Centurion Reinsurance Co., Ltd. v. Singer, 86-1979

• Court: U.S. Court of Appeals — Seventh Circuit
• Writing for the Court: Before BAUER, Chief Judge, and WOOD and POSNER; POSNER
• Citation: Centurion Reinsurance Co., Ltd. v. Singer, 810 F.2d 140 (7th Cir. 1987)
• Decision Date: 23 January 1987
• Docket Number: No. 86-1979,86-1979
• Parties: CENTURION REINSURANCE COMPANY, LIMITED, Plaintiff-Counterdefendant-Appellee, v. Howard S. SINGER and L. Steven Medgyesy, Defendants-Counterplaintiffs- Appellants.

Page 140

810 F.2d 140

CENTURION REINSURANCE COMPANY, LIMITED Plaintiff-Counterdefendant-Appellee, v. Howard S. SINGER and L. Steven Medgyesy Defendants-Counterplaintiffs- Appellants.

No. 86-1979.

United States Court of Appeals Seventh Circuit.

Argued Dec. 1, 1986.

Decided Jan. 23, 1987.

Arthur Don, D'Ancona & Pflaum, Chicago, Ill., for defendants-counterplaintiffs-appellants.

Patrick J. Phillips, Jenner & Block, Chicago, Ill., for plaintiff-counterdefendant-appellee.

Before BAUER, Chief Judge, and WOOD and POSNER, Circuit Judges.

POSNER, Circuit Judge.

This appeal from an order dissolving a preliminary injunction requires us to untangle a confused procedural skein in order to determine the proper equity procedure to follow in an unusual factual and procedural setting--which we shall ruthlessly simplify to make this opinion intelligible.

Centurion Reinsurance Company was formed in 1979 as a Cayman Islands corporation to engage in the reinsurance business. It had and has two shareholders--Charles Hiatt, the majority shareholder and chief executive officer of the company, and Howard Singer. Hiatt and Singer contributed the capital for the company in the form of promissory notes backed by a letter of credit furnished by Singer. Singer signed a consulting agreement with the company under which he was to receive an annual compensation, not exceeding $25,000, of three percent of Centurion's "gross net written premiums."

In August 1981, fearing that Hiatt was diverting Centurion's premium income to his personal use, Singer caused $200,000 of that income, which had been deposited in Centurion's Cayman Islands bank account, to be transferred to an account controlled by Singer in a bank in Chicago. Early in 1982 Centurion brought this suit against Singer, under the diversity jurisdiction, seeking to recover the money in the account; Centurion alleged that Singer had converted this money. Centurion moved for and obtained a preliminary injunction forbidding Singer to remove the money from the account pending decision on the merits of Centurion's suit.

Singer had counterclaimed, claiming breach of the consulting agreement and of certain oral arrangements, and also federal securities fraud and common law fraud. And he had impleaded Hiatt, claiming that Hiatt had violated his fiduciary obligations, as majority shareholder and chief executive officer, to both Singer and Centurion--for the counterclaim contained derivative claims against Hiatt on behalf of Centurion as well as Singer's personal claims against him. Singer tried to depose Hiatt but was met by a psychiatrist's letter which said that Hiatt was too deranged to testify truthfully. (Yet Hiatt remains in control of Centurion.) Meanwhile, an insurance company whose policies Centurion had reinsured was suing Centurion in arbitration, seeking $1.1 million in damages; this proceeding is still going on. Apparently, in the four years since the alleged conversion, all of Centurion's assets other than the promissory notes and the money frozen in the bank account in Chicago have evaporated.

In April 1986, after abortive settlement negotiations, Centurion asked the district judge to dissolve the preliminary injunction (now four years old) and order the money in the account (grown through compounding of interest to almost $300,000) paid over to Centurion. Without conducting an evidentiary hearing the judge dissolved the injunction and ordered the money turned over to Centurion, on the ground that the money was Centurion's. Singer appeals.

Orders dissolving preliminary injunctions, like orders granting, denying, and modifying such injunctions, are expressly made appealable by 28 U.S.C. § 1292(a)(1) regardless of finality. Although we cannot find a case discussing the standard of appellate review of an order dissolving a preliminary injunction, we can think of no reason why it would be different from the standard applicable to the more common case of an order granting or denying such an injunction, and we hold that the standards are the same. The standard is whether the district court abused its discretion--which means, committed an error of law or a clear error of fact or struck an unreasonable (not merely erroneous) balance among the considerations that a district judge is required to weigh in deciding whether to grant preliminary equitable relief. Lawson Products, Inc. v. Avnet, Inc., 782 F.2d 1429, 1437 (7th Cir.1986). In striking that balance in a dissolution case the district judge must answer the following question: Is the irreparable harm to the plaintiff if the injunction is dissolved, weighted by the probability that dissolution would be a mistake because the plaintiff will go on to win at trial, greater or less than the irreparable harm to the defendant if the injunction is not dissolved, weighted by the probability that allowing the injunction to continue in force would be a mistake because the defendant, not the plaintiff, will win at trial? In other words, is the expected cost of dissolving the injunction--considering the probability that dissolution would be erroneous because the plaintiff really is entitled to injunctive relief, and the consequences of such an error--greater or less than the expected cost of not dissolving the injunction? If greater, the injunction should not be dissolved; if less, it should be. American Hospital Supply Corp. v. Hospital Products Ltd., 780 F.2d 589, 593-94 (7th Cir.1986). We agree with Singer that the district judge did not go through all these steps in this case, but in the peculiar circumstances of this case he didn't have to.

To begin with, the preliminary injunction had been obtained by Centurion, to prevent Singer from dissipating funds that belonged to Centurion and had been converted by Singer, who now admits that he had no authority to transfer money from Centurion's bank account. The injunction did not run in favor of Singer and he had no equity in resisting its dissolution. Nor could he be harmed by it.

What troubles Singer is not the dissolution of an injunction that had tied his hands but the accompanying order that the bank retransfer the money to Centurion. The district judge's reasoning was simple but persuasive. The money is Centurion's property; Singer converted it. If Singer had grounds for contesting Centurion's right to the property, then he was entitled to a trial, as in any suit for conversion that involves contested factual issues. But if there are no contested factual issues the district judge can proceed summarily. See Fed.R.Civ.P. 56; SEC v. Frank, 388 F.2d 486, 490 (2d Cir.1968) (Friendly, J.). Singer admits that the money is Centurion's. If A sues B for a watch in B's possession, and B admits that it is A's watch and A is entitled to its immediate possession, the judge can order B to give A the watch without the formality of an evidentiary hearing; by definition, the only purpose of such a hearing would be to resolve a factual dispute. The present case is a little more complicated because Singer argues that Centurion, the counterpart to A in our example, will not get the "watch"; Hiatt will steal it, as he has stolen or otherwise dissipated (so Singer claims, with some show of reason) Centurion's other assets. But this argument, even if accepted, does not qualify Centurion's right to the $300,000. It would support a receivership or conservatorship of some sort to protect Centurion from Hiatt, but Singer has never sought such relief. He cannot just appoint himself Centurion's receiver, as in effect he did by converting its principal (and now virtually its only) asset.

But if the judge's order were purely and simply an order resolving on the merits Centurion's action for conversion, its status as an injunction would be in considerable doubt, and we might not have jurisdiction over Singer's appeal. An order of replevin, like an ordinary money judgment, is a legal rather than an equitable remedy, and it is therefore appealable only if final. See United States v....