Appeal from the United States District Court for the Southern District of Illinois, Benton Division. Civ. No. 83-4086 -- JAMES L. FOREMAN, Judge.
Bauer and Posner, Circuit Judges, and Peck, Senior Circuit Judge.*fn1
JOHN W. PECK, Senior Circuit Judge.
This case is before the court upon an appeal from the order of the district court granting summary judgment to the United States. For the reasons set forth below, we affirm.
Appellants Robert Stofer and Marcia Stofer ("the Stofers") were the sole shareholders of Bob Stofer Oldsmobile-Cadillac, Inc. in Effingham, Illinois, a General Motors Corporation ("GM") franchise. In October 1980, the Small Business Administration ("SBA") loaned Bob Stofer Oldsmobile-Cadillac, Inc. $667,900.00, secured by a mortgage on the corporation's business property, the Stofers' personal residence, and a security agreement covering inventory and other collateral. In addition, Robert Stofer and Marcia Stofer each signed a personal guaranty. The note executed by the Stofers provided in part:
Holder is authorized to declare all or any part of the Indebtedness immediately due and payable upon the happening of any of the following events:
(4) The reorganization (other than a reorganization pursuant to any of the provisions of the Bankruptcy Reform Act of 1978, as amended) or merger or consolidation of the undersigned (or the making of any agreement therefore) without the prior written consent of the Holder. . . .
In July 1982, the Stofers entered into an agreement for the sale of all of the stock in Bob Stofer Oldsmobile-Cadillac, Inc. to Sam P. Sgro, Bernard O. Nelson, and Jack W. Graham*fn2 for the sum of $20,000.00 plus an agreement by the buyers to hold the Stofers harmless from debts to the SBA and various financial institutions, as well as for unpaid taxes and payroll. The agreement was executed without the prior consent of the SBA; the SBA, however, was made aware of the transaction shortly after its occurrence.
A dispute arose between the Stofers and the buyers of Bob Stofer Oldsmobile-Cadillac, Inc. which resulted in a lawsuit in state court. The action centered around an alleged error in the legal description of the real property conveyed and upon GM's refusal to transfer the franchise to the buyers, thus precluding them from operating the business as a GM dealership.
Following the purchase of the auto dealership in July 1982, Nelson and Graham operated the business, selling new and used cars and car parts. They made no loan payments to the SBA from the proceeds of the sale of the mortgaged assets. At about the same time the Stofers sold their interest in Bob Stofer Oldsmobile-Cadillac, Inc., the First National Bank of Effingham offered to bring the mortgage payment to the SBA current; the SBA refused to accept the delinquent payment offered on behalf of the Stofers. From July 1982 to April 1983, no payments were made to the SBA on the loan. The SBA made no demand for payment from the Stofers during that time period.
In April 1983, the United States instituted the present action in the United States District Court for the Southern District of Illinois. In its second amended complaint, the United States alleged two causes of action. The first cause sought the foreclosure of the mortgage on the real property of the auto dealership and the mortgage on the Stofers' personal residence. The second cause of action sought an accounting of the collateral under the security agreement and a foreclosure of the same plus a personal deficiency decree against the Stofers, based upon their personal guaranty of the $667,900.00 loan.
In their answer, the Stofers pleaded affirmatively the indemnity and hold harmless provision of the July 1982 agreement. Their answer also contained the affirmative defenses of laches and delay of the SBA in exercising its rights under the security agreement. Specifically, the Stofers stated that the SBA allowed Sgro, Nelson, and/or Graham to dissipate the assets of Bob Stofer Oldsmobile-Cadillac, Inc., all to the Stofers' detriment. Also in their answer, the Stofers filed cross-claims against Sgro, Nelson and Graham based on the indemnity agreement.*fn3
At a pre-trial conference held before the magistrate on July 14, 1983, the parties agreed that discovery could be completed by November 1, 1983. The court set that date as the deadline for completion of discovery, and scheduled a final pre-trial conference for December 1, 1983. At the December 1st conference, counsel for the Stofers sought and received a 30-day extension to complete discovery. A final pre-trial conference was set for January 5, 1984. On December 19, 1983, the Stofers' counsel first filed a notice to take depositions.
On December 22, 1983, the United States filed a motion for summary judgment. During late December and early January, the Stofers' attorney deposed cross-defendant Nelson and the chief operating officer of the defendant First National Bank of Effingham. Cross-defendant Sgro failed to appear for his scheduled deposition, alleging a death in the family. George Danks, a director of the First National Bank of Effingham, also failed to appear for his deposition. Danks, however, apparently had not been served with a subpoena even though he was not a party to the litigation.*fn4 At the ...