Dustan Dobbs v. George McLaughlin , 842 F.3d 1045 ( 2016 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16-2135
DUSTAN DOBBS,
Plaintiff-Appellant,
v.
DEPUY ORTHOPEDICS, INC. et al.,
Defendants,
v.
GEORGE E. MCLAUGHLIN, on behalf of JOHN GEHLHAUSEN,
P.C., and on behalf of ANTHONY G. ARGEROS, P.C.,
Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
Case No. 15 cv 8032 — Sharon Johnson Coleman, Judge.
____________________
ARGUED NOVEMBER 4, 2016 — DECIDED DECEMBER 1, 2016
____________________
2 No. 16-2135
Before FLAUM and KANNE, Circuit Judges, and MAGNUS-
STINSON, District Judge. ∗
KANNE, Circuit Judge. Dustan Dobbs hired Appellees
George McLaughlin, John Gehlhausen, and Anthony Ar-
geros as his attorneys on a contingency fee basis. Appellees
filed Dobbs’s product-liability claim against DePuy Ortho-
pedics in the DePuy ASR Hip Implant Multidistrict Litiga-
tion in the Northern District of Ohio. DePuy subsequently
offered to settle all claims in that litigation.
Despite advice and pressure from McLaughlin, Dobbs re-
fused to settle and discharged Appellees. Later, Dobbs
changed his mind and decided to accept the settlement offer.
Because the employment contract was inoperative when
Dobbs settled, Appellees sought compensation under a quan-
tum meruit theory. The district court awarded attorneys’ fees
in the full amount of the original contract. Dobbs argues that
the district court abused its discretion by not analyzing the
factors that Illinois courts look to when calculating reasona-
ble attorneys’ fees under quantum meruit. We agree.
I. BACKGROUND
Doctors replaced Dobbs’s left hip with a DePuy ASR arti-
ficial hip. Unfortunately, the ASR model was defective. And
those defects caused Dobbs pain and other hip problems.
Roughly four years after the surgery, Dobbs hired Appellees
to represent him in a product-liability suit against DePuy.
Appellees took the case on a 35 percent contingency fee.
∗The Honorable Jane Magnus-Stinson, of the United States District Court
for the Southern District of Indiana, sitting by designation.
No. 16-2135 3
Appellees filed Dobbs’s complaint in the DePuy ASR Hip
Implant Multidistrict Litigation in the Northern District of
Ohio. A year later, DePuy proposed a “Global Settlement” in
that litigation. DePuy offered represented parties $250,000
and unrepresented parties $165,000. 1
McLaughlin advised Dobbs to accept the settlement offer
because going to trial would be expensive, time consuming,
and risky. Dobbs told McLaughlin that he wanted to register
for the settlement but that he did not want to “agree with the
settlement offer,” “waive any rights to a trial,” or “be forced
to accept the present settlement offer from DePuy.” (R. 32-1
at 8.) Despite McLaughlin’s continued insistence that Dobbs’s
best option was to take the settlement, Dobbs decided that
the base award did not properly compensate him for his in-
juries. Dobbs became frustrated with McLaughlin, believing
that McLaughlin was trying to force him to settle his case
when he wanted to take it to trial.
Dobbs then filed a motion to remove McLaughlin as his
attorney on October 17, 2014. 2 McLaughlin acknowledged
that he no longer represented Dobbs and moved to with-
draw as counsel on December 30, 2014. Acting pro se, Dobbs
1 Plaintiffs who meet additional criteria also have a chance to file claims
for enhancements to the base award. Dobbs is in the process of seeking
enhancements, but Appellees have expressly waived their right to attor-
neys’ fees based on any enhancement Dobbs may receive.
2 Argeros died during the course of representation, and, as a solo practi-
tioner, his representation of Dobbs ended. Moreover, McLaughlin left
John Gehlhausen, P.C. Gehlhausen remains entitled to a third of any
share McLaughlin receives even though he stopped representing Dobbs
in early April 2014.
4 No. 16-2135
ultimately chose to accept the settlement offer on February 5,
2015. But because he was considered “represented” for pur-
poses of the settlement offer, Dobbs received $250,000.
Because Dobbs terminated the contract before he accept-
ed the settlement offer, Appellees could not recover the con-
tingency fee. McLaughlin then asserted a lien on the award
and sought attorneys’ fees under a quantum meruit theory.
Judge Katz in the Northern District of Ohio ordered media-
tion and personally mediated the negotiations. When the
parties could not resolve the dispute, Judge Katz transferred
the case to the Northern District of Illinois. There, Judge
Coleman held that the full contingency fee was a reasonable
award under quantum meruit. Dobbs now appeals that deci-
sion.
II. ANALYSIS
We review a district court’s award of attorneys’ fees for
an abuse of discretion. Goesel v. Boley Int’l (H.K.) Ltd., 806
F.3d 414, 419 (7th Cir. 2015); Gautreaux v. Chi. Hous. Auth., 491
F.3d 649, 654 (7th Cir. 2007). We have described that standard
of review as “highly deferential” because the district court is
in the best position to determine the reasonableness of an
award for work done on litigation in that court. Montanez v.
Simon, 755 F.3d 547, 552–53 (7th Cir. 2014); Gautreaux, 491
F.3d at 659. Highly deferential review, however, does not
give the district court unfettered discretion. The district
court “still bears the responsibility of justifying its conclu-
sions.” Sottoriva v. Claps, 617 F.3d 971, 975 (7th Cir. 2010).
We apply state law to determine whether the district
court’s award is reasonable. See Fednav Int'l Ltd. v. Cont'l Ins.
Co., 624 F.3d 834, 838 (7th Cir. 2010). A federal court sitting in
No. 16-2135 5
diversity jurisdiction typically applies the choice-of-law
rules of the state in which it sits. Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496–97 (1941). Generally, when a case
is transferred from a district court with proper venue to an-
other district court, the transferee court will apply the
choice-of-law rules of the state in which the transferor court
sits. See Van Dusen v. Barrack, 376 U.S. 612, 639 (1964). Here,
that suggests that Ohio substantive law—including its
choice-of-law rules—would apply. Dobbs’s claim, however,
was filed in the Northern District of Ohio only because the
DePuy multidistrict litigation was already in progress there.
Dobbs’s complaint stated that the Northern District of Illi-
nois was the appropriate venue absent the multidistrict liti-
gation. That advises treating the Northern District of Illinois
as the original venue.
In fact, district courts in our circuit have taken that ap-
proach: foreign cases filed directly in a district court as a part
of ongoing multidistrict litigation are treated as having orig-
inated outside of that district. E.g., In re Watson Fentanyl
Patch Prods. Liab. Litig., 977 F. Supp. 2d 885, 888–89 (N.D. Ill.
2013); In re Yasmin & Yaz (Drospirenone) Mktg., Sales Practices
& Prods. Liab. Litig., No. 3:09-MD-02100-DRH, 2011 WL
1375011, at *5 (S.D. Ill. Apr. 12, 2011). We ratify that approach
here and apply Illinois’s choice-of-law rules.
Illinois applies the choice-of-law analysis from the Re-
statement (Second) of Conflict of Laws. Morris B. Chapman &
Assocs., Ltd. v. Kitzman, 739 N.E.2d 1263, 1269 (Ill. 2000). Sec-
tion 221 of the Restatement governs restitution cases and in-
structs courts to apply the law of the state with the most sig-
nificant relationship to the restitution claim. The Restate-
ment lists several factors courts should consider, including:
6 No. 16-2135
the place where the parties’ relationship centers; the place
where the benefit was conferred and received; and the par-
ties’ domiciles, residences, and places of incorporation or
business. Restatement (Second) of Conflict of Laws § 221.
Illinois has the most significant relationship to this dis-
pute. The contract was entered into in Illinois, Dobbs is an
Illinois resident, Argeros resided and did business in Illinois,
and the events giving rise to the underlying lawsuit occurred
in Illinois. The only contact with Ohio was the venue of the
multidistrict litigation. Thus, Illinois law applies.
Under Illinois law, a client can fire an “attorney at any
time with or without cause.” In re Estate of Callahan, 578
N.E.2d 985, 987 (Ill. 1991). If a client terminates the services
of an attorney who was retained on a contingency fee con-
tract, the contract ceases to be effective and the attorney can
no longer recover under that contract. Id. at 988; Todd W.
Musburger, Ltd. v. Meier, 914 N.E.2d 1195, 1208 (Ill. App. Ct.
2009). A discharged attorney is left to recover compensation
for services rendered under a theory of quantum meruit only.
Thompson v. Buncik, 961 N.E.2d 280, 283 (Ill. App. Ct. 2011);
Meier, 914 N.E.2d at 1208–09. Quantum meruit means “as
much as he deserves.” Thompson, 961 N.E.2d at 283 (internal
quotation marks omitted); see also Black’s Law Dictionary 1276
(8th ed. 2004) (defining quantum meruit as “[t]he reasonable
value of services; damages awarded in an amount consid-
ered reasonable to compensate a person who has rendered
services in a quasi-contractual relationship”). The analysis
therefore requires an investigation into what fees the attor-
ney earned before being fired.
Courts must examine the attorneys’ work to decide what
a reasonable fee would be, and the “burden of proof is on
No. 16-2135 7
the attorney to establish the value of his services.” Thompson,
961 N.E.2d at 283. When determining a reasonable fee for
services rendered, Illinois courts consider “the time and la-
bor required, the attorney’s skill and standing, the nature of
the cause, the novelty and difficulty of the subject matter, the
attorney’s degree of responsibility in managing the case, the
usual and customary charge for that type of work in the
community, and the benefits resulting to the client.” Will v.
Nw. Univ., 881 N.E.2d 481, 504–05 (Ill. App. Ct. 2007) (citing
In re Estate of Callahan, 578 N.E.2d at 990). Although an attor-
ney may not recover under the original contingency fee con-
tract, “in cases in which an attorney who has done much
work is fired immediately before a settlement is reached, the
factors involved in determining a reasonable fee would justi-
fy a finding that the entire contract fee is the reasonable val-
ue of services rendered.” DeLapaz v. SelectBuild Const. Inc.,
917 N.E.2d 93, 97 (Ill. App. Ct. 2009) (quoting Rhoades v. Nor-
folk & W. Ry. Co., 399 N.E.2d 969, 975 (Ill. 1979)).
In this case, the district court abused its discretion by not
properly analyzing whether awarding the full value of the
contingency fee was reasonable. First, although we have de-
scribed our abuse-of-discretion standard in this context as
“highly deferential,” the reason for doing so is inapplicable
here. We give district courts wide latitude in this context be-
cause the judge making the attorneys’ fees decision is usual-
ly the same judge before whom the litigation giving rise to
the attorneys’ fees occurred. Consequently, that judge is
normally in the best position to determine whether a given
fee is consistent with the attorneys’ efforts in the case. Here,
Appellees’ litigation work occurred in the Northern District
of Ohio. The attorneys’ fees dispute was transferred to the
Northern District of Illinois only after Judge Katz held that
8 No. 16-2135
he couldn’t rule on the issue because he had served as the
parties’ mediator. Because Judge Coleman did not have
firsthand knowledge about the litigation giving rise to Ap-
pellees’ claim for attorneys’ fees, she needed to analyze the
factors Illinois courts have held are important when award-
ing attorneys’ fees under quantum meruit.
The district court’s decision contains limited discussion
of the relevant factors. The court listed the factors mentioned
above but did not consider evidence related to the factors;
rather, the judge merely recited Appellees’ claim that they
“adhered to all case management orders, collected Dobbs[’s]
medical records, act sheets, monitored the DePuy litigation,
and attended to all details of maintaining Dobbs’[s] case.”
(R. 42 at 7.) The only factor specifically addressed in the
opinion was that Dobbs “undoubtedly benefitted” from Ap-
pellees’ work. (R. 42 at 7.) The analysis left a whole host of
relevant factors unaccounted for. How many hours did Ap-
pellees spend on Dobbs’s case? How difficult or novel was
the underlying product-liability claim? How much would an
attorney ordinarily charge for this type of work? What were
Appellees’ skill and standing in the legal community? See
Will, 881 N.E.2d at 504–05 (citing In re Estate of Callahan, 578
N.E.2d at 990).
The district court also relied in part on the rule that when
“an attorney who has done much work is fired immediately
before a settlement is reached, the factors involved in deter-
mining a reasonable fee would justify a finding that the en-
tire contract fee is the reasonable value of services ren-
dered.” DeLapaz, 917 N.E.2d at 97 (quoting Rhoades, 399
N.E.2d at 975). Although this is a correct articulation of Illi-
nois law, the district court’s analysis does not comply with
No. 16-2135 9
how Illinois courts have applied the rule in the past. The rule
applies when the attorney did “much work,” which still re-
quires analyzing the factors used to determine a reasonable
fee under quantum meruit. See DeLapaz, 917 N.E.2d at 98; Will,
881 N.E.2d at 505; Wegner v. Arnold, 713 N.E.2d 247, 251 (Ill.
App. Ct. 1999). Without more, we cannot know if the attor-
neys’ fees award was reasonable.
On remand, the district court may conclude that the full
contingency fee is a reasonable award. We do not intend to
insinuate that some lesser award is required. Our conclusion
is limited to the ruling that the district court erred by failing
to consider evidence related to the relevant factors under Il-
linois law for determining reasonable attorneys’ fees under
quantum meruit.
III. CONCLUSION
For the foregoing reasons, we VACATE the district
court’s award of attorneys’ fees and REMAND the case for
further proceedings consistent with this opinion.