1ST Class Legal (I.S.), Ltd. v. Niro, et al.

Northern District of Illinois, ilnd-1:2016-cv-06793

ANSWER to Complaint with Jury Demand, COUNTERCLAIM filed by Niro Law, Ltd. against 1st Class Legal (I.S.), Ltd. by Niro Law, Ltd.

Interested in this case?

Current View

Full Text

Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 1 of 17 PageID #:55 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION 1ST CLASS LEGAL (I.S.), LTD.,) A foreign corporation,)) Plaintiff,)) v.)) RAYMOND NIRO, individually and doing) business as NIRO, HALLER & NIRO, an) Illinois Law Partnership, NIRO, HALLER &) NIRO, an Illinois Law Partnership, and) No. 16 C 6793 NIRO LAW, LTD., an Illinois Corporation,) formerly known as NIRO, HALLER) Hon. Robert M. Dow Jr. & NIRO, LTD.,) Mag. Judge Sheila Finnegan) Defendants.))) NIRO LAW, LTD., an Illinois corporation,) formerly known as NIRO, HALLER &) NIRO, LTD.,)) Counterclaim plaintiff,)) v.)) st 1 CLASS LEGAL (I.S.) LTD., a foreign) Corporation,))) Counterclaim defendant.) ANSWER AND COUNTERCLAIM OF NIRO LAW, LTD. (FORMERLY KNOWN AS NIRO, HALLER & NIRO, LTD.) Niro Law, Ltd. (formerly known as Niro, Haller & Niro, Ltd.) ("Niro Law") hereby provides the following Answer and Counterclaim against 1st Class Legal (I.S.). 1. Plaintiff 1CL is a corporation formed, organized under the laws of and domiciled in the United Kingdom, and all times has had and continues to have its principal place of business in Shrewsbury and the County of Shropshire in England. 1 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 2 of 17 PageID #:56 Answer: Niro Law lacks knowledge or information sufficient to form a belief about the truth of this allegation, and thus denies the same. 2. Defendant Ray Niro ("Defendant Niro") is an individual who is licensed as an attorney in the State of Illinois. Plaintiff is informed and believes and thereon alleges that Defendant Niro resides in the United States and, specifically in the State of Illinois, and is either a partner, shareholder or member of Defendants NHN and/or NL (as described hereinafter). Answer: The first sentence was correct as of the time the complaint was filed. However, as previously noted on the docket, Mr. Niro has passed away since the filing of the complaint, and thus the first sentence is denied. Deny that Mr. Niro was, at any relevant time, a resident of the State of Illinois. Admit that Mr. Niro was a shareholder in the corporation Niro Law, Ltd., formerly known as Niro, Haller & Niro, Ltd. (hereinafter referred to in this answer and counterclaim as "Niro Law"). 3. Defendant Niro, Haller & Niro (hereinafter "Defendant NHN"), an Illinois law partnership has its principal place of business in Chicago, Illinois. Plaintiff is informed and believes and thereon alleges that at the time of entering into the written agreements described hereinafter, Defendant NHN was operating as a law partnership for reasons stated hereinafter, and that Defendant Niro was a partner of Defendant NHN. Answer: Denied. Niro Law is, and has always been, a corporation organized under the laws of the State of Illinois. Plaintiff was never informed, and never believed, that Niro Law (or Niro, Haller & Niro) was anything other than a corporation. 4. Defendant Niro Law, Ltd. (hereinafter "Defendant NL"), is an Illinois corporation with its principal place of business in Chicago, Illinois. Plaintiff is informed and believes that Defendants NL and NHN have such an identity of interest and common ownership and apparently are being used interchangeably with respect to representation of clients, correspondence and written agreements such that there was such a unity of interest and control between these Defendants and the other individual entities that these entities should be disregarded and should be treated collectively as a non-corporate entity of which Defendant Niro is an owner and/or partner. There may be other owners and/or partners of Defendants NL and NHN who have not yet been identified to Plaintiff and, upon discovery of such, Plaintiff may seek leave from the Court to amend this complaint to join them as Defendants. Answer: 2 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 3 of 17 PageID #:57 Niro Law admits that NL and NHN are one Illinois corporation that is currently named Niro Law, Ltd. All other allegations are denied. 5. Plaintiff is informed and believes, and on the basis of that information and belief alleges, that at all times mentioned in this complaint, Defendants were the agents and/or employees of their co-Defendants, and in doing the things alleged in this complaint were acting within the course and scope of that agency and/or employment. Defendant Niro, Defendant NL, and Defendant NHN shall hereinafter be collectively referred to as "Defendants". Answer: Denied. JURISDICTION AND VENUE 6. This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(2) since the Plaintiff is a citizen of a foreign country (and has no office of business in the United States) and all of the Defendants reside in the United States and specifically in Illinois. Therefore, there is complete diversity of citizenship between the Plaintiff (on the one hand) and all of the Defendants (on the other hand), and the amount in controversy exceeds $75,000 exclusive of interest and costs. Answer: Deny that Mr. Niro was at any relevant time a resident (or citizen) of the State of Illinois. Admit that this court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(2). 7. Venue in this District is proper pursuant to 28 U.S.C. § 1391 in that the Defendants reside or may be found in [sic] general area of Chicago, Illinois (hereinafter "District"), a substantial part of the events giving rise to Plaintiff's claims occurred in this District, and the Defendants transact business in this District. Answer: Niro Law admits that venue is proper in this district, but denies that all of the named defendants "reside or may be found in" the Chicago area, or that all of them "transact business in" this district. FACTUAL BACKGROUND AND GENERAL ALLEGATIONS 8. For many years, Plaintiff has been and continues to be in the business of providing funding to plaintiff attorneys, such as the Defendants in this case, to pursue cost-intensive, complex, contingency fee-based litigation. Specifically, Plaintiff will loan money to attorneys who have significant monetary claims for the purpose of advancing costs and expenses for such litigation in consideration of the attorneys agreeing to pay back those loans pursuant to written agreement out of contingency fees received. As a condition for providing such funding, the attorneys would have to provide Plaintiff with all "relevant information" about the claims in order for Plaintiff to properly 3 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 4 of 17 PageID #:58 assess the risk since payment would only be recovered if the litigation was successful. The Plaintiff would also arrange for insurance to cover the risk that the litigation would be totally unsuccessful in order to cover the loss of the actually funding amount. In all such instances, the litigation may not have been able to proceed without the funding provided by Plaintiff since the costs for such things as expert witness fees are so significant. Answer: Niro Law admits that the Plaintiff was to arrange for insurance to cover the risk that the litigation would be totally unsuccessful in order to cover the loss of the actual funding amount. Niro Law lacks knowledge or information about Plaintiff and its business sufficient to admit or deny the allegations made and, thus, denies the same. Niro Law further denies that any of the identified litigation could not have proceeded without funding from Plaintiff. 9. In 2011, Plaintiff entered into a written Master Loan Agreement (hereinafter "Master Loan Agreement") with Defendant Niro, Haller & Niro for the purpose of Plaintiff loaning loan [sic] said defendant significant funds from Plaintiff for the purpose of utilizing those funds to pay for the costs and other expense of pursuing claims for their identified clients in the United States courts and as more specifically described hereinafter. A true and accurate copy of the Master Loan Agreement is attached hereto, incorporated herein by reference and labelled Exhibit A. Pursuant to the Master Loan Agreement and as funding was requested from different claimants represented by Defendants, a written "Case Specific Loan Agreement" would be entered into between Plaintiff and Defendant Niro, Haller & Niro with respect to funding pertaining to specific clients of said defendant and said agreements were incorporated into the Master Loan Agreement. Specifically, Plaintiff and Defendants entered into three Case Specific Loan Agreements for the following claimants: Oplus Technologies Corporation (hereinafter "Oplus"), Cascades Computer Innovation, LLC (hereinafter "Cascades"), and 21 SRL (hereinafter respectively referred to as "Oplus CSLA", Cascades CSLA, and 21SRL CSRL, and collectively referred to the "Case Specific Loan Agreements"). A true and accurate copy of each of said Case Specific Loan Agreements is attached hereto, incorporated herein by reference and labelled Exhibits B, C, and D, respectively. The Master Loan Agreement and Case Specific Loan Agreements, which were incorporated into the Master Loan Agreement, shall hereinafter be collectively be referred to as the "Agreement". Answer: Niro Law admits that Plaintiff and Niro Law, expressly identified as a corporation, entered into a Master Loan Agreement. Niro Law further, as a corporation, admits that it entered into three Case Specific Agreements with Plaintiff, but denies that exhibits A through D to the Complaint are a complete documentation of the agreement(s) between Plaintiff and Niro Law; otherwise denied. 10. Plaintiff loaned Defendants significant funds pursuant to the Agreement. Because of the cost of obtaining those funds, the cost of the aforesaid insurance and other costs, the gross amount 4 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 5 of 17 PageID #:59 funded for all of the Case Specific Loan Agreements, collectively, was $8,861,675 (inclusive of lender's costs) and the net amount actually transferred to Defendants was approximately $3,540,000. The Agreement was between the Plaintiff and Defendants and provided that to the extent that the litigation was successful and Defendants received a contingency fee, Plaintiff would receive a payment of an amount in excess to the amount funded from the contingency fee received by Defendants. In most instances, the client of Defendants involved in the specific litigation were not aware of the Agreement since the client was not party to the Agreement. As indicated above, the Agreement provided that if there was no fee recovery by Defendants, the Defendants would be under no obligation to repay the funding and there would be no recourse. The Agreement provides that it is to be enforced pursuant to laws of England, which allows for such transactions. Answer: Denied, except that Niro Law admits that Plaintiff paid certain monies to Niro Law pursuant to the agreement(s), and that the agreement(s) provide that if there was no fee recovery by Niro Law, that Niro Law would be under no obligation to repay Plaintiff and there would be no recourse. 11. Plaintiff learned that Defendants have earned and received contingency fees in some of the underlying lawsuits which were the subject of the Agreement. Defendants, however, have failed and refused to pay Plaintiff the amounts owed them under the Agreement even in the face of Plaintiffs [sic] repeated requests for the same. Answer: Denied. All monies due Plaintiff have been paid to 1CL or, as approved by 1CL, were used to fund 1CL's outstanding balance of funds owed to Niro Law. Plaintiff breached the Master Loan Agreement and each of the Case Specific Loan Agreements. 12. Additionally, the Agreement required the Defendants to provide Plaintiffs with periodic status reports containing all "Relevant Facts" (as defined more particularly below) about underlying lawsuits including the types of actions, the bases for the claims, the prospects for success and factors bearing on the prospects for success. Plaintiff required this information for three reasons: (1) to be able to evaluate the business prospects of providing initial funding for any of the lawsuits and/or additional funding thereafter should it become necessary; (2) to be able to obtain insurance against the risks of providing such funding; and (3) to determine whether any of the underlying lawsuits were resolved with a contingency fee earned such that the Defendants would be obligated to repay Plaintiffs their loans pursuant to the terms of the agreement. The Agreement therefore imposed an initial and a continuing obligation on Defendants to provide Plaintiff with such "Relevant Facts." Defendants breached their agreement with Plaintiff by failing and refusing to provide Plaintiff with such "Relevant Facts." These "Relevant Facts" lie uniquely within the knowledge and possession of the defendants. Plaintiff was informed by Defendants that there have been settlements in subject litigation which would have resulted in payment to Plaintiff in the amount of at least $450,000 pursuant to the provisions of the Agreement. Plaintiff, however, is presently unaware of the total amount it is owed since Defendants have refused to provide any accounting of the various litigation matters which are the subject of the Agreement. Certainly, the amount in controversy exceeds $75,000, exclusive of 5 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 6 of 17 PageID #:60 interest and costs. Plaintiff comes now seeking two general forms of relief: (1) compensatory damages resulting from Defendants breach of the Agreement; and (2) an equitable accounting to determine the amount by which it has been damaged. Answer: Denied. Status reports and accounting of recoveries were provided by Niro Law to Plaintiff on a timely basis. Further, Plaintiff is fully aware of all monies paid and due under the Agreements. COUNT I BREACH OF WRITTEN CONTRACT 13. Plaintiff restates, realleges and incorporates herein by reference all of the allegations contained in all of the foregoing paragraphs. Answer: Niro Law repeats its responses to paragraphs 1 through 12 as set forth above. 14. Plaintiff and Defendants entered into the Master Loan Agreement on December 15, 2011. According to the provisions of the Master Loan Agreement, Plaintiff agreed to loan money to Defendant NHN as "borrower", and that borrowed funds were to be used "exclusively in connection with the litigation that the borrower undertakes on behalf of its clients and that "the specific terms of each loan and remuneration to the Lender (Plaintiff 1CL) for the provision of the loans are set out in the Case Specific Loan Agreements (hereinafter "CSLA") to this Master Loan Agreement." The Master Loan Agreement does not describe Defendant NHN as a corporation, partnership or unincorporated association. The "Lender" in the Master Loan Agreement was Plaintiff 1CL. Answer: Denied. Niro Law is, and has always been a corporation. Plaintiff knew that Niro Law (and NHN) was a corporation, not a partnership, which fact was made clear when Mr. Niro signed the Master Loan Agreement as "Shareholder-President" of NHN and Mr. Haller signed the agreement as "Shareholder-Treasurer" of NHN. Further, Paragraph 22.1 of the Master Loan Agreement states: "[T]he Borrower [defined as "the firm of attorneys known as Niro, Haller & Niro. . ."] is duly incorporated under the laws of the state in which in its incorporated." And Paragraph 23.2 states that "[A]ll necessary corporate, shareholder or other action has been taken to authorize the execution, delivery and performance of the Financial Documents." 6 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 7 of 17 PageID #:61 15. From the date of the Agreements until on or about 2014, Plaintiff made loans to the Defendants so that the net amount funded (after deduction for all costs of obtaining such funds) was in the total amount of approximately $3,540,000 under the Master Loan Agreement and the separate Case Specific Loan Agreements described above. These Case Specific Loan Agreements are identified as OPLUS, 21SRL and Cascades and net funds actually transferred to Defendants to each, respectively, were $1,600,000; $720,000; and $1,220,000. Answer: Denied. Plaintiff ceased making payments under the Master Loan Agreement and all three Case Specific Loan Agreements and owes Niro Law more than $1 million due under the Agreements. Specifically, plaintiff did not fund the total alleged, nor the amounts alleged for OPLUS or Cascades, nor the full amounts provided for in any of the Case Specific Loan Agreements. 16. Defendants reported having reached a resolution of some of the underlying lawsuits related to the various Case Specific Loan Agreements. Following such resolution of those claims, Defendants reported having received in excess of $4.5 Million collectively in settlements and they have not paid Plaintiff fees due under the Agreement. Answer: Denied. All amounts due Plaintiff were paid, including the application of credits for amounts due Niro Law in the Cascades cases: 01/30/2014 $160,000 credit regarding 10% of Cascades v. Hynix settlement 02/19/2014 $125,000 credit regarding 10% of Cascades v. Motorola settlement 04/16/2014 $15,000 credit regarding 10% of Cascades v. Sony settlement 06/19/2014 $20,000 credit regarding 10% of Cascades v. Sharp settlement 08/30/2014 $15,000 credit regarding 10% of Cascades v. Pantech settlement Plaintiff approved such credits: "Well done with the settlement and I note this will reduce sums due [by Niro Law] as noted." 17. Under the terms of the Agreement, Defendants are obligated to pay Plaintiff 10% of the foregoing contingency fees within 30 days of their receipt. That obligation arose pursuant to the Master Loan Agreement as follows (see Exhibit A at ¶¶ 13-14 at p.8): Loan Cost 7 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 8 of 17 PageID #:62 13. The case specific schedule(s) to this agreement set out the terms of the remuneration to be paid by the Borrower to the Lender at or within a maximum of 30 days from the receipt by the Borrower of its contingent fee payable from any Claims Proceeds. 13.1 If the Borrower fails to pay the whole or any part of any sum payable under this Agreement or a CSLA on the due date such as, but not limited to, the remuneration due to the Lender following the collection of Claim Proceeds in any Proceeding as specified in a CSLA, the Borrower shall pay interest on the amount unpaid at the rate of fifteen percent per annum from the due date until the date of actual payment and whether before or after demand or judgment. Such interest shall be calculated on a day to day basis and on a year of 365 days. 13.2 All sums payable by the Borrower hereunder or flowing from a CSLA shall be paid without set-off, deduction or withholding whatsoever, provided that in the event that the Borrower is required under applicable law to make any withholding from any sum payable hereunder, it shall do so and Lender shall be responsible for the payment of any taxes or other fees with respect to such amount. Loan Repayment 14. The Borrower shall repay solely from, and as it receives, its contingent fee from the claims Proceeds, an amount equal to 10% of the Claim Proceeds from the underlying Legal Proceedings as detailed in the CSLA. In no event shall Borrower be required to repay any amounts in excess of such amounts. Notwithstanding anything to the contrary in this Agreement, in no event shall Borrower or any partner or shareholder of Borrower be liable to Lender for any amounts in excess of 10% of the Claims Proceeds, plus any interest that may accrue for late payment. Lender acknowledges and understands that, in the event the amount of the loan exceeds 10% of the Claims Proceeds, it will not be entitled to recover the deficiency from Borrower or any other person. Apart from the express representations and warranties in this Agreement, neither Borrower nor any other person has given any warranties or provided any guarantees as to the potential success of the Proceedings or the amount, if any, of the Claims Proceeds. Borrower expressly disclaims any implied warranties or any guarantees as to the results of the proceedings. Lender understands that there is inherent risk in all litigation and accepts that risk in making the loan. Answer: Admitted that Paragraphs 13 and 14 of the Master Loan Agreement are set forth above. Any amounts due Plaintiff are independent of Plaintiff's costs in borrowing money to fund its obligation. As set forth in the Master Loan Agreement: 14. … Lender acknowledges and understands that, in the event the amount of the loan exceeds 10% of the Claims Proceeds, it will not be entitled to recover the deficiency from Borrower or any other person. Apart from the express representations and warranties in this Agreement, neither Borrower nor any other person has given any warranties or provided any guarantees as to the potential success of the Proceedings or 8 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 9 of 17 PageID #:63 the amount, if any, of the Claims Proceeds. Borrower expressly disclaims any implied warranties or any guarantees as to the results of the proceedings. Lender understands that there is inherent risk in all litigation and accepts that risk in making the loan. All other allegations are denied. 18. Defendants have failed and refused to perform their obligations for payment under the Agreement thereby constituting breach of the same. Plaintiff is presently unaware of the total extent of its damages resulting from the breach, except that the amount exceeds $450,000. Answer: Denied. 19. In addition, Defendants were obligated under the Master Loan Agreement to keep Plaintiff apprised of "Relevant Facts" pertaining to the underlying lawsuits for which it would provide or has provided funding. According to the Master Loan Agreement (at p.3) the term "Relevant Facts" means ". . . all facts and matters that are relevant or material to the Proceedings of which the Borrower is aware at the applicable time including (but without limitation) any potential right of set-off or counterclaim (or similar right) against the Borrower's client by any party and in particular, (but without limitation) any facts and matters that might (i) adversely affect the Borrower's clients case or prospects in the Proceedings; (ii) adversely affect the case or prospects of any other party or proposed party to the Proceedings; and/or (iii) support the case or prospects of any other party or proposed party to the Proceedings." The reasons for this requirement, among others, are so that Plaintiff could make informed business decisions as to whether to make initial and subsequent loans to fund the lawsuits, to know whether any lawsuits have resolved, and to know whether Defendants have received any contingency fee payments. That obligation arose pursuant to the Master Loan Agreement as follows (see Exhibit A at ¶¶ 21.3-21.6; 31.3-4.2 at pp.7-8; 11-12): The Borrower represents and warrants as follows 21.3 the Borrower has informed the Lender of all Relevant Facts in relation to each CSLA or has provided to the Lender all information and documentation requested by the Lender from which Lender may determine the Relevant Facts and 21.4 in Borrower's reasonable judgment, the prospects of success in the Proceedings are good taking into consideration all the information known to the Borrower at that time, and 21.5 Borrower has no reason to believe the Borrower's client has not disclosed to the Borrower all Relevant Facts and provided to the Borrower any information or documentation requested by the Borrower. 21.6 The Borrower has disclosed to the Lender all material facts and matters of which the Borrower is aware beyond publicly available information relevant to the financial condition of any party against whom the Proceedings have or will be taken. 31.3 The Borrower shall inform the Lender without delay and in any case within 10 working days of all Relevant Facts of which the Borrower becomes aware related to 9 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 10 of 17 PageID #:64 this Agreement or any CSLA that have not previously been disclosed to the Lender and shall provide to the Lender any information or documentation reasonably requested by the Lender subject to the provisions of maintaining client attorney privilege. 31.4 The Borrower shall: 31.4.1 keep under constant review the Borrower's clients prospects of success in the Proceedings referred to in each CSLA; 31.4.2 keep Lender informed of any material developments In [sic] the Proceedings or as to other matters that might affect the outcome of the Proceedings of which Borrower is aware; Answer: Niro Law admits that Plaintiff has quoted from the Master Loan Agreement, but deny that Niro Law did not give periodic reports. Niro Law provided detailed periodic reports on the status of all litigation, including a report on all material events. All other allegations are denied. 20. Defendants have failed and refused to perform their obligations under the Master Loan Agreement to keep Plaintiff informed of all "Relevant Facts" and, further, have failed and refused to respond to Plaintiff's specific requests for "Relevant Facts" thereby constituting additional breach of said agreement. Such facts lie uniquely within the knowledge and possession of Defendants and consequently, Plaintiff is presently unaware of the total extent of its damages resulting from the breach and is unable to assess those damages without first obtaining an accounting from Defendants in that regard. However, to the extent that such "Relevant Facts" would have led Plaintiff to stop funding the subject litigation under the Agreement and such litigation was not successful, Plaintiff has been damaged to the extent such funding occurred. Answer: Denied. COUNT II ACCOUNTING 21. Plaintiff realleges and incorporates herein by reference the allegations contained in the foregoing paragraphs. Defendants have failed and refused to account to Plaintiff for the use of the funds transmitted to them by Plaintiff. Plaintiffs [sic] therefore demand and are entitled to a full accounting from Defendants identifying how and where the $3,540,000 in funds provided to them were used or spent. In addition, Plaintiffs [sic] demand and are entitled to a full accounting of any and all "Relevant Facts" pertaining to the underlying lawsuits as defined in the Master Loan Agreement. Finally, Plaintiffs [sic] demand and are entitled to an accounting of any and all attorney contingency fees received from any of the underlying lawsuits that are the subject of the Master Loan Agreement and the Case Specific Loan Agreements as such information would form the basis Defendants' payment obligations to Plaintiff under the Master Loan Agreement. 10 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 11 of 17 PageID #:65 Answer: Niro Law repeats its responses to the allegations made in paragraphs 1 through 20 and denies all allegations including that an accounting is necessary or appropriate. Affirmative Defenses (Waiver) Niro Law alleges as an affirmative defense that 1CL has waived or is otherwise estopped from making the claims asserted in its Complaint. (Failure to Mitigate) 1CL was in a position to prevent the losses it now complains of, but failed to take steps to mitigate those losses. (Unclean Hands) Niro Law alleges as a separate affirmative defense that some or all of 1CL's claims are barred by its unclean hands. (Breach) Niro Law alleges as a separate affirmative defense that, to the extent any contract existed between Niro Law and 1CL, 1CL committed the breach. (Parol Evidence) Niro Law alleges as a separate affirmative defense that 1CL's claims are barred by the parol evidence rule. (Acquiescence) Niro Law alleges as a separate affirmative defense that to the extent any contract existed between Niro Law and 1CL, 1CL has acquiesced to any revisions. 11 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 12 of 17 PageID #:66 COUNTERCLAIM 1. Counterclaim-Defendant, 1st Class Legal (L.S.), Ltd. ("1CL") is alleged to be a corporation formed and organized under the laws of the United Kingdom and has a registered office at Oak House Sitka Drive, Shrewsbury Business Park, Shrewsbury, Shropshire, SY2 6LG. 2. 1CL has transacted business in this judicial district by negotiating and entering the Master Loan Agreement and the Case Specific Loan Agreements in this judicial district. 3. Counterclaim-Plaintiff, Niro Law, Ltd. ("Niro Law"), formerly known as Niro, Haller & Niro, Ltd. ("NHN") is, and at all times has been, an Illinois corporation. Niro Law and NHN have a place of business at 181 West Madison Street, Suite 4600, Chicago, Illinois 60602. For purposes of these counterclaims, the term "Niro Law" refers to both Niro Law and NHN. JURISDICTION AND VENUE 4. This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(2) since 1CL is both incorporated and has its principal place of business in a foreign state, and Niro Law is both incorporated and has its principal place of business in Illinois. Therefore, there is complete diversity of citizenship between 1CL and Niro Law, and the amount in controversy exceeds $75,000 exclusive of interest and costs. 5. Venue in this District is proper pursuant to 28 U.S.C. § 1391 in that a substantial part of the events or omissions giving rise to the claims and counterclaims occurred in this judicial district. FACTS 6. On or about December 15, 2011, 1CL and Niro Law entered into a Master Loan Agreement ("Master Loan Agreement") (attached as Exhibit A to the Complaint, Doc. No. 1). 7. The Master Loan Agreement recognizes that Niro Law (then known as Niro, Haller & Niro, Ltd.) is a corporation: 22.1 The Borrower [defined as "the firm of attorneys known as Niro, Haller & Niro with offices at 181 West Madison Street, Suite 4600, 12 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 13 of 17 PageID #:67 Chicago, Illinois, 60602-4515, United States of America"] is duly incorporated under the laws of the state in which it is incorporated. *** 23.2 All necessary corporate, shareholder or other action has been taken to authorise the execution, delivery and performance of the Finance Documents. 8. Pursuant to the Master Loan Agreement, 1CL was required to make available to Niro Law certain amounts specified in three separate case specific loan agreements: 9. The Lender shall make available to the Borrower the Loan detailed in the CSLA upon and subject to the terms and conditions of this Agreement and as detailed in the CSLA for the exclusive purpose of assisting the Borrower to defray the costs as detailed in clause 10 below. 9. 1CL is in the business of providing non-recourse loans to attorneys who have significant monetary claims for advancing a certain sum of money in consideration of the attorneys agreeing to pay back the loans from a portion of the contingency fees received in the litigation. The loans are structured such that if there was no recovery in the litigation, the attorneys would be under no obligation to repay the funding and there would be no recourse. 1CL represents itself to be a sophisticated litigation funding company with extensive experience in funding litigation around the world. OPLUS CSLA 10. A Case Specific Loan Agreement was entered between Niro Law and 1CL in or about December 2011 pertaining to Niro Law's client Oplus Technologies Corporation ("the Oplus CSLA"). The Oplus CSLA is attached as Exhibit 1. 11. The Oplus CSLA specified that the total facility distribution and payment schedule was set forth in an attached budget which formed part of and should be read in conjunction with the Oplus CSLA. Pursuant to the budget attached to the Oplus CSLA, the total funding required by 1CL to be paid to Niro Law was $40,000 per month from December 2011 through December 2013, for a total of $1 million. 13 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 14 of 17 PageID #:68 12. Niro Law submitted drawdown requests to 1CL on a periodic or monthly basis. 13. 1CL paid the drawdown requests submitted by Niro Law for a period of time, but did not fulfill the entire obligation under the Oplus CSLA, and fell hundreds of thousands of dollars short of its funding commitment, despite Niro Law's repeated submission of drawdown requests. 14. Throughout the course of the Oplus representation, Niro Law provided 1CL with periodic formal status reports regarding the Oplus cases, and performed all of its other contractual obligations. 15. Throughout the course of the Oplus representation, Niro Law answered questions 1CL had with respect to the litigation. CASCADES CSLA 16. A separate Case Specific Loan Agreement was entered between Niro Law and 1CL in or about December 2011 pertaining to Niro Law's client Cascades Computer Innovation, LLC ("the Cascades CSLA"). The Cascades CSLA is attached as Exhibit 2. 17. The Cascades CSLA specified that the total facility distribution and payment schedule was set forth in an attached budget which formed part of and should be read in conjunction with the Cascades CSLA. Pursuant to the budget attached to the Cascades CSLA, the funding required by 1CL to pay to Niro Law was $140,000 per month from December 2011 through April 2012, and $40,000 per month from May 2012 through December 2013, for a total of $1,500,000. 18. Niro Law submitted drawdown requests to 1CL on a periodic or monthly basis. 19. 1CL paid the drawdown requests submitted by Niro Law for a period of time, but did not fulfill the entire obligation under the Cascades CSLA, and fell hundreds of thousands of dollars short of its funding commitment, despite Niro Law's repeated submission of drawdown requests. 20. Throughout the course of the Cascades representation, Niro Law provided 1CL with periodic formal status reports regarding the Cascades cases, and performed all of its other contractual obligations. 14 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 15 of 17 PageID #:69 21. Throughout the course of the Cascades representation, Niro Law answered questions 1CL had with respect to the litigation. 21SRL CSLA 22. A separate Case Specific Loan Agreement was entered between Niro Law and 1CL in or aboutApril 2012 pertaining to Niro Law's client 21srl. Pursuant to the 21srl CSLA, 1CL was to advance to Niro Law a total amount of $1,500,000. The 21srl CSLA is attached as Exhibit 3. 23. The 21srl specified that the total facility distribution and payment schedule was set forth in an attached budget which formed part of and should be read in conjunction with the 21srl CSLA. Pursuant to the writings attached to the 21srl CSLA, the total funding required 1CL to pay to Niro Law was $60,000 per month from April 2012 through April 2014 for a total of $1,500,000. 24. Niro Law submitted drawdown requests to 1CL on a periodic or monthly basis. 25. 1CL paid the drawdown request submitted by Niro Law for a period of time, but did not fulfill the entire obligation under the 21srl CSLA, and fell hundreds of thousands of dollars short of its funding commitment, despite Niro Law's repeated submission of drawdown requests. 26. Throughout the course of the 21srl representation, Niro Law provided 1CL with periodic formal status reports regarding the 21srl cases, and performed all of its other contractual obligations. 27. Throughout the course of the 21srl representation, Niro Law answered questions 1CL had with respect to the litigation. 1CL ACKNOWLEDGES BUT FAILS TO REMEDY FUNDING SHORTFALL 28. On December 23, 2013, Niro Law sent an email to Robert Gordon ("Gordon"), the managing director of 1CL, stating: "We have settled a Cascades case with Hynix for $1.6 million and will use First Class' $160,000 payment to reduce the $400,000 due April-December down to $240,000." The reference to $400,000 was to the amount then owed to Niro Law by 1CL on Cascades that 1CL had failed to pay. 15 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 16 of 17 PageID #:70 29. Gordon responded on December 23, 2013, "Well done on the settlement and I note this will reduce sums due as stated." Further, Gordon stated that "[y]ou will be getting a substantial transfer in the morning…" No such transfer was ever made. BREACH OF CONTRACT 30. Counterclaim-Defendant re-alleges and incorporates Paragraphs 1 through 29 of this Counterclaim as though fully set forth herein. 31. The Master Loan Agreement, in conjunction with the three CSLAs, constituted a valid and binding contract. 32. Niro performed all of its contractual obligations under the Master Loan Agreement and the CSLAs. 1CL failed to make all payments when due and, in fact, ceased making any payments in connection with drawdown requests for March 2013 and beyond. 33. The amount owed to Niro Law under the Master Loan Agreement (including the CSLAs) is in excess of $1 million. 34. 1CL has breached the Master Loan Agreement, the Cascades CSLA, the Oplus CSLA and the 21srl CSLA. 35. The Master Loan Agreement provide that 1CL was to arrange for insurance to cover the risk that the litigation would be unsuccessful in order to cover the loss of the actual funding amount. 36. 1CL never arranged for, or obtained, any insurance to cover the risk that the litigation would be unsuccessful. If 1CL had obtained the required insurance, any loss of the actual funding amount to 1CL would be recovered. 1CL's action amounts to an additional breach of the Agreements. 37. Due to the breaches, Niro Law has been damaged in the amount of at least $1 million plus interest. WHEREFORE, Defendant-Counterclaimant Niro Law seeks the following relief: A. Judgment in favor of Niro Law against Plaintiff in excess of $1 million plus interest; 16 Case: 1:16-cv-06793 Document #: 13 Filed: 09/15/16 Page 17 of 17 PageID #:71 B. Such other and further relief as the Court deems reasonable and just. Jury Demand To the extent permitted, Defendant-Counterclaimant Niro Law requests a trial by jury on all matters that can be so tried. Respectfully submitted, S/ Matthew D. Tanner Matthew D. Tanner (6202508) ROESER BUCHEIT & GRAHAM LLC Two N. Riverside Plaza, Suite 1420 Chicago, IL 60606 312.300.2522 Counsel for Niro Law, Ltd. CERTIFICATE OF SERVICE Matthew D. Tanner hereby certifies that on September 15, 2016, he caused the foregoing Answer and Counterclaim to be served upon all counsel of record via the court's electronic docketing system. S/ Matthew D. Tanner 17