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Rylewicz v. Beaton Services

decided: November 1, 1989.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 85 C 10535 -- Ann Claire Williams, Judge.

Bauer, Chief Judge, Cummings and Wood, Jr., Circuit Judges.

Author: Cummings

CUMMINGS, Circuit Judge

This lawsuit stems from a state court trial of fraud and breach of contract claims. Following a $52 million jury verdict in favor of a company with which they were associated, Thomas Cummings and his wife Barbara Cummings filed an amended complaint in federal court, claiming that the losing parties to the suit had conducted a campaign of harassment and intimidation against them in violation of federal racketeering and civil rights statutes. Co-plaintiff Richard Rylewicz alleged that some defendants had violated the federal credit reporting statute. In a Memorandum Opinion and Order reported at 698 F. Supp. 1391 (N.D.Ill. 1988), the district court dismissed the Cummingses' Counts I and II of the suit on standing grounds, dismissed certain defendants from Rylewicz's Count III because the applicable statute of limitations had lapsed, and relinquished jurisdiction as to Count IV, a pendent state claim brought against McDonald's by the Cummingses. Rylewicz and the Cummingses have appealed from the ensuing judgment. We affirm each of the district court's rulings.


Central Ice Cream Co. ("Central") obtained a verdict of $52 million from defendant McDonald's Corporation and McDonald's Systems Inc. ("McDonald's") on January 20, 1984, following a thirteen-week trial in the Circuit Court of Cook County, Illinois. Plaintiff Thomas N. Cummings was president of Central, which was by the time of the verdict bankrupt and under the stewardship of a trustee. Co-plaintiff Barbara Cummings is his wife and was a substantial stockholder of Central. The third plaintiff, Richard Rylewicz, is the Cummingses' personal accountant.

On June 20, 1985, before judgment was entered in the breach of contract case and while a post-trial motion seeking judgment notwithstanding the verdict or a new trial was pending with the state trial court, the parties agreed to settle at a large discount from the verdict. The settlement provided for McDonald's to pay a total of $15.5 million plus interest during the pendency of any appeals. The Cummingses and their attorneys were to receive $4 million and Central and its counsel were to receive $11.5 million. Central was then in liquidation under Chapter 7 of the Bankruptcy Code, with Bernard C. Chaitman as trustee. Though he had participated in the state court trial as Central's representative, Thomas Cummings was not a party to the state court or bankruptcy proceedings.

On June 28, 1985, the trustee filed an application for bankruptcy court approval of the settlement agreement. Three weeks later, he applied for approval of an amended settlement agreement. The new agreement provided for payment of $15.5 million to Central without making any allocation to the Cummingses or securing any release from them. This amended settlement agreement was approved by the bankruptcy judge on October 9, 1985. In re Central Ice Cream Co., 59 Bankr. 476 (Bankr.N.D.Ill. 1986). In that opinion, resolving several aspects of a conflict that has so far spawned at least five reported cases not counting this one, Judge Schmetterer explained at some length why the substitute settlement agreement should be approved as being in the best interest of Central's estate and its creditors. 59 B.R. at 484-488.

The Cummingses, among others, appealed to the district court from the bankruptcy judge's order approving the settlement. District Judge Leinenweber granted the trustee's motion to dismiss, holding that only the trustee had standing to appeal. In re Central Ice Cream Co., 62 Bankr. 357 (N.D.Ill. 1986). Two of the shareholders, Joan Rafel and George Kamberos, pressed an appeal from the district court's dismissal. This Court summarily affirmed on January 29, 1987, and the estate collected the proceeds. See Matter of Central Ice Cream Co., 836 F.2d 1068, 1071 (7th Cir. 1987).*fn1

On December 23, 1985, plaintiff Richard Rylewicz filed the original federal suit against three principal defendants, claiming that they had violated the Fair Credit Reporting Act, 15 U.S.C. § 1681, by requesting a consumer credit report about him for a false purpose. Rylewicz asserted that the defendants actually intended to obtain information about him "for use in connection with the pending lawsuit involving a corporation," subsequently identified as Central Ice Cream Co., in which he and some of his clients purportedly held undefined interests. This suit sought $50,000 in actual damages and $100,000 in punitive damages.

On May 29, 1986, the first amended complaint was filed, greatly broadening the scope of the action and the assemblage of parties.*fn2 In the amended complaint, the Cummingses joined Rylewicz as plaintiffs and added McDonald's Corporation, its chairman, and its general counsel as defendants. In Count III Rylewicz repeated the allegations of his first complaint under the Fair Credit Reporting Act, but specified for the first time that the information sought about him was to be used "in connection with the Central Ice Cream litigation."

Count I of the amended complaint was brought by the Cummingses, claiming that defendants had engaged in various acts of "harassment, intimidation and terrorism" against them and their daughter Lydia in order to influence Thomas Cummings' testimony in the bankruptcy court and to force the Cummingses to accede to a compromise of the jury verdict in the Central Ice Cream litigation. The Cummingses alleged that the defendants thereby engaged in a pattern of racketeering in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. This Count sought $54 million in damages plus trebling pursuant to 18 U.S.C. § 1965(c).

Count II claimed that the Cummingses' civil rights were violated by the conduct alleged in Count I. Damages equal to those under Count I were sought on the basis of 42 U.S.C. §§ 1985(2) and 1986. Count III was Rylewicz's claim under the Fair Credit Reporting Act, which survived from the original complaint.

Count IV was a new pendent breach of contract claim brought by the Cummingses and asserting that McDonald's violated the settlement agreement of June 20, 1985, under which it was to pay $4 million to the Cummingses subject to approval of the bankruptcy court. This agreement was allegedly breached by the amended settlement agreement that awarded ...

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