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WILLIAMS ELECTRONICS GAMES, INC. v. GARRITY

September 15, 2005.

WILLIAMS ELECTRONICS GAMES, INC., ET AL., Plaintiffs,
v.
JAMES M. GARRITY, ARROW ELECTRONICS, INC., AND MILGRAY ELECTRONICS, INC. Defendants.



The opinion of the court was delivered by: MARK FILIP, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiffs, Williams Electronics Games, Inc. ("Williams") and National Union Fire Insurance Company ("National Union," and together with Williams, "Plaintiffs"), are suing Defendants, James M. Garrity, Arrow Electronics, Inc., and Milgray Electronics, Inc. (collectively, "Defendants"), relating to alleged misconduct by Defendants in connection with their provision of component parts for Williams's Mortal Kombat video game.*fn1 The suit as originally framed included two counts alleging civil violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1961, et seq. (Counts I and II). (D.E. 1 at 14-17.) The suit did not fall within the diversity jurisdiction of the federal courts. (See id. at 2-3 (discussing citizenship of parties, including Plaintiff Williams, a company whose principal place of business is in Chicago).) The operative complaint underwent various iterations — which included, for example, a since-dismissed Sherman Act claim (e.g., D.E. 221 at 24) — but suffice to say that there are no longer any federal claims in the case. (The Sherman Act claim was dismissed on summary judgment by Judge Gettleman in 2001, and the RICO claims were dismissed at the conclusion of the Plaintiffs' case for failure of proof, during the middle of a jury trial held before Judge Gettleman that spanned from February 19, 2002, to March 14, 2002, which dismissals were all affirmed on appeal.) In addition, the case as presently framed could not be properly filed in the federal courts under the grant of diversity jurisdiction, as Plaintiff Williams is an Illinois corporation with its principal place of business in Chicago (id. at 2), and there is at least one defendant who is an Illinois citizen (see id. at 3 (discussing Defendant Garrity).)*fn2

The case came to this Court after a partial reversal on appeal, which reversal overturned a jury verdict against Plaintiffs on certain state law claims, as discussed further below. The parties naturally contemplate the likelihood of another trial on those state law claims. To be entirely fair, Plaintiffs also seek summary judgment on one state law claim; while this Court need not, for reasons explained below, pass definitively on that motion, Plaintiffs surely must appreciate that it is a long-shot, given the numerous disputed factual questions in the case, including what the Seventh Circuit expressly noted was a "fierce dispute" about issues relating to certain alleged commercial bribery that is implicated by the pending motion. See Williams Elecs. Games, Inc. v. Garrity, 366 F.3d 569, 572 (7th Cir. 2004). As a result, there will likely be a forthcoming trial, whether it occurs state or in federal court. (Accord D.E. 534 at 304 (Plaintiffs estimating a trial of some two weeks' duration, assuming they prevail on certain pretrial motions in limine; Defendants estimating a trial of three to four weeks' duration).)

  Caselaw in this circuit establishes a "presumption" against district courts retaining jurisdiction over supplemental state law claims after the federal claims (and concomitant federal interest) have disappeared from a case. Thus, for example, Groce v. Eli Lilly & Co., 193 F.3d 496 (7th Cir. 1999), "emphasize[d] that it is the well-established law of this circuit that the usual practice is to dismiss without prejudice state supplemental claims whenever all federal claims have been dismissed prior to trial." Id. at 501. Groce further taught that "there is a presumption against retaining jurisdiction of supplemental state law claims" in such instances. Id. (citing Khan v. State Oil Co., 93 F.3d 1358, 1366 (7th Cir. 1996)); accord, e.g., Miller Aviation v. Milwaukee County Bd. of Supervisors, 273 F.3d 722, 731 (7th Cir. 2001). This presumption is simply that — a presumption, not a rule — but it is one rooted in well-established principles, including the need to afford litigants who actually have cases in which there is a federal interest as expeditious a form of justice as is reasonably possible, and a substantial comity interest in allowing state courts to apply and to interpret their own laws, at least in cases where there is no federal interest at stake. See, e.g., Kennedy v. Schoenberg, Fisher & Newman, Ltd., 140 F.3d 716, 728 (7th Cir. 1998) ("`[R]espect for the state's interest in applying its own law, along with the state court's greater expertise in applying state law, become [a] paramount concern.'") (quoting Huffman v. Hains, 865 F.2d 920, 923 (7th Cir. 1989)); Wis. Cent. Ltd. v. Public Servs. Comm'n of Wis., 95 F.3d 1359, 1366 (7th Cir. 1996) (discussing the "strong" interest "in allowing a state first crack at interpreting its own laws"). The presumption established in cases such as Groce is part of a broader duty that district courts have to exercise their informed discretion so as to make judgments concerning whether it is prudent to exercise and/or maintain supplemental jurisdiction over state law claims, which duty exists at all phases of a litigation.

  As explained at length below, and after careful consideration of the relevant factors first identified in United Mine Workers v. Gibbs, 383 U.S. 715 (1966), and reflected in 28 U.S.C. § 1367, concerning the retention of supplemental jurisdiction, the Court determines that this case most sensibly should proceed in state court. See Gibbs, 383 U.S. at 727 (teaching that the issue of whether pendent jurisdiction is appropriate "remains open throughout the litigation"); accord, e.g., City of Chicago v. Int'l Coll. of Surgeons, 522 U.S. 156, 173 (1997) (teaching that a district court, in considering the factors set forth in 28 U.S.C. § 1367(c), "`should consider and weigh [relevant statutory factors] in each case, and at every stage of the litigation'") (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988)). While the Court certainly does not purport to adopt any rigid rule by its decision, the facts that:
(1) there is no federal question or interest remaining in the case;
(2) there are meaningful open and/or complex questions of state law which likely will need to be resolved in connection with the trial;
(3) this Court has no comparative efficiency advantage (as compared to a state trial court) in providing a trial;
(4) no prejudice will accrue to the parties if the case proceeds in state courts; and
(5) retaining jurisdiction to try this case outside the diversity or federal question jurisdiction of the federal courts will inevitably delay the adjudication and/or trial of other cases squarely within the jurisdiction of the federal courts,
individually and collectively counsel that this Court should follow the presumptive practice of relinquishing jurisdiction over supplemental state claims in favor of the state courts. Accordingly, the state law claims are dismissed without prejudice so that Plaintiffs may proceed with them in the Illinois courts. Accord, e.g., Groce, 193 F.3d at 501.

  I. General Background

  The Court assumes the parties' familiarity with the general procedural history. Accordingly, the Court addresses the procedural history and relevant facts only as necessary to explain the instant decision.

  A. Earlier Proceedings Before Judge Gettleman in the District Court and The Affirmance on Appeal of The Dismissal of All Federal Claims

  In May 1997, Williams, the manufacturer of the Mortal Kombat video game, initiated suit for fraud and related misconduct, alleging two federal civil RICO claims and several state law claims, against, among others, Defendant James Garrity ("Garrity"), a sales executive from Arrow Electronics, Inc. (D.E. 1.) The complaint thereafter went through various amendments, which, among other things, added present Defendants Arrow Electronic, Inc. ("Arrow") and Milgray Electronics, Inc. ("Milgray"), two of Williams's suppliers of components for Mortal Kombat, and the complaint also added a Sherman Act claim. (E.g., D.E. 221.)

  As framed in the operative complaint, Williams claims that Defendants bribed one of its purchasing managers, Greg Barry ("Barry"), with more than $100,000 in bribes and kickbacks over a four-year period, during which time Defendants sold Williams approximately $100 million in component parts for Mortal Kombat games. (See D.E. 221 at 7-19); see also Williams, 366 F.3d at 572. (It appears that Barry solicited these monies from Garrity, as well as monies from salespersons of other vendors, and it is undisputed that he solicited monies in the total amount of some $1.2 million; it is also undisputed that, as a result, Barry was indicted by federal authorities on mail fraud and other charges, pleaded guilty, and was sentenced to some 3.5 years in prison. (D.E. 560 ¶ 71; D.E. 539 ¶ 10.)) The case proceeded before Judge Gettleman.

  The operative complaint leading up to a 2001 trial before Judge Gettleman contained two alleged violations of the civil RICO statute (Counts I and II) and an alleged violation of the Sherman Act, 15 U.S.C. § 1, et seq. (Count III). (D.E. 221 at 20-24.) It also alleged various state law claims, all under Illinois law: breach of fiduciary duty and inducement to breach of fiduciary duty (Count IV); common law fraud and conspiracy (Count V); violations of the Illinois Consumer Fraud and Deceptive Business Practices Act ("CFDBPA"), 815 ILCS 505/1, et seq. (Count VI); breach of contract and restitution against one defendant no longer in the case (Count VII); and a demand for an equitable accounting and constructive trust (Count VIII). (D.E. 221 at 24-29.)

  In September 2001, Judge Gettleman granted summary judgment on Count III, the Sherman Act claim, and Count VI, the Illinois CFDBPA claim. (D.E. 304.) Thereafter, the Court held a jury trial on the remaining legal claims against Defendants Garrity, Arrow, and Milgray that were asserted in Counts I, II and V. (D.E. 459 at 2.) After the close of Plaintiffs' case, Judge Gettleman granted Defendants' motion for a directed verdict on the RICO claims in Counts I and II. (Id.) The jury then proceeded to deliberate on the evidence it had heard and found that Plaintiffs had proved all of the elements of common law fraud as to each of the Defendants, but it entered a verdict in favor of Arrow and Milgray, finding that they proved the affirmative defenses of ratification and in pari delicto. (Id. at 2.) Based on, inter alia, the jury's exoneration of Arrow and Milgray, Judge Gettleman denied Williams's motion for judgment on the remaining equitable claims asserted in Counts IV (inducement of breach of duty claim) and VIII (equitable accounting and constructive trust claim). (Id.)

  Williams appealed the jury's verdict regarding the fraud count and Judge Gettleman's rulings regarding the RICO and Sherman Act claims and the remaining equitable claims. On appeal, the Seventh Circuit affirmed Judge Gettleman's dismissal of the RICO and Sherman Act claims. Williams, 366 F.3d at 578-80. With respect to the state law claims, the Seventh Circuit found that the jury instructions on the affirmative defenses to the fraud count were erroneous, and ultimately reversed and remanded not only the jury's finding with respect to the affirmative defenses, but also the jury's finding of ...


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