United States District Court, N.D. Illinois
April 8, 2004.
STATE STREET BANK AND TRUST COMPANY, Appellant,
UAL CORPORATION, Appellee
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on the appeal of an order of the
bankruptcy court on February 21, 2003, by State Street Bank and Trust
Company ("State Street"). Now before the Court is United's Motion to
Dismiss State Street's Appeal Due to Mootness. For the reasons that
follow, that motion is denied.
Cases are moot when there is no live case or controversy. Tobin for
Governor v. Ill. State Bd. of Elections, 268 F.3d 517, 528 (7th Cir.
2001). There must be a live case or controversy from beginning of the
suit to the end. Walters v. Edgar, 163 F.3d 430, 432 (7th Cir. 1999). "If
a case becomes moot while on appeal, this [C]ourt loses its jurisdiction
to decide the merits of the action." Bd. of Educ. of Oak Park & River
Forest High Sch. Dist. 200 v. Nathan R., 199 F.3d 377, 380-81 (7th Cir.
A more detailed explanation of the facts is set out in the Court's
November 14, 2003 or August 18, 2003 Memorandum Opinions and Order in
this case. State Street Bank & Trust Co. v. UAL Corp., 2003 WL 22697361
(N.D. Ill. Nov. 14, 2003); State Street Bank & Trust Co. v. UAL Corp.,
2003 WL 21995188 (N.D. Ill. Aug. 18, 2003),
State Street has received the specific relief prayed for, namely, the
capacity to dispose of the balance of the stock held in the ESOP trust.
However, State Street argues that it is still entitled to restitution if
the trading suspension injunction was erroneously entered. State Street
could not obtain damages from an injunction bond because, under
Bankruptcy Rule 7065, United was not required to post an injunction
Generally, an injunction "bond is the limit of damages the defendant
can obtain for a wrongful injunction, even from the plaintiff, provided
the plaintiff was acting in good faith." Coyne-Delaney Co. v. Capital
Dev. Bd., 717 F.2d 385, 393 (7th Cir. 19H3) (citation omitted)
("Coyne"). The Seventh Circuit has not yet determined whether restitution
is available to parties in the absence of an injunction bond, but it has
indicated restitution may be available. "Another exception [to the rule
limiting damages to an injunction bond] might be where the plaintiff was
seeking restitution rather than damages. . . ." Coyne, 717 F.2d at 393.
Moreover, other courts have considered allowing parties injured by an
erroneously entered injunction to receive restitution under the proper
circumstances. Texaco. Puerto Rico, Inc. v. Dep't of Consumer Affairs,
60 F.3d 867, 873-74 (1st Cir. 1995) (Texaco); Mitchell v. Riegel
Texfile, Inc., 259 F.2d 954, 955 (D.C. Cir. 1958). The rationale behind
these decisions is "that a party against whom an erroneous judgment or decree has been
carried into effect is entitled, in the event of a reversal, to be
restored by his adversary to that which he has lost thereby." Texaco, 60
F.3d at 873 (quoting Arkadelphia Milling Co. v. St. Louis S.W. Ry. Co.,
249 U.S. 134, 145 (1919)). The Texaco court also stressed that
restitution is an equitable remedy, and a claimant will only prevail if
it would "offend `equity and good conscience' if the other party is
permitted to retain the disputed funds." Texaco, 60 F.3d at 874 (quoting
All. Coast Line R.R. Co. v. Florida, 295 U.S. 301, 309 (1935)).
United contends that even if restitution could be granted for an
erroneously entered injunction, restitution would not be proper because
it received nothing from State Street as a result of the trading
suspension injunction, to the possible detriment of State Street.
However, both the Restatement of Restitution and the case law explains
that State Street could receive restitution if United avoided a loss
because of the trading suspension injunction. "The Restatement of
Restitution offers a national standard for the common law parallel to the
national statutory benchmark of the UCC." Gen. Elec. Capital Corp. v.
Cent. Bank, 49 F.3d 280, 2S5 (7th Cir. 1995) (Easterbrook, J.). Although
state law controls in bankruptcy proceedings when those laws do not
conflict with Congressionally enacted bankruptcy laws, Butner v. United
States, 440 U.S. 48, 54 n.9 (1979), Illinois courts have recognized the
applicability of the Restatement of Restitution as well. See Smithberg v.
Illinois Mm. Ret. Fund, 735 N.E.2d 560, 565 (2000) (citing Restatement of
Restitution in discussion of constructive trusts); F.H. Prince & Co. v.
Towers Fin. Corp., 656 N.E2d 142, 151 (Ill.App. Ct. 1995) (applying § 1
of the Restatement of Restitution). Under the Restatement of Restitution, "[a] person is enriched if he has
received a benefit." Restatement of Restitution § 1, cmt. a. A benefit is
conferred "not only where he adds the property of another, but also where
he saves the other from expense or loss," Restatement of Restitution §
1, cmt. b. Under the Restatement of Restitution view, any loss United
avoided by protecting its Net Operating Losses ("NOL") with the trading
suspension injunction is a benefit.
The case law supports this position as well, "[W']hat the concept of
unjust enrichment and its remedial corollary restitution do encompass,
was to recover a `negative unjust enrichment,' consisting of the unjust
avoidance of a loss." Reich v. Cont'l Can. Co., 33 F.3d 754, 756 (7th
Cir. 1994) (citations omitted) (Posner, I); see also Citronelle-Mobile
Gathering, Inc. v. Herrington, 826 F.2d 16, 27 (Temp.Emer.Ct.App. 1987)
("Citronelle") ("A person who has been unjustly deprived of his property
or its value may be entitled to maintain an action for restitution
against another although the other has not in fact been enriched
thereby.") (quoting Restatement of Restitution § 1, cmt. c).
In this case, if it is determined the bankruptcy court erroneously
entered the trading suspension injunction, United may have unjustly
received a benefit at the expense of State Street. United's benefit was
protecting its NOL, worth almost $6 billion, with a present value of over
SI billion to United's bankruptcy estate. United was thus able to avoid a
loss by preventing State Street from selling the shares in the ESOP.
State Street, on the other hand, may have been injured and incurred
damages as a result of being prevented from selling the shares it held
December 11, 2002, the date of the bankruptcy court interim order, until
June 27, 2003, when the 1RS issued the new treasury regulation which
allowed State Street to sell the shares. Finally, United argues that State Street cannot accurately quantify the
benefit that United received from the NOL because United will not receive
those benefits until some future date. However, "restitution can also
serve to restore the status quo." Citronelle., 826 K2d at 27 (internal
quotations omitted) (citations omitted).
Under these circumstances, the case is not moot. A live controversy
exists between the parties based on State Street's claim for restitution.
United's motion to dismiss State Street's appeal due to mootness is
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