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Lorillard Tobacco Company, A Delaware Corporation v. Montrose Wholesale Candies and Sundries

January 10, 2011

LORILLARD TOBACCO COMPANY, A DELAWARE CORPORATION, PLAINTIFF,
v.
MONTROSE WHOLESALE CANDIES AND SUNDRIES, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Marvin E. Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

There are two motions presently before us in this case: Lorillard Tobacco Company's ("Lorillard") Motion to Adopt Magistrate Judge Cole's Report and Recommendation of July 2, 2008 ("Motion to Adopt the Magistrate's Report") and Parkway Bank and Trust Company's ("Parkway Bank") Motion to Intervene. We grant Lorillard's motion and deny Parkway Bank's.

I. BACKGROUND

The history of this case is extensive and only those facts essential to these motions need be reiterated in full here: on November 19, 2007, Lorillard obtained a final judgment of $3,336,195.07 against Montrose Wholesale Candies and Sundries, Inc., and its owners, Ray and Sandra Hazemi. (Dkt. Nos. 396--397.)*fn1 Prior to the issuance of this final judgment, we granted Lorillard's motion to freeze the Hazemis' assets in early 2006, because we found that the Hazemis were "likely to move, hide or otherwise transfer assets and records relating thereto in an effort to frustrate the ultimate relief [Lorillard] seeks." (Dkt No. 229; Dkt. No. 239 at 2.) In the first schedule of assets filed pursuant to the freeze order, Mr. Hazemi claimed a fifty percent ownership interest in the property at 6630 West Montrose Road in Harwood Heights, Illinois ("the Property"). (Case No. 03-cv-5311, Dkt. No. 141 at 3.) Mr. Hazemi also listed his sister, Giti Azari, as owning the remaining interest in the Property. (Id.)

The question of who owns the Property has become an issue in a state foreclosure proceeding relating to the Property. The issue is not new to us, but an apparent oversight in this litigation has created some confusion in the state proceeding. On July 2, 2008, in response to Lorillard's motion, Magistrate Judge Cole issued a report and recommendation ("the Magistrate's Report") that the apparent transfer of Mr. Hazemi's half-interest in the Property to Ms. Azari on August 2, 2005 ("the Transfer") be set aside as fraudulent. (Dkt. No. 489.) There were no objections to the adoption of the Magistrate's Report filed by any party within the tenday period allowed for such objections.*fn2 Nevertheless, Lorillard failed to move for the adoption of the Magistrate's Report after the period for objections expired until it filed its current Motion to Adopt the Magistrate's Report on August 10, 2010. (Case No. 03-cv-5311, Dkt. No. 328.)

The status of the Magistrate's Report matters in the state foreclosure proceeding, because Parkway Bank is seeking to foreclose on a mortgage issued to Ms. Azari on August 17, 2007 and secured by the entire Property. (Case No. 03-cv-5311, Dkt. No. 350, Ex. 2.) On the other hand, Lorillard asserts a judgment creditor's claim to the half-interest in the Property Mr. Hazemi may still own. (Id., Ex. 5 at 9--10.) This claim turns in part on whether Mr. Hazemi validly transferred this interest in the Property to Ms. Azari in 2005. As a result, Parkway Bank now seeks to intervene in this case in order to object to the adoption of the Magistrate's Report. (Case No. 03-cv-5311, Dkt. No. 338.)

II. ANALYSIS

A. Parkway Bank's Motion to Intervene

We first consider Parkway Bank's Motion to Intervene. Parkway Bank seeks to intervene in this case pursuant to Rule 24(a)(2) of the Federal Rules of Civil Procedure. Rule 24(a)(2) requires us to allow anyone to intervene who: claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.

Fed. R. Civ. P. 24(a)(2). The Seventh Circuit has interpreted Rule 24(a)(2) as requiring potential intervenors to "(1) make a timely application, (2) have an interest relating to the subject matter of the action, (3) be at risk that that interest will be impaired by the action's disposition and (4) demonstrate a lack of adequate representation of the interest by the existing parties." Vollmer v. Publishers Clearing House, 248 F.3d 698, 705 (7th Cir. 2001). We believe Parkway Bank has failed to satisfy the first and third requirements.

Regarding timeliness, "[d]etermining whether an application to intervene is timely is committed to the sound discretion of the district court." Shea v. Angulo, 19 F.3d 343, 349 (7th Cir. 1994). In determining whether a motion to intervene is timely, we consider four factors: "(1) the length of time the intervenor knew or should have known of his interest in the case; (2) the prejudice caused to the original parties by the delay; (3) the prejudice to the intervenor if the motion is denied; [and] (4) any other unusual circumstances." Heartwood, Inc. v. U.S. Forest Service, Inc., 316 F.3d 694, 701 (7th Cir. 2003). The Seventh Circuit has also described the timeliness factor as "essentially a reasonableness inquiry, requiring potential intervenors to be reasonably diligent in learning of a suit that might affect their rights, and upon learning of such a suit, to act to intervene reasonably promptly." People Who Care v. Rockford Bd. of Educ., 68 F.3d 172, 175 (7th Cir. 1995.). The purpose of imposing the timeliness requirement is "to prevent a tardy intervenor from derailing a lawsuit within sight of the terminal." Reid L. v. Illinois State Bd. of Educ., 289 F.3d 1009, 1018 (7th Cir. 2002).

We believe these factors weigh strongly in favor of denying Parkway Bank's Motion to Intervene as untimely. In our view, the relevant point at which Parkway Bank should have known of its potential interest in this case is March 31, 2008. Heartwood, Inc.,316 F.3d at 701. On that date, Lorillard served Parkway Bank with a subpoena to produce:

All books, papers, statements, documents and/or other records in your possession or control related to the mortgage executed on August 14, 2007, between Giti Azari and Parkway Bank & Trust Co. for the property at 6630 W. Montrose, Harwood Heights, Illinois 60706 (Tax ID No. 13-18-404-004-0000) (Case No. 03-cv-5311, Dkt. No. 357, Ex. G at 1.) The subpoena clearly identifies this case and the accompanying case numbers in the caption. (Id.) Parkway Bank complied with the subpoena on April 9, 2008. (Id. at 2.) At the time of this subpoena, a "reasonably diligent" potential intervenor would have inquired into why it received a subpoena about a mortgage for which it was the mortgagee. People Who Care, 68 F.3d at 175.

Furthermore, the prejudice to the original parties in this case arising from the added delay of allowing Parkway Bank to intervene in this seven-year old suit would be substantial. Heartwood, Inc.,316 F.3d at 701. Lorillard in particular has struggled mightily against the obstinance of the Defendants in this case. (Dkt. Nos. 239, 269; Case No. 03-cv-5311, Dkt. No. 120.) The same is true for us, as we have previously held the Defendants in contempt for failing to be forthright about their assets. (Dkt. Nos. 269--270.) To allow Parkway Bank to intervene now to contest an issue already thoroughly contested before Magistrate Judge Cole would reinvigorate a case that should have been resolved years ago. As such, the prejudice to the original parties in this case, Lorillard in particular, weighs against allowing Parkway Bank to intervene at this late stage. Id.

We also do not believe Parkway Bank will be prejudiced by not being allowed to intervene at this stage. Id. Parkway Bank claims its ability to assert its priority status as a creditor for the Property will be impaired in the state foreclosure proceeding, because Lorillard will be able to rely on our adoption of the Magistrate's Report as "substantive evidence" of its claim to half of the Property. (Case No. 03-cv-5311, Dkt. No. 350,at 12.) But even if Lorillard uses the Magistrate's Report to support its counterclaim in the state foreclosure proceeding, Parkway Bank acknowledges that it remains free to collaterally attack this evidence. (Id. at 7--9.) Indeed, we agree that Parkway Bank would not be precluded from attacking the findings of the Magistrate's Report in the state foreclosure suit. The doctrine of issue preclusion, also called collateral estoppel, only applies when "the party against whom estoppel is invoked was fully represented in the prior action." Dexia Credit Local v. Rogan, Case No. 09-2986, 2010 WL 4751739, at *13 (7th Cir. 2010). Since we are denying Parkway Bank's motion to intervene, it is not "fully represented" in this action and would not be collaterally estopped from attack the findings in the Magistrate's Report.*fn3 Id. Furthermore, as Lorillard correctly notes, whether or not Mr. Hazemi's Transfer of the Property to Ms. Azari was fraudulent is not dispositive of Parkway Bank's rights with respect to the Property. (Dkt. No. 356 at 7.) Parkway Bank will still be able to assert a "good faith" defense under the Illinois Uniform Fraudulent Transfer Act ("IUFTA") based on its purported lack of knowledge that the Transfer was fraudulent. 740 ILCS 160/9(a). Thus, Parkway Bank will not be prejudiced by not being allowed to intervene. Heartwood, Inc.,316 F.3d at 701.

The "unusual circumstances" of this case further justify our denial of Parkway Bank's Motion to Intervene. Id. The Defendants' consistent disregard for the judicial process throughout this case makes us reluctant to reopen it. (Dkt. Nos. 238--239, 269--270.) The Defendants obfuscated their relationship to the Property in question throughout this proceeding, and we are not inclined to let a third party's entry into the case provide the Defendants another opportunity to renew their campaign of obstruction. (Dkt. No. 270 at 7--8.)

In addition to its Motion being untimely, Parkway Bank's interest in the Property will not be impaired by its absence from this suit. Vollmer, 248 F.3d at 705. Parkway Bank claims that it has an interest in protecting the scope and priority of its mortgage on the Property that will be impaired by the adoption of the Magistrate's Report. (Case No. 03-cv-5311, Dkt. No. 357 at 9.) Parkway Bank describes this impairment as having "to educate an unfamiliar tribunal, in a notoriously overburdened section of the judiciary, with the facts of this case." (Id. at 12.) We believe Parkway Bank's skepticism of the state court is unwarranted. The state court is perhaps better equipped than we are to evaluate the merits of Parkway Bank's good faith defense and other claims pertaining to its mortgage on the Property. After all, these are ultimately questions of Illinois law. See 740 ILCS 160/9(a). And as we noted before, Parkway Bank remains free to attack Lorillard's reliance on the Magistrate's Report or, in the alternative, to argue its lack of knowledge that the Transfer was fraudulent. Id. Thus, Parkway Bank's interest will not be impaired by the disposition of this case. Vollmer, 248 F.3d at 705.

Because Parkway Bank has failed to establish that its Motion to Intervene is timely or that its interest will be impaired, we ...


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