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Hicks v. Midwest Transit

June 17, 2008

HAL D. HICKS, PLAINTIFF-APPELLANT,
v.
MIDWEST TRANSIT, INC., AND HARRIS INVESTOR SERVICES, LLC, ALSO KNOWN AS CFSBDIRECT, DEFENDANTS-APPELLEES.



Appeals from the United States District Court for the Southern District of Illinois. No. 03 C 4004-J. Phil Gilbert,and G. Patrick Murphy, Judges.

The opinion of the court was delivered by: Kanne, Circuit Judge

ARGUED APRIL 8, 2008

Before KANNE, WILLIAMS, and TINDER, Circuit Judges.

This opinion marks the third published decision of this court stemming from controversies that arose after Hal Hicks was sued in Illinois state court for allegedly defrauding his company, Midwest Transit, Inc. ("Midwest"), when he served as its president and director. See Hicks v. Midwest Transit, Inc., 500 F.3d 647 (7th Cir. 2007); Hicks v. Midwest Transit, Inc., 479 F.3d 468 (7th Cir. 2007). This time, the issue is whether Hicks may collect damages from Harris Investor Services, LLC ("Harris") for its alleged negligence in freezing Hicks's online stock-trading account. Harris froze Hicks's account pursuant to an attachment order issued by an Illinois state court. After an Illinois appellate court invalidated the attachment order, Hicks filed this suit against Harris, alleging that Harris was negligent for following the court order. Harris filed a motion for summary judgment, which the district court granted. The district court also denied Hicks's subsequent motion for reconsideration. Because Harris was not negligent when it complied with the facially valid court order, and because the motion for reconsideration raised no new facts or issues, we affirm both decisions.

I. HISTORY

Hicks was part-owner, president, and a director of Midwest, a closely-held corporation that provided mail-carrying trailers to the United States Postal Service. In 2000, Hicks's co-owners commenced a shareholders' derivative suit against Hicks in state court in Lawrence County, Illinois, alleging numerous violations of fiduciary duties by Hicks when he managed Midwest, including siphoning corporate funds into his own personal accounts for his personal use. In 2001, the Lawrence County Circuit Court appointed a receiver, Don Hoagland, who filed pleadings seeking a prejudgment attachment under Illinois law of over $10 million worth of Hicks's property. See 735 Ill. Comp. Stat. 5/4-101. Hoagland did not post a surety bond with the state court along with his attachment request, see 735 Ill. Comp. Stat. 5/4-107; instead, he filed a motion to attach Hicks's assets without posting a surety bond, claiming that his status as a court-appointed receiver made him an officer of the State of Illinois and exempted him from the statute's bond requirement, see id.

In July 2001, the Lawrence County Circuit Court ruled that a court-appointed receiver is an officer of the State of Illinois, and granted Hoagland's motion to attach Hicks's assets without posting a surety bond. The circuit court then entered an order attaching Hicks's assets, which included an online stock-brokerage account that Hicks maintained with Harris's predecessors-Internet stock brokers DLJdirect and CFSBdirect-and later with Harris.*fn1 The order, entered on July 26, 2001, provided on its face the case number and caption, the signature of the judge, and an attestation of the court clerk. The attachment order described the account to attach as follows:

Online stock trading account with DLJ Direct, a subsidiary of Donaldson, Lufkin and Generette, c/o Credit Suisse First Boston, AT&T Corporate Center, 227 West Monroe Street, Chicago, IL 60606-5016, or DLJ Direct, a subsidiary of Donaldson, Lufkin and Generette, c/o Credit Suisse First Boston, 200 West Madison Street, Chicago, IL 60606.

The next day, the attachment order was served by hand at the offices of Credit Suisse First Boston, at 227 West Monroe Street in Chicago. The order was then faxed to CFSBdirect's compliance offices in New York and New Jersey, where it was reviewed by a compliance manager. The compliance manager considered the order to be regular on its face, and CFSBdirect took action as directed by the order-it suspended stock transactions in Hicks's account and preserved the stock positions held in the account at the time of the attachment order.

Ten days later, Hicks filed a motion with the Lawrence County Circuit Court to vacate its order of attachment because Hoagland had not posted bond, and when that motion was denied, Hicks appealed the circuit court's decision. Over a year later, in September 2002, the Illinois Court of Appeals for the Fifth District vacated the circuit court's attachment order. The Illinois Court of Appeals held that the circuit court had erred by deeming Hoagland, a court-appointed receiver, to be an officer of the State of Illinois, and found that Hoagland's failure to post a surety bond made the order void as a matter of law. The Illinois Court of Appeals remanded the case to the Lawrence County Circuit Court to require Hoagland to post a surety bond. At that point, Harris removed the hold on Hicks's online brokerage account.

Hicks first filed this diversity-jurisdiction lawsuit in the United States District Court for the Southern District of Illinois in January 2003, seeking to recover damages from Midwest and Hoagland for wrongfully attaching Hicks's assets, and from Harris for its alleged negligence in complying with the invalid attachment order. After several years of litigation, only the negligence claim against Harris remained. In this count of the complaint, Hicks alleged that Harris had duties "to investigate the allegations set forth in the Attachment Orders, to challenge the improper process served upon it . . . and to otherwise take steps [to] safeguard and protect the Hicks' Account." The complaint claimed that Harris was negligent for breaching these duties.

The case proceeded before Judge J. Phil Gilbert, and in August 2005, Harris moved for summary judgment on the negligence claim. Hicks filed a response to the motion, which repeated many of the allegations in his complaint and also alleged that Credit Suisse First Boston-the entity that was served the attachment order-was a separate and distinct legal entity from CFSBdirect-the entity that held Hicks's account.

In March 2006, Judge Gilbert issued an opinion, which held that as a matter of law, Harris's (and its predecessors') duty to Hicks was limited to reasonably determining whether the court-issued attachment order was facially valid before complying with its terms and freezing Hicks's brokerage account. Judge Gilbert noted that "the parties [had] not cited to any Illinois or Seventh Circuit cases that have discussed the duties of a garnishee under similar circumstances and Hicks does not dispute this formulation," and he explained that the Illinois statutes governing attachment procedures comported with limiting Harris's duty in this fashion. Judge Gilbert also concluded that "the bond requirement issue goes to the substantive merit of the attachment order and not to whether the order was regular on its face." Because the attachment order's invalidity stemmed from Hoagland's failure to post a surety bond and not from any facial defect, Judge Gilbert held that Hicks had not raised a genuine issue of material fact on the "reasonableness of Harris's conclusion that the attachment order was facially valid as a result of the bond issue." As for Hicks's improper-service-of-process argument, Judge Gilbert noted that service upon Harris was proper as a matter of Illinois statutory law and under the Uniform Commercial Code as codified in Illinois. Judge Gilbert then granted Harris's motion for summary judgment without hearing argument on the matter. Hicks timely filed a notice of appeal from this ruling in April 2006.

In August 2006, Hicks filed a motion for reconsideration with the district court, pursuant to Federal Rule of Civil Procedure 60(b). This motion was based upon "critical documents" that were not part of the summary-judgment record. Hicks alleged that these documents proved that service of the attachment order was improper: Hicks claimed that Harris had misrepresented the corporate structure of Credit Suisse First Boston because the later-produced documents proved that CFSBdirect was a separate entity from Credit Suisse First Boston, which, Hicks argued, meant that the attachment order was never properly served on CFSBdirect. In September 2006, Judge Gilbert recused himself, and the case was reassigned to then Chief Judge, G. Patrick Murphy. After reviewing the entire record, Judge Murphy concluded in February 2007 that "nothing justifies relief from the judgment" because "the late discovery ...


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