Brandt v. Schal Associates, Inc.

960 F.2d 640, 1992 WL 63205
CourtCourt of Appeals for the Seventh Circuit
DecidedApril 1, 1992
DocketNo. 90-2814
StatusPublished
Cited by7 cases

This text of 960 F.2d 640 (Brandt v. Schal Associates, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Brandt v. Schal Associates, Inc., 960 F.2d 640, 1992 WL 63205 (7th Cir. 1992).

Opinion

MANION, Circuit Judge.

A contract dispute between a commercial construction management firm, Schal Associates (Schal), and a hired contractor specializing in the design and installation of window-wall systems, Crescent Corporation, whose successor in interest is now William A. Brandt (Crescent), resulted in extensive litigation in both state and federal court. Crescent apparently met with some success with its state claims in state court but decided to press on in federal court charging that Schal violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (“RICO”). After several years of protracted attempts at filing and justifying the RICO lawsuit against Schal, Brandt finally accepted a voluntary dismissal of its second amended complaint. Schal then filed a motion for Rule 11 sanctions against Brandt’s attorney, David Campbell. The district court concluded that Campbell concocted the RICO fraud theory with no evidentiary basis. After an extensive hearing the court awarded Rule 11 sanctions that amounted to the attorneys’ fees and expenses the Schal defendants had incurred. Campbell appeals those sanctions. We affirm.

I. Background

At the outset we should note that this case, described by the district court as a “massive contract-based dispute between a construction management firm and a contractor,” 1 has already consumed over 60 published pages in the Federal Reporter system, to say nothing of the orders not published and the volumes of motions and pleadings included in the record. We have no intention of duplicating what has already been detailed. Suffice it to say, this case is an unfortunate example of why “litigation” has taken on a bad name.

David L. Campbell, an attorney from St. Louis, Missouri, represented Crescent Corporation and later Crescent’s successor in interest, William Brandt, Jr. (for consistency we will refer to the complainant as “Crescent”). In 1985, on behalf of Crescent, Campbell filed a RICO action in federal court against Schal Associates, a Chicago-based construction management firm, and its two top officers claiming damages in excess of $50 million. The RICO charge was the only federal claim. The complaint also included several counts of assorted state law claims for breach of contract, quantum meruit and fraud. The RICO count alleged that Schal, as general contractor for three commercial property developments in Chicago, Illinois, hired Crescent to design and install window-wall systems for the development projects. In that count, Brandt claims that Schal required Crescent to adopt costly modifications to original window specifications. These changes dramatically increased Crescent’s completion cost thus reducing or eliminat[643]*643ing any profits it was to receive under its signed contract with Schal.

Originally Crescent had three contracts with Schal for work to be performed on three construction projects managed by Schal which included work for Crescent valued at $4,885 million, $3,888 million, and $700,000.00. According to Brandt, Schal made an oral promise to reimburse Crescent for the extra work necessary to satisfy the modified specifications. Brandt claims that Schal never compensated Crescent for the extra-contractual work and expenses, and that Schal had no intention to make good on its oral promise and made such promise with the intent to defraud Crescent. In addition, Brandt claims that Crescent was subjected to fraudulent “backcharges”2 imposed by Schal which reduced Crescent’s anticipated revenue on the deal, further eroding Crescent’s expected profits.

Schal has never denied that Crescent performed substantial extra-contractual work on the projects, and it admits to having stopped payments to Crescent at a time that its records showed that Crescent was entitled to about $250,000. But Schal has always maintained it stopped payments because it believed Crescent was at least partly responsible for serious leakage problems and water damage in the new buildings.

Over the four years of this RICO suit, Crescent filed a complaint, an amended complaint and a second amended complaint. The court dismissed the first amended complaint because it failed to allege the prohibited “pattern” of racketeering and fraudulent conduct necessary to support a RICO charge, 18 U.S.C. § 1962(a), and because the backcharges were not in furtherance of a fraudulent scheme even if Schal had asserted false grounds for imposing the backcharges. Brandt v. Schal Assoc., 121 F.R.D. 368, 372 (N.D.Ill.1988). The second amended complaint did not vary substantially from the first amended complaint. The second amendment merely attempted to clarify exactly how the backcharges were part of an overall fraud by Schal upon Crescent by suggesting that each false back-charge could be labelled a RICO predicate offense under a variety of theories. Id. The district court dismissed one of the original defendants in this case stating that the “allegations against it were a one-shot effort to inflict a single injury.” Id. at 373. Seven months after filing the second amended complaint, Crescent moved to dismiss the suit because it was clear after considerable discovery that there was no evidence to support the theory that Schal’s non-payment on the extra work Crescent was induced to perform was an effort by Schal to fraudulently extract non-contract work from Crescent without compensation. Subject to certain conditions, the court granted what amounted to a voluntary dismissal.

Rule 11 Motion

After Crescent took its voluntary dismissal, Schal filed a motion for Rule 11 sanctions against Crescent’s attorney, David L. Campbell. For the most part, Schal argued about the essential groundlessness of Crescent’s pleadings. Campbell was the lead attorney in this suit since its inception. He also represented Brandt and Crescent in a parallel state court proceeding litigating some contract issues similar to those alleged in the federal case. Schal, in its Rule 11 motion, asserted that Campbell never had a reasonable basis in fact to allege fraud against Schal with respect to any project associated with Schal and that his allegations of predicate fraudulent acts in support of his RICO claim were not reasonably warranted in law. In addition, Campbell, despite the lack of facts and law to support his case, was in the practice of submitting voluminous briefs (sometimes exceeding 100 pages), thick memoranda in apparent support of various motions (often 70-80 pages), and large, tedious affidavits. It is easy to understand the district court’s exasperation with Campbell’s method of li[644]*644tigating, which the judge considered an abuse of process. The district judge repeatedly warned Campbell to refrain from making frivolous motions attached to book-sized memos but to no avail. Campbell responded to the Rule 11 motion with a “158-page (!) document entitled ‘Campbell’s Litigation Outline to detail its factual support for [its claim] on a line by line basis.’ ” 121 F.R.D. at 373-74. The district court noted that “such an approach to a Rule 11 motion [is] ... inappropriate.” Id.

The district court held that Campbell had violated Rule 11 by filing the RICO claims.

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Brandt v. Schal Associates, Incorporated
960 F.2d 640 (Seventh Circuit, 1992)

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Bluebook (online)
960 F.2d 640, 1992 WL 63205, Counsel Stack Legal Research, https://law.counselstack.com/opinion/brandt-v-schal-associates-inc-ca7-1992.