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Ross-Berger Companies Inc. v. Equitable Life Assurance Society of United States

decided: April 25, 1989.

ROSS-BERGER COMPANIES, INC., SUCCESSOR IN INTEREST TO BERGER REALTY GROUP, INC., PLAINTIFF-APPELLEE,
v.
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, DEFENDANT-APPELLANT



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 87 C 0966 -- Illana D. Rovner, Judge.

Posner, Coffey, and Ripple, Circuit Judges.

Author: Ripple

RIPPLE, Circuit Judge

The Ross-Berger Companies, Inc. (Ross-Berger) instituted this diversity action against The Equitable Life Assurance Society of the United States (Equitable) in order to recover a broker's commission that it earned by procuring a tenant for a building owned by Equitable. After concluding that the doctrine of collateral estoppel precluded Equitable from relitigating two issues relevant to Ross-Berger's claim, the district court granted Ross-Berger's summary judgment motion and awarded Ross-Berger prejudgment interest pursuant to the Illinois prejudgment interest statute. We affirm the judgment of the district court and order Equitable to submit a statement as to why attorney's fees reasonably incurred in this appeal ought not be awarded to Ross-Berger.

I.

Background

A. Facts

At the time when the events giving rise to this suit took place, Equitable was the owner of an office building in Chicago. Tishman Midwest Management Corp. (Tishman), a leasing and management agent, handled leases in the building for Equitable. In December 1981, Combined Network, Inc. (Combined) retained Berger Realty Group, Inc. (Ross-Berger's predecessor in interest) in order to procure new office space for Combined. Berger employees met with Tishman in mid-December in order to discuss the possibility of Combined's entering a ten-year lease in Equitable's building, and, on December 16, 1981, a Berger agent wrote to Tishman in order to confirm that Berger had procured Combined as a prospective tenant and to inform Tishman that Berger expected to be paid a broker's commission if Combined entered into a lease. By early January 1982, discussions over lease terms between Combined and Tishman had begun. Later that month, Tishman sent Combined a draft lease. On February 5, 1982, Combined signed the lease and paid rent for the first month of the lease term. At that time, Tishman reminded Combined that the formal approval of Equitable was still required, and advised Combined's general counsel, Melvyn Goodman, that he would receive a call from Tishman when the lease had been approved. Mr. Goodman claimed that Tishman told him on February 10 or 11, 1982, that Equitable had signed the lease. In fact, Equitable had not signed the lease. In early March, Equitable decided not to approve the lease agreement and returned Combined's rent check.

Combined then sued Equitable for breach of the lease agreement. Combined maintained that a valid lease existed between itself and Equitable. It submitted that Tishman was Equitable's agent, that Tishman had falsely represented that Equitable had signed the lease, and that Equitable therefore was equitably estopped from raising the Statute of Frauds as a defense to Combined's enforcement of the lease agreement. A jury found Equitable liable for breach of the lease agreement and awarded Combined substantial damages. On appeal, this court affirmed the jury's liability finding but remanded the case for a new trial for the limited purpose of recalculating Combined's rental damages. See Combined Network, Inc. v. Equitable Life Assurance Soc'y, 805 F.2d 1292 (7th Cir. 1986). In affirming the jury's liability finding, this court noted that the Statute of Frauds "bars the enforcement of a contract but does not affect its validity," id. at 1295, and we explicitly held that Tishman was Equitable's agent with the authority to represent that Equitable had executed the lease. We also noted that Equitable, as principal, was bound by representations made by its agent, Tishman. Id. at 1296-97. Because Equitable was bound by Tishman's representation that the lease had been signed and was thus equitably estopped from raising the Statute of Frauds defense, Combined was entitled to recover for the breach of its binding oral agreement with Equitable. Id. at 1298.

After we affirmed the jury's determination that a binding lease agreement did exist between Equitable and Combined, Ross-Berger filed this action to recover the broker's commission that it earned by procuring Combined as a tenant for Equitable's office building.

B. District Court Proceedings

On September 29, 1987, Ross-Berger filed a summary judgment motion on its claim for its broker's commission. This motion was referred to a magistrate by the district court. In its motion, Ross-Berger argued that the doctrine of collateral estoppel precluded Equitable from relitigating two issues that had already been decided against it in the earlier Combined Network litigation: (1) that Tishman was Equitable's agent; and (2) that a valid lease agreement existed between Combined and Equitable. Equitable advanced four arguments against giving collateral estoppel effect to the Combined Network litigation. In a thorough Report and Recommendation, the magistrate rejected each of these arguments.

Equitable first claimed that Ross-Berger could not invoke the collateral estoppel doctrine in this case because Parklane Hosiery Co. v. Shore, 439 U.S. 322, 58 L. Ed. 2d 552, 99 S. Ct. 645 (1979), established a "mandatory rule" that, if a plaintiff in a second action could have joined in an earlier action, that plaintiff is absolutely barred from using the earlier action offensively. The magistrate held that "no such rule exists." R.47 at 7. The magistrate relied on the Supreme Court's holding that "trial courts [have] broad discretion to determine when [collateral estoppel] should be applied." Parklane Hosiery, 439 U.S. at 331. Therefore, she concluded that the court's "discretion should be exercised here to preclude Equitable from relitigating issues it has already fully litigated and lost." R.47 at 8.

Equitable next argued that the Combined Network litigation should not be given collateral estoppel effect because the judgment in that case was infected by jury prejudice. Equitable asserted that the Combined Network jury was inflamed against "'one of the largest financial institutions in the United States' (Equitable) in a suit brought by a 'new, small Chicago based company' (Combined Network)," see R.47 at 9, and that this problem was somehow illustrated by this court's partial reversal of the district court's judgment in Combined Network. However, the magistrate explained that this court only reversed the jury's damages calculation--leaving the jury's liability finding undisturbed. In addition, Equitable presented no evidence of jury prejudice. The magistrate noted that this objection "barely merit[ed] comment," R.47 at 8, and rejected it.

Equitable's third objection challenged the standard of proof that this court employed in its equitable estoppel analysis in Combined Network. There, we noted that Illinois courts had not clearly established the burden of proof required in equitable estoppel cases and held that the district court had properly applied the preponderance of the evidence standard. 805 F.2d at 1297. Equitable, however, asserted that a more recent Illinois case, Farmers & Merchants Bank v. Davis, 151 Ill. App. 3d 929, 503 N.E.2d 565, 104 Ill. Dec. 850 (Ill. App. Ct. 1987), changed the law in Illinois and applied a clear and convincing evidence standard in an equitable estoppel case. This argument was rejected by the magistrate, on the ground that Farmers & Merchants used the same standard of ...


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