BELLEVILLE – Former state senator and attorney James Clayborne, who claims Chicago investor Thane Ritchie owes his law firm more than $500,000, risked his reputation for the high profile hedge fund manager.
Last November, a Cook County judge referred all lawyers involved in a motion that Jay Dowling of Clayborne’s Belleville firm filed for Ritchie to the state's attorney for criminal investigation.
A spokesperson for Cook County State's Attorney Kim Foxx said her office was "working to gather information on this."
Last year, John Sabo of Clayborne’s firm delayed a hearing in Chicago by obtaining a temporary restraining order in Madison County.
Circuit Judge David Dugan, who granted the “TRO” without notice to the other side, transferred the case as soon as he heard the other side.
Also last year, Sabo filed suit for a Ritchie entity against another Ritchie entity in St. Clair County and obtained a $20 million default judgment.
The losing entity filed a bankruptcy petition in Delaware on the same date, but a Department of Justice bankruptcy trustee would expose the default as a hoax. The trustee recommended close scrutiny of the judgment.
Clayborne himself argued for Ritchie as a friend of the U.S. Supreme Court, in his capacity as state Senator, while his firm represented Ritchie, but the Supreme Court chose not to disturb a $22 million judgment against Ritchie.
The winner of the judgment, Huizenga Managers Fund, sued Ritchie in 2007.
Huizenga sought to rescind two investment subscriptions it executed in 2005, the first for $6 million and the second for $4,664,542.
Cook County Circuit Judge Peter Flynn held bench trial on 26 dates in 2010 and 2011, applying Delaware law.
He rescinded the second subscription in 2015, but not the first. He added prejudgment interest and awarded Huizenga $9,174,200.
Ritchie appealed, claiming Flynn interpreted Delaware law incorrectly. Huizenga filed a cross appeal seeking to rescind the first subscription.
First District appellate judges agreed with Huizenga in December 2016, and directed Flynn to award another $6 million plus interest.
Ritchie petitioned the Illinois Supreme Court for review.
Clayborne moved to file a brief as friend of the court in March 2017, in his capacity as Senate majority leader.
“My time in service reinforces my conviction of the necessity of seeing that laws be fair, clear, and right,” Clayborne wrote in the brief. “I try to perfect the law within reason and for the benefit of our citizens.”
He wrote that more than a million companies around the world incorporate in Delaware, and countless others choose Delaware law to govern contracts. He wrote that courts seeking guidance on Delaware law that Delaware courts haven’t interpreted might perpetuate a mistake by a non-Delaware court, and parties would shop around for the best interpretation.
“This could go on until a Delaware court finally has a chance to explain the correct interpretation,” he wrote.
Justices denied leave to file the brief but told him he could move for leave again if they granted review.
They denied review.
Flynn entered judgment against Thane, Ritchie, Ritchie Partners, Ritchie Capital Management, and Ritchie Risk-Linked Strategies for $12,772,529.70.
Ritchie mounted two challenges at once. He asked the U.S. Supreme Court to review the first judgment and asked the First District to review the second.
In November 2017, at the U.S. Supreme Court, Senator Clayborne and other office holders filed a brief as friends of the court.
Clayborne’s firm represented Ritchie at that point, according to a fee chart that Huizenga would later file in court.
It showed that a Ritchie entity made four payments to Clayborne’s firm from June 20 to Oct. 30, totaling $153,170.70.
Clayborne filed the Supreme Court motion in association with fellow Democrat lawmakers, State Reps. Jay Hoffman, Lou Lang, and Steven Andersson.
From Delaware, secretary of state Jeffrey Bullock and House speaker Peter Schwartzkopf added their names.
The group argued that Illinois judges should have reviewed the Delaware Supreme Court’s interpretation of the law and concluded that it didn’t apply.
The group’s Delaware lawyers wrote, “When error occurs in the interpretation or application of the stipulated law, the contract’s meaning and purpose may assuredly be altered in ways that the parties never agreed to.”
The U.S. Supreme Court denied review in January 2018.
Proceedings in Flynn’s court continued, dealing with fees among other matters.
He planned to hold a hearing Feb. 5, 2018. But days earlier on Jan. 31, in Madison County chancery court, Sabo and Dowling filed a John Doe application for a temporary restraining order against Huizenga.
Dugan held a hearing that day without notice to Huizenga.
Sabo and Dowling asked him to order Huizenga to stop disparaging Ritchie. They showed Dugan a prohibition of disparagement in the agreements from 2005.
Dugan granted the order, set it to expire Feb. 8, and scheduled a hearing on a preliminary injunction Feb. 9.
Huizenga received notice and retained Russell Scott of Belleville, who filed an emergency transfer motion on Feb. 2.
On Feb. 5, Flynn held a hearing but delayed it for 45 days due to Dugan’s order.
On Feb. 6, Dugan held a hearing on Scott's emergency transfer motion.
Scott told him the underlying action had gone on for over 10 years in Cook County and the First District appellate court.
“The disparagement that is being alleged here are all documents of record in Cook County or in the appellate court or in the SEC or in Delaware,” Scott said at the hearing, according to a transcript of proceedings.
“We are effectively prevented from pursuing our litigation in Chicago because of this. Certainly that’s as much or more of an emergency as the plaintiffs were claiming when they sought a TRO without notice.”
Huizenga counsel Gary Garner of Chicago said the order also affected a fraudulent conveyance complaint Huizenga filed against Ritchie in Cook County.
He said the complaint alleged that defendants renounced U.S. citizenship and moved offshore.
Dugan said, “Apparently what I’m gathering here, the court was not aware that the disparaging remarks were limited to litigation allegations.”
He asked if the contracts with the duty not to disparage were the contracts under which the judgment was obtained, and Garner said that was correct.
Dugan said, “So the non-disparagement is the same contract that you’ve litigated,” and Garner said that was correct.
Dowling said it had nothing to do with anything in Chicago, other than some documents were the same.
Dugan said, “The timing of this does not escape me, your client’s timeliness just on the eve of a hearing in Chicago. That keeps rambling around in my brain that that is a problem for your client, not for you.
“To file a lawsuit and hope to get discovery on a TRO, that’s pretty bold…That’s a problem for the court because it would question that this is such an emergent situation that we give you a TRO without notice.”
Scott requested transfer to Cook County.
Dowling said Huizenga’s principal place of business was DuPage County.
Dugan said Dowling could choose, and Dowling chose DuPage.
In March 2018, in St. Clair County circuit court, Sabo sued a Ritchie entity on behalf of a Ritchie entity.
He claimed defendant Ritchie Risk-Linked Strategies owed $1 million to plaintiff Ritchie Risk-Linked Opportunities.
He wrote that the defendant was obligated to Ritchie Multi-Strategy Global to pay certain attorney’s fees and expenses that the Global entity incurred; that the defendant defaulted on the obligation; and that the Global entity assigned its right to collect the debt from the defendant to the plaintiff.
Ritchie Risk-Linked Strategies didn’t answer the complaint, and Sabo moved for default judgment on April 12, 2018.
St. Clair County Associate Judge Patricia Kievlan granted it that day for $1 million.
Sabo sued a Ritchie entity for a Ritchie entity in St. Clair County circuit court again the next day, for $20 million.
On behalf of Swansea Beneficiary Trust, he claimed Ritchie Risk-Linked Strategies wasted insurance funds in defending spurious litigation.
He wrote that Ritchie Multi-Strategy Global invested in Ritchie Risk-Linked Strategies and was a beneficiary of insurance that covered defendants.
“Defendants breached their contractual obligations to plaintiff by depleting available insurance,” Sabo wrote.
“Defendants were paid by the insurer, or defendants had certain expenses paid through insurance coverage, which defendants should have paid.”
Nothing would happen in the case for weeks.
Huizenga, aiming to recover the first judgment, served citations for discovery of assets and located $14,100,000 in an account for Ritchie at Clayborne’s firm.
Cook County Circuit Judge Daniel Kubasiak ordered the firm to turn $13,383.511.36 over to Huizenga.
Clayborne complied on April 25, 2018.
On June 18, in Flynn’s court, Dowling petitioned to vacate both judgments as void for lack of jurisdiction.
Dowling filed 974 pages of exhibits. He hadn’t entered an appearance as counsel of record in the action, though he and the firm would do so later.
On June 21, Huizenga counsel Christopher Barber of Chicago moved to strike the petition and moved for for sanctions.
On June 28, in the $20 million St. Clair County suit, Chief Judge Andrew Gleeson granted default judgment against Ritchie Risk-Linked Strategies for $1 million.
The ink had barely dried on the order when Associate Judge Julie Katz signed an amended order awarding $20 million.
Ritchie Risk-Linked Strategies filed a bankruptcy petition in Delaware on that date, seeking to reorganize under Chapter 11.
Next day, at a hearing in Chicago on the petition to vacate Flynn’s judgments, Paul Walker-Bright of Reed Smith and Dowling represented Ritchie.
Walker-Bright said the bankruptcy imposed an automatic stay on Huizenga’s motion for sanctions.
Flynn said to the extent that he considered sanctions only with respect to counsel, that wouldn’t implicate the automatic stay.
Flynn said, “I do not think you can talk me out of my conclusion that- ”
Dowling said, “Excuse me, your honor, but how can we proceed with the hearing if we still haven’t addressed whether or not the stay is -”
Flynn said, “Why don’t you let me finish? The motion to vacate void judgments is not just wrong but frivolous.”
He said he needed no briefs on the motion to vacate but he asked for briefs on application of the automatic stay.
He asked about downstate cases, and Barber said one was transferred to judge Bonnie Wheaton in DuPage County.
Barber said a motion to dismiss was pending there when counsel filed the petition to vacate and asked for an indefinite stay.
He said Wheaton told them there was no way she’d give them an indefinite stay, and she also told them to nonsuit the case or she’d decide the motion to dismiss.
Flynn asked what part of this was in DuPage, and Barber said the Madison case.
Flynn said, “Who seem to have filed everywhere but here.”
Dowling said, “There was a reasonable belief that venue was proper down in the counties in which they were filed.”
Flynn said, “I didn’t ask for reasonable belief about venue. I just made the observation that they filed everywhere but here.”
On July 12, in Delaware, Ritchie Risk-Linked Strategies changed the address on its bankruptcy petition from Delaware to Grand Cayman Island.
On that date, Ritchie counsel Kurt Gwynne of Reed Smith in Wilmington filed a statement of limitations and disclaimer.
“Debtor believes that the $1 million judgment in favor of Ritchie Risk-Linked Opportunities and $20 million judgment in favor of Swansea Beneficiary Trust are avoidable and or otherwise unenforceable,” Gwynne wrote.
Creditors met on July 31, with U.S. trustee Ben Hackman in charge and Ritchie manager Michael Ciliento under oath.
“The debtor filed for bankruptcy to preserve the value of its assets, namely 40 million in litigation claims, the current and potential, and also to stop the frivolous lawsuits from the other entities which would erode, which could potentially erode the value of the asset,” Ciliento said.
Hackman asked what the debtor intended to do in this case.
Ciliento said, “Primarily to put an end to frivolous litigation, to allow them to pursue their current claims against several entities.”
He said he could detail the claims and Hackman said, “Yes please.”
Ciliento said they had about $9 million in prejudgment legal fees, $7 million in post judgment fees, and at least $11 million in a bad faith claim against insurers.
He said they had about $13.3 million that was seized from an account of Ritchie.
Hackman asked about St. Clair County default judgments and after Ciliento answered, Gwynne asked to supplement the answer.
He said counsel for the plaintiffs was counsel for the debtor in other litigation.
“We think that the debtor believes those judgments were, while they were taken to protect the debtor because of concerns that Huizenga was trying to execute on the debtor’s claims and therefore the debtor thought, believed, that if these entities also had claims and judgments that perhaps they could defend the debtor’s assets from execution or act first potentially,” Gwynne said.
On Aug. 3, in Chicago, Flynn dismissed Dowling’s petition to vacate the judgments.
On Aug. 15, in Delaware, U.S. trustee Hackman moved to dismiss Ritchie’s petition as a bad faith filing.
“Debtor is snared in a web of debts and transactions involving insiders,” he wrote.
He wrote that it wasn’t evident why or how the debtor permitted Swansea to obtain default judgment against it on the petition date.
“Swansea was represented by Clayborne, Sabo & Wagner LLP, who also represents or has represented Mr. Ritchie and the debtor,” he wrote. “The debtor did not enter an appearance or have representation in the Swansea lawsuit.
“The circumstances surrounding Swansea’s default judgment should be closely scrutinized.”
On Aug. 27, he wrote that no solicitation of votes for reorganization should occur until an independent fiduciary investigated events giving rise to the judgment.
On Sept. 13, Huizenga notified the bankruptcy court that it would depose Dowling.
On Sept. 18, Ritchie moved voluntarily to dismiss the petition.
Bankruptcy judge Kevin Carey granted the motion on Oct. 5.
On Oct. 10, Swansea Beneficiary Trust and Ritchie Risk-Linked Strategies requested a court order permitting the $20 million judgment to be vacated.
Dowling signed the stipulation for Swansea and attorney Jon Rosenstengel signed it for Ritchie Risk-Linked Strategies.
On Oct. 15, Gleeson vacated, set aside and held for naught Katz's $20 million default judgment by stipulation of the parties.
Ritchie’s losing streak continued on Nov. 9, when First District judges affirmed Flynn’s second judgment.
“This ruling should effectively end the litigation between these parties,” Justice Maureen Connors wrote.
On Nov. 15, Flynn referred Dowling’s petition to the state’s attorney.
Reed Smith denied misconduct on Dec. 7.
Its lawyers wrote, “A Reed Smith attorney did not sign the motion to vacate and Reed Smith does not employ the attorney who signed the motion, B. Jay Dowling.”
On April 10, 2019, Dowling and the firm withdrew.
Next day, the firm sued Ritchie and 20 entities in St. Clair County circuit court.
Partner Michael Wagner wrote that the clients fell behind on monthly payments and requested a modification.
He wrote that notwithstanding the accommodation, the clients defaulted, owing $506,537.62 for services since January 2018.