Fidelity National Title Insurance Company of New York v. Intercounty National Title Insurance Company

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-3581
F IDELITY N ATIONAL T ITLE I NSURANCE C OMPANY
OF N EW Y ORK ,
Plaintiff,
v.
I NTERCOUNTY N ATIONAL T ITLE I NSURANCE
C OMPANY , et al.,
Defendants.
Appeal of:
M YRON M. C HERRY & A SSOCIATES LLC
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 00 C 5658—Suzanne B. Conlon, Judge.
____________
S UBMITTED O CTOBER 25, 2002—D ECIDED N OVEMBER 8, 2002
____________
Before B AUER , P OSNER , and E ASTERBROOK , Circuit
Judges.
E ASTERBROOK , Circuit Judge. Fidelity National Title
Insurance contends that $20 million vanished from real
estate escrow accounts under the control of defendants and
related entities. It seeks a judgment for that amount in this
diversity litigation. Five of the defendants—Intercounty

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2 No. 02-3581
National Title Insurance Co., Intercounty Title Co., INTIC
Holding Co., Terry Cornell, and Susan Peloza (collectively
the INTIC parties)—retained Myron M. Cherry & Associates
LLC to represent them in the suit. The three corporations
are defunct but have made claims against co-defendants
(and third parties) that may have value; the financial
status of Cornell and Peloza, who controlled the three cor-
porations, is unclear. The INTIC parties promised to pay
Cherry an hourly fee for its services and to reimburse ex-
penses. For some time they kept this promise. But about a
year ago they began to fall behind, and by July 2002, when
Cherry first moved to withdraw, they owed more than
$430,000 in fees and out-of-pocket expenses. (The total now
exceeds $470,000.) Cherry informed the district court that
its clients had stopped paying and were making no efforts
to engage new counsel. The district judge denied this
motion to withdraw and a later one, making it clear that in
her view Cherry must represent the INTIC parties to the
bitter end, no matter how much this costs (and no matter
how little the INTIC parties pay), unless a new lawyer files
an appearance on their behalf. Substitution is unlikely,
because the district court’s order provides Cherry’s clients
with free legal assistance, while the INTIC parties would
have to give any replacement a hefty retainer (for Cherry
anticipates that the trial of the suit may require lawyers’
time plus outlays for copying, transcripts, and other ex-
penses that will bring the total tab to $1 million). Cherry,
which does not fancy throwing good time after bad, asks us
to reverse the district court’s order and to permit its with-
drawal.
Appellate jurisdiction depends on the collateral order
doctrine of Cohen v. Beneficial Industrial Loan Corp., 337
U.S. 541 (1949). The Supreme Court has held that neither
an order disqualifying a lawyer, nor an order declining to
do so, is appealable under this doctrine. Richardson-Merrell
Inc. v. Koller, 472 U.S. 424 (1985); Firestone Tire & Rubber

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No. 02-3581 3
Co. v. Risjord, 449 U.S. 368 (1981). Orders denying motions
to withdraw are superficially similar to orders denying
motions to disqualify. But there is also a vital difference:
incorrect decisions about disqualification may justify
reversal at the end of the case, while an incorrect decision
forcing an unpaid lawyer to continue providing services
never would supply a reason to reverse the final judgment.
Because an order compelling a lawyer to work without pros-
pect of compensation is unrelated to the merits of the dis-
pute, cannot be rectified at the end of the case, and has a
potential to cause significant hardship, we join the second
circuit in holding that the order is immediately appealable
as a collateral order. See Whiting v. Lacara, 187 F.3d 317,
320 (2d Cir. 1999). Accord, Industrial Distribution Corp. v.
Polytop Corp., 2001 U.S. App. L EXIS 16679 (1st Cir. Feb. 21,
2001) (non-precedential order). An interim order keeping
the lawyer in the case while the motion to withdraw was
under advisement would not meet Cohen’s requirement
that the decision finally determine the issue in question,
but there can be no doubt that the district judge’s order is
conclusive because it allows reconsideration only if the
INTIC parties retain new counsel. This is as final a denial as
is conceivable.
Responding to an order this court issued, the INTIC par-
ties have made it clear that they do not have another law-
yer. Nor do they promise to retain one or to pay Cherry. It
is therefore difficult to see why Cherry should be obliged to
provide them with future legal services. Litigants have no
right to free legal aid in civil suits. The INTIC parties do not
appear to be good candidates for pro bono representa-
tion—which is at any event voluntary rather than compul-
sory. See Mallard v. United States District Court, 490 U.S.
296 (1989). Corporations don’t qualify for even the slight
benefit of proceeding in forma pauperis. See Rowland v.
California Men’s Colony, 506 U.S. 194 (1993).

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4 No. 02-3581
The ABA’s Model Rules of Professional Conduct state that
lawyers are entitled to stop working when clients stop pay-
ing. Rule 1.16(b) provides that a lawyer may withdraw if
(5) the client fails substantially to fulfill an obliga-
tion to the lawyer regarding the lawyer’s ser-
vices and has been given reasonable warning
that the lawyer will withdraw unless the obli-
gation is fulfilled;
(6) the representation will result in an unreason-
able financial burden on the lawyer or has been
rendered unreasonably difficult by the client; or
(7) other good cause for withdrawal exists.
Failure to cover $470,000 in legal fees and expenses (de-
spite undertaking via contract to do so) satisfies subsection
(5), and the prospect of a further uncompensated outlay
worth $500,000 satisfies subsection (6), especially because
Cherry is a small law firm (it has four lawyers). See
Geoffrey C. Hazard, Jr. & W. William Hodes, 1 The Law of
Lawyering: A Handbook on the Model Rules of Professional
Conduct §1.16:303 (1990 & 1998 Supp.). The Northern
District of Illinois has promulgated ethical rules that depart
slightly from the Model Rules, but Local Rule PRC
1.16(b)(1)(F) permits a lawyer to withdraw if the client
“substantially fails to fulfill an agreement or obligation to
the lawyer as to expenses or fees”. More than $470,000 in
unpaid bills, with the meter still running and poor pros-
pects of future payment, is substantial by any reckoning.
Surprisingly, the district judge did not mention either
Local Rule PRC 1.16(b)(1)(F) or Model Rule 1.16(b) when
denying Cherry’s motion. A law firm might promise its
client not to take advantage of options under these rules,
but the contract between Cherry and its clients did not
restrict its ability to withdraw; to the contrary, it expressly
entitles the firm to do so if fees are not paid. Instead of
discussing either the rules or the contract, the district judge

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No. 02-3581 5
denied the motion because, in her view, it had been filed
too late.
A lawyer engaged in strategic conduct may forfeit any
right to withdraw. One form of strategic behavior is waiting
until the client is over a barrel and then springing a de-
mand for payment (perhaps enhanced payment). This
would be equivalent to the coercive tactics used by the sea-
men, and condemned by the court, in Alaska Packers’ Ass’n
v. Domenico, 117 F. 99 (9th Cir. 1902), which held that a
promise to pay double wages, extracted after the ship was
at sea, was unenforceable. See also, e.g., Contempo Design,
Inc. v. Chicago & Northeast Illinois District Council of
Carpenters, 226 F.3d 535 (7th Cir. 2000) (en banc) (a col-
lective bargaining agreement signed during an unlawful
strike at the height of demand for the employer’s products
is unenforceable). Avoiding such tactics is a point of the
proviso in Model Rule 1.16(b)(5) that counsel must give
“reasonable warning”. The district judge did not doubt that
warning had been given (a requirement at any event
omitted from the Northern District’s version of Rule 1.16);
nor did she find that Cherry had its clients at its mercy.
The firm did not seek to withdraw on the first day of trial,
for example, but instead represented the INTIC parties
through the end of discovery and sought to withdraw in a
quiet period before trial. An effort to withdraw earlier—
while discovery deadlines were looming—might have been
thought opportunistic. Instead Cherry protected its clients’
interests through discovery and sought to withdraw only
when substitution of counsel would be relatively simple. It
is hard to see why this forbearance, from which the clients
received a substantial benefit, should compel Cherry to
contribute unpaid services for the indefinite future.
Severe prejudice to third parties—who might have more
to lose than the unpaid lawyer—is another potential ground
for denying a motion to withdraw. This is not because
Cherry owes any obligation to protect the interests of the

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6 No. 02-3581
INTIC parties’ adversaries; it is again a matter of timing,
and a judge may insist that counsel resolve differences with
clients in a fashion that curtails strangers’ avoidable losses.
The district judge hinted that there was some potential for
prejudice. Yet none of the other litigants perceived any.
Asked in open court whether Cherry’s withdrawal would
cause prejudice, each of the other parties gave a negative
answer. That pattern has been repeated on appeal. We
asked the other litigants to respond to Cherry’s position;
none suggested that its withdrawal would cause injury,
though the plaintiff understandably opposes any delay in
the trial’s commencement, now scheduled for March 31,
2003. Whether delay would be prejudicial (as opposed to
annoying) is open to question; prejudgment interest is
available, and no one contends that the INTIC parties would
use additional time to dispose of resources that could be
used to satisfy any judgment. The value of their third-party
claims remains available to other litigants that obtain
judgments against the INTIC parties. Most likely, Cherry’s
withdrawal would leave the INTIC parties unrepresented,
leading to default judgments against the three corporations
(which can appear only by counsel). That would expedite
rather than delay the conclusion of the case. It would injure
the INTIC parties if they have good third-party claims, but
in that event they should be able to secure a new lawyer, if
necessary by offering a contingent fee to be paid out of
third-party recoveries. At all events, we do not see how
third parties stand to lose more if Cherry withdraws now
than Cherry stands to lose if it must provide future services
and bear out-of-pocket expenses that are unlikely to be
compensated.
The district court’s order denying Cherry’s motion to
withdraw was an abuse of discretion and is
REVERSED .

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No. 02-3581 7
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—11-8-02

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