider whether sanctions would serve
Rule 38’s dual purposes of (1) compensating appellees for the
“expense and delay of defending against a meritless appeal”
and (2) deterring frivolous appeals to protect our docket for
“cases worthy of consideration.” Harris N.A. v. Hershey,
711 F.3d 794, 801 (7th Cir. 2013). These interests strongly favor
sanctions here. Mac Naughton has wrangled the Harmelechs
into court time and time again with duplicative claims. While
an award of Rule 38 sanctions in Sam’s favor probably will
not fully compensate the family for the time and money
Mac Naughton’s eﬀorts have cost them, it is a start.
No. 22-2691                                                   7

    We also find that sanctions are necessary to deter
Mac Naughton from further wasting judicial resources.
Mac Naughton has been remarkably persistent in harassing
his former clients through vexatious litigation. He has ig-
nored repeated orders from the judges of this Circuit to stop.
He also has not yet been dissuaded by the prospect of disci-
plinary repercussions in New Jersey. We hope that forcing
Mac Naughton to reach into his own pocket to compensate
defendants will finally make clear to him that his continued
defiance of the Holderman Order will not be tolerated.
    As a final note, we observe that, during oral argument, it
was revealed that Mac Naughton has filed yet another action
seeking to collect on the RMG Judgment. He represented to
us that he would withdraw that action if we found against
him on this appeal. We expect Mac Naughton to keep his
word. If we have to consider yet another meritless appeal
from Mac Naughton, he can expect the imposition of addi-
tional sanctions.
    The judgment of the district court is AFFIRMED. Defend-
ant Sam Harmelech’s Rule 38 motion for damages and costs
is GRANTED. Mac Naughton is hereby ordered to pay the
costs and reasonable attorney’s fees Sam Harmelech has in-
curred for defending this appeal. Sam Harmelech will have 14
days from the date of this order to submit an accounting of
his costs and attorney’s fees. We direct the Clerk of this Court
to transmit a copy of this opinion to the Oﬃce of Attorney
Ethics of New Jersey and the New Jersey Supreme Court for
any action those bodies may deem proper.