United States District Court, Northern District of Illinois, E.D
November 29, 1985
CENTRAL ILLINOIS SAVINGS & LOAN ASSOCIATION, PLAINTIFF,
DUPAGE COUNTY BANK OF GLENDALE HEIGHTS, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Central Illinois Savings & Loan Association ("Central")
originally launched this multiparty litigation by filing a
ten-count Complaint (the "Central Complaint") against DuPage
County Bank of Glendale Heights ("Bank") and several of Bank's
directors, officers and employees, as well as two other
banks.*fn1 Central charges Bank with:
1. a "pattern of racketeering activity" in
violation of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. § 1961-1968
2. breach of contract (Count VIII); and
3. common law fraud (Count IX);
all arising out of Bank's sale to Central of a group of
promissory notes secured by real estate mortgages. Bank has in
turn filed an amended Third-Party Complaint (the "Bank
Complaint")*fn2 under Fed.R. Civ.P. ("Rule") 14(a) against
Gloria Andrews Leskovisek ("Leskovisek"), Joan Otten
("Otten"), W. Jeanne Powers ("Powers") and three other
individuals,*fn3 seeking recovery via implied indemnity.
Leskovisek, Otten and Powers now move under Rule 12(b)(6) to
dismiss the DuPage Complaint. For the reasons stated in this
memorandum opinion and order, those motions are granted.
On January 20, 1983 Central purchased 16 promissory notes
— each secured by a
real estate mortgage — from Bank for a total price of
approximately $750,000 (Bank Ans. ¶ 4(d)). Bank represented to
Central each mortgage was current (Central Complaint Ex. B),
and Bank continues to assert that was so (Bank Ans. ¶ 4(c)).
But Central premises its Complaint on the allegation the
mortgages were in default when Bank assigned them to Central
(Central Complaint ¶ 4(e)).
Central's loan policy required it to examine the mortgage
documents before acquiring them for its loan portfolio (Bank
Complaint ¶ 13). Hence before assigning the 16 notes and
mortgages to Central, Bank turned each loan file over to
Central to allow Central to check the borrower's payment
history (id.). Those files contained receipts indicating some
borrowers had made delinquent payments (id.). Nevertheless
Central purchased the 16 notes and mortgages.
In April 1985 Central filed this action, advancing a melange
of claims. Bank contends any liability it might owe to Central
would spring not from its own actions but rather from the
failure of Leskovisek, Otten and Powers*fn5 to exercise due
care in examining the loan file. That negligence, says Bank,
entitles it to indemnification.
Leskovisek, Otten and Powers counter with three arguments:
1. Implied indemnity in Illinois has been
extinguished by the Illinois Contribution Among
Joint Tortfeasors Act (the "Act," Ill.Rev.Stat.
ch. 70, ¶¶ 301-305).
2. No intentional tortfeasor can obtain
3. RICO's comprehensive character indicates
Congress intended to preclude a right to
This opinion will first treat briefly with the choice-of-law
issue, then consider each of those contentions in turn.
Choice of Law
Bank seeks indemnity from the third-party defendants on two
of Central's claims — the RICO claim (Count I) and the
common-law fraud claim (Count IX).*fn6 Central's RICO claim
confers federal-question jurisdiction on this Court under
28 U.S.C. § 1331. Central's common-law claim is properly before
this Court under the doctrine of pendent jurisdiction because
it "derive from a common nucleus of operative fact" with the
RICO claim (which also sounds in fraud). United Mine Workers of
America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16
L.Ed.2d 218 (1966).
Bank's right to indemnity on Central's RICO claim (if it
exists at all) must be grounded in federal law. Cf.
Northwest Airlines, Inc. v. Transport Workers Union of America,
AFL-CIO, 451 U.S. 77, 90, 101 S.Ct. 1571, 1580, 67 L.Ed.2d 750
(1981) (employer's asserted right to contribution from union
based on liability for Title VII violation derived either from
the federal statute or from federal common law). But despite
the "common nucleus" involved in the common-law claim, United
States ex rel. Hoover v. Franzen, 669 F.2d 433, 437 (7th Cir.
1982) (footnote omitted) explains state law — here Illinois
law*fn7 — controls that claim:
[T]his crucial choice-of-law issue  is implicit
in the exercise of pendent jurisdiction. The
pendent state law claim is governed in all
respects by state law. . . . Merely because the
state law claim is in federal court does not lead
to the application of federal law. As Erie Railroad
Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82
L.Ed. 1188 (1938) and its offspring make clear,
absent a valid and controlling federal law, state
law governs a state law claim (even in nondiversity
Even though the parties have been inattentive to that
distinction, citing federal and state precedents
indiscriminately, this opinion will analyze Bank's indemnity
claims on those separate bases.
Indemnity for Liability Based on Common-Law Fraud
Complaint Count IX, which sounds in common-law fraud,
accuses Bank of fraudulently representing to Central that the
notes and mortgages were not in default. Bank seeks to invoke
the implied indemnity concept to shift to the third-party
defendants Bank's entire potential liability to Central.
Leskovisek, Otten and Powers retort the implied indemnity
doctrine is dead in Illinois, having been extinguished by the
Act. In that respect Act § 302(a) is its critical provision:
Except as otherwise provided in this Act, where 2
or more persons are subject to liability in tort
arising out of the same injury to person or
property, or the same wrongful death, there is a
right of contribution among them, even though
judgment has not been entered against any or all
Bank first contends Act § 302(a) applies only to personal
injury claims and thus does not affect the viability of implied
indemnity as a risk-shifting concept in this business fraud
case. It is hard to see how that can be advanced with a
Section 302(a) speaks of "liability in
tort" without any limitation, and it explicitly extends its
coverage to "injury to person or property." Fraud claims are
unquestionably within the plain language of Act § 302(a).
Bank next says the traditional common-law right to indemnity
based on a qualitative distinction between the alleged
negligence of the indemnitor and indemnitee is preserved by
Act § 303:
The pro rata share of each tortfeasor shall be
determined in accordance with his relative
According to Bank, the term "relative culpability" preserves
the common-law active-passive distinction. That contention
fails for two reasons.
First, Act § 303 comes into play only after Act § 302 has
established the availability or unavailability of contribution
or indemnity. If (but only if) the Act § 302 answer is "yes,"
Act § 303 simply defines the comparative extent of each
contributing tortfeasor's liability. Hence Act § 303 returns
the relevant inquiry for current purposes to Act § 302.
Second, Bank wholly ignores the impact on the implied
indemnity concept (one of total risk-shifting) of the Act's
technique of dividing liability according to culpability. As
this Court recently pointed out in U.S. Home Corp. v. George W.
Kennedy Construction Co., 617 F. Supp. 893, 896-97 (N.D.Ill.
[I]t should be obvious from the very origins of
implied indemnity that passage of the Act, which
removed a good part of the policy underpinnings
from the indemnity doctrine, would work some
dramatic changes in indemnity as well as
contribution. And that has in fact taken place.
Today, with a contribution regime in place, the
rationale for any kind of full shifting of
responsibility (under any label) has lost much of
its force. And so it is that Morizzo [v.
Laverdure], 127 Ill. App.3d [767,] 774 [83 Ill.Dec.
46, 51], 469 N.E.2d [653,] 658 [(1st Dist. 1984)]
teaches that, absent an express contract for
indemnification (and none is involved here),
implied indemnification is not even arguably viable
after passage of the Act except perhaps in two
However, none of these [post-Act] cases
[including Van Jacobs v. Parikh, 97 Ill. App.3d 610
[52 Ill.Dec. 770], 422 N.E.2d 979 (1st Dist.
1981) and Lowe v. Norfolk & Western Railway Co.,
124 Ill. App.3d 80 [79 Ill.Dec. 238],
463 N.E.2d 792 (5th Dist. 1984)] addressed
the question raised by the failure of the
legislature to provide for the specific
preservation of the right of express or implied
As we interpret Van Jacobs, this court held that
implied indemnity is not extinguished by the
passing of the Contribution Act for cases
involving some pre-tort relationship between the
parties which gives rise to a duty to indemnify,
e.g., in cases involving vicarious liability
(lessor-lessee; employer-employee; owner and
lessee; master and servant). In Lowe, this court
held that implied indemnity was still viable with
respect to "upstream" claims in a strict
Except possibly for those causes of action
based on the theories of indemnity just
enumerated, it is our opinion that the
Contribution Act extinguished a cause of action
for active-passive indemnity in Illinois.
Post-Morizzo case law has taught that only the four specified
pre-tort relationships remain as potential sources for post-Act
indemnity (rather than the listed relationships being merely
exemplary). Allison v. Shell Oil Co., 133 Ill. App.3d 607, 611,
88 Ill.Dec. 720, 723, 479 N.E.2d 333
, 336 (5th Dist.
This case (like U.S. Home) does not involve an express
contract for indemnification. Nor does Bank present an
"upstream" claim in a strict liability action. Consequently
Bank's indemnification claim must depend on the existence of
"some pre-tort relationship between the parties which gives
rise to a duty to indemnify." Morizzo, 127 Ill. App.3d at 774,
83 Ill.Dec. at 51, 469 N.E.2d at 658.
Bank says it is not directly liable for the alleged fraud
perpetrated on Central. Instead Bank urges it is only
vicariously liable for the negligent failure of Central's
employees — Leskovisek, Otten and Powers — to examine the
mortgage files adequately before the assignment. It is an
understatement to say that is not the sort of "vicarious
liability" situation identified in Morizzo, for Central's fraud
charge against Bank rests not on an implied imputation of
Central's employees' negligence to Bank, but rather on Bank's
own allegedly intentional misrepresentations.*fn10
There is another (and wholly independent) fatal flaw in
Bank's claim for indemnity under Illinois law. Chicago College
of Osteopathic Medicine v. George A. Fuller Co., 719 F.2d 1335,
1342 (7th Cir. 1983) (emphasis added) teaches such a right must
in all events stem from a contractual relationship between the
prospective indemnitor and indemnitee:
As we interpret these cases, we hold that
Illinois law as it now stands does allow a third
party action for indemnity where the third party
plaintiff and the third party defendant were
contracting parties and the third party plaintiff
bears no independent fault in the harm to the
Here no contractual relationship ever existed between Bank and
Leskovisek, Otten or Powers. Bank's bald assertion of a
pre-tort relationship, stemming from Central's duty to examine
the loan files delivered by
Bank before the assignment, bears no resemblance to the type
of relationships identified in Morizzo: Each of the
lessor-lessee, employer-employee, owner-lessee and
master-servant pairings is directly contractual. Bank's
allegation of pre-tort contacts with Leskovisek, Otten and
Powers does not meet the test of the Illinois cases.
Bank's indemnity claim under Illinois law thus falls,
fatally wounded from several directions. It is needless to
prolong the discussion by applying the Act in a wholly
different way: to determine the comparative liability for that
Indemnity for Liability under RICO
Bank also seeks indemnity for its potential liability to
Central under the RICO claim stated in Complaint Count I. In
response, Leskovisek, Otten and Powers correctly contend a
defendant subject to liability for a RICO violation cannot
During the last five years the Supreme Court has considered
— and in each case rejected — defendants' rights to obtain
contribution for violations of the Equal Pay Act of 1963 and
Title VII of the Civil Rights Act of 1964 (Northwest Airlines,
451 U.S. 77, 101 S.Ct. 1571) and of the Sherman and Clayton
Acts (Texas Industries, Inc. v. Radcliff Materials, Inc.,
451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981)). Although
those cases addressed only claims for contribution, their
rationale equally bars Bank's claim for indemnity. Anderson v.
Local Union No. 3, International Brotherhood of Electrical
Workers, 582 F. Supp. 627, 633 (S.D.N.Y.), aff'd, 751 F.2d 546
(2d Cir. 1984).
Northwest Airlines, 451 U.S. at 90, 101 S.Ct. at 1580 teaches
Bank's right to indemnity under RICO could arise either (1) as
an implied cause of action under that statute or (2) as a part
of the federal common law. Neither theory works in this case.
1. Implication of a Private Right of Action
To determine whether a federal statute impliedly creates a
private right of action, this Court must focus on
congressional intent. Daily Income Fund, Inc. v. Fox,
464 U.S. 523
, 104 S.Ct. 831, 839, 78 L.Ed.2d 645 (1984) once again
identifies the familiar considerations this Court should
explore to that end:
That intent may in turn be discerned by examining
a number of factors, including the legislative
history and purposes of the statute, the identity
of the class for whose particular benefit the
statute was passed, the existence of express
statutory remedies adequate to serve the
legislative purpose, and the traditional role of
the states in affording the relief claimed.
Without question RICO's statutory language does not
expressly create a right to indemnity in favor of RICO
defendants. Nor does it suggest one. Certainly RICO was
not "enacted for the benefit of a special class of which [Bank]
is a member," Cannon v. University of Chicago, 441 U.S. 677
689, 99 S.Ct. 1946, 1953, 60 L.Ed.2d 560 (1979). On the
contrary, Bank's liability to Central on its RICO claim will
depend on Bank itself having committed RICO-prohibited criminal
conduct. That necessarily would align Bank not as an intended
beneficiary of Congress' solicitude, but (Piper v. Chris-Craft
Industries, Inc., 430 U.S. 1, 37, 97 S.Ct. 926, 947, 51 L.Ed.2d
[t]o the contrary, [as] a member of the class
whose activities Congress intended to regulate
for the protection and benefit of an entirely
distinct class. . . .
RICO's structure also counsels against recognition of an
implied right to indemnity in Bank's favor. RICO expressly
provides for both criminal and private civil enforcement.
Moreover, allowing a right to indemnity would frustrate the
very purpose of the treble-damage remedy created by RICO
(28 U.S.C. § 1964(c)). As Texas Industries, 451 U.S. at 639, 101
S.Ct. at 2066 put it (after quoting the same language from
The very idea of treble damages reveals an intent
to punish past, and to deter future, unlawful
conduct, not to ameliorate the liability of
Finally, RICO's legislative history contains no support for
DuPage's insistence on a right to indemnity.*fn11
with all the other already-discussed factors to compel the
conclusion Congress did not intend to create an implied right
to indemnity from RICO-based liability.
2. Federal Common-Law Right to Indemnity
Among the shaky underpinnings for Erie Railroad Co. v.
Tompkins, 304 U.S. 64
, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) was
its pronouncement that (id. at 78, 58 S.Ct. at 822):
There is no federal general common law. Though the error of
Erie's subversion of the Supremacy Clause*fn12 is too well
entrenched to get a fresh look at this point, its overbroad
statement about the total absence of federal common law has not
proved similarly untouchable. Texas Industries, 451 U.S. at
640, 101 S.Ct. at 2066 acknowledges federal courts have in fact
fashioned federal common law in "some limited areas":
those in which a federal rule of decision is
"necessary to protect uniquely federal
interests," Banco Nacional de Cuba v. Sabbatino,
376 U.S. 398, 426 [84 S.Ct. 923, 939, 11 L.Ed.2d
804] (1964), and those in which Congress has given
the courts the power to develop substantive law,
Wheeldin v. Wheeler, [373 U.S. 647, 652, 83 S.Ct.
1441, 1445, 10 L.Ed.2d 605 (1963)].
Bank's claim for indemnity does not qualify under those or any
RICO's civil remedies, and the federal interests they
assertedly protect, are at this very moment the subject of
active congressional debate (the aftermath of Sedima, S.P.R.L.
v. Imrex Co., ___ U.S. ___, 105 S.Ct. 3275, 87 L.Ed.2d 346
(1985)). But for current purposes the rule of decision must be
that expressed in Texas Industries, 405 U.S. at 642, 101 S.Ct.
at 2067, in rejecting a federal common-law right to
contribution under the antitrust laws (Texas Industries is
persuasive both because RICO's civil remedies drew heavily on
the remedies structure in the antitrust field and because the
Texas Industries analysis is inherently probative):
Nevertheless, a treble-damages action remains a
private suit involving the rights and obligations
of private parties. Admittedly, there is a
federal interest in the sense that vindication of
rights arising out of these congressional
enactments supplements federal enforcement and
fulfills the objects of the statutory scheme.
Notwithstanding that nexus, contribution among
antitrust wrongdoers does not involve the duties
of the Federal Government, the distribution of
powers in our federal system, or matters
necessarily subject to federal control even in
the absence of statutory authority. Cf. Bank of
America v. Parnell, 352 U.S. 29, 33 [77 S.Ct. 119,
121, 1 L.Ed.2d 93] (1956). In short, contribution
does not implicate "uniquely federal interests" of
the kind that oblige courts to formulate federal
It is equally true that Bank's assertion of a right to
indemnity under RICO primarily affects only the division of
liability between private parties. No "uniquely federal
interests" are involved.
Moreover, as this opinion's earlier discussion has shown,
nothing in RICO's statutory language or legislative history
suggests Congress intended federal courts to expand or alter
the civil remedies already created by RICO. As Northwest
Airlines, 451 U.S. at 97, 101 S.Ct. at 1583 said:
In almost any statutory scheme, there may be a
need for judicial interpretation of ambiguous or
incomplete provisions. But the authority to
construe a statute is fundamentally different
from the authority to fashion a new rule or to
provide a new remedy which Congress has decided
not to adopt. Cf. Mobil Oil Corp. v. Higginbotham,
436 U.S. 618, 625 [98 S.Ct. 2010, 2015, 56 L.Ed.2d
581 (1978)]. The presumption that a remedy was
deliberately omitted from a statute is strongest
when Congress has enacted a comprehensive
legislative scheme including an integrated system
of procedures for enforcement.
That last sentence aptly describes RICO, and it is not for
this Court to reshape the remedial structure Congress has
As if that were not enough, indemnity concepts do not fit
the RICO claim here in any case. Central predicates Bank's
RICO liability on its alleged mail and wire fraud
in violation of 18 U.S.C. § 1341 and 1343. Intent to defraud
is an essential ingredient of each offense; see, e.g., United
States v. Pintar, 630 F.2d 1270, 1280 (8th Cir. 1980) (mail
fraud); United States v. Dorfman, 532 F. Supp. 1118, 1123
(N.D.Ill. 1981) (wire fraud). And indemnity "cannot be allowed
in favor of an intentional tortfeasor." Anderson, 582 F. Supp.
at 633. Thus Bank's claim for indemnity would fail regardless
of whether this Court were to recognize such a hypothetical
right under some civil RICO claims.
Both of Bank's claims for indemnity fail to state a cause of
action. This Court therefore dismisses Bank's Complaint
against Leskovisek, Otten and Powers.
SUPPLEMENTAL OPINION AND ORDER
On November 29, 1985 this Court issued its opinion (the
"Opinion") dealing in part with the current status of the
implied indemnity doctrine in Illinois, particularly in light
of the Illinois Contribution Among Joint Tortfeasors Act,
Ill.Rev.Stat. ch. 70, ¶¶ 301-305. This brief supplemental
opinion is issued sua sponte in light of last month's decision
of the Illinois Appellate Court for the First Appellate
District in Heinrich v. Peabody International Corp., 139 Ill. App.3d 289,
93 Ill.Dec. 544, 486 N.E.2d 1379 (1985).
When this Court wrote the Opinion, it rejected implied
indemnity in the context of this case, though it recognized
that then-existing Illinois Appellate Court decisions might
find the doctrine still viable under special circumstances not
present here. Heinrich, on remand from the Illinois Supreme
Court (99 Ill.2d 344, 76 Ill.Dec. 800, 459 N.E.2d 935 (1984)),
has now gone all the way: It spurns implied indemnity in its
entirety (139 Ill. App.3d 289, at 301-02, 93 Ill.Dec. 544, at
553, 486 N.E.2d 1379, at 1388):
We consider that the historical relationship
between indemnity and contribution, the policies
supporting the adoption of contribution by our
supreme court, the legislature's intent in
passing the Contribution Act evidenced by what
was said and what was not said, the broad
statutory scheme and the specific language of the
Act setting forth the general application of
contribution (Ill.Rev.Stat. 1979, ch. 70, par.
302(a)), all weigh in favor of a finding that
implied indemnity has been abolished.
Under this Court's view of the workings of Erie v. Tompkins
(see, e.g., Abbott Laboratories v. Granite State Insurance Co.,
573 F. Supp. 193
, 196-200) (N.D.Ill. 1983)), where there is a
division of authority among Illinois Appellate Districts (and
there is), Heinrich controls this case. Accordingly the
Opinion's ruling rejecting implied indemnity here is