ACF 2006 Corp v. Timothy Devereux, 826 F.3d 976

Background

William Conour, an attorney, stole over $4.5 million from clients; convicted of fraud and imprisoned. His firm (Conour Firm LLC) later faced claims by those victims seeking recovery.
Timothy Devereux left the Conour Firm and took 21 clients to the Ladendorf Firm; those clients produced about $2 million in fees/recoveries handled by the Ladendorf Firm.
Dispute among three parties over the $2 million: (1) the departing lawyers (Devereux and Ladendorf Firm), (2) the victims whose funds Conour stole, and (3) ACF 2006/Advocate Capital (the lender) that loaned funds to Conour Firm and filed a UCC financing statement in 2008.
District court awarded the Conour Firm ~$775,000 on quantum meruit for pre-departure work; allocated specific percentage shares for two contested cases (L.B. and R.S.) and awarded 8% prejudgment interest; also held the lender had priority over the victims.
On appeal, the Seventh Circuit reduced the Conour Firm’s share for L.B. from 40% to 10%, vacated the prejudgment interest award, and held victims of the lawyer’s breach of trust have priority over the lender for the funds the Conour Firm is entitled to receive, based on Indiana law applying professional‑service attribution.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Proper quantum meruit allocation between original and successor counsel	Conour Firm: entitled to significant share (district court awarded ~40% in L.B., 60% in R.S.) for work done before Devereux left	Lawyers (Devereux/Ladendorf): Conour Firm’s contribution small or zero; district allocations improper	Court found district clearly erred on L.B.; reduced Conour Firm’s share to 10% (plus expenses); upheld R.S. split (no reversal)
Prejudgment interest on funds held in IOLTA	Conour Firm (implicit): interest compensates delay in payment	Lawyers: interest inappropriate because funds were held in IOLTA and no party actually received interest; district court added interest sua sponte	Court vacated prejudgment interest award and remanded (award was a misstep)
Priority between lender’s UCC security interest and victims of Conour’s conversion/commingling	Lender: UCC filing (2008) gives priority over later victim claims	Victims: Ind. Code §30‑4‑3‑22 and professional‑service statute entitle victims to priority for a lawyer’s breach of trust	Court held victims have priority over the lender for funds the Conour Firm is entitled to receive, because professional‑service rules impute client remedies against the firm and its assets
Pleading sufficiency to assert statutory priority	Victims: complaint adequately pleaded grievance; statutes and legal theory need not be spelled out in complaint	Lender: argued Victims failed to plead statutory basis (district court accepted)	Court rejected district court’s pleading rationale; Victims properly raised §30‑4‑3‑22 and related theories in time

Key Cases Cited

Galanis v. Lyons & Truitt, 715 N.E.2d 858 (Ind. 1999) (quantum meruit entitles discharged counsel to reasonable value of services)
Anderson v. Bessemer City, 470 U.S. 564 (1985) (appellate standard for reversing bench‑trial factual findings)
United States v. United States Gypsum Co., 333 U.S. 364 (1948) (deferential review of trial court findings; reversal where conviction of mistake exists)
West Virginia v. United States, 479 U.S. 305 (1987) (interest as part of full compensation for money damages)
In re Oil Spill by the Amoco Cadiz off the Coast of France on March 16, 1978, 954 F.2d 1279 (7th Cir. 1992) (discussion of prejudgment interest as compensation)
Johnson v. Shelby, 135 S. Ct. 346 (2014) (complaint need not cite legal authority)
Frank v. Walker, 819 F.3d 384 (7th Cir. 2016) (single claim may rest on multiple legal theories)
Kummerer v. Marshall, 971 N.E.2d 198 (Ind. App. 2012) (IOLTA/interest issues under Indiana law)
Birt v. St. Mary Mercy Hosp. of Gary, Inc., 175 Ind. App. 32 (1977) (predecessor to professional‑service rule; corporate form should not alter practitioner‑client relations)