Bank Leumi Le-Israel, B.M. v. Lee, LE-ISRAE

Citation928 F.2d 232
Decision Date13 May 1991
Docket NumberLE-ISRAE,No. 90-1252,B,90-1252
PartiesBANK LEUMIM., a foreign corporation, Plaintiff-Appellee, v. Dennis LEE, an individual, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Paul T. Fox, Aaron C. Horowitz, Holleb & Coff, Chicago, Ill., for plaintiff-appellee.

Jeffrey I. Gehl, Richard L. Mandel, Mandel, Lipton & Stevenson, Chicago, Ill., Dennis Lee, Barrington, Ill., for defendant-appellant.

Before CUMMINGS, WOOD, JR., and RIPPLE, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

Plaintiff-appellee Bank Leumi Le-Israel ("Bank Leumi") is a foreign bank transacting business in Chicago, Illinois. Defendant-appellant Dennis Lee ("Lee") was the president and a shareholder of Andens of Illinois, Inc. ("Andens"). Andens (not a party to this suit) imported goods for resale in the United States. In June 1987, Bank Leumi extended credit to Andens for the purchase of automobiles and other equipment. Payment of the obligations of Andens to Bank Leumi was guaranteed by Lee in a June 29, 1987 Unlimited Guaranty ("Guaranty"). 1

The Unlimited Guaranty provided in pertinent part that:

[T]he undersigned irrevocably and unconditionally guarantee to the Bank, payment when due, whether by acceleration or otherwise, of any and all liabilities of the Borrower to the Bank including but not limited to liabilities that are absolute, liquidated or contingent, however arising, and in addition all interest thereon and all attorney's fees, costs and expenses of collection incurred by the Bank in enforcing any of such liabilities.

The term "liabilities of the Borrower" shall include all liabilities, direct or contingent, joint, several or independent, of the Borrower now or hereafter existing, due to become due to, or held or to be held by, the Bank....

From September 1988 through December 1989, Bank Leumi issued letters of credit for Andens in favor of Andens' suppliers and Andens executed a series of notes to evidence Andens' obligation to Bank Leumi to repay amounts drawn on the letters of credit. In addition, Bank Leumi demanded standby letters of credit as additional security for these obligations. The notes provided that Andens would pay interest at the rate of "two percent above the rate of interest designated by [Bank Leumi] and in effect from time to time, as its Designated Rate, adjusted when said Designated Rate changes." The notes also provided for acceleration of the balance due in the event of Andens' bankruptcy.

On December 22, 1988, Andens filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The Guaranty provided that the bankruptcy of the borrower was an event of default entitling Bank Leumi to enforce the obligations against the guarantor. Bank Leumi then declared a default and made a demand on Lee for payment of the accelerated balance. Lee did not respond to the demand for payment and Bank Leumi filed suit seeking to enforce the Guaranty.

Bank Leumi moved for summary judgment and Lee filed a motion in opposition to summary judgment. The district court found that no genuine issue of material fact existed and granted summary judgment in favor of Bank Leumi on November 28, 1989. On December 15, 1989, Lee filed a motion to alter the judgment pursuant to Rule 59(e) and Bank Leumi filed its opposition to Lee's motion to alter on December 26, 1989. Lee filed a notice of appeal on December 28, 1989, and the district court, believing that the notice of appeal divested the trial court of jurisdiction, dismissed Lee's motion to alter as moot. Lee then moved for reconsideration of the district court's order dismissing the motion to alter. The district court, upon reconsideration, correctly found that a timely motion for alteration or amendment of judgment under Rule 59 suspends the finality of the judgment and therefore stays the time for appeal until disposition of the motion. FED.R.APP.P. 4(a)(4); see Charles v. Daley, 799 F.2d 343, 347 (7th Cir.1986); see also Wikoff v. Vanderveld, 897 F.2d 232, 236 (7th Cir.1990). The district court then amended the amount of damages awarded in the original judgment by increasing the amount of the interest award and reducing the award of attorneys' fees. Lee filed a timely notice of appeal from the amended judgment order. The district court had diversity jurisdiction pursuant to 28 U.S.C. Sec. 1332 and this court has appellate jurisdiction pursuant to 28 U.S.C. Sec. 1291.

We review de novo a district court's decision to grant summary judgment and apply the same standard as that employed by the district court. Panozzo v. Rhoads, 905 F.2d 135, 137 (7th Cir.1990). Therefore we will affirm the district court's judgment only if there is no genuine issue of material fact and Bank Leumi is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); see DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir.1987).

Lee first argues that summary judgment was improperly granted because there was a genuine issue of material fact concerning the continued existence of the Guaranty. Lee contends, for the first time on appeal, that the Guaranty terminated prior to the issuance of the letters of credit due to the payment of the original underlying indebtedness. However, we need not reach the merits of this argument. The Federal Rules of Civil Procedure require affirmative defenses to be specifically pleaded. 2 FED.R.CIV.P. 8(c). Rule 8(c) provides that a party must "set forth affirmatively" the defenses of "payment, release, ... and any other matter constituting an avoidance or affirmative defense."

The purpose behind Rule 8(c) is to give plaintiff adequate notice prior to trial of the defenses that the defendant intends to assert. Fort Howard Paper Co. v. Standard Havens, Inc., 901 F.2d 1373, 1377 (7th Cir.1990). Lee did not affirmatively plead in the district court that the Guaranty was terminated through payment or release. In response to the allegation of Bank Leumi's complaint that the notes at issue were covered by the Guaranty, Lee makes a general denial but "affirmatively states that the guarantees speak for themselves." Bank Leumi further alleged in its complaint that it "demanded Lee and Padda pay the balance due under the Guarantees, equaling the amount due from Andens to Bank Leumi, but they, and each of them, have unreasonably and vexatiously refused to do so." In response to this allegation, Lee "denies that he has unreasonably or vexatiously refused to make payments thereon but affirmatively states that Bank Leumi was to proceed against standby letters of credit acting as collateral securing the notes prior to initiating an action against the Lees." Neither of these responses may fairly be characterized as asserting the affirmative defenses of payment or release of the Guaranty. Merely stating that the Guarantees "speak for themselves" is not sufficient to put Bank Leumi on notice that Lee intends to defend on the basis that the Guaranty is terminated or released by virtue of payment.

Failure to plead an affirmative defense results in a waiver of that defense. See DeValk, 811 F.2d at 334; A.D.E. Inc. v. Louis Joliet Bank & Trust Co., 742 F.2d 395, 397 (7th Cir.1984); Pinto Trucking Serv., Inc. v. Motor Dispatch, Inc., 649 F.2d 530, 534 (7th Cir.1981). In DeValk we held that a technical failure to plead an affirmative defense is not fatal when the parties have argued the defense in the district court. 811 F.2d at 334. That was not done here. Lee alleges in his motion opposing summary judgment that the original borrowings in connection with the Guaranty were paid. However, Lee does not explain or affirmatively set forth why the alleged payment would relieve him of his obligation under the Guaranty--particularly in light of the "unlimited" nature of the Guaranty.

We find that Lee failed to assert the affirmative defense of payment or release of the Guaranty as required by Rule 8(c) and Lee has therefore waived that defense. Lee now urges this court to accept as a ground for reversal an argument that he failed to raise in either his answer or his motion opposing summary judgment. As we said in Erff v. MarkHon Indus., Inc., "[a] trial judge may properly depend upon counsel to apprise him of the issues for decision. He is not obligated to conduct a search for other issues which may lurk in the pleadings." 781 F.2d 613, 619 (7th Cir.1986) (quoting Desert Palace, Inc. v. Salisbury, 401 F.2d 320, 324 (7th Cir.1968)). Thus Lee has waived the issue of discharge of the Guaranty through payment by failing to properly raise it as an affirmative defense in the district court.

Lee next argues that the summary judgment was improper because a genuine issue of material fact existed regarding an alleged oral modification of the Guaranty. We assume that this issue is raised in the nature of an alternative pleading since a Guaranty that has been terminated through payment could not be subsequently orally modified. Apparently Lee is arguing that even if the Guaranty was not discharged through payment, it was orally modified to exclude the letter of credit financing from the scope of its coverage. The issue of oral modification is obliquely alluded to in Lee's affidavit supporting his opposition to the summary judgment:

When I requested the loans on behalf of Andens without such standby letters of credit, based upon my guarantees and the guaranty of Kuldershan Padda, as well as the primary obligation of Andens, Andens was turned down. I was told that the guarantees were immaterial to the transaction, but that these transactions could only be supported with standby letters of credit.

The district judge found that although Lee had suggested there was an oral modification of the Guaranty, it did not rise to the level of a genuine issue of material fact that would preclude the grant of summary judgment in...

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