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January 20, 2000


The opinion of the court was delivered by: Shadur, Senior District Judge.


Bank of Tokyo-Mitsubishi, Ltd. ("Bank") has filed a Fed.R.Civ.P. ("Rule") 56 motion for summary judgment against each of the two defendants in this action — Vinay Malhotra ("Vinay") and his wife Kusum Malhotra ("Kusum") — and has appropriately supported its motion with the statement of material uncontested facts called for by this District Court's LR 56.1(a), together with a supporting memorandum. Vinay and Kusum have in turn filed their Response to Motion for Summary Judgment, albeit without complying with LR 56.1(b) (although their Response has been coupled with affidavits signed by both of them). Bank's factual statement is therefore accepted as accurate (see LR 56.1(b) and such cases as Brasic v. Heinemann's Inc., 121 F.3d 281, 284 (7th Cir. 1997)), and the motion is ripe for decision.

Vinay Malhotra

Vinay's guilty plea to the bank fraud charge brought against him, which has not only confirmed the total amount of his fraudulent depredations as $588,097 but has also resulted in a restitution order in that amount under his plea agreement, has thus established both the fact of his liability to Bank in this civil action and the base figure from which the amount of that liability must be calculated. Two potential components of the judgment amount therefore remain at issue:

1. whether prejudgment interest applies to that base amount (and, if applicable, the relevant interest rates); and
2. whether Vinay must forfeit all of his compensation during the term of his employment by reason of his acknowledged violation of his fiduciary duties as a Bank employee.

As for the matter of prejudgment interest, Vinay's counsel are unpersuasive in urging that the imposition of such interest would be a "sanction" and "inequitable" (Response Mem. 6), just as it is untenable for his counsel to contend (id., emphasis added):

Vinay Malhotra was punished by being ordered to pay restitution to the Bank.
  Indeed, an award of such interest is particularly appropriate for a judgment creditor such as Bank, for which money is its stock in trade (so that its loss of the use of money represents an actual and not a theoretical construct).*fn1

As for the interest calculation, Wernick (as well as corresponding decisions from our own Court of Appeals in federal-question cases, though they are not directly applicable in a diversity action such as this one) confirms the propriety of the use of the prime rate in effect from time to time. And such cases as Ryan v. City of Chicago, 274 Ill. App.3d 913, 920, 211 Ill. Dec. 21, 654 N.E.2d 483, 489 (1st Dist. 1995) confirm the propriety of compounding the interest calculation to "provide[] full equitable restitution." Accordingly the sum of $211,298.52 (see Bank LR 56.1(a) Ex. 4's Ex. B) must be added to the $588,097.12 principal amount.

That same analysis does not however extend to Bank's effort to mulct Vinay in additional damages of a wholly punitive nature by forcing him to disgorge the entire sum of more than a half-million dollars that he had received as compensation and fringe benefits during his nine years of employment by Bank. There are to be sure a number of Illinois cases that uphold such forfeiture in cases that involve breaches of fiduciary duty, but Bank's counsel are guilty of overstatement in attempting to convert that doctrine from a discretionary one to a mandated result (Bank Mem. 12-15).

As in all diversity-of-citizenship actions, this Court is bound to follow the teaching of the Illinois Supreme Court (at least where it has dealt with a substantive law issue in the reasonably recent past). And in this instance Bank's emphasis on the quarter-century-old ruling in Vendo Co. v. Stoner, 58 Ill.2d 289, 305-06, 314, 321 N.E.2d 1, 10, 14 (1974)) must give way to the Illinois Supreme Court's most recent teaching (In re Marriage of Pagano, 154 Ill.2d 174, 190, 180 Ill.Dec. 729, 607 N.E.2d 1242, 1249-50 (1992) (emphasis in original):

As these and many other cases demonstrate, when one breaches a fiduciary duty to a principal the appropriate remedy is within the equitable discretion of the court. While the breach may be so egregious as to require the forfeiture of compensation by the fiduciary as a matter of public policy (see, e.g., ABC Trans National Transport, Inc. v. Aeronautics Forwarders, Inc. (1980), 90 Ill. App.3d 817, 836, 46 Ill.Dec. 186, 413 N.E.2d 1299), such will not always be the case. Punitive damages are permissible where a duty based on a relationship of trust is violated, the fraud is gross, or malice or willfulness are shown; such an award is not automatic. (In re Estate of Wernick (1989), 127 Ill.2d 61, 85, 129 Ill.Dec. 111, 535 N.E.2d 876; Home Savings & Loan Association v. Schneider (1985), 108 Ill.2d 277, 284, 91 Ill.Dec. 590, 483 N.E.2d 1225.)

In this instance Bank has said nothing to counter Vinay's Response Mem. 5 characterization of his services to Bank with the exception of his fraudulent ...

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