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Wachovia Securities, LLC v. Loop Corp. et al

February 18, 2011


The opinion of the court was delivered by: Judge Joan B. Gottschall


Wachovia Securities, LLC ("Wachovia") filed this action in June 2005 to enforce an arbitration award against Loop Corp. ("Loop") in the amount of $2,478,418.80. (Doc. 1.) Judgment was entered in September 2005. (Doc. 20.) The six year anniversary of this action is approaching, but Wachovia's judgment remains unsatisfied. This matter comes before the court on four pending motions.

On May 5, 2010, Magistrate Judge Valdez issued her Report and Recommendation (Doc. 223) that Wachovia's First Motion for Turnover Order Against Judgment Debtor ("First Motion for Turnover") (Doc. 124) be granted. The referral was subsequently transferred to Magistrate Judge Kim. (Doc. 224.) Judge Kim issued a Report and Recommendation (Doc. 246) on June 18, 2010 that the court also grant Intervenor Plaintiff Golf Venture LLC's ("Golf Venture's") Motion for Turnover Order Against Judgment Debtor ("Second Motion for Turnover") (Doc. 211). On November 11, 2010, Judge Kim issued a second Report and Recommendation (Doc. 270) that the court deny Wachovia's Motion to Enjoin Payments from Debtor's Subsidiary to Debtor's Shareholders, and to Invalidate Banco Panamerico Inc.'s Lien Over EZLinks Golf, Inc. ("Motion to Enjoin Payments") (Doc. 233) and deny Golf Venture's Motion to Join Wachovia Securities, LLC's Motion to Enjoin Payments and for Additional Relief ("Motion for Additional Relief") (Doc. 250).

Federal Rule of Civil Procedure 72(b)(2) permits the parties to file objections to a magistrate judge's Report and Recommendation. In this case, several objections have been filed to each Report and Recommendation. This court "must determine de novo any part of the magistrate judge's disposition that has been properly objected to," and the court "may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions." Fed. R. Civ. P. 72(b)(3).


During the course of a citation examination, Wachovia discovered that Loop owns stock in EZ Links Golf, Inc. ("EZ Links"). The value of the stock has been estimated at $11,455,822. Defendant Banco Panamericano ("Banco") holds the physical stock certificates and claims to possess a security interest in Loop's shares. Loop's debt to Banco is over $17 million.

On July 22, 2009, Wachovia filed its First Motion for Turnover, seeking an order directing Loop to hand over the EZ Links shares. (Doc. 124.) Although Banco claimed priority over the shares, Wachovia argued that Banco's lien had been invalidated in a separate, related proceeding before Judge Kendall. See Wachovia Secs., LLC v. Jahelka, 586 F. Supp. 2d 972, 1016 (N.D. Ill. 1026) ("Wachovia proved by clear and convincing evidence that Banco's blanket lien was made with the actual intent to hinder and delay Wachovia's efforts to collect Loop's judgment under 740 ILCS 160/5(b)(1), (2), (5), and (9) and Banco's security interest in Loop's assets constitutes a 'fraudulent transfer' under the UFTA [Uniform Fraudulent Transfer Act].").

Banco opposed the motion arguing, among other things, that Judge Kendall's ruling could not have preclusive effect in this action: "In [Judge Kendall's] case, issues of attorneys' fees and prejudgment interest are still pending, and as even Wachovia concedes, the decision is not final." (Doc. 135, Banco's Objection to First Mot. for Turnover, at 2 (emphasis in original).) The parties engaged in multiple rounds of briefing on the First Motion for Turnover.

Judge Kendall entered final judgment in the case before her on January 4, 2010. Wachovia Secs., LLC v. Neuhauser, 04-cv-3082, Doc. 457 (N.D. Ill. Jan. 4, 2010) (Order of Final Judgment). Shortly thereafter, Banco filed a notice of appeal. Id., Doc. 470 (Jan. 25, 2010).

On March 24, 2010, Judge Valdez issued an order granting the First Motion for Turnover and ordering Loop to turnover the EZ Links shares. (Doc. 202.) In a footnote, Judge Valdez noted:

Banco also argues that the Jahelka order is not yet final. This argument has become moot, as a final judgment was entered in that case on January 4, 2010. (Doc. 202 at 4 n.1.) Within days, Banco filed a motion asking Judge Valdez to reconsider and amend her March 24 order. (Doc. 205.) Banco contended that the order should have been issued as a Report and Recommendation, and that Judge Valdez failed to recognize that she could not give Judge Kendall's opinion preclusive effect because Banco's appeal was pending and, thus, was not "final" for the purpose of Illinois preclusion law.

Judge Valdez granted Banco's motion in part by reissuing her opinion as a Report and Recommendation on May 5, 2010. (Doc. 223.) However, Judge Valdez refused to reconsider her ruling on the preclusion issue. She noted that motions for reconsideration are not an opportunity to advance new arguments that should have been raised earlier. See Popovits v. Circuit City Stores, 185 F.3d 726, 730 (7th Cir. 1999.) She explained:

Banco's objection [to the First Motion for Turnover] did not argue that issue preclusion should not apply until Banco had exhausted it [sic] appeals, nor did it suggest that Banco intended to appeal Judge Kendall's order. At the time the objection was filed, Banco knew or should have known that it might appeal the decision. In any event, Banco filed its notice of appeal in Jahelka on January 25, 2010, nearly two months before the underlying order was issued. Banco never sought to file a supplemental objection or otherwise inform the Court of the appeal and it [sic] argument regarding issue preclusion. Because the argument was not before the Court but could have been raised earlier, the Court denies Banco's motion to reconsider. (Doc. 221 at 2.) Banco objected to Judge Valdez's Report and Recommendation, and Loop filed its own objection joining in Banco's arguments.

First, Banco contends that it did not waive its argument that Judge Kendall's ruling was not final. Banco points to the transcript from a January 6, 2010 status hearing before Judge Valdez. (See Doc. 236, Ex. 6 at 8-9.) At the hearing, counsel for Loop informed Judge Valdez that Judge Kendall had just entered final judgment in the related case. Counsel for Banco argued that Judge Valdez should wait to rule on the First Motion for Turnover because Judge Kendall's ruling could not be used for purposes of collateral estoppel until Banco's appeal was complete. Banco's counsel cited Garrett v. Illinois State Toll Highway Auth., 582 F. Supp. 2d 1039 (N.D. Ill. 2008) (declining to give preclusive effect to state court judgment on appeal because, under Illinois law, "finality requires that the potential for appellate review must have been exhausted"), offered a copy of the case to Judge ...

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