7th Circuit reversal: Conour fraud victims, not creditor, take priority

Fraud victims of disgraced former lawyer William Conour have the upper hand over his former law firm creditor who was awarded a judgment of almost $775,000, the 7th Circuit Court of Appeals ruled Thursday, reversing the District Court and signaling too much may have been awarded.

The reversal orders further proceedings in ACF 2006 v. Conour, 1:13-cv-001286, remanding the case to Judge Tanya Walton Pratt in the U.S. District Court for the Southern District of Indiana. Pratt previously ruled that victims who sought to intervene in the case brought by a former Conour creditor could not. Pratt ruled ACF was entitled to the money on a quantum meruit basis from the nearly $2 million in fees attorney Timothy Devereux earned on several cases he won at Ladendorf Law Firm after he left the Conour Firm.

Judge Frank Easterbrook wrote for the panel in ACF 2006 Corp v. Timothy Devereux, 15-3037 and 15-3048, that this is an area of untested law in Indiana, but that victims who were defrauded by Conour should take precedence over a later creditor.  Conour is serving a 10-year sentence for stealing more than $6 million from clients.  

“The norm that victims of a lawyer’s breach of trust have a remedy notwithstanding the later grant of a security interest to a commercial lender is one of long standing and is reflected in Indiana by (Indiana Code) §30-4-3-22(c)(2). Section 23-1.5.2-7 tells us that the use of the corporate form to hold assets of a legal practice does not change that norm. It follows that the Victims have priority over the Lender in the funds that the Conour Firm is entitled to receive from (Devereux and Ladendorf). The judgment of the district court is reversed, and the case is remanded for the entry of judgment consistent with this opinion.”

Davis and Loretta Beals and their daughter Kristen sought to intervene in this case, claiming they were wrongly blocked at the District Court. Conour won a settlement for the Bealses, who were injured in a deadly crash involving a tractor-trailer, but the Bealses are still trying to collect about $500,000 of the money Conour stole from them.

But the 7th Circuit decision also likely will reduce the award Pratt granted. In one of Devereux’s cases that generated fees of about $1.4 million, Pratt ruled 40 percent should go to the Conour Firm to satisfy ACF’s lien. This despite three witnesses testifying the Conour Firm should be entitled to just 10 percent.

Easterbrook also ruled Pratt erred in awarding prejudgment interest at 8 percent, since the money is held in IOLTA accounts whose interest is not available to the firm, as such interest goes to the Indiana Bar Foundation to fund pro bono legal service. “The award of prejudgment interest was a misstep that must be undone on remand,” Easterbrook wrote.