Divane Jr. v. Krull Electric Co.

• Decision Date: 20 October 1999
• Docket Number: No. 98-2095,98-2095
• Citation: 194 F.3d 845
• Parties: (7th Cir. 1999) William T. Divane, Jr., et al., Plaintiffs-Appellees, v. Krull Electric Co., Inc., Defendant, and Lee Electric Co., Respondent-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 845

194 F.3d 845 (7th Cir. 1999)

William T. Divane, Jr., et al., Plaintiffs-Appellees, v. Krull Electric Co., Inc., Defendant, and Lee Electric Co., Respondent-Appellant.

No. 98-2095

In the United States Court of Appeals For the Seventh Circuit

Argued February 8, 1999

Decided October 20, 1999

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 95 C 6108--George W. Lindberg, Judge.

Before Posner, Chief Judge, and Bauer and Kanne, Circuit Judges.

Kanne, Circuit Judge.

Pursuant to a fraudulent conveyance action, Lee Electric Co. was served with a motion for turnover of its assets, which it met with a motion to quash. The district court's grant of the motion for turnover and denial of the motion to quash are the bases for this appeal, which continues a sad history of "piecemeal litigation" that Judge Lindberg called "an embarrassment of the judicial system." On appeal, Lee Electric Co. claims that it was denied due process by the district court's failure to allow it to supplement its motion to quash with further motions and appeals the district court's grant of appellee's motion to turnover. We affirm the decisions of the district court.

I. History

In 1995, plaintiffs-appellees William T. Divane, Jr., et al., known collectively as the Electrical Insurance Trustees ("Trustees"), filed a complaint against defendant Krull Electric Co. claiming that Krull Electric owed Trustees delinquent benefit fund contributions pursuant to the terms of a collective bargaining agreement. Krull Electric denied liability, claiming that it had no payment obligation, and filed a counterclaim alleging that the demand for payment constituted a violation of Section 302 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. sec. 186 (1995). A bench trial commenced on November 13, 1997, and on December 23, 1997, the court entered a judgment in favor of Trustees in the amount of $54,001.07. Later, the court awarded Trustees an additional $37,654 in attorneys' fees and $2,526.07 in costs.

Krull Electric was an Illinois corporation that was wholly owned by a single shareholder, Pamela Lee. She also wholly owned Lee Electric and served as president of both corporations. At some point between 1994 and 1997, Krull Electric transferred much of its assets to Lee Electric. Lee Electric claims that this transfer was made for consideration because Krull Electric assumed jobs that Lee Electric started and because the two swapped job material. Trustees claim that these transfers were not made for consideration and constitute a fraudulent conveyance.

Following these conveyances, Krull Electric lacked sufficient assets to cover the judgment against it, so to satisfy the judgment against Krull Electric, Trustees filed a motion to discover assets of Lee Electric and, later, a motion for turnover of Lee Electric's assets on the fraudulent transfer theory. The motion for turnover was served on Lee Electric on March 24, 1998. Lee Electric responded the next day to the motion for turnover with a motion to quash, alleging that service of the motion by Trustees' attorney was improper as a matter of law. The motion to quash did not raise any other defenses or objections to the motion for turnover.

At the motion hearing held Friday, March 27, 1998, Judge Lindberg heard arguments from both parties. Trustees presented Lee Electric and the court with relevant authority which suggested that Lee Electric's legal position in the motion to quash was meritless. Lee Electric promised to withdraw the motion if, during the course of its research, it determined that its argument was without merit. Lee Electric raised no further defenses or objections to the motion at the hearing. After discussing with both parties the question of service, the judge told the parties that he would read their briefs and provide "either a ruling date or a ruling." On Monday, March 30, 1998, the court entered an order granting Trustees' motion for turnover and denying Lee Electric's motion to quash. On April 9, 1998, Lee Electric filed a Federal Rule of Civil Procedure 59(e) motion to vacate the order of March 30. On April 16, 1998, the court denied Lee Electric's Rule 59(e) motion to vacate on the grounds that its motions constituted "piecemeal litigation."

II. Analysis

Lee Electric argues that, by entering the March 30, 1998, order without allowing an opportunity substantively to rebut the motion for turnover, the district court denied it due process of law. We review such district court proceedings for abuse of discretion. See Gile v. United Airlines, Inc., 95 F.3d 492, 495 (7th Cir. 1996). We will not find that a district court has abused its discretion unless one or more of the following circumstances exists: "(1) the record contains no evidence upon which the court could have rationally based its decision; (2) the decision is based on an erroneous conclusion of law; (3) the decision is based on clearly erroneous factual findings; or (4) the decision clearly appears arbitrary." Id. (citing Haworth, Inc. v. Herman Miller, Inc., 998 F.2d 975, 977 (Fed. Cir. 1993)). Lee Electric also argues the district court erred in granting the motion for turnover on the motion's merits. We review the district court's orders in post-judgment proceedings for abuse of discretion. See Resolution Trust Corp. v. Ruggiero, 994 F.2d 1221, 1226-27 (7th Cir. 1993). To the extent that we determine Lee Electric has waived these substantive arguments by failure to raise them prior to the Rule 59(e) motion, we will determine these issues only by ruling on the propriety of the denial of Lee Electric's Rule 59(e) motion. We also review a district court's ruling on a Rule 59(e) motion for abuse of discretion. See Popovits v. Circuit City Stores, 185 F.3d 726, 730 (7th Cir. 1999); In re Prince, 85 F.3d 314, 324 (7th Cir. 1996). A Rule 59(e) motion should be granted if there exists "a manifest error of law or fact," so as to enable "the court to correct its own errors and thus avoid unnecessary appellate procedures." Moro v. Shell Oil Co., 91 F.3d 872, 876 (7th Cir. 1996).

A. Denial of Due Process

Lee Electric contends that it was denied due process by the district court's failure to provide it with a full and fair opportunity to respond to the motion for turnover. A court cannot enter a summary judgment without notifying the parties of its intentions or allowing them an opportunity to cure or respond. See Simpson v. Merchants Recovery Bureau, 171 F.3d 546, 549 (7th Cir. 1999); English v. Cowell, 10 F.3d 434, 437 (7th Cir. 1993). Since "[t]he opportunity to respond is deeply embedded in our concept of fair play and substantial justice," making such a ruling sua sponte without notice or an opportunity to respond violates the due process rights of the adverse party. Id. at 437. However, mere failure to respond does not constitute a lack of opportunity, since "[a]n opportunity squandered does not make out a due process claim." EEOC v. Bay Shipbuilding Corp., 668 F.2d 304, 310 (7th Cir. 1981). To determine whether the opportunity to respond has been withheld or merely squandered, we review the record to determine whether a party has had a full and fair opportunity to address the issues involved in the contested motion. See Cool Fuel, Inc. v. Connett, 685 F.2d 309, 312 (9th Cir. 1982).

A careful review of the record plainly demonstrates to us that Lee Electric had multiple opportunities to address the merits of the motion for turnover. One day after it received the motion for turnover, Lee Electric filed a motion to quash on the grounds of improper service of process. While the Federal Rules of Civil Procedure do not strictly apply to post-judgment proceedings, see Ruggiero, 994 F.2d at 1226, the purposes of post-judgment proceedings, to be "swift, cheap, informal," are frustrated by piecemeal litigation. Id. Under Rule 12(g) of the Federal Rules, Lee Electric would have been required to append all Rule 12 defenses and objections that it then had available to the motion to quash. See O'Brien v. R. J. O'Brien and Assoc., 998 F.2d 1394, 1400 (7th Cir. 1993) (requiring that all Rule 12 defenses and objections be consolidated in the first motion). Although Lee Electric need not have raised all of the substantive claims that it has since discovered in the motion to quash, some, including the claim based on the statute of limitations, would have been required. Lee Electric's decision instead to raise a lone, frivolous service of process claim led the district court rationally to conclude that Lee Electric had no substantive objections to the motion for turnover, and "a frivolous motion buys the movant no time." Ruggiero, 994 F.2d at 1227.

The facts here closely parallel those at issue in Ruggiero. In Ruggiero, the Resolution Trust Corporation ("RTC") sought and won a judgment against a delinquent creditor, Ruggiero. During post-judgment proceedings, RTC filed a motion to impose a resulting trust on considerable real property, which Ruggiero claimed was owned by his wife. In response to the motion, Ruggiero filed a flurry of procedural responses rather than substantively addressing the merits of the RTC motion. When the district court summarily granted the RTC motion, Ruggiero appealed, claiming that his due process rights were violated by the district court's failure to hold a trial. We upheld the district court's ruling, finding that Judge Shadur "drew the logical inference from [Ruggiero's] silence," in concluding that Ruggiero had no...