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HAVOCO OF AMERICA, LTD. v. HILCO

October 30, 1990

HAVOCO OF AMERICA, LTD., a Delaware corporation, Plaintiff,
v.
HILCO, INC., a Tennessee corporation, ELMER C. HILL, and SUMITOMO SHOJI AMERICA, INC., a New York corporation, Defendants


James H. Alesia, United States District Judge.


The opinion of the court was delivered by: ALESIA

JAMES H. ALESIA, UNITED STATES DISTRICT JUDGE

 Plaintiff, Havoco of America, Ltd. ("Havoco"), has filed this diversity action against defendants Hilco, Inc. ("Hilco"), Elmer C. Hill ("Hill"), and Sumitomo Shoji America, Inc. ("Sumitomo"). *fn1" Havoco's complaint, as amended, consists of seven counts and alleges a variety of claims. Specifically, Havoco charges all of the defendants with conspiracy to defraud (Count I), tortious interference with contractual relations (Count III), and fraud and deceit (Count IV). Havoco also alleges separate claims for breach of fiduciary duty against Hill (Count II), Sumitomo (Count V), and Hilco (Count VII). Finally, Havoco asserts a claim for breach of contract against Sumitomo only (Count VI).

 Currently pending before the Court are four motions: Sumitomo's motion for summary judgment on Counts I, III, IV, and V of the fourth amended complaint; Havoco's motion for partial summary judgment against Sumitomo on Count VI of the fourth amended complaint; Sumitomo's motion for leave to file an amendment to its answer to the fourth amended complaint; and, the motion of Hill and Hilco for leave to file amended answers to include an additional affirmative defense to the fourth amended complaint. The Court will address each of these motions in turn. Before we do so, however, a discussion of the procedural history, facts, and prior rulings on appeal is in order.

 I. Procedural History

 This case boasts of a rather long and tortuous procedural history. It has been assigned to five different judges on the district court level. In addition, it has been appealed to the Seventh Circuit twice. See Havoco of America, Ltd. v. Hilco, Inc., 731 F.2d 1282 (7th Cir. 1984) (" Havoco I ") and Havoco of America, Inc. v. Hilco, Inc., 799 F.2d 349 (7th Cir. 1986) (" Havoco II "). On each occasion, the Seventh Circuit discussed the procedural history and facts of this case in exhaustive detail. Accordingly, we recount only those facts necessary to dispose of the pending motions; for more elaborate detail, any curious parties may refer to Havoco I and Havoco II.

 II. Facts

 In February 1975, Havoco entered into a contract to supply coal to the Tennessee Valley Authority ("TVA") over a ten-year period. In order to fulfill its obligations under the contract, Havoco entered into several related agreements with other parties. Havoco and Sumitomo executed a sales agency agreement, whereby Sumitomo would provide Havoco with financing for its TVA contract. In addition, Havoco engaged Hilco to provide professional services for Hill, the Havoco officer who handled the TVA contract. Havoco also entered into a coal purchase agreement with R & F Coal Company ("R & F Coal"). Finally, Havoco contracted with M/G Transport Services, Inc. ("M/G Transport") for transportation of the coal.

 The coal supply contract between Havoco and TVA provided that either party was entitled to renegotiate the contract price of the coal within six months after execution of the contract. In August 1975, TVA exercised that right, and Havoco and TVA commenced negotiations as to the contract price of the coal. After several months, these negotiations ended unsuccessfully, and Havoco ultimately assigned its TVA contract to R & F Coal on March 19, 1976.

 This series of events spawned a number of lawsuits. In 1976, M/G Transport filed a complaint against Havoco for monies allegedly due and owing to M/G Transport under its contract with Havoco. M/G Transport Services, Inc. v. Havoco of America, Ltd., No. 76 C 2933 (N.D.Ill. 1976). Havoco, in turn, filed a counterclaim alleging that M/G Transport had breached its contract with Havoco. Neither M/G Transport's complaint nor Havoco's counterclaim named Sumitomo as a defendant. Ultimately, the parties settled this lawsuit.

 In January 1978, Havoco filed suit against R & F Coal, Hill, Hilco, and others. Havoco of America, Ltd. v. R & F Coal Company, et al., No. 78 C 83 (N.D.Ill. 1978). In that suit, Havoco alleged that R & F Coal breached the assignment contract by failing to pay royalties or commissions as required by the contract. Havoco also claimed that R & F Coal, Hill, and Hilco conspired to induce Havoco to enter into the assignment contract. After being appealed to the Seventh Circuit, this litigation resulted in Havoco settling with R & F Coal and reserving its right to pursue its claims against the other parties.

 In January 1981, Havoco chose to exercise its right to pursue its claims against the other parties by filing this action. Naming only Hill and Hilco as defendants, Havoco's initial complaint alleged that these defendants conspired to coerce Havoco, through various tortious acts, to assign its TVA contract to R & F Coal. Although this initial complaint generally alleged that Sumitomo and others participated as coconspirators in the alleged conspiracy, it did not name Sumitomo as a defendant, allege any wrongful conduct on the part of Sumitomo, or specify how Sumitomo "performed acts and made statements in furtherance of" the alleged conspiracy.

 On March 26, 1981, several months after filing this suit, Havoco served Sumitomo with a non-party subpoena for the production of documents. Approximately one month later, on April 23, 1981, Havoco filed a motion for leave to amend its complaint to add Sumitomo as a party defendant. By order dated July 15, 1981, the court denied Havoco's motion because Havoco had incorrectly alleged that Sumitomo was an Illinois corporation and, consequently, Havoco's attempted amendment would have destroyed diversity jurisdiction. See Mem. Op. and Order of Nov. 2, 1981 at 1 (Decker, J.).

 On July 28, 1981, Havoco renewed its motion to add Sumitomo as a defendant, this time correctly alleging that Sumitomo was a New York corporation. By order dated November 2, 1981, the court granted Havoco leave to amend its complaint to name Sumitomo as a defendant. See Memo. Op. and Order of Nov. 2, 1981 at 2-3 (Decker, J.). On the following day, November 3, 1981, Havoco filed its amended complaint naming Sumitomo as a party in this action for the first time.

 Before receiving Havoco's amended complaint, Sumitomo had received no notice of Havoco's intent to sue Sumitomo. Nor does the record suggest that anyone acting on behalf of Havoco ever informed Sumitomo, prior to filing the amended complaint, of Havoco's intent to add Sumitomo as a party defendant to this action. (See Deposition of Barry Van Der Meulen, Havoco's president, at 1438-40). Since the filing of its amended complaint, Havoco has filed a second, a third, and a fourth amended complaint. The variations among these complaints are not material to the issues before the Court.

 III. Prior Seventh Circuit Rulings

 In addition to the facts recited above, the Seventh Circuit's two prior rulings in this case are relevant to the issues before the Court. The first of these rulings arose from a motion for summary judgment filed by Sumitomo before Judge Decker in 1982. In that motion, Sumitomo contended that Havoco waived its claims that the defendants had fraudulently induced Havoco to enter into the assignment contract with R & F Coal. Specifically, Sumitomo argued that Havoco's acceptance of benefits under the assignment contract, through its settlement with R & F Coal, operated as a waiver of Havoco's fraudulent inducement claims.

 Judge Decker granted Sumitomo's motion for summary judgment and Havoco appealed (" Havoco I "). On appeal, three issues were presented for consideration: whether Havoco had knowledge of the alleged fraud at the time it brought the breach of contract suit against R & F Coal; whether Havoco, as a matter of law, waived its claim for fraud and misrepresentation by affirming, through suit and settlement, its assignment contract with R & F Coal; and, whether the issue of waiver depended on Havoco's actual intent, making it a factual issue and, therefore, an issue inappropriately resolved by summary judgment. Havoco I, 731 F.2d at 1285.

 As to the first issue regarding Havoco's knowledge, the Seventh Circuit upheld the district court's finding "that there was no material issue of fact concerning Havoco's knowledge of the alleged fraud." Havoco I, 731 F.2d at 1285. Specifically, the Seventh Circuit held that:

 
Havoco demonstrated in its complaint filed in the Northern District of Illinois on January 10, 1978, that it then had substantially all the information which it now alleges provides the basis for the present claims of fraud, misrepresentation and breach of fiduciary duty. Havoco therefore clearly pursued its breach of contract claim without pursuing its fraud claims after it had knowledge of the fraud.

 Havoco I, 731 F.2d at 1285-86. Although the Seventh Circuit determined that there was no issue of material fact concerning Havoco's knowledge of the alleged fraud, it held that knowledge of the fraud alone was not sufficient to constitute waiver as a matter of law. Because the record contained no evidence regarding Havoco's intent to waive its claims, the court remanded the case to the district court.

 Following remand, Sumitomo filed a second motion for summary judgment on the waiver issue. In support of this motion, Sumitomo presented additional evidence on the issue of when Havoco became aware of the alleged fraud. The district court once again granted Sumitomo's motion for summary judgment, and Havoco once again appealed. This time, the Seventh Circuit prefaced its opinion by noting the similarity between the issues presented in the first appeal and those presented in the second appeal:

 
Although the factual focus is different, the issues in this appeal are the same ones considered by this court in 1984; first, whether Havoco had knowledge of the fraud at the time it assigned the contract to R & F; second, whether Havoco, as a matter of law, waived its claim for fraud and misrepresentation when it assigned the contract.

 Havoco II, 799 F.2d at 352.

 In addressing the first issue regarding Havoco's knowledge, the Seventh Circuit began by summarizing the evidence which had been submitted below and the district court's holding:

 
Rather than focusing on the issues of Havoco's ability to rescind and intent to waive when it brought suit in 1978, the defendants submitted evidence that indicated Havoco knew of the fraud in 1976 before it ever entered into the assignment contract. The district court once again determined that there was no issue of material fact as to whether, by March 19, 1976, Havoco 'had full knowledge of the predicate acts which form the basis of its current complaint.'

 Havoco II, 799 F.2d at 351-52.

 The Seventh Circuit also noted the factual support for the district court's holding:

 
The district court made five specific observations relating to Havoco's knowledge: 1) in January, 1976, Havoco knew that Mr. Hill had recommended that R & F purchase the TVA contract; 2) by February 20, 1976, Havoco was aware that Mr. Hill had made misrepresentations and Mr. Van Der Muelen suspected and distrusted him; 3) at the February 20 meeting with the TVA, Havoco learned that Mr. Hill would represent R & F in negotiations with the TVA; 4) by March 5, 1976, Havoco was convinced that Mr. Hill was acting contrary to Havoco's interests; 5) in early March, 1976, Havoco was aware of and concerned about ...

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