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CENTRAL ILL. SAV. & LOAN v. DUPAGE CO.

November 29, 1985

CENTRAL ILLINOIS SAVINGS & LOAN ASSOCIATION, PLAINTIFF,
v.
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
  (Count I);

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.

Facts*fn4

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
  indemnity.
    3. RICO's comprehensive character indicates
  Congress intended to preclude a right to
  indemnity.

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
  cases).

Even though the parties have been inattentive to that distinction, citing federal and state precedents indiscriminately, this opinion will analyze Bank's ...


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