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Bernstein v. Lind-Waldock & Co.

June 18, 1984

THOMAS BERNSTEIN, PLAINTIFF-APPELLANT,
v.
LIND-WALDOCK & COMPANY AND CHICAGO MERCANTILE EXCHANGE, DEFENDANTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 81 C 5528 -- Charles P. Kocoras, Judge.

Pell, Bauer and Posner, Circuit Judges.

Author: Posner

POSNER, Circuit Judge. This action by a former member of the Chicago Mercantile Exchange, Bernstein, against the Exchange and one of its clearing members, Lind-Waldock, raises intricate questions of federal jurisdiction, involving the timeliness of the appeal, the removability of the action, and the doctrine of pendent-party jurisdiction, as well as substantive issues under the Fifth and Fourteenth Amendments and the Commodity Exchange Act.

Bernstein owned a seat on the International Monetary Market division of the Chicago Mercantile Exchange. In accordance with the rules of the Exchange he transferred the seat to Caan, another member of the Exchange (but one who had no seat) in a transaction that resembled a lease. The lease, as we shall call it without intending to prejudge its legal effect, required Caan to pay rent to Bernstein but allowed Caan to keep all the trading profits from his use of the seat. He had trading losses instead, precipitating the present controversy.

When a nonclearing floor trader, such as Caan, sells a futures contract to a third party, the contract of sale is actually between the floor trader's clearing member, here Lind-Waldock, and the buyer's clearing member. The clearing members insure that the transaction will go through. By way of a hypothetical and oversimplified example (a more detailed description of commodities trading can be found in Leist v. Simplot, 638 F.2d 283, 286-87 (2d Cir. 1980), aff'd sub nom. Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 72 L. Ed. 2d 182, 102 S. Ct. 1825 (1982)), suppose that Caan on January 11 sells frozen pork bellies at 60 cents a pound for delivery next September, and on January 12 the price of September bellies begins to rise. If when September rolls around the buyer demands deliery at 60 cents, Lind-Waldock, as Caan's clearing member, will have to honor the contract whatever the price of bellies then is. To protect itself, each day the price rises Lind-Waldock will debit Caan's account by the difference between the price at the end of the day and the contract price of 60 cents. Should it be unable thus to shift the entire loss on the contract to Caan, Lind-Waldock will be entitled by the rules of the Exchange to collect any deficit from the transferor of the seat, Bernstein.

Because of his trading losses Caan found himself owing Lind-Waldock -- or so Lind-Waldock contended -- $385,000. Caan pledged real estate to Lind-Waldock t secure the debt while he tried to raise the money. He failed, and Lind-Waldock attempted to satisfy its debt out of the pleged property. But this effort was only partially successful, so pursuant to the rules of the Exchange Lind-Waldock asked the Exchange to auction off Bernstein's seat and it did so. The auction yielded more than $200,000, all of which went toward paying off Caan's debt to Lind-Waldock. Bernstein got nothing.

Shortly before the auction Bernstein had brought suit in an Illinois state court against the Mercantile Exchange and Lind-Waldock to enjoin the auction. He charged that his position in relation to Caan was that of a guarantor, and that Lind-Waldock by agreeing to the pledge of real estate to secure Caan's debt and by fixing the amount of that debt at $385,000 (which Bernstein contended was an inflated estimate) had materially altered the contract that Bernstein had guaranteed, thus discharging him as guarantor under principles of suretyship illustrated by Bank of Commerce v. Riverside Trails, 52 Ill. App. 3d 616, 620, 367 N.E.2d 993, 997, 10 Ill. Dec. 384 (1977). Bernstein named the Exchange as a defendant so that he could be sure of getting complete equitable relief if he prevailed against Lind-Waldock. After a preliminary injunction was denied, the suit became one for restoration of the seat or in the alternative for damages.

The Exchange removed the suit to federal district court, alleging that Bernstein's rights were governed by federal rather than state law. Lind-Waldock also filed a removal petition. Bernstein moved to remand the case to state court, but the motion was denied. He then filed an amended complaint in federal court. His claim against Lind-Waldock was as before, but now he charge that the Mercantile Exchange had taken away his seat without due process of law. The district court granted summary judgment for both defendants on all but a minor count which he remanded to the state court, and Bernstein has appealed.

We must first decide whether the appeal was timely, since if it was not we have no jurisdiction over it. The district court entered judgment on November 29, 1982. On December 7, Bernstein filed a "Motion for Extension of Time to File Notice of Appeal Under Rule 73 and for Other Relief." The motion was a garble. Rule 73 of the Federal Rules of Civil Procedure, relating to the taking of appeals to the courts of appeals, had been repealed in 1968. (After Bernstein filed his motion a new Rule 73 was promulgated, but it relates to federal magistrates and h as nothing to do with this case.) The motion requested an extension of time for filing the notice of appeal until 28 days after Bernstein received the transcript of the judge's oral decision granting summary judgment for the defendants. Bernstein was apparently unaware that Rule 4(a)(5) of the Federal Rules of Appellate Procedure authorizes the district judge to give a party no more than 30 extra days to file the notice of appeal beyond the date it is due (which means, in a private case, 60 days in all from the entry of judgment).

Bernstein's motion also asked for leave to postpone filing a motion to reconsider the judge's decision under Rule 60 of the civil rules (Bernstein must have meant Rule 60(b) since 60(a), relating to clerical mistakes, is not relevant to this case) until 30 days after receipt of the transcript. But a Rule 60(b) motion does not toll the time for filing the notice of appeal. See Fed. R. App. P. 4(a)(4). A motion for reconsideration under Rule 59(e) (technically, a motion to alter or amend judgment) does, but it must be filed within 10 days, and the period cannot be extended. See Fed. R. Civ. P. 6(b). Thus, even if Bernstein's motion were construed as one for an extension of time for filing a Rule 59(e) motion, it was improper. Western Transport. Co. v. E.I. Du Pont de Nemours & Co., 682 F.2d 1233, 1236 (7th Cir. 1982); Parisie v. Greer, 705 F.2d 882, 892 (7th Cir. 1983) (separate opinion). And insofar as it sought relief under Rule 60(b) it could not (as we have said) extend the time for filing the notice of appeal.

Had the judge ignored this garbled motion, Bernstein would thus have been out of luck; the 30 days to file an appeal would have run out and his right to appeal would have been forfeited. But on December 9 the judge granted Bernstein's motion for an extension of time -- including an extension of time for filing the notice of appeal -- and established a briefing schedule for the Rule 60(b) motion. That motion was denied several months later, and within 30 days after denial Bernstein filed his notice of appeal. Since this was after the expiration of the maximum period by which the district judge could have extended the time that Bernstein had to appeal from the original judgment, it might appear that Bernstein was still out of luck. But he is saved by the judge-made rule, especially well established in this circuit, that if before the time for filing the notice of appeal has expired the district judge grants an extension of time for filing the notice beyond the limits set in Rule 4(a)(5), and the appellant relies on the extension, the notice of appeal is timely if filed within the extended time. See Textor v. Board of Regents, 711 F.2d 1387, 1390-91 (7th Cir. 1983), and cases cited there; Aviation Enterprises, Inc. v. Orr, 230 U.S. App. D.C. 285, 716 F.2d 1403, 1406 n. 25 (D.C. Cir. 1983). This case presents the rule in a appealing light. Although Bernstein's counsel should have familiarized himself with the time limits in the Federal Rules, those limits have often tripped up experienced federal practitioners. And Bernstein, after all, did not want to be in federal court -- he was dragged there by removing defendants who, as we shall see, removed the case improperly. On December 9, when the judge granted an extension of time that Bernstein's counsel did not realize was ultra vires, Bernstein still had plenty of time to file a timely notice of appeal (unlike the situation in Denley v. Shearson/American Express, Inc., 733 F.2d 39 (1984)). We interpret the district judge's order of December 9 as intended to set a new filing deadline of 30 days after the judge acted on the motion for reconsideration under Rule 60(b); and while this deadline was way past the longest extension that the judge was authorized to give Bernstein, under our rule the appeal, which was filed before the new deadline, was timely.

Having satisfied ourselves that we have jurisdiction of this appeal, we now consider whether the district court had jurisdiction of the removed suit. By construing Lind-Waldock's petition as an expression of consent to the Mercantile Exchange's removing the case, and the Exchange's petition as an expression of consent to Lind-Waldock's removing the case, we can avoid deciding one question about the removability of this case: whether either defendant could have removed on its own. Consent is required for removal under 28 U.S.C. § 1441(a), Northern Illinois Gas Co. v. Airco Industrial Gases, 676 F.2d 270, 272-73 (7th Cir. 1982), but not for the removal under 28 U.S.C. § 1441(c), 1A Moore's Federal Practice Para. 0.168[3.-2-2], at pp. 556-57 (1983) -- that is, not if the plaintiff's claim against the removing defendant is "separate and independent" from the other claims in the suit. American Fire & Casualty Co. v. Finn, 341 U.S. 6, 95 L. Ed. 702, 71 S. Ct. 534 (1951), strongly implies that if the claim against Lind-Waldock was pendent to the claim against the Exchange, or vice versa, this condition could not be satisfied. However, if the claims were unrelated (or less related), presumably either party could remove the case without the other's consent, provided the claim was within the original jurisdiction of the federal courts. For if consent were required in such a case, a plaintiff might be able to prevent removal of a federal claim by joining an unrelated claim against a different defendant, and this would reduce the effectiveness of section 1441(c) in making separate and independent claims a basis for removal. But, as we have said, we can avoid these byways by treating Lind-Waldock's petition to remove as consent to Bernstein's removing, and vice versa.

Another question, however, is whether Bernstein's state court suit could have been brought in federal district court originally; if not, it was not removable. See 28 U.S.C. § 1441(a). Whether it could or could not would depend, of course, on the (truthful) allegations of the complaint rather than on an issue that might be -- even one that certainly would be -- injected later by the answer or some other subsequent pleading. Gully v. First National Bank, 299 U.S. 109, 81 L. Ed. 70, 57 S. Ct. 96 (1936); Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S. Ct. 2841, 2846-47, 77 L. Ed. 2d 420 (1983). The parties named in the complaint were not of diverse citizenship; all were citizens of Illinois. And the complaint did not allege a violation of federal law by either defendant (though this in itself would not defeat removal, if federal law was an essential ingredient of the right asserted in the complaint, id. at 2853). As a matter of fact it did not specify any source of law; but it reads like a standard common law breach of contract complaint.

The defendants based removal on the idea that Bernstein must have meant to allege a violation of the rules of the Chicago Mercantile Exchange. His rights against Lind-Waldock were created and their scope defined by those rules. And his rights against the Mercantile Exchange were derivative from his rights against Lind-Waldock; the purpose of bringing in the Exchange was to prevent it ...


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