Tag: final judgment

Technically Non-Final Default Judgment Still Final Enough to Support Post-Judgment Enforcement Action – IL Fed Court (From the Vault)

Dexia Credit Local v. Rogan, 629 F.3d 612 (7th Cir. 2011) reminds me of a recent case I handled in a sales commission dispute.  A Cook County Law Division Commercial Calendar arbitrator ruled for our client and against a corporate defendant and found for the individual defendant (an officer of the corporate defendant) against our client on a separate claim.  On the judgment on award (JOA) date, the corporate defendant moved to extend the seven-day rejection period.  The judge denied the motion and entered judgment on the arbitration award.

Inadvertently, the order recited only the plaintiff’s money award against the corporate defendant: it was silent on the “not liable” finding for the individual defendant.  To pre-empt the corporate defendant’s attempt to argue the judgment wasn’t a final order (and not enforceable), we moved to correct the order retroactively or, nunc pro tunc, to the JOA date so that it recited both the plaintiff’s award against the corporation and the corporate officer’s award versus the plaintiff.  This “backdated” clarification to the judgment order permitted us to immediately issue a Citation to Discover Assets to the corporate defendant without risking a motion to quash the Citation.

While our case didn’t involve Dexia’s big bucks or complicated facts, one commonality between our case and Dexia was the importance of clarifying whether an ostensibly final order is enforceable through post-judgment proceedings.

After getting a $124M default judgment against the debtor, the Dexia plaintiff filed a flurry of citations against the judgment debtor and three trusts the debtor created for his adult children’s’ benefit.

The trial court ordered the trustee to turnover almost all of the trust assets (save for some gifted monies) and the debtor’s children appealed.

Affirming, the Seventh Circuit first discussed the importance of final vs. non-final orders.

The defendants argued that the default judgment wasn’t final since it was silent as to one of the judgment debtor’s co-defendants – a company that filed bankruptcy during the lawsuit.  The defendants asserted that since the judgment didn’t dispose of plaintiff’s claims against all defendants, the judgment wasn’t final and the creditor’s post-judgment citations were premature.

In Illinois, supplementary proceedings like Citations to Discover Assets are unavailable until after a creditor first obtains a judgment “capable of enforcement.”  735 ILCS 5/2-1402.  The debtor’s children argued that the default judgment that was the basis for the citations wasn’t enforceable since it did not resolve all pending claims.   As a result, according to debtor’s children, the citations were void from the start.

The Court rejected this argument as vaunting form over substance.  The only action taken by the court after the default judgment was dismissing nondiverse, dispensable parties – which it had discretion to do under Federal Rule 21.  Under the case law, a court’s dismissal of dispensable, non-diverse parties retroactively makes a pre-dismissal order final and enforceable.

Requiring the plaintiff to reissue post-judgment citations after the dismissal of the bankrupt co-defendant would waste court and party resources and serve no useful purpose.  Once the court dismissed the non-diverse defendants, it “finalized” the earlier default judgment.

Afterwords:

A final order is normally required for post-judgment enforcement proceedings.  However, where an order is technically not final since there are pending claims against dispensable parties, the order can retroactively become final (and therefore enforceable) after the court dismisses those parties and claims.

The case serves as a good example of a court looking at an order’s substance instead of its technical aspects to determine whether it is sufficiently final to underlie supplementary proceedings.

The case also makes clear that a creditor’s request for a third party to turn over assets to the creditor is not an action at law that would give the third party the right to a jury trial.  Instead, the turnover order is coercive or equitable in nature and there is no right to a jury trial in actions that seek equitable relief.

 

Indy Skyline Photo Spat At Heart Of 7th Circuit’s Gloss on Affirmative Defenses, Res Judicata and Fed. Pleading Amendments – Bell v. Taylor (Part I)

Litigation over pictures of the Indianapolis skyline form the backdrop for the Seventh Circuit’s recent examination of the elements of a proper affirmative defense under Federal pleading rules and the concept of ‘finality’ for res judicata purposes in Bell v. Taylor.

There, several small businesses infringed plaintiff’s copyrights in two photographs of downtown Indianapolis: one taken at night, the other in daytime.  The defendants – an insurance company, a realtor, and a computer repair firm – all used at least one the plaintiff’s photos on company websites.  When the plaintiff couldn’t prove damages, the District Court granted summary judgment for the defendants and later dismissed a second lawsuit filed by the plaintiff against one of the defendants based on the same facts.  The plaintiff appealed.

The Seventh Circuit affirmed summary judgment of the first lawsuit and dismissal of the second action on both procedural and substantive grounds.

Turning to the claims against the computer company defendant, the court noted that the defendant denied using the plaintiff’s daytime photo.  The defendant used only the nighttime photo.  The plaintiff argued that the defendant failed to comply with Rule 8(b) by not asserting facts to support its denial that it used plaintiff’s daytime photo.

Rejecting this argument, the court noted that a proper affirmative defense limits or excuses a defendant’s liability even where the plaintiff establishes a prima facie case.  If the facts that underlie an affirmative defense are proven true, they will defeat the plaintiff’s claim even if all of the complaint allegations are true.  A defendant’s contesting a plaintiff’s factual allegation is not an affirmative defense.  It is instead a simple denial.  Since the computer defendant denied it used the daytime photo, there was no affirmative matter involved and the defendant didn’t have to comply with Rule 8’s pleading requirements.

The Seventh Circuit also affirmed the denial of the plaintiff’s attempt to amend his complaint several months after pleadings closed.  In Federal court, the right to amend pleadings is broad but not absolute.  Where allowing an amendment would result in undue delay or prejudice to the opposing party, a court has discretion to refuse a request to amend a complaint.  FRCP 15(a)(2).  Here, the Court agreed with the lower court that the plaintiff showed a lack of diligence by waiting until well after the amending pleadings deadline passed.  The plaintiff’s failure to timely seek leave to amend its complaint supported the court’s denial of its motion.

The Court also affirmed the District Court’s dismissal of the plaintiff’s second lawsuit on res judicata grounds.  When the District Court entered summary judgment for defendants on plaintiff’s copyright and state law claims (conversion, unfair competition), plaintiff’s equitable relief claims (declaratory judgment and injunctive relief) were pending.  Because of this, the summary judgment order wasn’t final for purposes of appeal.  (Plaintiff could only appeal final orders – and until the court disposed of the equitable claims, the summary judgment order wasn’t final and appealable.)

Still, finality for res judicata purposes is different from appellate finality.  An order can be final and have preclusive effect under res judicata or collateral estoppel even where other claims remain.  This was the case here as plaintiff’s sole claim against the computer company defendant was for copyright infringement.  The pending equitable claims were directed to other defendants.  So the District Court’s summary judgment order on plaintiff’s copyright infringement claims was final as to the computer defendant.  This finality triggered res judicata and barred the plaintiff’s second lawsuit on the same facts.

Afterwords:

The case’s academic value lies in its thorough summary of the pleading requirements for affirmative defenses and the factors guiding a court when determining whether to permit amendments to pleadings.  The case also stresses that finality for appeal purposes is not the same as for res judicata or collateral estoppel.  If an order disposes of a plaintiff’s claims against one but not all defendants, the order is still final as to that defendant and the plaintiff will be precluded from later filing a second lawsuit against that earlier victorious defendant.

Forum Selection Clause Dismissal Not ‘On the Merits’ – Plaintiff Can Refile in Another State

Ancient_Forum

A forum selection clause is a contract term that specifies where (as in what state) a lawsuit must be filed if there is a future dispute.

In Fabian v. BCG Holdings, 2014 IL App (1st) 141576, Plaintiff sued his ex-employer (a spin-off of the Cantor Fitzgerald security firm whose NYC office was decimated in the 9.11 terror attacks) for breach of contract and under the Illinois Wage Payment and Collection Act (IWPCA) claiming unpaid trading commissions and owed stock shares plaintiff under a written partnership agreement.

The partnership agreement contained a Delaware forum-selection provision that fixed exclusive jurisdiction over any partnership dispute in Delaware courts.

The trial court dismissed the IWPCA claim with prejudice and the other complaint counts without prejudice to a future filing in Delaware court.  The plaintiff voluntarily dismissed or “non-suited” the remaining claims.  Plaintiff appealed the “with prejudice” dismissal of his IWPCA claim.

Held: Reversed.

Reasons:

The plaintiff argued that the Delaware forum-selection clause was void because it was forced upon him. He claimed he was given less than 24 hours to sign the partnership agreement in an adhesive take-it-or-leave-it manner.

Under Illinois law, a forum selection clause is generally valid and should be enforced unless (1) the opposing party shows that it would violate a strong public policy of the state in which the case is filed or (2) enforcing the clause would be unreasonable in that it is so inconvenient that it basically deprives the party of its day in court.

Illinois public policy favors enforcement of forum-selection clauses.  Commercially versed parties should be able to freely define the parameters of their private agreement without court interference.  And the fact a court of another state would have to interpret and apply an Illinois statute isn’t enough to void a forum clause on public policy grounds.

When a case is dismissed on forum-selection grounds, it’s not a dismissal on the merits.  That’s because it only resolves the issue of where a plaintiff can litigate his claim.  It doesn’t decide any underlying facts or apply them to the substantive legal issues involved in a given case.

Where a plaintiff non-suits claims after his other claims are (involuntarily) dismissed, he has one year to refile the non-suited claims. See 735 ILCS 5/13-217.  If he does refile, it is treated as a new case; not a continuation of the old case.  This rule is important for appeal purposes: once the plaintiff non-suits his remaining claims, an order previously dismissing another claim becomes final and appealable.

(¶¶16-24).

The Court here agreed with the trial court that there was nothing repugnant to Illinois law in enforcing the Delaware forum provision.  But the court still reversed the trial court’s with prejudice dismissal of the plaintiff’s IWPCA claim.

Since the dismissal of that claim (the IWPCA count) was based on the Delaware forum-selection clause, there was no determination of the merits of the claim.  That is, the court never determined whether the plaintiff was in fact owed money or stocks from his ex-employer. The forum-selection provision only addressed the proper location for plaintiff to sue.  As a result, the trial court’s “with prejudice” dismissal of the plaintiff’s IWPCA claim was improper.  The plaintiff should be allowed to file his IWPCA count in Delaware.

Afterwords:

– A forum selection clause will be upheld unless it violates a recognized policy of the state where suit is filed;

– A dismissal with prejudice is normally improper where merits of case aren’t reached;

– Just because a state has to apply the law of a foreign state isn’t enough to void a forum selection provision.