7th Circuit Tackles Registering State Court Judgments In Fed. Court, Removal Jurisdiction

GE Betz, Inc. v. Zee Company, Inc., 2013 WL 1846541 (7th Cir. 2013) examines Federal jurisdiction and removal practice and how those rules impact creditors’ rights in post-judgment proceedings. 

Facts and Procedural History: Plaintiff obtained a multi-million dollar judgment in North Carolina state court against Defendant.  

The defendant then secretly transferred several million dollars to a Chicago bank that recorded liens against the funds and all other defendant assets.

When plaintiff found out about the transfer, it registered the NC judgment in Illinois and issued a third-party citation against the bank to whom defendant transferred its assets.

The judgment debtor (and defendant in the NC state court case) moved to transfer the case to the Northern District of Illinois under diversity jurisdiction rules.  

Plaintiff objected to removal based on lack of subject matter jurisdiction and sought remand back to NC state court.  The Northern District denied Plaintiff’s remand attempt and kept the case. 

Held: Reversed.  The District Court should have granted plaintiff’s motion for remand based on the “forum defendant” rule.  See 28 U.S.C. § 1441(b)(2). 

Rules/Reasoning: The Northern District had original jurisdiction over the action since there was complete diversity  among the parties: plaintiff is a Pennsylvania corporation, defendant is a Tennessee corporation, and the third-party respondent bank is a Delaware corporation whose principal place of business is in Illinois. 

The Seventh Circuit also held that the District Court had jurisdiction to enforce a state court judgment under section 28 U.S.C. § 1963, which permits a Federal court to register the judgment of another “district court.” 

Giving a broad reading to Section 1963, the Court noted that several state courts use the “district court” moniker.  Because of this, the Court held that the Illinois Northern District could register the NC state court judgment.  *8

But the argument that carried the day for the Plaintiff was the “forum defendant” rule.  This rule states that “a civil action otherwise removable solely on the basis of [diversity jurisdiction] may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.”  28 U.S.C. § 1441(b)(2). 

But the forum defendant rule involves a statutory defect rather than a jurisdictional one: meaning that the defect is waived if not objected to within 30 days of the removal notice. (*9), 28 U.S.C. § 1447(c)(motion to remand – other than for lack of subject matter jurisdiction – must be brought within 30 days after filing the notice of removal). 

Since the bank’s principal place of business was Illinois, it clearly met the “forum” component of the “forum defendant” test.  The Court also held that the bank was a “defendant” within the rule because its interest in the defendants assets were completely opposed to the plaintiff’s interest. (*11-14). 

Lastly, the Court found that Plaintiff properly objected to removal within 30 days – as evidenced by its motion to reconsider filed 16 days after the Northern District denied its remand motion. 

Take-away:

– If an Illinois party is sued by a foreign plaintiff and the damages exceed $75K, removal isn’t proper.  However, if the plaintiff fails to timely seek a remand, he will have waived the defect and the removal will stand;

a foreign state court judgment can arguably be registered in a Federal District Court.

 

 

Judgments By Confession: How to Open (Not Vacate) Them (IL Law)

confessional

The two key rules that govern challenging  a confessed judgment in Illinois are Supreme Court Rule 276 and  Code Section 2-1301 (735 ILCS 5/2-1301).  The latter provides that “any person for a debt bona fide due may confess judgment by himself or herself or attorney duly authorized, without process” and that the “application to confess judgment shall be made in the county in which the note or obligation was executed or in the county in which one or more of the defendants reside or in any county in which is located any property, real or personal, owned by any one or more of the defendants.”  735 ILCS 5/2-1301(c).

Confession of judgment provisions in consumer transactions are void.  A “consumer transaction” is a sale, lease, assignment, loan, or other disposition of an item of goods, services, or intangibles where the primary purpose is for personal, family, or household use.  Id.

Rule 276 provides that a motion to open a judgment by confession (“JBC”) shall be supported by (1) affidavit in the manner provided by Rule 191 for summary judgments, and be accompanied by a (2) verified answer the defendant proposes to file.

Rule 276 states that if the motion to open and supporting affidavit disclose a prima facie defense on the merits to all or part of plaintiff’s claim, the court shall set the motion for hearing. The plaintiff (the party opposing your motion to open the JBC) may file counter-affidavits.

Rule 276 continues: “If, at the hearing upon the motion, it appears that the defendant [the moving party] has a defense on the merits to the whole or a part of the plaintiff’s [the party that entered the JBC] claim and that he has been diligent in presenting his motion to open the judgment, the court shall sustain the motion either as to the whole of the judgment or as to any part thereof as to which a good defense has been shown, and the case shall thereafter proceed to trial upon the complaint, answer, and any further pleadings which are required or permitted”.  Ill. Sup. Ct. R. 276.

The defendant (or party opening a confessed judgment) can also assert counterclaims.  SCR 276.  Even if the moving party fails to establish a defense, he can still proceed on a counterclaim if the court finds that the moving party pled facts to support a counterclaim.

The burden on a party moving to open a JBC is lighter than on a summary judgment or  Section 2-619 motion to dismiss.  In fact, all the trial court does is determine whether the moving party’s motion and affidavits disclose a prima facie defense.  Kim v. Kim, 247 Ill.App.3d 910, 913-14 (2nd Dist. 1993).

On a motion to open a JBC, the court doesn’t look into disputed facts.  Instead, the court accepts as true all facts asserted by the moving party in his affidavits.

While a plaintiff (or party contesting the motion to open) may file counter-affidavits in opposition to a motion to open, the trial court may not try the merits of the case on the affidavits or counter-affidavits because this would encroach on the right to trial by jury.

A motion to open a confessed judgment is addressed to the sound discretion of the trial court and will not be overturned on review absent an abuse of discretion.

Take-aways: Rule 276 provides clear and simple requirements for a motion to open a JBC.  The moving party must attach a supporting affidavit and a proposed responsive pleading (which is verified).  The movant must also show meritorious defense and diligence in bringing the motion (similar to Section 2-1401 standards).

Once the JBC is opened, it proceeds like any other civil lawsuit, with motion practice, oral and written discovery and ultimately a trial.  I have to stress again that opening a JBC shouldn’t be a cause for too much (premature) celebration.  All it means is you can now defend a suit on the merits.  I say this because I have seen multiple instances where a defendant successfully opened a JBC, acted like he won the case (and taunted me too!), only to lose on a 2-619 motion or summary judgment motion a very short time later.

Seventh Circuit Summary Judgment Practice: the ‘Production’ and ‘Persuasion’ Burdens

The Seventh Circuit remarked that parties who respond to a summary judgment motion “often misconceive what is required of them” in Modrowski v. Pigatto, 2013 WL 1395696 (7th Cir. 2013).  The case amply illustrates that summary judgment misconceptions can have unfortunate consequences.

In Modrowski, a former employee sued two property management firms under the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030, after he was fired and  locked out of his personal Yahoo email account.

The defendants moved for summary judgment, arguing that plaintiff produced no evidence that he sustained at least $5,000 in monetary loss as required by the CFAA.  18 U.S.C. § 1030(c)(4)A)(i)(I); (g).  The District court agreed and granted defendants’ summary judgment motion.

The Seventh Circuit rejected plaintiff’s argument that the defendants failed to meet their summary judgment burden of production.  The Court noted that Federal Rule of Civil Procedure 56 imposes an initial burden of production on the summary judgment movant (here, defendants) to show the court why a trial isn’t necessary. 

The (summary judgment) moving party can meet the initial burden by either (1) producing affirmative evidence that negates an essential element of the plaintiff’s claim; or (2) asserting that the plaintiff failed to produce sufficient evidence to establish an essential element of his claim.  

The defendants opted for the latter, “trickier” path – pointing out a lack of evidence in support of plaintiff’s CFAA minimum monetary loss ($5,000) element.  Once the defendants made this initial showing, the burden shifted back to the plaintiff to point to admissible record evidence that established the $5,000 loss threshold.

Question: How does a summary judgment respondent do this? 

Answer:  The nonmovant doesn’t have to depose her own witnesses or produce evidence in a form that would be admissible at trial, but she must at least produce affidavits, deposition excerpts, interrogatory answers, or record admissions to demonstrate that there is evidence upon which a jury could potentially find in the nonmovant’s favor on the challenged element. 

The plaintiff in Modrowski miscalculated his summary judgment burden.  Instead of citing evidence to support his claim that he suffered at least $5,000 in monetary loss, plaintiff opted to attack perceived flaws in defendants’ summary judgment motion.  Plaintiff argued that defendants failed to file a Local Rule 56.1 Statement, failed to cite to the evidentiary record in support of their factual statements and didn’t support their arguments with supporting case law.  (p. 4). 

Plaintiff claimed that these motion defects were so major, his burden to produce evidence on his CFAA loss element didn’t trigger.

The Seventh Circuit disagreed.  On the defendants’ failure to file a Local Rule 56.1 Statement, the Court said that while a failure to provide the Statement can result in the denial of a summary judgment motion, the district court has wide discretion whether to require strict compliance with local court rules and can freely overlook a rules violation.

Substantively, the Court emphasized that the plaintiff bore the burden of persuasion on the $5,000 damages element of a colorable CFAA claim.  Because of this, the plaintiff had to produce admissible evidence in support of this element to survive summary judgment. 

The court even gave examples of the type of evidence plaintiff could have offered such as (1) affidavits from prospective business partners who were unable to contact plaintiff after defendants hijacked his Yahoo account, (2) receipts and expense documents relating to amounts paid by plaintiff to replicate the lost emails and billing records, or an (3) affidavit signed by plaintiff attesting to the number of hours he spent trying to recover his erased emails.  

On this last point, the Court noted that self-serving affidavits in response to summary judgment are proper if they are fact-specific and based on personal knowledge. 

Take-aways: Summary judgment is the “put up or shut up” moment of the lawsuit and the time in which the respondent must marshal admissible evidence to prove his case.  

Modrowski‘s clear lessons are that if you have the burden of proof on an issue at trial and you’re served a summary judgment motion, you must do more than point out facial defects in your opponent’s motion (like a failure to file a LR 56.1(a) statement).  You must also do more than simply rely on your pleadings.  Instead, you should comb the record for evidence in support of each element of your cause of action.