United States District Court, N.D. Illinois, Eastern Division
January 10, 2005.
GREAT AMERICAN INSURANCE COMPANY, Plaintiff,
K&R TRANSPORTATION, INC., and SONY ELECTRONICS, INC. Defendants.
The opinion of the court was delivered by: PAUL PLUNKETT, Senior District Judge
MEMORANDUM OPINION AND ORDER
Great American Insurance Company ("Plaintiff") has filed a
lawsuit against K&R Transportation, Inc. ("K&R") and Sony
Electronics, Inc. ("Sony"), seeking declaratory judgment to
establish that Plaintiff's insurance policies with K&R do not
entitle Sony to collect for K&R's breach of contract with Sony.
Sony counterclaimed, seeking to collect on K&R's breach through
Plaintiff's policies with K&R. A default judgment was entered
against K&R on October 21, 2004, for failure to answer or appear.
The default judgment included a provision that would rescind one
of Plaintiff's policies with K&R that would effectively eliminate
the basis for Sony's counterclaim. Because neither the parties
nor the Court intended to eliminate Sony's counterclaim based on
K&R's failure to answer or appear, we will amend the default
judgment against K&R so that its policy with Plaintiff is no
longer rescinded. Legal Standard
Motions for reconsideration serve a limited function of
correcting manifest errors of law or fact or presenting newly
discovered evidence or an intervening change of law. Cosgrove v.
Bartolotta, 150 F. 3d 729, 732 (7th Cir. 1998). Reconsideration
is appropriate when "the Court has patently misunderstood a party
or has made a decision outside the adversarial issues presented
to the Court by the parties or has made a an error not of
reasoning but of apprehension." Spearman Indus., Inc. v. St.
Paul Fire & Marine Ins. Co., 139 F. Supp.2d 943, 945 (N.D. Ill.
2001) (quoting Bank of Waunakee v. Rochester Cheese Sales,
Inc., 906 F.2d 1185, 1191 (7th Circ. 1990)). A motion for
reconsideration cannot be used to introduce new legal theories
for the first time, to raise legal arguments that could have been
heard during the pendency of the previous motion, or to present
evidence that could have been adduced during the pendency of the
original motion. Publishers Res., Inc. v. Walker-Davis Publ'ns,
Inc., 762 F.2d 557, 561 (7th Cir. 1985).
The seeds of this dispute were sown between 1997 and 2000, when
128 shipments of merchandise that Defendant Sony contracted with
Defendant K&R to carry were lost or damaged in transit. (Def.
Sony's Countercl. ¶ 2.) In total, Sony alleged damages of
$261,559.40. (Id. ¶ 3.) Sony filed suit against K&R in federal
court in New Jersey, but K&R never answered the complaint. (Id.
¶ 10.) As a result, a default judgment was entered against K&R on
November 2, 2001, in the amount of $266,925.88. (Id. ¶ 11.)
Sony attempted to collect the sum by filing a claim with
Plaintiff under a series of cargo liability insurance policies
Plaintiff had issued to K&R during the years in question. (Id.
¶ 12.) Plaintiff responded by filing the present lawsuit in this
Court. In its complaint, Plaintiff seeks declaratory judgment to
clarify its rights and liabilities under its policy with K&R.
Plaintiff denies its liabilities under the policy because: (1)
Sony failed to provide sufficient description of its losses; (2)
K&R failed to provide timely notice of its losses or of the
lawsuit Sony filed against K&R; (3) Plaintiff's policy with K&R
was not in effect at the time of several of Sony's claimed
losses; and (4) misrepresentations by K&R in its application for
policy 192-69-74 with Plaintiff are grounds for recission of the
policy. (Pl.'s Compl. ¶¶ 16, 17, 21, 27, 28, 34, 40-43.) Policy
192-69-74 was in effect from May 3, 2000, until its cancellation
on September 25, 2000. (Id. ¶ 8.)
Sony then filed a counterclaim, alleging that Plaintiff is
liable to Sony for $266,925.88 because of its policies with K&R.
Sony bases its claim in part on the BMC-32 endorsement that is
part of every cargo insurance policy.
Meanwhile, true to form, K&R failed to answer Plaintiff's
lawsuit and never appeared in court. Plaintiff moved for a
default judgment against K&R and Sony made no objections.
However, the notice of the motion for default judgment Plaintiff
sent to Sony on September 29, 2004, does not mention a recission
of policy 192-69-74; the default judgment Plaintiff submitted to
the Court on October 6, 2004 did. Recission of the policy
effectively dismisses Sony's claim as well. Sony now asks the
Court to amend the default judgment to preserve the policy and
We must first determine whether, as Plaintiff asserts, Sony
lacks standing to challenge the judgment. According to Plaintiff,
Sony cannot attack a judgment entered against K&R. We disagree.
The default judgment as currently written deprives Sony of the
opportunity to pursue its Counterclaim and hinders its ability to
collect the monies K&R owes it. This is a sufficient
"injury-in-fact" to confer standing on Sony. See In re Uranium Antitrust Litig.,
617 F.2d 1248, 1256 n. 32 (7th Cir. 1980).
Plaintiff next attempts to argue that Sony's 59(e) motion must
fail because it presents a legal argument that should have been
raised before judgment was entered. According to Plaintiff,
Sony's failure to object at the October 14, 2004 hearing in which
the default judgment written by Plaintiff was read into the
record amounts to a waiver of its right to pursue amendment
through Rule 59(e). Yet Sony was not in a position to knowingly
waive any such right. Plaintiff gave no indication in its notice
of default judgment that the recission of the insurance policy
would result. Sony read the noticed motion and determined that it
had no interest in the motion. At the October 14 hearing,
Plaintiff failed to present a copy of its proposed default
judgment to either the Court or Sony. Instead, Plaintiff read its
wishes into the record, including the recision of the insurance
policy. This was hardly adequate notification to Sony that its
Counterclaim would be eliminated. Moreover, once Sony learned of
the damaging provision in the judgment, it acted quickly to amend
it. The judgment was not entered until October 21, and Sony filed
its 59(e) motion ten days later. As a result, we do not find that
Sony is presenting legal arguments it could have raised before
judgment was entered.
Sony is essentially asking the Court to correct a
misunderstanding, precisely the kind of situation Rule 59(e) is
meant to address. Evidence of this misunderstanding can be found
in transcripts of the October 14 hearing, in which both parties
proceeded as though Sony would continue to have a viable
counterclaim after the default judgment was entered against K&R.
No indication was given that Sony's claims would be dismissed as
a result of K & R's failure to appear. Moreover, recission of the
insurance policy would require, at minimum, a "prove-up," either
in the form of affidavits or a hearing, to establish that K & R
had committed the fraud alleged in the complaint. As there is no
indication that any of the parties intended for Sony's
counterclaim to be disposed of at this juncture, we will amend the default judgment
to reflect the understanding of the Court and the parties at the
time it was entered. Accordingly, Plaintiff's policy 192-69-74
with K&R is not rescinded.
Based on the foregoing, Defendant Sony's motion to amend the
October 21, 2004 default judgment against Defendant K&R is
granted. Plaintiff's policy 192-69-74 with Defendant K&R is not
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