Anil Goyal v. Gas Technology Institute , 732 F.3d 821 ( 2013 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 12-3756
ANIL GOYAL,
Plaintiff-Appellee,
v.
GAS TECHNOLOGY INSTITUTE,
Defendant.
APPEAL OF:
BARRY A. GOMBERG
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 05 C 5069 — Rebecca R. Pallmeyer, Judge.
SUBMITTED APRIL 22, 2013 — DECIDED October 17, 2013
Before WOOD, Chief Judge, and TINDER and HAMILTON,
Circuit Judges.
PER CURIAM. On June 3, 2013, we issued an opinion
affirming the district court’s order quashing an attorney fee
lien asserted by appellant Barry A. Gomberg, a former attorney
2 No. 12-3756
of plaintiff Anil Goyal. Goyal v. Gas Technology Inst., 718 F.3d
713 (7th Cir. 2013). Because we found that attorney Gomberg’s
arguments on appeal were frivolous, we ordered him to show
cause why we should not impose sanctions under Federal Rule
of Appellate Procedure 38. We also saw a possible violation of
Rule 1.5 of the Rules of Professional Conduct and ordered
Gomberg to show cause why we should not forward a copy of
the opinion to the Illinois Attorney Registration and Disciplin-
ary Commission with a request that it determine whether his
conduct warrants disciplinary action. Id. at 720–21. Gomberg
has filed his response, appellee Anil Goyal has responded, and
Gomberg filed a reply.
After considering these submissions, we conclude that Rule
38 sanctions are justified in the amount of $7500 payable by
Gomberg to Goyal and that a referral to the Commission is
warranted. Gomberg’s assertion of an attorney lien was
entirely unjustified, his legal arguments in support of his
payment demands were frivolous, and his explanations to this
court for his conduct do not excuse it.
To summarize the details set forth in our earlier opinion,
Goyal hired attorney Gomberg in late 2003 to represent him in
mediating a dispute with his employer, defendant Gas Tech-
nology Institute. Under the terms of their fee contract, Goyal
paid Gomberg a non-refundable retainer of $2500, which
would count toward a ten percent contingent fee for Gomberg
“on all monies and items of value that we secure for you
beyond what you have obtained from Gas Technology Institute
to this date … .” The retainer agreement did not contemplate
litigation. Mediation sessions began. Two weeks after the first
mediation session, Gomberg sent a letter to GTI’s attorneys
No. 12-3756 3
claiming an attorney lien in the amount of $70,000. Gomberg’s
response to the order to show cause provides no explanation
or basis for his assertion of a lien in that amount at that time.
In March 2004, GTI made what it then called its final offer
to settle with Goyal for $375,000. Goyal rejected the offer, and
he and attorney Gomberg parted ways. On March 12, Gomberg
sent Goyal a letter confirming the termination of the attorney-
client relationship and asserting that Gomberg had filed an
attorney’s lien for his fee. In response, Goyal wrote that, since
the mediation had not produced an agreement, the initial
retainer of $2500 that he had already paid Gomberg was the
only fee to which he was entitled.
More than a year after these events, Goyal filed suit against
GTI. In April 2009, acting pro se, Goyal settled with GTI for
approximately $1,300,000. Before all payments were made to
Goyal under the settlement, Gomberg contacted GTI’s lawyers,
invoked his lien, and demanded payment of $34,022.52 in
attorney fees from Goyal’s settlement. (This amount included
a demand for more than $4600 for Gomberg’s efforts to collect
on the lien. For details of the calculation, see 718 F.3d at 716
n.2.) Goyal tried to stop GTI from paying Gomberg and sought
help from the Chicago Bar Association to resolve the fee
dispute. Gomberg refused to cooperate, though, and in January
2010 GTI wired Gomberg the requested amount. Gomberg
held the amount in his client funds escrow until shortly after
we issued our opinion on June 3, 2013. He reports that he then
paid Goyal promptly, with interest.
Federal Rule of Appellate Procedure 38 authorizes a United
States Court of Appeals to award damages and single or
4 No. 12-3756
double costs to an appellee when an appeal is frivolous. The
Rule has both a compensatory purpose and a deterrent
purpose. E.g., Harris N.A. v. Hershey, 711 F.3d 794, 801 (7th Cir.
2013); Ruderer v. Fines, 614 F.2d 1128, 1132 (7th Cir. 1980). Rule
38 should not be invoked lightly, for reasonable lawyers and
parties often disagree about the application of the law to a
particular case. This court’s doors are open to consider such
reasonable disagreements brought to us in good faith. An
appeal can be frivolous, though, “when the result is obvious or
when the appellant’s argument is wholly without merit.”
Spiegel v. Continental Illinois Nat’l Bank, 790 F.2d 638, 650 (7th
Cir. 1986), quoting Indianapolis Colts v. Mayor and City Council
of Baltimore, 775 F.2d 177, 184 (7th Cir. 1985). When an appeal
is frivolous, Rule 38 sanctions are not mandatory but are a
matter for the sound discretion of this court. Burlington
Northern R.R. Co. v. Woods, 480 U.S. 1, 4 (1987).
We issued our order to show cause based on two concerns
about Gomberg’s professional conduct. First, he took the
frivolous position in the district court and on appeal that he
had “secured” funds for Goyal when the opposing party made
a settlement offer that Goyal then rejected. Second, Gomberg
asserted a lien for $70,000 in December 2003 when there was no
basis for any lien, and certainly not in that amount. We invited
further factual development that might have justified or
excused Gomberg’s decision to appeal to this court despite the
apparent frivolousness of his arguments.
Gomberg first argues in his response to our show cause
order that his claim for a fee was justified, insisting that the
term “secured” in the fee agreement arguably could encom-
pass obtaining an offer of settlement even if the offer is not
No. 12-3756 5
accepted. We rejected this idea in our earlier opinion when we
explained that, based on the most elementary principles of
contract law and contingent fee agreements, Gomberg never
“secured” any funds for Goyal. 718 F.3d at 718–19. Gomberg
correctly points out that there is a critical difference between an
unsuccessful legal argument and one that is frivolous. But
without repeating our discussion from the merits opinion, his
untenable position that he “secured” funds for Goyal when the
opposing party made an unaccepted settlement offer falls
squarely on the frivolous side of that line.
Nor has Gomberg justified his December 2003 assertion of
a lien for $70,000, an assertion he made before any settlement
offer had even been made. Though we ordered Gomberg to
explain his action, his original response to us did not even
mention the point. His reply to Goyal’s response told us only
that he realized in 2009 that an unidentified “mathematical
calculation” had been incorrect. He has provided no basis on
which we could even guess that he had a reasonable basis for
claiming $70,000 or what mathematical mistake he might have
made. His contract with Goyal was for ten percent of any
additional funds his efforts secured for Goyal. When Gomberg
told GTI he was asserting a right to a $70,000 lien, GTI had not
offered any settlement remotely supporting the amount, and
it never did so while Gomberg was representing Goyal. And
even under Gomberg’s specious reasoning, he could have
claimed to have been entitled to only $29,383 based on GTI’s
offer of $375,000, which was not made until several months
later. See 718 F.3d at 716 n.2 ([$318,825.28 ÷ 10] - $2500 retainer
= $29,383).
6 No. 12-3756
Gomberg also asserts that he had a legitimate basis for
seeking a quantum meruit fee because Goyal settled with GTI
after Gomberg had expended time and energy on the case. As
we explained in our earlier opinion, Gomberg waived this
point. He did not make the argument to Magistrate Judge
Keys, see Dkt. 258, and his argument to Judge Pallmeyer failed
to come to grips with the relevant facts, see Dkt. 276 at 4–6. See
generally 718 F.3d at 720 & n.3. In his objections submitted to
Judge Pallmeyer, Gomberg pointed out that if GTI had offered
$1 million to settle, Goyal had rejected it, fired Gomberg, and
then settled for $1 million plus one cent, he would have a
legitimate quantum meruit claim. We agree with him about that
exaggerated example. As we explained in our earlier opinion,
the quantum meruit theory provides a mechanism to protect
lawyers who work on a contingent fee basis from such unfair
treatment by their clients. 718 F.3d at 719–20.
The problem is that each time Gomberg has presented a
conclusory variation of his quantum meruit theory, he has failed
to address the relevant facts, including the contingent nature
of his fee agreement, the very limited scope of his own actions,
the vast difference between the offer he obtained and the terms
of the ultimate settlement, and the many years of litigation
between GTI’s unaccepted offer in March 2004 and its accepted
offer in April 2009. Since Gomberg has never marshaled a
coherent argument under quantum meruit, the theory does not
save his appeal from having been frivolous.
The basic theme of Gomberg’s response is that he worked
hard for Goyal and that he deserved to be paid. What is
missing from the response is any recognition of the facts that
Gomberg agreed to a contingent fee and that his efforts did not
No. 12-3756 7
“secure” any funds for Goyal. Attorneys who work on a
contingent fee basis know that even though they may work
long and hard, the fee may turn out to be zero. If Goyal had
fired Gomberg and turned around and settled quickly with
GTI for essentially the terms of the offer made through
Gomberg, he would have a point, but that is not what hap-
pened. Gombeg’s efforts to avoid the reality of the contingent
fee agreement that he drafted and signed have been frivolous.
In a final attempt to avoid Rule 38 sanctions, Gomberg
argues in his response that Goyal, because he acted pro se on
appeal, may not be awarded attorney fees. He argues by
analogy to cases concluding that a pro se litigant is not entitled
to an attorney fee under 42 U.S.C. § 1988. See Kay v. Ehrler, 499
U.S. 432 (1991). The analogy is not persuasive. First, if it
applied here, it would be inconsistent with Gomberg’s own
demand in the district court that Goyal pay him an additional
$4640 in “fees” for his efforts to enforce his frivolous lien. See
718 F.3d at 716 n.2. More fundamental, though, section 1988 is
phrased in terms of attorney fees, while Rule 38 is not so
limited. To serve the deterrent and compensatory purposes of
Rule 38, the fact that Goyal chose to defend himself rather than
hire an attorney should not work to Gomberg’s benefit.
As noted above, Rule 38 sanctions call for an exercise of
discretion. We are most concerned here that this case shows an
attorney’s persistent, years-long effort to extract money from
a client on frivolous theories. An attorney owes a fiduciary
duty to all her clients—even the difficult ones. Gomberg’s
unsuccessful work on behalf of Goyal has never given him a
viable claim for a fee, yet he has tied up Goyal and the courts
for years with his frivolous efforts to extract a fee for this
8 No. 12-3756
unsuccessful work. Given this prolonged and oppressive
misuse of the law’s mechanisms to protect attorneys from
unreasonable clients, Rule 38 sanctions are justified both to
compensate Goyal and to deter Gomberg and other similarly
situated attorneys.
The amount of those sanctions is also a matter of judgment
and discretion. We again keep in mind both the compensatory
and deterrent purposes of Rule 38. Goyal spent nearly 150
hours on the appeal alone. Anyone who has been a party to
litigation can comprehend the stress that goes along with such
work. We conclude that a Rule 38 sanction of $7500 payable by
Gomberg to Goyal is an appropriate sanction here. That
amount compensates Goyal approximately $50 per hour for his
efforts on the appeal. By coincidence, it is also the approximate
sum of the $2500 retainer that Goyal paid and the amount that
Gomberg himself was claiming in the district court for his own
frivolous efforts to enforce the lien. We believe this sum should
be sufficient to both compensate and deter.
Finally, nothing in Gomberg’s response persuades us that
he did not violate Rule of Professional Conduct 1.5, which
provides in relevant part that a lawyer shall not charge or
collect an unreasonable fee. We read Rule 1.5 to prohibit a
lawyer from asserting unreasonable and baseless demands for
a fee contrary to the terms of his fee agreement. See Restate-
ment (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 will send a copy of our earlier opinion and this
opinion to the Illinois Attorney Registration and Disciplinary
No. 12-3756 9
Commission for such further consideration as it may deem
appropriate.
SO ORDERED.