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CLARK v. UNDERWRITERS MANAGEMENT CORPORATION

May 15, 2003

J. ANTHONY CLARK, PLAINTIFF,[FN1]
v.
UNDERWRITERS MANAGEMENT CORPORATION, ET AL. DEFENDANTS.



The opinion of the court was delivered by: Geraldine Soat Brown, United States Magistrate Judge.

Following the ruling on the parties' motions for summary judgment, Shapo v. Underwriters Management Corp., 98 C 4084, 2002 WL 31155059 (N.D. Ill. Sept. 27, 2002) [dkt # 77], the plaintiff, the Director of Insurance of the State of Illinois and Liquidator for the Prestige Casualty Company (the "Plaintiff"), filed three motions:

1) For entry of a Rule 54(b) judgment against defendants Norman Meier and the Underwriters Management Corporation (collectively the "Defendants") [dkt # 82];

2) For an order dismissing, or, in the alternative, staying, Meier's counterclaim [dkt # 85]*fn2; and

3) For leave to amend his answer to assert additional affirmative defenses [dkt # 90]. For the reasons set out herein, Plaintiff's motion for a Rule 54(b) final judgment and Plaintiff's motion for an order dismissing or, in the alternative, staying, Meier's counterclaim are denied. Plaintiff's motion for leave to amend his answer to plead affirmative defenses of waiver and estoppel is granted.

BACKGROUND

The factual background of this case was set out in the opinion on the parties' motions for summary judgment. Shapo v. Underwriters Management Corp., 98 C 4084, 2002 WL 31155059 (N.D. Ill. Sept. 27, 2002). In 1992, defendant Norman Meier and others acquired Prestige Casualty Company ("Prestige"). Id. at *1. As part of that acquisition, Meier contributed 100,000 shares of stock in Columbia Laboratories, Inc. ("Columbia Lab") to Fargo Acceptance Corporation ("Fargo"), wholly-owned subsidiary of Prestige, to increase the capital of financially troubled Prestige. Id. Meier alleges that the contribution was made subject to a Call Option Agreement that would allow him to re-acquire the shares at a later date if they appreciated to 140 percent of their value. Id. at *2. Plaintiff contests the authenticity, validity and enforceability of the Call Option Agreement. Meier, in his capacity as President and sole officer and shareholder of Underwriters Management Corp. ("Underwriters"), signed a Promissory Note from Underwriters to Prestige in the amount of $200,000 in exchange for funds from Prestige to pay the exercise price of the option to buy the Columbia Lab shares and to deal with the tax consequences of exercising his option to buy the shares. Id. In 1994, the Circuit Court of Cook County issued an Order of Liquidation and Finding of insolvency against Prestige. Id. at *3. Plaintiff was appointed to marshal and liquidate and assets of Prestige pursuant to the Illinois Insurance Code. Id. In 1995, after failed negotiations with Meier regarding Meier's repurchase of the Columbia Lab stock, Plaintiff sold the stock on the open market. Id. In 1997, Plaintiff made demand rot payment on the Note, and Meier sought to exercise his rights under the Call Option Agreement, Id. at 4. In 1998, Plaintiff filed suit in the Circuit Court of Cook County against Defendants alleging a breach of the Note. Id. Plaintiff also alleged breach of fiduciary duty against Meier, conversion against Meier and Underwriters, fraudulent misrepresentation against Meier and unjust enrichment against Meier and Underwriters. (Mem. Supp. Mot. Dismiss Defs.' Countercls., Ex. B, Pet. Collect Promissory Note, Counts II-V.) Defendants removed the case to federal court. [Dkt # 1.] Meier filed a counterclaim alleging four theories of recovery: tortuous interference with contract, unjust enrichment, conversion, and fraudulent transfer, arising out of the sale of the Columbia Lab shares. Shapo, 2002 WL 31155059 at *4. On September 27, 2002, this court granted summary judgment for Plaintiff on his claim against Defendants for breach of the Note. Id. at *19. Defendants' motion for summary judgment, and Plaintiff's motion for summary judgment on Meier's counterclaim were denied. Id.

DISCUSSION

Plaintiff's Motion for Rule 54(b) Final Judgment.

Federal Rule of Civil Procedure 54(b) provides that "[w]hen more than one claim for relief is presented in an action . . . the court may direct the entry of a final judgment as to one or more but fewer than all of the claims . . . only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment."

In deciding whether to enter a Rule 54(b) determination, "[a] district court must first determine that it is dealing with a `final judgment.' It must be a `judgment' in the sense that it is a decision upon a cognizable claim For relief, and it must be `final' in the sense that it is `an ultimate disposition of an individual claim entered in the course of a multiple claims action.'" Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1, 7 (1980), quoting Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 436 (1956). Summary judgment has been entered on Plaintiff's claim on the Note. Shapo, 2002 WL 31155059 at *19. Apparently, the Defendants do not dispute that the decision is sufficient to constitute a "final judgment" with regard to Plaintiff's claim on the Note for purposes of Rule 54(b).

The court must next determine "whether there is any just reason for delay." Curtiss-Wright, 446 U.S. at 8. In making that determination the court is to take into account "judicial administrative interests as well as the equities involved" with an eye towards preserving "the historic federal policy against piecemeal appeals." Id. The notes of the Advisory Committee accompanying Rule 54(b) observe that the Rule was intended to be reserved For "the infrequent harsh case." As a result, "requests under Rule 54(b) are granted neither routinely nor as a matter of course." Architectural Floor Products &. v. Don Brann and Associates Co., 551 F. Supp. 802, 807 (N.D. Ill. 1982). The moving party "bears the burden of showing it will suffer unjust harm if final judgment is delayed." Id. at 808. However, the court "may properly consider all of the consequences of a final judgment or lack thereof and balance the competing interests of the parties in the context of the particular case." Bank of Lincolnwood v. Federal Leasing Inc., 622 F.2d 944, 949 n. 7 (7th Cir. 1980). The fact that a non-frivolous counterclaim remains to be determined does not preclude a Rule 54(b) determination, although the interrelationship of the counterclaim with the claim on which certification is sought must be considered. Curtiss-Wright, 446 U.S. at 9.

On the issue of piecemeal appeals, although Plaintiff here is seeking the Rule 54(b) determination for the purpose of enforcement rather than appeal (Pl.'s Mem. Supp. Mot. Rule 54(b) J. at 5), the entry of a Rule 54(b) determination would have the effect both of allowing Plaintiff to begin proceedings to collect his judgment from Defendants and of allowing Defendants to appeal. See Architectural, 551 F. Supp at 807. The Plaintiff cites Teeters v. Larson, 01 C 216, 2001 WL 1230629 (N.D. Ill. Oct. 5, 2001) (Grady, J.); however, in that case the court made a Rule 54(b) determination because the defendant's liability for the claims on which summary judgment was entered was uncontested. Id. at *5 The court chose not to analyze the possibility of multiple appeals because "an appeal does not seem to be imminent," not because entry of judgment under Rule 54(b) can be limited to collection of the judgment. Id. at *5, n. 11.

On the other hand, the fact that granting a Rule 54(b) motion may result in separate appeals does not require denial of a Rule 54(b) judgment where the appeals would involve distinct factual and legal issues. See Olympia Hotels Corp. v. Johnson Wax Development Corp., 908 F.2d 1363, 1368 (7th Cir. 1990)(court has the power to enter Rule 54(b) judgment on legally distinct claims involving separate facts). The Seventh Circuit has stated that "two `claims' may arise out of the same transaction for purposes of Rule 54(b), provided that the facts and theories are sufficiently distinct." NAACP v. American Family Mutual Insurance Co., 978 F.2d 287, 292 (7th Cir. 1992). Thus, "[i]f the claims are legally distinct and involve at least some separate facts, the district court has the power to enter a Rule 54(b) judgment." Olympia Hotels, 908 P.2d at 1368 (emphasis in original).

At issue in Plaintiff's claim on the Note was Meier's personal liability for the Note, Plaintiff's standing to enforce the Note, and the Defendants' affirmative defense of set-off Shapo, 2002 WL 31155059 at **5-9 Meier's counterclaim involves issues such as the authenticity of the Call Option Agreement, the authority of the signer of the Call Option Agreement to bind Fargo, and the applicability of a corrective order to the Call Option Agreement. Id. at **10-18. In denying Defendants' defense of set off, this court determined that the Note and the Call Option Agreement were "separate and distinct." Shapo, 2002 WL 31155059 at *9. Thus, a Rule 54(b) determination could be made in this case. The issue is whether it should be.

The reality of this litigation is that a Rule 54(b) determination will almost undoubtedly result in an appeal by Defendants. The entry of summary judgment on the Note against both Underwriters and Meier resulted from a number of findings by the court, including Meier's personal liability on the Note and the denial of the affirmative defense of set off, that involved examination of same factual background that is the setting for Meier's counterclaim. The Court of Appeals would tread much of the same factual ground, albeit not the same legal issues, in an appeal from liability on the Note as it would in an appeal from whatever judgment results on the counterclaim.

Ultimately, the court must assess the equities in deciding whether to enter a Rule 54(b) determination. Curtiss-Wright, 446 U.S. at 11. Defendants argue that there is no risk that the delay in enforcing the judgment on the Note will result in non-payment, because Meier has testified under oath that he has put the money for repayment of the Note into escrow, where the funds remain. (Defs.' Resp. Opp. Pl.'s Mot. Entry Rule 54(b) J. at 8-9.) However, Defendants do not provide details on that escrow. Defendants also point out that the interest rate on the Note, 8.5%, is substantially above present market interest rates, and the benefit accrues to the Plaintiff. (Id. at 9.) Plaintiff makes two arguments to establish that he will suffer "unjust harm" if' final judgment is delayed. See Architectural, 551 F. Supp. at 807. Plaintiff argues that "[a] Rule 54(b) finding will further the purposes of the Illinois statutory mechanism for liquidation proceedings and the . . . Order of Liquidation." (Pl.'s Mem. Supp. Mot. Rule 54(b) J. at 8.) In short, Plaintiff argues that he needs the money to pay the ...


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