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

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

MOTION by Defendant Niro Law, Ltd., Counter Claimant Niro Law, Ltd. to compel

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Case: 1:16-cv-06793 Document #: 18 Filed: 01/09/17 Page 1 of 8 PageID #:105 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.,)) Defendants.))) NIRO LAW, LTD., an Illinois corporation,) Formerly known as NIRO, HALLER &) NIRO, LTD.,)) Counterclaim plaintiff,)) v.)) 1 CLASS LEGAL (I.S.) LTD., a foreign st) Corporation))) Counterclaim defendant.) MOTION TO COMPEL BY NIRO LAW, LTD. Defendant/counterplaintiff Niro Law, Ltd. (formerly known as Niro, Haller & Niro, Ltd., referred to here as "Niro Law") brings this motion to compel production of documents by plaintiff/counterdefendant 1st Class Legal (I.S.) Ltd. ("1st Class"). 1 Case: 1:16-cv-06793 Document #: 18 Filed: 01/09/17 Page 2 of 8 PageID #:106 INTRODUCTION 1st Class brought suit alleging breach of a 2011 Master Loan Agreement (and related contract documents) whereby it agreed to loan funds to Niro Law, in exchange for certain payments from any contingency fees received by Niro Law on the funded cases. 1st Class admits that the loans were non-recourse, and that if there were no fee recovery by Niro Law, the firm "would be under no obligation to repay the funding. . . ." (Cmplt, Dkt. 1, ¶ 10). 1st Class alleges that Niro Law breached the parties' agreement by (1) failing to pay the requisite portions of contingency fees earned, and (2) failing to provide 1st Class with "Relevant Facts" about the funded litigation, information which 1st Class claims it required for reasons including being "able to obtain insurance against the risks of providing" the funding (sometimes referred to as "after-the-event" or "ATE" insurance). (Id. ¶¶ 11, 12.) 1st Class alleged that pursuant to its litigation funding business model, it would "arrange for insurance to cover the risk that the litigation" would be unsuccessful so as "to cover the loss of the actual[] funding amount." (Id. ¶ 8.) Niro Law countersued, alleging that 1st Class materially breached its funding obligations by failing to satisfy "drawdown requests" to the tune of hundreds of thousands of dollars on each of the parties' three "case specific loan agreements" (one such agreement for each of Niro Law clients Oplus, Cascades and 21srl) and that 1st Class failed to make any payments in connection with drawdown requests for March 2013 and beyond. (Counterclaim, Dkt. 13, ¶¶ 13, 19, 25, 32.) In response to requests for production, 1st Class has refused to provide documents on (insofar as this motion is concerned) three subject matters: 1. 1st Class' correspondence with issuers, agents or brokers of its after-the event insurance (solely in connection with the Niro funding); 2. Agreements and correspondence regarding 1st Class' transactions in obtaining the funds used to satisfy 1st Class' funding obligations under the agreement with Niro Law; and 2 Case: 1:16-cv-06793 Document #: 18 Filed: 01/09/17 Page 3 of 8 PageID #:107 3. Documents pertaining to suits or claims against 1st Class arising out of the Niro Law transactions. Certification of Compliance with Rule 37(a)(1) and Local Rule 37.2. Undersigned counsel certifies he has in good faith conferred with 1st Class' counsel in an effort to obtain the documents sought without court action, including through written correspondence (attached as Exhibits 1 and 2) and a telephonic consultation on January 6, 2017. Request No. 9: Correspondence Regarding After-The-Event Insurance. Niro Law's Request No. 9 seeks documents pertaining to 1st Class' acquisition or non- acquisition of after-the-event insurance in connection with the Niro Law agreement, including "any correspondence with any issuer of such insurance or its agent or broker," and "documents pertaining to the role of [1st Class] or any affiliated entities and individuals in the insurance transaction." 1st Class objected that the request was "vague and ambiguous" and that it sought documents "not relevant to the claims and defenses in this action." 1 (Ex. 3, 1st Class Responses, which restate the requests.) It agreed to produce only the policies themselves "as well as the related bordereau." 2 1st Class also affirmatively stated that it "has not yet made any claims on said insurance." Id. Niro Law has reason to believe that the reason 1st Class has not made claims on its insurance is that the parties' funding agreements failed not because of any breach by Niro Law, or any other insured event, but because 1st Class defaulted on its obligation to provide the agreed-upon funds, which rendered any 1st Class losses non-insured events. That being the case, correspondence 1 1st Class raised the "vague and ambiguous" objection to 13 out of Niro Law's 18 requests (72 percent). Among the "vague and ambiguous" requests was Request No. 1, which provided (in its entirety) "Produce all documents identified in your Rule 26 initial disclosures." Ex. 3. We are hard- pressed to understand how this (or the other requests so objected to) was in any way unclear or reasonably susceptible to more than one interpretation. 2 Bordereau: "In insurance, summary of transactions between agent and company." Black's Law Dictionary (abridged 5th ed. 1983). 3 Case: 1:16-cv-06793 Document #: 18 Filed: 01/09/17 Page 4 of 8 PageID #:108 between 1st Class and the insurer(s) would appear to be highly "relevant to any party's claim or defense. . . ." Rule 26(b)(1), Fed. R. Civ. P. Nor is Niro Law's theory—that the parties' funding agreement failed for non-provision of funds by 1st Class, and that this failure would preclude a claim under the insurance—a fanciful one. 1st Class' own internal documentation is fully supportive. Two examples will suffice. On July 22, 2013 (as noted above, Niro Law alleges that 1st Class ceased its funding obligations for drawdown requests from March 2013 and going forward), Niro Law indicated in an email that its accounting department was reporting that "the current past due amount for Oplus, Cascades and 21srl [the three Niro Law clients whose matters were to be funded by 1st Class] is $560,000." Upon receipt of this email Bob Gordon (1st Class' Managing Director) responded: "I am aware of this but doubt this will be able to all be done at once. . . ." Ex. 4, PDOCS001195-97 (produced by 1st Class). Seven months later, in February 2014, Mr. Gordon drafted (for internal review) a memorandum entitled "Niro Haller & Niro Report," directed to "All" (which we infer from the content likely refers to the investors who supplied the funds that 1st Class provided to Niro Law). In the Report, Gordon indicated that he had met with Ray Niro the day before, and that the principals of Niro Law "are very unhappy with the non-payment of the agreed funding," and were questioning why Niro Law should not declare the contract in breach. Mr. Gordon added: "You are already aware but, for completeness, it should be stated that should funding agreements fail due to non-provision of the funds then no insurance cover would apply and no obligation to pay investors anything would apply to the funded client." In his Report, Mr. Gordon went on to summarize the status of the various funded cases, and conveyed a suggestion that Ray Niro had purportedly proposed (adding more Niro Law cases to the 4 Case: 1:16-cv-06793 Document #: 18 Filed: 01/09/17 Page 5 of 8 PageID #:109 mix of funded cases so as to spread the risk) "as a sensible way forward." Mr. Gordon then concluded: Ray Niro is trying to be more than reasonable here and he is fully aware that he could have the funding agreements set aside entirely for non-performance and a number of other reasons. . . . [H]e is giving us a way out that is more than reasonable. If we are not in a position to know funds are available within a short time then I do not know what can be done here. Ex. 5, PDOCS 00797-99 (produced by 1st Class). These 1st Class documents have obvious ramifications for the case on the merits (and for potential Rule 11 proceedings), but for present purposes we simply note that correspondence with 1st Class' after-the-event insurer could be highly relevant to the claims and defenses in this case. Did 1st Class report its own "failure to fund" to the insurer? Did 1st Class identify any reasons for any such failure to fund, or why funds that were provided were not getting recouped? 3 Did the insurer (for whom 1st Class "administered" the policies, see Ex. 7, PDOCS005150) weigh in on these issues? Did the insurer and 1st Class ever discuss issues related to 1st Class' claim in its complaint that Niro Law had violated its obligation to provide "Relevant Facts" about the cases being funded? (Recall that 1st Class alleges that these "periodic status reports containing all 'Relevant Facts'" were required in order to maintain the insurance, Cmplt. ¶ 12.) These questions are quite relevant, and the documents sought would appear to have at least a fair chance of shedding light on them. Accordingly, Niro Law requests that this Court direct that 1st Class produce all correspondence with any insurer that insured the 1st Class-Niro Law funding 3 It is abundantly clear from 1st Class' documents that the Niro Law cases it funded did not turn out as hoped, and that by 2015 1st Class' "investor Loan Notes" were "overdue and need to be repaid and with no present answer to give to investors," and that "[n]either [1st Class nor Niro Law] has control over the circumstances that changed the market on this investment." Ex. 6, PDOCS00465- 66 (produced by 1st Class). 5 Case: 1:16-cv-06793 Document #: 18 Filed: 01/09/17 Page 6 of 8 PageID #:110 arrangement, as well as documents pertaining to the role of 1st Class or its affiliated entities in the insurance transactions. Request No. 10: Agreements and Correspondence Regarding 1st Class Obtaining the Funds. 1st Class has affirmatively alleged that because of its "cost of obtaining" the funds loaned to Niro Law, its out-of-pocket losses are substantially in excess of (and in fact more than double) the amounts it claims it "actually transferred" to Niro Law. (Cmplt. ¶ 10.) In Request No. 10, Niro Law seeks documents pertaining to the transactions for obtaining those funds, as well as correspondence about those transactions. 1st Class responded with its usual litany of objections, including that the request was vague and ambiguous, and not relevant to any claims or defenses. 1st Class also cited a U.K. law purporting to limit disclosure of information "not necessary for these legal proceedings," and added that if it was directed by this Court to make such disclosures, it would seek a protective order to limit the use of the information. (Ex. 3.) 4 Here is what we are trying to learn: From whom did 1st Class obtain the funds? What was the cost of obtaining those funds (particularly if, as seems likely based on the very specific allegations in 1st Class' complaint, 1st Class may seek to recover such costs as damages)? 5 Did 1st Class ever provide information to its funders suggesting (as 1st Class now alleges) that Niro Law had breached its obligations to 1st Class? Or did 1st Class, as the documents discussed in the preceding 4 On November 22, 2016, undersigned counsel sent 1st Class' counsel the "model" protective order contained on this court's website to see if 1st Class was amenable to the entry of such an order. There have been many emails back and forth on this topic, but 1st Class has yet to give a thumbs-up or thumbs-down on agreeing to such an order. If necessary, Niro Law will seek such an order by motion. 5 1st Class' initial disclosures under Rule 26 declined to provide any information on damages sought (neither calculations nor categories), stating instead that "at the present time and until accounting information is provided by Defendants, [it] is unable to determine the amount of damages incurred." Ex. 8. This runs afoul of Rule 26(a)(1)(E)'s list of "unacceptable excuses." See In re Park W. Galleries, Inc., Mktg. & Sales Practices Litig., No. MDL 09-2076RSL, 2010 WL 1996600, at *1 (W.D. Wash. May 17, 2010) (plaintiffs' argument that they are "'unable to calculate specific amounts of these damages 6 Case: 1:16-cv-06793 Document #: 18 Filed: 01/09/17 Page 7 of 8 PageID #:111 section would indicate, inform the investors (1) that it was 1st Class that committed the breach, or (2) that losses on these investments were being sustained through changes in the litigation marketplace that were outside the control of Niro and 1st Class? Niro Law has raised these issues with counsel for 1st Class, which persists in its refusal to produce responsive documents. (Ex. 1 and 2.) Accordingly, Niro Law requests that this court direct 1st Class to produce documentation of its agreements with, and correspondence with, those who supplied the funds to 1st Class in conjunction with 1st Class' funding agreement with Niro Law. Request No. 11: Suits or Claims Against 1st Class. In Request No. 11, Niro Law seeks documents regarding whether anyone has sued, threatened to sue, or otherwise indicated an intention to pursue a claim against 1st Class or its principals arising out of the Niro Law funding transaction. Again, 1st Class found this request to be vague and ambiguous, and objected that it seeks information not relevant to claims or defenses in this action. Ex. 3. Further correspondence (Ex. 1 and 2) and discussions failed to achieve resolution or production. We respectfully suggest that the relevance of this information is self-evident, and much of that relevance has already been discussed above. Are there such suits or claims? It would appear there are. In January 2016, Bob Gordon wrote to 1st Class' U.S. representative Ron Hofer (one of the witnesses identified in 1st Class' Rule 26 disclosures) seeking some sort of written statement, adding, "This is now urgently needed for both the potential case against Niro and the UK case." Ex. 9, PDOCS 000021 (produced by 1st Class). until they obtain further discovery from Defendants' . . . falls under the heading 'Unacceptable Excuses'"). 7 Case: 1:16-cv-06793 Document #: 18 Filed: 01/09/17 Page 8 of 8 PageID #:112 What is the nature of those suits or claims (or threatened suits or claims)? Who has brought (or threatened to bring) them, and what wrongful conduct do they allege on the part of 1st Class? How has 1st Class responded? Has it admitted any allegations that might have bearing on this suit? Has it made representations that bear on the allegations it has made in this suit, or on the claims raised by Niro Law? These are surely not far-fetched questions, and the documents requested will almost certainly bear directly upon them. Accordingly, Niro Law requests that 1st Class be directed to produce documents pertaining to suits, threats, or claims against 1st Class or its principals arising out of 1st Class' loan of funds to Niro Law. CONCLUSION For the foregoing reasons, Niro Law requests, pursuant to Rule 37(a), Fed. R. Civ. P., that 1st Class be compelled to provide the disclosures sought in Niro Law's Requests for Production Nos. 9, 10 and 11, and that 1st Class or its counsel (or both) be required to pay "the movant's reasonable expenses incurred in making the motion, including attorney's fees," Rule 37(a)(5)(A). Respectfully submitted, s/ Matthew D. Tanner Matthew D. Tanner Matthew D. Tanner (6202508) Peter S. Roeser ROESER BUCHEIT & GRAHAM LLC Two N. Riverside Plaza, Suite 1850 Chicago, IL 60606 312.300.2522 Counsel for Niro Law, Ltd. 8