Colonial Bank & Trust Co. v. Cahill

• Decision Date: 10 November 1976
• Docket Number: No. 75C3723.,75C3723.
• Citation: 424 F. Supp. 1200
• Court: U.S. District Court — Northern District of Illinois
• Parties: COLONIAL BANK & TRUST COMPANY, an Illinois State Banking Association, Plaintiff, v. John D. CAHILL, Defendant.

424 F. Supp. 1200

COLONIAL BANK & TRUST COMPANY, an Illinois State Banking Association, Plaintiff, v. John D. CAHILL, Defendant.

No. 75C3723.

United States District Court, N. D. Illinois, E. D.

November 10, 1976.

James S. Gordon, Chicago, Ill., for plaintiff.

Aaron J. Kramer, Schiff, Hardin & Waite, Chicago, Ill., for defendant.

MEMORANDUM OPINION

FLAUM, District Judge.

Before the court is defendant Cahill's rule 60 motion to vacate the judgment by confession entered by the Circuit Court of Cook County upon defendant's default in payment of certain promissory notes held by the plaintiff Colonial Bank. The promissory notes were executed by the defendant to finance the purchase of 25,000 shares of American Bankshares Corporation stock which was offered by the plaintiff bank, and the purchased shares were pledged to Colonial Bank as security for the debt. The notes each contained a clause authorizing judgment by confession in a court of competent jurisdiction without service of process. Pursuant to the Illinois statute governing confession of judgment, judgment was entered in this action on September 23, 1975, and defendant Cahill was promptly served summons of the confirmation of that judgment within thirty days of entry. Ill. Rev.Stat. ch. 110, § 50(3) (1975). Within thirty days of the receipt of notice of the entry of judgment and prior to its confirmation, the defendant removed this action to the district court and filed a motion to vacate the circuit court judgment to allow litigation on claimed defenses.¹

The threshold issue before the court is the removability of this action pursuant to 28 U.S.C. § 1441.² It is not disputed that this is an action between the plaintiff, a citizen of Illinois, and defendant, a citizen of Wisconsin, in excess of $10,000 and thus within this court's original jurisdiction. 28 U.S.C. § 1332. It is also uncontested that the petition for removal was timely filed within thirty days after the service of summons. 28 U.S.C. § 1446(b). However, despite this facial compliance with the removal provisions, three potential impediments to removal jurisdiction must be examined.

The critical provision in the "Note and Security Agreements" executed by Cahill authorizes "irrevocably any attorney of any court of record to appear for the defendant, in such court, in term time or vacation, after any default hereon and confess a judgment without process in favor of the holder hereof for such amount as may appear unpaid hereon." This court must determine whether the defendant's waiver of the right to process before the entry of the judgment is tantamount to a waiver of the defendant's right to remove this action from the Circuit Court of Cook County to this district court. Although a state is not free to restrict the removal rights of nonresident defendants, it is well settled that a nonresident defendant may voluntarily waive the right to remove to a federal forum. Compare, Home Ins. Co. v. Morse, 20 Wall. 445, 87 U.S. 445, 22 L.Ed. 365 (1874), with General Phoenix Corp. v. Malyon, 88 F.Supp. 502 (S.D. N.Y. 1949). A voluntary waiver of the right to remove may be evidenced by the conduct of the defendant in expressly submitting to the jurisdiction of the plaintiff's chosen forum after commencement of the action or the waiver may be predicated on a contractual provision by which the non-resident defendant expressly agrees in advance "to submit to the jurisdiction of any court .. and to comply with all requirements necessary to give such Court jurisdiction and to permit all matters arising hereunder to be determined in accordance with the law and practice of such court ... and to abide by the final decision of such Court." Euzzino v. London & Edinburgh Ins. Co., 228 F.Supp. 431, 432 (N.D. Ill. 1964). See also Lavan Petroleum Co. v. Underwriters at Lloyds, 334 F.Supp. 1069 (S.D. N.Y. 1971); Perini Corp. v. Orion Ins. Co., 331 F.Supp. 453 (E.D. Cal. 1971); Oil Well Service Co. v. Underwriters at Lloyd's, 302 F.Supp. 384 (C.D. Cal. 1969); Wilson v. Continental Casualty Co., 255 F.Supp. 622 (D. Mont. 1966). Each of these district court decisions interprets the identical clause included in many contracts for insurance authorizing the insured to bring an action against the company in the forum of his choice. Each court relies on the specific language of the clause, emphasizing that the defendants' voluntary agreement to comply with all requirements necessary to give such court jurisdiction, to have all matters determined in accordance with the law and practice of such court and to abide by the final decision of such court, constitutes an express waiver of defendant's choice of forum. In the instant action, the confession of judgment clause authorizing "any attorney of any court of record to appear ... in such court ... and confess judgment" does not contemplate the choice of forum problems covered by the contractual waiver examined above, and this court finds that the language of the clause is insufficient to constitute an express waiver of the right to remove.

The second potential impediment to proper removal jurisdiction is the nature of the action itself, as the Illinois statute defines an expeditious remedy to enforce creditors' rights for which there is no federal equivalent. Compare Ill.Rev.Stat. ch. 110, § 50(3) (1975), with Fed.R.Civ.P. 3 & 4. That fact alone should not preclude removal jurisdiction as a validly commenced state court procedure which can be characterized as a "civil action" may be removed and recognized in the federal forum. Cf. Instituto Per Lo Sviluppo Economic Dell' Italia Meridionale v. Sperti Products, Inc., 47 F.R.D. 310 (S.D. N.Y. 1969); Tanko v. Saperstein, 149 F.Supp. 317 (N.D. Ill. 1957); Famous Realty, Inc. v. Flota Mercante Grancolombiana, 81 F.Supp. 553 (E.D. N.Y. 1948); 1A J. Moore, Federal Practice ¶ 0,1684.-3.

The third potential obstacle to proper removal jurisdiction is the judgment which, if valid, places this court in the anomalous situation of recognizing a judgment prior to the litigation on the merits. However, as the circuit court judgment has not been confirmed it is not a final judgment. Further, a state procedure cannot "prevent removal or defeat its effects." Munsey v. Testworth Laboratories, Inc., 227 F.2d 902 (6th Cir. 1955); Butner v. Neustadter, 324 F.2d 783, 786 (9th Cir. 1963). Thus an expeditious state procedure for default judgment, or by analogy for judgment by confession, cannot preclude removal jurisdiction as defined in the judicial code.

Having found that defendant's waiver of process, the nature of the state remedy, and the entry of an interim judgment do not preclude removal jurisdiction, this court must determine the manner in which this action shall proceed in the federal forum. The federal principles requiring state court orders to continue in effect after removal and providing that the federal rules govern removed actions are the touchstones for the resolution of this issue. The judicial code provides that "all injunctions, orders, and other proceedings had in such action prior to its removal shall remain in full force and effect until dissolved or modified by the district court," therefore orders or judgments entered by the circuit court prior to removal are treated as orders or judgments entered by the district court. 28 U.S.C. § 1450. See Berberian v. Gibney, 514 F.2d 790 (1st Cir. 1975); Kizer v. Sherwood, 311 F.Supp. 809 (M.D.Pa. 1970). Rule 81(c) provides that the federal rules unequivocally "apply to civil actions removed to the United States district courts from the state courts and govern procedure after removal." Thus, substantively, the judgment remains in force and effect unless vacated by this court, and procedurally the action is governed by the federal rules.

In challenging the circuit court judgment, the defendant Cahill has simply argued that the judgment exceeds the statutory authority of section 50(3) and must be vacated. While it is unclear from the pleadings whether the reconsideration urged by the defendant is in the nature of de novo or appellate review,³ this court is persuaded that the appropriate framework for review of the state court judgment is Rule 60(b)(4) which governs motions to vacate void judgments. 28 U.S.C. § 1450. Cf., Granny Goose Foods, Inc. v. Brotherhood of Teamsters Local 70 of Alameda County, 415 U.S. 423, 94 S.Ct. 1113, 39 L.Ed.2d 435 (1974).

The judgment of the circuit court was entered pursuant to the following language of the Illinois statute:

Any person for a debt bona fide due may confess judgment by himself or attorney duly authorized, without process. The application to confess judgment shall be made in the county in which the note or obligation was executed or in the county in which one or more of the defendants reside or in any county in which is located any property, real or personal, owned by any one or more of the defendants. A judgment entered by any court in any county other than those herein specified has no force or validity, anything in the power to confess to the contrary notwithstanding. Ill.Rev.Stat. ch. 110 § 50(3) (1975).

The general constitutionality of this statute cannot be questioned as confession of judgment clauses and the procedures by which judgment may be obtained have been upheld by the Supreme Court and Illinois courts. Overmyer Co. v. Frick Co., 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124 (1972); Swarb v. Lennox, 405 U.S. 191, 92 S.Ct. 767, 31 L.Ed.2d 138 (1972); First National Bank in De Kalb v. Keisman, 47 Ill.2d 364, 265 N.E.2d 662 (1971). These cases recognize that a "cognovit provision may well serve a proper and useful purpose in the commercial world and at the same time not be vulnerable to constitutional attack." Overmyer v. Frick, 405 U.S. at 188, 92 S.Ct. at 783. In Overmyer and Swarb the Court traced the history of the commercial cognovit, noting that the foundation of jurisdiction to enter judgment is consent and waiver of...