The opinion of the court was delivered by: Shadur, District Judge.
Commercial Discount Corporation ("CDC") and Leasematic, Inc.
("Leasematic," a CDC subsidiary) sued William S. King ("King")
and Horace Rainey, Jr. ("Rainey") on their joint and several
personal guaranty of Racran Corporation ("Racran")
indebtedness. King and Rainey have moved for reconsideration of
this Court's August 13, 1982 opinion ("Opinion III,"
545 F. Supp. 455) denying their motion for summary judgment. In
reliance on the principles announced in Opinion III, CDC and
Leasematic have moved for summary judgment against King and
Rainey for $2,020,986.28 plus interest. For the reasons stated
in this memorandum opinion and order, the King-Rainey motion is
denied and the CDC-Leasematic motion is granted.
This Court's September 23, 1980 memorandum opinion and order
("Opinion I") granted summary judgment on the issue of
liability against King. Opinion I at 1 said there was "no
dispute . . . as to King's execution and delivery of the
guaranties nor as to their validity." King himself posed no
issues of fact material to his liability,*fn1 raising
questions only as to the measure of plaintiffs' recovery.
Id. at 2.
King then moved to vacate the summary judgment decision
because of supplemental affirmative defenses arising out of
events occurring after plaintiffs' original motion was fully
briefed. Those new defenses were based on plaintiffs' failure
to provide notice of the sale of certain collateral in which
they had a security interest. This Court's May 14, 1981
memorandum opinion and order ("Opinion II") granted King's
motion to vacate but struck all but one of the new
defenses.*fn2 515 F. Supp. 988 (N.D.Ill. 1981).
In affirming a trial court judgment for the dealer on its
counterclaim, the court emphasized the special contractual
circumstances present (108 Ill. App.3d at 379, 64 Ill.Dec. at
29, 438 N.E.2d at 1348, footnotes omitted):
That deliberate emphasis tends to suggest Northwest Dodge may
be limited to circumstances in which a non-notifying creditor
has deliberately opted to be bound by the strictures of Section
9-504(3) rather than pursuing its alternative contractual
remedy. That possible construction of Northwest Dodge, and its
impact on this case, have not been addressed by the parties.
Perhaps a more significant limitation of Northwest Dodge
derives from the court's rationale for choosing the "absolute
bar" rule for creditors' failure to provide Section 9-504(3)
notice. It was led to its choice by a solicitous concern for
debtors (108 Ill. App.3d at 383, 64 Ill.Dec. at 31, 438 N.E.2d
None of that concern applies directly to a guarantor brought
under the protection of Section 9-504(3). Such a guarantor has
no ownership interest in collateral property to be "redeemed."
Moreover, guarantors have induced the making of loans, not only
by their personal guaranty but also by specifically waiving
objections to ready collection by the creditor.
These distinctions suggest Northwest Dodge's concerns and
rationale would be misplaced in granting a guarantor the
of the "absolute bar" theory.*fn5 Thus even if Northwest Dodge
stated a general rule for debtors (and were not simply
restricted on its facts to particular cases), such a "general
rule" would not necessarily apply to guarantors too.
If Northwest Dodge were read as defendants suggest, it would
create a split of authority within the First District.
Under such circumstances this Court must apply the
Supreme-Court-predictive approach to satisfy its Erie v.
Tompkins obligations. See Bonanno v. Potthoff, 527 F. Supp. 561,
563 (N.D.Ill. 1981). On that score this Court shares fellow
Judge Getzendanner's conclusion that at least as to guarantors
the Illinois Supreme Court would follow the National Boulevard
Bank "rebuttable presumption" rule. National Acceptance Co. of
America v. Medlin,
, 588 (N.D.Ill. 1982).
Two sets of considerations impel that result. One suggests the
Illinois Supreme Court will reject the "absolute bar" rule
entirely, while the other suggests that if the rule were
adopted, it would be limited to debtors.
A. Because of the already-identified factual distinctions
limiting Northwest Dodge, it adds little weight against "the
majority [Illinois] view" favoring the presumption rule stated
in National Boulevard Bank. See Davenport and Murray, "Illinois
Code Comment," Ill.Ann.Stat. ch. 26, § 9-504, at 53-54
(Smith-Hurd 1982 Supp.). There is good reason for the Illinois
Supreme Court to reject the "absolute bar" rule even for
debtors: Section 9-507(1) provides an independent and adequate
remedy for debtors harmed by secured creditors' failure to
comply with Section 9-504(3). Section 9-507(1) grants a debtor
a right to recover any losses caused by a creditor's
noncompliance, with no mention of a denial of a deficiency
judgment. See National Acceptance Co., 538 F. Supp. at 588. See
also Opinion III, 545 F. Supp. at 457.
Issuance of the Northwest Dodge opinion therefore does not
alter this Court's earlier denial of defendants' summary
judgment motion.*fn11 Their proposed affirmative defense does
not pose an absolute bar to plaintiffs' recovery of a
Once the legal underbrush of defendants' affirmative defenses
is cleared away, their undisputed liability is again exposed to
view. Plaintiffs' motion now seeks to establish the
amount of that liability beyond factual dispute under
Fed.R.Civ.P. ("Rule") 56(c).
For that purpose plaintiffs have submitted the September 24,
1982 affidavit of CDC-Leasematic Vice President James Luchansky
In response to Opinion III, plaintiffs have given defendants an
additional credit of $143,000 for the sale of Racran's
Opinion III stated (545 F. Supp. at 458)
$150,000 was "the highest amount rationally attributable to
Racran's `inventory,'" even though only $7,000 was actually
paid for it by CDC and included in the $1,069,721.92 credit.
Plaintiffs' deduction of the additional $143,000 thus gives
defendants the maximum allowable credit, reducing the net
principal balance to $2,020,986.28. Luchansky's Aff. ¶ 10 then
calculates the interest due on that amount through August 31,
1982 as $1,910,856.37.
Defendants claim (Ans.Mem. 1) "apparent discrepancies" in
plaintiffs' ledgers, submitted with Luchansky's affidavit. None
of defendants' contentions, however, succeeds in casting any
doubt on plaintiffs' "bottom line" amounts.
Defendants first question (Ans.Mem. 2-3) some ledger entries
in the pre-1978 period. As plaintiffs correctly respond (R.Mem.
2-3), plaintiffs' ledger balance and Racran's own balance sheet
agree almost exactly as of December 31, 1977 — in fact
Racran's books reflect a slightly greater indebtedness to
plaintiffs ($301.62 out of an over $2 million total!) than
plaintiffs' books show. As of December 31, 1977, therefore,
there were no relevant "discrepancies" in plaintiffs' ledgers.
Defendants also assert (Ans.Mem. 2) a failure to reduce
Racran's debt by a $553,315 "payment" collected February 23,
1978. But plaintiffs refute that totally, showing (R.Mem. 4;
Ex. F) the $553,315 payment entry was properly cancelled March
1, 1978 because that amount had not in fact been collected, so
no loan balance reduction was due.
Finally defendants contend (Ans.Mem. 3) King was unaware of
an inventory loan when he left Racran in February 1978. But the
inventory loan is confirmed by both Racran's and plaintiffs'
books (Pl.R.Mem. 4-5 and Ex. A) and by Racran's bankruptcy
petition, sworn to by Rainey (id. Ex. G).
In sum, there is no genuine issue of fact as to plaintiffs'
proof of the amount of defendants' liability. All that is
lacking for final judgment is plaintiffs' submission as to
additional interest on the $2,020,986.28 principal balance
between August 31, 1982 and the date of judgment.
Defendants' motion for reconsideration is denied. There is no
genuine issue of material fact, and plaintiffs are entitled to
a judgment against King and Rainey, jointly and severally, for
$2,020,986.28 in principal plus interest equal to the sum of
$1,910,856.37 and supplemental interest through the date of
this judgment order. Plaintiffs are directed to submit a
proposed form of judgment order bearing today's date
(accompanied by a calculation of the additional interest) on or
before December 17, 1982.
Several recent published opinions by this Court have dealt
with a District Judge's obligations under Erie Railroad Co. v.
Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), when
the Illinois Supreme Court has not determined an issue of
Illinois law and there is a dispute on that issue among
intermediate Illinois Appellate Courts. Slate Printing Co. v.
Metro Envelope Co., 532 F. Supp. 431, 434 (N.D.Ill. 1982);
Bonanno v. Potthoff, 527 F. Supp. 561, 563 (N.D.Ill. 1981);
Commercial Discount Corp. v. King, 515 F. Supp. 988, 990
(N.D.Ill. 1981); Instrumentalist Co. v. Marine Corps League,
509 F. Supp. 323, 339 and n. 4 (N.D.Ill. 1981); National Can
Corp. v. Whittaker Corp., 505 F. Supp. 147, 148-49 n. 2
This Court's analysis in such diversity actions begins with
what it has termed "the essential theory of Erie: that a
federal court must decide substantive questions in diversity
cases in the same way that a state trial judge counterpart
sitting in the same location would." National Can, 505 F. Supp.
at 148 n. 2. Erie's entire premise is that a diversity litigant
should be no better or worse off in substantive terms than a
litigant presenting the identical claim or defense
in the state courts.[fn1a] As the Supreme Court put it in the
conflict of laws context in Klaxon Co. v. Stentor Electric
Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85
L.Ed. 1477 (1941):
Otherwise, the accident of diversity of
citizenship would constantly disturb equal
administration of justice in coordinate state and
federal courts sitting side by side.
That proposition impels the federal trial court in Illinois to
ascertain and apply the substantive content of Illinois law
just as its "coordinate state . . . courts" would.
For precisely the same reason, Klaxon teaches that a state's
choice of law rules are part of its substantive law to be
applied by the federal courts sitting in that state. Id. Like
all other states Illinois has external choice of law rules —
what in law schools and in Restatement terms, and in the
courts, are usually called "conflict of laws" rules. But more
important for current purposes, Illinois also has an internal
choice of laws rule, defining the effect of Illinois Appellate
Court decisions as "Illinois law" (the object of the sometimes
elusive search we federal judges engage in).
Illinois' "internal" choice of law rule is that a state trial
court is bound by the decisions of all the intermediate
Appellate Courts, but is bound by the Appellate Court in its
own district when the Appellate Courts differ. People v.
Thorpe, 52 Ill. App.3d 576, 579, 10 Ill.Dec. 351, 354,
367 N.E.2d 960, 963 (2d Dist. 1977); Garcia v. Hynes & Howes Real
Estate, Inc., 29 Ill. App.3d 479, 482, 331 N.E.2d 634, 636 (3d
Dist. 1975). Faithful to its charge under Erie and Klaxon,
this Court has stated that rule of Illinois law in each of the
cited cases. And that has led this Court to conclude it was
bound by decisions of the Illinois Appellate Court for the
First District on questions decided differently by the First
District Appellate Court and by Appellate Courts for other
appellate districts. See Slate Printing, 532 F. Supp. at 434;
Commercial Discount, 515 F. Supp. at 990; Instrumentalist, 509
F. Supp. at 339 and n. 4; National Can, 505 F. Supp. at 148-49 n.
This Court's "method" of handling this special (but
recurring) Erie-related problem has recently been criticized by
our colleague Judge Prentice Marshall. Kelly v. Stratton,
552 F. Supp. 641, 644-645 (N.D.Ill. 1982). His criticism reflects a
misunderstanding of this Court's approach and a misapprehension
of the reasons for its adoption. Moreover, this area in which
we differ involves a problem of universal scope and
application. Hence the need for further clarification and
Choice of laws analysis exerts a special kind of intellectual
fascination, somewhat akin to the fascination of "pilpul" for
the Talmudic scholar. But (perhaps even because of the
intellectualism of the choice of laws field) it is essential to
avoid the trap of applying mechanistic rules in the area, while
losing sight of the conceptual basis for those rules.
That danger is clearly present in the special branch of
choice of law doctrines implicated by Erie and its progeny.
This Court believes its approach to the federal courts' duty in
choosing among conflicting Illinois Appellate Court decisions
— one that adheres to Illinois' own resolution of that choice
of law problem — is wholly true to Erie's teaching, as well as
properly flexible in its application.
Judge Marshall correctly notes (Kelly, at 644) the Northern
District of Illinois embraces several counties that lie in
Illinois Appellate Districts other than the First (which is
coterminous with Cook County). He also correctly points out
(id. at 645) that in cases like Kelly, where all defendants are
nonresidents of Illinois, a state
court plaintiff, as far as venue is concerned, may bring his
action in the Circuit Court for any Illinois county.
Ill.Rev.Stat. ch. 110, § 2-101 (1982) ("Section 2-101"). But
Judge Marshall then proceeds to a mistaken conclusion (Kelly,
Thus, the National Can approach is inconsistent
with Erie in that it might require a federal court
to apply a rule of decision that would not be used
if plaintiff filed in state court.
That is simply not so.
Both Judge Marshall and this Court are endeavoring to serve
the Erie purpose of thwarting forum-shopping. See Erie, 304
U.S. at 74-77, 58 S.Ct. at 820-22. But analysis demonstrates
that this Court's adherence to the Illinois rule precludes
forum-shopping (or perhaps more accurately, permits only such
forum-shopping as Illinois state courts themselves provide),
while Judge Marshall's approach fosters federal court
forum-shopping that would not be available to the state court
First, the plaintiff forum-shopping on which Judge Marshall
has focused is the creature of the Illinois venue statute,
Section 2-101 itself. This Court's "National Can approach" adds
not a whit to Illinois' own open invitation to forum-shopping
when all defendants are nonresidents of Illinois. Judge
Marshall's hypothetical plaintiff suing such defendants can
bring his action in the state circuit court in any Illinois
county. If his lawsuit is one on which the Illinois Appellate
Courts have differed, plaintiff can choose the friendliest
Appellate District and rely on the Thorpe-Garcia doctrine to
bring him home a winner. So if he chooses instead to file in
the federal court for the Northern District of Illinois, and
that court applies First Appellate District law, the plaintiff
gets precisely what he could, and would, have gotten by
choosing to sue in Cook County Circuit Court.
Second, the identical analysis of course applies to any other
case in which the Illinois venue statute permits a state court
plaintiff to sue in Cook County.[fn2a] If that is the only
county in which he can sue, he will be bound by First Appellate
District law whether he files in the Cook County Circuit Court
or, under this Court's approach, in the federal court. And if
he has a choice among counties and opts to sue in Cook
(authorized "forum-shopping," courtesy of the Illinois General
Assembly), he is entitled to have applied the identical rules
of substantive law — those prescribed by the First Appellate
District — if he comes into this Court instead.
Needless to say, the same proposition controls the case
actually brought in the Cook County Circuit Court and then
removed to this Court. See Slate Printing, 532 F. Supp. at 432
n. 1. In that situation this Court's treatment prevents the
defendant from forum-shopping by exercising his right of
Third, this Court's approach also does not permit (let alone
invite) otherwise impermissible plaintiff forum-shopping when
a federal diversity action could not have been brought in the
Cook County Circuit Court, but could have been brought in
another county within the geographic limits of the Northern
District of Illinois. In that circumstance and assuming a split
among the Appellate Court Districts — a situation this Court
has not yet faced — the "National Can approach" would require
the federal district court to apply the decisions of the
Illinois Appellate Court for the District in which the county
of proper state venue lies (for
example, the Second Appellate District in the case of a Lake
County lawsuit). This is so because, again, that is the law
that would be applied by the state trial court where the state
suit could have been brought. It is that state trial court to
which this Court would then assimilate itself under Erie.[fn3a]
Though Judge Marshall does not raise the more complex
plaintiff forum-shopping issue just discussed, he does say
(Kelly, at 645):
. . National Can would enable a defendant to
forum-shop by removing to federal court actions,
brought in non-Cook County areas of the Northern
District of Illinois, in which it wants to avail
itself of the law of the First District of the
Illinois Appellate Court.
Again, not so. In case of removal this Court's approach would
refer to the law of the Appellate Court District for the county
in which the state action was brought (just as this Court did
in Slate Printing).[fn4a] That treatment would call forth
exactly the same rules of substantive law the Illinois venue
statute would evoke if the case were not removed to this Court.
Thus whether the focus is on plaintiff or defendant
forum-shopping, this Court's approach to this special
"internal" choice of law problem adheres to the underlying
principle of Erie: State, not federal, law governs.
What is most significant about all the examples discussed in
the text and footnotes of this Appendix (and any other arcane
variants that might be posited), however, is that in no
instance does this Court's treatment advance the cause of
forum-shopping. And if and to the extent it permits that
device, it only mirrors what is equally available to the state
court litigant. Erie asks (or commands) no more.
By way of contrast, the approach espoused by Judge
Marshall[fn5a] will invite forum-shopping — it will produce
different results for the federal litigant from those he would
obtain from the state courts — contrary to Erie's intent.
Judge Marshall would always attempt to "predict" how the
Illinois Supreme Court would decide an issue upon which the
Illinois Appellate Courts disagree. See Kelly, at 645.[fn6a]
Admittedly there is responsible authority employing the
"Supreme-Court-predictive" approach in the face of uncertain
intermediate state court law. See, Gates Rubber Co.
v. USM Corp., 508 F.2d 603, 606-07 (7th Cir. 1975) (but see n.
9 of this Appendix); Jones & Laughlin Steel Corp. v.
Johns-Manville Sales Corp., 626 F.2d 280, 284-85 (3d Cir.
1980). Nevertheless, if the concern is (as it must be) fidelity
to Erie, any general application of the predictive approach as
urged by Judge Marshall is flawed.[fn7a]
It must never be forgotten that the Erie-mandated search is
for "state law." Nor may it be forgotten that the only reason
we are required to make that search is that our state court
counterparts are required to follow "state law," and we in turn
are required to do as our state court counterparts do. If a
state does not have an established rule for its trial courts to
follow in the presence of divided authority, the federal
diversity court should try to predict what the state's highest
court would do — precisely because a state court trial judge
would essay that same prediction.
But where, as in Illinois, "state law" itself includes a
definitive rule as to the way to ascertain "state law" in case
of intrastate appellate court disputes, we must follow that
first "state law" to learn the second "state law." Examination
of the post-Erie Supreme Court decisions that defined (and
refined) the role of the federal diversity courts in this area
demonstrates the validity of this view. And to the extent if
any that lower federal court cases — including those in our
circuit — may simply announce and indulge the
state-Supreme-Court-predictive approach without attention to
the forum-shopping it promotes, this Court is constrained to
disagree with them.
After all, if that approach consistently prevailed in the
federal courts of this Northern District, both plaintiffs and
defendants could hope to obtain — by suing in or removing to
this District Court — a rule of decision that would not govern
the case if brought or left in state court.[fn8a] Any diversity
plaintiff who could sue in state court only in Lake County
might instead sue in the Northern District federal court in the
hope he can win a "prediction" opposed to the rule of decision
prevailing in Illinois' Second Appellate District. And a
diversity defendant sued in Lake County Circuit Court might
remove to the Northern District federal court to try to escape
an adverse Second Appellate District rule of decision.
There is an obverse side to the same coin: the "predictive"
approach's potential for defeating litigants' justified
expectancies. Assume a diversity plaintiff who may sue under
the Illinois venue statute in the Circuit Court of Cook County,
where he will have the benefit of a substantive rule of law
pronounced by the First District Appellate Court. Congress has
given that plaintiff the absolute right to invoke federal
jurisdiction instead. It would do violence to the Erie
principle to condition the exercise of that right on the
potential loss — through an adverse "prediction" — of the
substantive rights the plaintiff fully and justifiably views as
his. And that analysis applies with equal force to a diversity
defendant who, having the unfettered congressionally-conferred
right to remove a state court suit to this District Court, must
temper (or forego) exercise of that right because of concern
that a "prediction" may rob him of substantive rights the state
trial court was legally bound to give him.
In sum, the Supreme-Court-predictive approach is not
responsive to the Erie-required search for "state law" — at
least in Illinois under circumstances like those involved in
Judge Marshall's Kelly case.[fn9a] Such prediction is required,
however, when (as in the case to which this Appendix attaches)
there is a split of authority within the governing Appellate
Court District. To the extent such prediction involves a degree
of uncertainty for the litigants, it is uncertainty already
present in the state law.
Thus in this limited final circumstance, a federal court's
exercise of "creativity" is itself an adherence to
Erie principles. After all, Erie does not promise absolute
certainty any more than it promises to eliminate
forum-shopping. Erie demands only that the federal courts'
exercise of their diversity jurisdiction not cause added
uncertainty and forum-shopping.[fn10a]