Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 82 C 897 -- Frank J. McGarr, Judge.
Cummings, Chief Judge, Wood and Posner, Circuit Judges.
On February 16, 1982, plaintiff-appellee Dundee Cement Company filed a diversity suit against defendants Howard Pipe & Concrete Products, Inc., Howard National Corporation, John Karras, Chairman of the Board of Directors of Howard Pipe and President of Howard National, John Iverson, an officer of Howard Pipe, James Karras, Susan Behmer, and Joseph Sabon. Dundee sought to recover money due and owing it for shipments of cement sold and delivered to Howard Pipe.
Dundee's complaint contained four counts. Count I charged that Howard Pipe had failed and refused to pay the balance of its account for goods duly sold and delivered, and sought judgment against Howard Pipe in the sum of $119,160.28.*fn1
Count II charged all defendants except Howard National as the makers of checks, issued to Dundee in partial payment of this debt, which were drawn on either closed accounts or accounts with insufficient funds. The allegations identified the maker of each check and specified the date each check was written, the amount of each check, and the bank designated as payor. Dundee sought judgment against Howard Pipe in the amount of $21,474.25, the total amount that Howard Pipe purported to pay with the worthless checks, and judgment against the individual defendants in the amount of each worthless check he or she signed. Liability for the amounts of these checks was claimed to be joint and several. The total sought in Count II was $41,748.50.
Count III charged all defendants except Howard National with fraud in that they knowingly issued worthless checks with the intention of inducing Dundee to refrain from pursuing its rightful remedies for nonpayment. Dundee alleged that as a result of its reasonable reliance upon these material and false representations of payment, it lost the use and benefit of money due and owing it from Howard Pipe including "interest thereon, profits from investments, and acquisition of materials and services." Dundee sought judgment against those defendants jointly and severally in the amount of $250,000 as a result of their fraud.
Count IV charged Howard Pipe, Howard National, and John Karras with breach of a guaranty agreement, by the terms of which each such defendant undertook a joint and several obligation to guarantee payment at maturity of any indebtedness of Howard Pipe to Dundee for goods sold or delivered. Dundee sought judgment against these three defendants jointly and severally in the amount of $119,160.28.*fn2
On February 22, 1982, defendants Howard Pipe, Howard National, and John Iverson were served with the summons and complaint. These defendants were required to answer or otherwise plead by March 15, 1982. On March 15, 1982, attorney Charles A. Marshall, Jr. filed a general appearance on their behalf and on behalf of John Karras, Joseph Sabon and Susan Behmer but omitting James Karras.*fn3 No answer or other responsive pleading was filed by that date.
By agreement of the parties, defendants received an extension of time in which to answer; they failed to do so. At a status hearing held on April 5, 1982, the district court granted the defendants who had been served an extension of time in which to answer; again, no answer was filed.
At a status hearing held on April 22, 1982, Dundee presented to the district court a motion for default judgment under Rule 55(b)(2) of the Federal Rules of Civil Procedure against Howard Pipe, Howard National, John Karras, and John Iverson, all four being covered by the general appearance. Defendants' counsel initially failed to appear. The district court indicated it would enter an order of default against these defendants, and requested that Dundee submit a judgment order setting forth the nature of the claims, the exhibits tendered in support, and the aggregate amounts claimed. The court scheduled a status hearing for May 27, 1982, noting that the case was not closed; the requested default judgment was not against all defendants but only against four of the remaining six defendants. At this point in the April 22 hearing, defendants' counsel appeared and requested additional time in which to answer.*fn4 The request was denied because Judge McGarr had "just entered a default" (App. 000054). The judgment order granting default judgment in favor of Dundee and against defendants Howard Pipe, Howard National, John Karras, and John Iverson was entered that same day. The judgment awarded plaintiff the following amounts from Howard Pipe:
$119,160.28 for goods sold and delivered by plaintiff
21,474.25 for nonpayment of twelve checks signed by John Karras, Joseph Sabon, James Karras, Susan Behmer and John Iverson totalling $20,274.25*fn5 ...