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QST INDUSTRIES, INC. v. FEINBERG

February 6, 2003

QST INDUSTRIES, INC., PLAINTIFF,
v.
NORMAN FEINBERG, DEFENDANT.



The opinion of the court was delivered by: Joan Humphrey Lefkow, United States District Judge.

MEMORANDUM OPINION AND ORDER

Plaintiff QST Industries, Inc. ("QST") seeks judgment against defendant Norman Feinberg ("Feinberg") for equitable contribution, together with interest and attorney's fees, based on both parties' guaranties of a loan to Crusader SportsWear, Inc. ("Crusader"), a company wholly-owned by Feinberg. Crusader defaulted on the loan and the Mid-City National Bank of Chicago (the "Bank") demanded payment from QST. QST asserts that it paid off the remaining balance of the loan as a co-guarantor and it is undisputed that Feinberg has made no payments to the Bank or QST since the loan defaulted. Before this court is QST's motion for summary judgment on its contribution claim. QST is a Delaware corporation with its principal place of business in Chicago, Illinois. Feinberg is a citizen of New York. The amount in controversy exceeds $75,000. Diversity jurisdiction is properly invoked pursuant to 28 U.S.C. § 1332 (a). For the reasons set forth below, the motion is granted.

SUMMARY JUDGMENT STANDARDS

Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). To determine whether any genuine fact exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed R. Civ. P. 56(c) Advisory Committee's notes. The party seeking summary judgment bears the initial burden of proving there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In response, the nonmoving party cannot rest on bare pleadings alone but must use the evidentiary tools listed above to designate specific material facts showing that there is a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact must be outcome determinative under the governing law. Insolia, 216 F.3d at 598-99. Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must construe all facts in a light most favorable to the nonmoving party as well as view all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

FACTS STATED IN A LIGHT MOST FAVORABLE TO THE PLAINTIFF

A. The parties

QST is an apparel company that supplies pocketing, lining, waistbands and other "apparel construction components" to companies in the international garment industry. From 1972 through 1999, one of QST's clients was Mannor Corporation ("Mannor"). Prior to having its assets seized, Mannor manufactured men's trousers. (Feinberg Dep. at 11, 13.) During the relevant time period, Feinberg was the president and a director of Mannor and owned 100 percent of its shares (although he gave 10 percent ownership to his son in the late 1990s). Crusader is a sportswear company. During the relevant time period, Feinberg was the president, treasurer and a director of Crusader and owned 100 percent of its shares.

B. Feinberg's and QST's guaranties

In the late 1980s, Mannor experienced cash flow problems. Around 1989, Feinberg asked Ely Lionheart ("Lionheart"), the president of QST, for a loan to one of Feinberg's wholly-owned companies. QST declined Feinberg's request for the loan but did ask the Bank to extend a loan to Feinberg or to one of his companies. The Bank agreed to make a loan to Crusader if QST was willing to sign an unconditional guaranty. QST agreed to guarantee the loan if Feinberg would also guarantee the loan. The Bank then made a $500,000 one-year loan to Crusader. QST and Feinberg each unconditionally guaranteed the loan. The loan was renewed each year at maturity and Feinberg and QST unconditionally guaranteed each renewal. Feinberg also negotiated the interest rate and Feinberg or Mannor paid the interest each year.

In early 1998, Feinberg asked Lionheart and Jeffrey Carlevato ("Carlevato"), the Controller of QST, to ask the Bank to lend Crusader an additional $100,000. The Bank lent an additional $100,000 to Crusader on February 6, 1998 and Feinberg and QST unconditionally guaranteed that loan. In October 1998, the Bank consolidated the $500,000 and $100,000 loans into a single $600,000 one-year demand note (hereinafter the "Crusader Loan"). Crusader remained the borrower and Feinberg and QST unconditionally guaranteed the full $600,000.

C. The Bayer Guaranty and Feinberg's Employment with Bayer

In April or May 1999, Mannor' s main lender, Finova Capital, seized Mannor's asserts. Finova then sold the assets to Bayer Clothing Group, Inc. ("Bayer"), a clothing manufacturing company. Shortly thereafter, Feinberg signed an employment agreement with Bayer that made no mention of the Crusader Loan. Sometime after Feinberg entered into the employment agreement with Bayer, Bayer represented to Feinberg that it would guaranty the Crusader Loan if Feinberg could convince the Bank to extend the Crusader Loan on a 36-month amortizing basis with the same interest rate, not to have a demand note at the end of every year, and to accept loan payments directly from Bayer.

1. When Bayer executed its guaranty

When the Crusader Loan matured in October 1999, Feinberg asked the Bank to renew the Crusader Loan and to change it to a 36-month amortizing loan as he had discussed with Bayer. (Pl. L.R. 56.1 ΒΆ 15.) On October 29, 1999, the Bank renewed the Crusader Loan as a 36-month amortizing loan (with an initial interest rate of 8.5 percent), requiring monthly payments of ...


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