EDWARDSVILLE – Lawyer Ryan Mahoney claims lawyer David Cates concealed almost $10 million in fees while they negotiated terms for ending their partnership in the Cates Mahoney firm of Swansea.
Mahoney sued Cates in Madison County Circuit Court on Nov. 16, seeking an order for Cates to surrender the fees.
Mahoney alleges trickery and secret dealing in violation of a fiduciary duty Cates owed as 60 percent owner of Cates Mahoney.
Their partnership ended in May and they signed a separation agreement in August.
Between those events, according to Mahoney, Cates settled two cases that brought his current firm about $7.5 million and about $2 million.
Mahoney’s counsel, Thomas Rosenfeld of Goldenberg Heller in Edwardsville, claims that Cates distorted the bargaining that led to execution of the separation agreement.
Mahoney claims he suffered damage in releasing his interest in the cases for less than it was worth.
According to the suit, Mahoney and Cates executed an operating agreement in 2013, providing that for a case resolved after dissolution, the partner who originated the case would receive a third of the profit. They’d allocate the rest in proportion to work performed.
The suit claims that Cates had discretion to dissolve the firm but agreed that he wouldn’t transfer assets, tamper with information, or remove files and financial records.
Cates allegedly took a leave of absence in November 2020, after an arrest for driving under the influence.
It was the second of three such arrests during Cates’s tenure as managing member of Cates Mahoney, according to the suit.
The suit claims Mahoney oversaw all Cates Mahoney cases and operations until Cates returned in January 2021.
In a lawsuit against Blue Cross directors, Mahoney claims he appeared in court, conferred with opposing counsel, and argued discovery disputes.
Cates originally filed the suit on behalf of Blue Cross in St. Clair County in 2015, claiming its directors enriched themselves through transactions with affiliates.
He petitioned to place Blue Cross in receivership.
The parties mediated in February 2021 but didn’t settle.
Mahoney claims he stopped receiving correspondence or notices about Blue Cross in November 2021.
The parties mediated again this May 25 allegedly without Mahoney’s knowledge and reached an agreement.
Cates allegedly dissolved Cates Mahoney two days later.
The suit claims that Cates provided Mahoney with a list of pending cases and they met on June 20, but Cates didn’t disclose the agreement.
Cates then filed a termination notice for Cates Mahoney with the secretary of state on June 21, allegedly without Mahoney’s knowledge.
In the suit, Mahoney claims the notice was invalid because they hadn’t wound up the business.
On June 23, Cates filed a motion in the Blue Cross case substituting his Cates Law firm for Cates Mahoney.
Cates then executed a settlement agreement on July 29 and moved to approve it and award fees on Aug. 2.
The motion allegedly didn’t mention Cates Mahoney, though it served as counsel for seven years and Cates Law had substituted six weeks earlier.
The motion was granted on Aug. 3.
Mahoney's suit describes a similar situation about a class action claim that debt collector LVNV Funding sued borrowers in violation of their rights.
Cates allegedly participated in mediation before former judge Lloyd Cueto on June 20 and the parties settled.
Mahoney claims he asked Cates about recent settlement exchanges on June 30 and Cates said, “Macia we have nothing.”
Cates allegedly executed a settlement agreement and moved for preliminary approval on July 19.
Cates allegedly signed a declaration stating, “I am a partner at Cates Mahoney.”
A month later on Aug. 19, Mahoney and Cates signed a separation agreement in Madison County.
Mahoney claims he received an electronic message from defense counsel on Sept. 7 to destroy Blue Cross documents pursuant to final judgment.
Mahoney allegedly went to the courthouse and obtained copies of pleadings that revealed the undisclosed settlements.
Mahoney claims Cates concealed material facts and tried to induce Mahoney to undervalue and relinquish his interest without proper compensation.
Cates was “motivated purely by greed,” the suit claims.
Mahoney's suit claims outrageous breaches of fiduciary duties warranted forfeiture of all compensation Cates received and punitive damages.
In the two lawsuits at issue in Mahoney's lawsuit - Blue Cross and LVNV - Circuit Judge Christopher Kolker presided over both cases.
Mark Goldenberg and Thomas Horscroft of Goldenberg Heller represent Mahoney in association with Rosenfeld.