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Too soon to sanction plaintiff attorneys for 'false statements' in Yellow Cab bankruptcy dispute, judge says


By Dan Churney | Oct 2, 2018

Chicago taxi

A Chicago federal judge has cut several defendants from a suit filed by a federal bankruptcy trustee, which alleged the company that succeeded Yellow Cab drove Yellow Cab into the ground to avoid paying creditors. The judge, however, refused to sanction the trustee’s attorneys for allegedly making false claims, saying it’s too early in proceedings to address that allegation.

The rulings were laid down Sept. 25 by Judge John Lee, of U.S. District Court for the Northern District of Illinois.

Bankruptcy trustee Michael K. Desmond filed a 16-count lawsuit in  2016, against Taxi Affiliation Services, Yellow Cab Affiliation and Taxi Affiliation, as well as other associated entities. The suit also named Michael Levine, Patton R. Corrigan, Evan Tessler, Gary Sakata and John Moberg, who were managers involved with Yellow Cab Affiliation and Taxi Affiliation.  

Desmond alleged defendants committed fraud and engaged in unfair business practices by setting up a successor company to Yellow Cab as a “sham vehicle to suck cash” from Yellow Cab. The alleged purpose was to keep the money from plaintiffs in potentially expensive lawsuits against Yellow Cab, instead putting the cash in the pockets of company insiders to the tune of $160 million.  

Yellow Cab filed for bankruptcy in 2015, the day after a $26 million judgment in a personal injury suit against the company. 

At one time, Yellow Cab was Chicago's largest taxi affiliation, with more than 1,600 dues-paying members, 3,000 cabs, 5,000 drivers and $15 million in yearly revenue, according to court papers. 

Shawn M. Collins, the Naperville lawyer representing defendants, moved to dismiss the case, labeling Desmond’s allegations “groundless,” “illogical,” “inexcusable,” “impermissibly vague” and “knowingly false.” 

Desmond, who is a lawyer himself, is represented by Dykema Gossett Pllc, of Chicago and Diamond McCarthy LLP, of New York City. Collins wanted Desmond’s counsel sanctioned, because they “pled false facts, and they knew those facts were false.” 

Judge Lee declined to sanction, saying to do so would be premature. 

“The ‘misrepresentations’ that defendants point to in their motion for sanctions are, by and large, factual disputes between the parties that cannot be resolved at this stage,” Lee noted. 

Lee did grant Collins’ request to dismiss several of the 16 counts on grounds the plaintiff’s claims were too vague.  

Collins’ argument the suit was filed after the five-year statute of limitations applied, was denied on the basis it’s possible the statute had been tolling. Lee cited a 2016 federal ruling in explaining Desmond may not have been able to bring the suit, as long as the defendant corporation was allegedly “controlled by wrongdoing officers and directors.” 

Another unsuccessful tack tried by Collins was to contend the bankruptcy judge found no evidence of wrongdoing by defendants, which precluded Desmond’s suit. However, Lee concluded that judge’s finding did not constitute a final judgment on the matter. 

In the end, Lee dropped several of the associated entities from the case, but the suit, albeit stripped down, remains against the principals. Lee gave Desmond until Oct. 16 to let him know if he plans to amend his suit to cover the dismissed counts. 

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Organizations in this Story

Yellow Cab AffiliationDykema GossettThe Collins Law FirmTaxi Affiliation Services, Inc

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