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Sterling National Bank v. Block

United States District Court, N.D. Illinois, Eastern Division

October 10, 2019

STERLING NATIONAL BANK, Plaintiff and Counterclaim Defendant,
BERNARD N. BLOCK, Trustee, et al., Defendants and Counterclaim Plaintiffs.


          Harry D. Leinenweber, Judge United States District Court

         Defendants Bernard N. Block, et al.'s Motion for Pre- and Post-Judgment Interest (Dkt. No. 177) is denied and Defendants' Motion for Costs (Dkt. No. 176) is granted in part and denied in part.

         I. BACKGROUND

         In addition to briefly reciting the relevant facts here, the Court incorporates the facts set forth in its earlier ruling, Sterling Nat'l Bank v. Block, No. 16 C 9009, 2019 WL 2491642, at *1 (N.D. Ill. June 14, 2019). Defendants (the “Sellers”) sold their company, Damian, to Sterling National Bank (“Sterling”) pursuant to a stock purchase agreement (SPA). Sterling agreed to pay $25 million to purchase Damian, $2 million of which Sterling would place into an escrow account for future indemnification claims under the SPA. In the SPA, the Sellers represented to Sterling that they were providing a full and accurate picture of Damian's finances, liabilities, and obligations.

         After the Damian acquisition closed, Sterling discovered an allegedly improper scheme in which Damian overcharged its clients for years. Sterling then invoked the SPA's indemnification clause and requested that the Sellers use the money in escrow to indemnify Sterling for its losses resulting from the alleged scheme. The Sellers refused to indemnify Sterling, and Sterling sued, arguing that the Sellers' failure to disclose this scheme and to indemnify constituted a breach the SPA. The parties cross-moved for summary judgment, and in June of 2019, this Court entered summary judgment for the Sellers. The Court held that it need not resolve whether the Sellers breached the SPA by making false representations and warranties, because Sterling failed to give timely notice of its indemnification claim, forfeiting its rights to indemnification, its sole remedy for claims arising under the SPA. See Sterling, 2019 WL 2491642, at *5. The Court entered final judgment on liability on June 14, 2019, before reaching a conclusion on the appropriate remedy or damages for the Sellers. The Sellers now move for pre- and post-judgment interest under Federal Rule of Civil Procedure 59(e), and for costs under Rule 54(d).


         A. Timeliness

         A motion for prejudgment interest filed after entry of final judgment is considered under Federal Rule of Civil Procedure 59(e) as a motion to alter or amend judgment. Osterneck v. Ernst & Whinney, 489 U.S. 169, 175-78 (1989); First State Bank of Monticello v. Ohio Cas. Ins. Co., 555 F.3d 564, 572 (7th Cir. 2009). The Supreme Court reasoned that prejudgment interest “is an element of [the plaintiff's] complete compensation, ” and that it is therefore “intertwined in a significant way with the merits of the plaintiff's primary case as well as the extent of his damages.” Osterneck, 489 U.S. at 176. However, Rule 59(e) motions are “not appropriately used to advance arguments or theories that could and should have been made before the district court rendered a judgment.” Miller v. Safeco Ins. Co. of Am., 683 F.3d 805, 813 (7th Cir. 2012) (noting that district courts should use their discretion under Rule 59(e) to award pre-judgment interest when such an award would “fix[] an error that… slipped into the case”).

         Sterling argues that the Sellers' request for prejudgment interest is untimely because they failed to request such relief in their motion for summary judgment. Sterling claims that the Sellers “moved for summary judgment, but never sought pre-judgment interest, ” nor “request[ed] pre-judgment interest as part of their defense in their Answer.” (Pl.'s Resp. at 3, Dkt. No. 183.) Contrary to Sterling's assertion, a brief review of the record in this case reveals that the Sellers clearly stated their intent to seek pre-judgment interest. Counts I, II, and IV of the Sellers' counterclaims stated that the Sellers are seeking pre- and post-judgment interest. (See Answer ¶¶ 32, 39, 53, Dkt. No. 20.) Soon after the Sellers filed their counterclaims, counsel for Sterling raised this issue in court:

[T]here is a counterclaim filed in the case. … The response we got back was, “Well, we think you owe us the money plus interest at 12 percent.” There's a debate over the interest rate. … If they give us the wiring instructions, at the very least, the principal can be paid. We can fight about the interest rate at a later time…

(Tr. Dec. 7, 2016.) The Sellers raised their intent to seek interest again in a motion that was later argued in court. (Mot. for Add. Dep. ¶ 1, Dkt. No. 55 (“Sellers filed a counterclaim and are seeking damages in the amount of $2, 000, 000… plus interest.”).) This is not a case where the prevailing party raised the issue of prejudgment interest “for the first time in a Rule 59(e) motion, after summary judgment was entered.” First State Bank of Monticello v. Ohio Cas. Ins. Co., 555 F.3d 564, 572 (7th Cir. 2009).

         Additionally, the Court briefly addressed the matter of prejudgment interest in its summary judgment opinion. See Sterling, 2019 WL 2491642, at *6-7. After denying summary judgment to Sterling on all counts in its Complaint because it is not entitled to indemnification, the Court noted that the Sellers had asserted four counterclaims in their Answer. The Court found that the Sellers had only clearly moved for summary judgment on their request for a judgment declaring that: (a) Sterling is not entitled to indemnification from the escrow; (b) Sterling's December 11, 2015, letter to the escrow agent in which Sterling invoked the indemnity clause is void; (c) Sellers are entitled to the money held in escrow; and (d) the Sellers are entitled to prejudgment and post-judgment interest at the rate of 12% annum. Id. at *7. The Court held that a declaration regarding (a), that Sterling is not entitled to indemnification, would be redundant given that the Court had already granted summary judgment in the Sellers' favor on this issue. Because the Sellers' summary judgment motion and briefing only argued the substance of (a), the Court declined to enter a declaratory judgment on issues (b), (c), and (d). Id.

         Ideally the Sellers would have more explicitly re-stated their request for prejudgment interest in their motion for summary judgment, rather than incorporating it by reference to their request for “summary judgment on their Counterclaim.” (Defs.' Mot. for Summary J. at 2, Dkt. No. 128.) However, even if they had, a full briefing of pre-judgment interest at that point would have been premature. See Chicago Imp., Inc. v. Am. States Ins. Co., No. 09 CV 2885, 2016 WL 4366494, at *2 (N.D. Ill. Aug. 16, 2016) (“While arguments presented for the first time in a Rule 59(e) motion ordinarily are deemed forfeited, the grant or denial of prejudgment interest is an exception to this general rule because elsewise parties would be required to put the cart before the horse and argue about prejudgment interest before the underlying issues of liability and damages have been resolved.”). Therefore, the Court finds the Sellers' motion for prejudgment interest timely. Under Rule 59(e), the Court has reconsidered its decision to treat the Sellers' arguments for prejudgment interest as waived, and will now assess whether, and to what extent, prejudgment interest is appropriate.

         B. Exclusive Remedy under the SPA

         Illinois law governs the parties' dispute over whether the Sellers are entitled to prejudgment interest. See Travelers Ins. Co. v. Transp. Ins. Co., 846 F.2d 1048, 1053 (7th Cir. 1988) (courts apply state law to an award of prejudgment interest in diversity suits). Under Illinois law, “the general rule is that prejudgment interest cannot be awarded unless by statute or agreement of the parties.” In re Air Crash Disaster Near Chicago, Illinois, on May 25, 1979, 644 F.2d 633, 638 (7th Cir. 1981). The relevant statute is the Illinois Prejudgment Interest Act (the “Act”), which grants interest of 5% per year for all moneys after they become due on any… instrument of writing… and on money withheld by an unreasonable and vexatious delay of payment.” W. Bend Mut. Ins. Co. v. Procaccio Painting & Drywall Co., 794 F.3d 666, 680 (7th Cir. 2015) (citing 815 ILCS 205/2).

         Sterling argues that the Sellers cannot recover prejudgment interest under the Act because they waived the right to pursue statutory prejudgment interest by entering into the SPA. Sterling derives this argument from Section 8.09 of the SPA, which contains two relevant portions. The first identifies indemnification as the sole remedy for claims arising out of the SPA:

[The] sole and exclusive remedy with respect to any and all claims… for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions…

(SPA § 8.09 (the “exclusive remedy provision”), Ex. A to Pl.'s Resp., Dkt. No. 183-1.) Section 8.09 also includes a broad waiver of any rights parties may have had outside the SPA's indemnification procedures:

[E]ach party waives, to the fullest extent permitted under Law, any and all rights… for any breach of any representation, warranty, covenant, agreement, or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto… arising under or based upon any Law except pursuant to the indemnification provisions…

(Id. (the “waiver provision”).)

         Contract interpretation “starts with the language of the agreement, which must not be interpreted in a way contrary to the plain, obvious, and generally accepted meaning of its terms.” Asta, L.L.C. v. Telezygology, Inc., 629 F.Supp.2d 837, 843 (N.D. Ill. 2009) (citing Illinois law). Courts interpret written contracts “according to the conventional meaning of their terms, that is, literally.” Bank of Am., N.A. v. Moglia, 330 F.3d 942, 946 (7th Cir. 2003). This is “especially appropriate in the case of a negotiated contract involving substantial stakes between commercially sophisticated parties… who know how to say what they mean and have an incentive to draft their agreement carefully.” Id.

         According to the Sellers, because Section 8.09 does not mention pre-judgment interest, or what to do when one party “improperly block[s] disbursement of the escrow” funds, that section is too vague to constitute a waiver of pre-judgment interest in this context. (Defs.' Reply at 7, Dkt. No. 188.) The Sellers are correct in that the SPA does not specifically contemplate what to do if the buyer makes an indemnification claim on the escrow amount, preventing release of the escrow amount to the seller, and then the buyer's indemnification claim fails in litigation because it was untimely. However, the SPA need not predict every scenario to which § 8.09 might apply. It is ...

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