First Nat. Bank of Waukesha v. Warren

• Decision Date: 24 July 1986
• Docket Number: No. 86-1456,86-1456
• Citation: 796 F.2d 999
• Parties: FIRST NATIONAL BANK OF WAUKESHA, Petitioner, v. Robert W. WARREN, Judge, United States District Court for the Eastern District of Wisconsin, Respondent. Federal Deposit Insurance Corporation, Real party in interest.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 999

796 F.2d 999

FIRST NATIONAL BANK OF WAUKESHA, Petitioner, v. Robert W. WARREN, Judge, United States District Court for

the Eastern District of Wisconsin, Respondent.

Federal Deposit Insurance Corporation, Real party in interest.

No. 86-1456.

United States Court of Appeals, Seventh Circuit.

Argued June 5, 1986.

Decided July 24, 1986.

John A. Busch, Michael, Best & Friedrich, Milwaukee, Wis., for petitioner.

William J. French, Gibbs, Roper, Loots & Williams, Milwaukee, Wis., for respondent.

Before CUMMINGS, Chief Judge, and EASTERBROOK and RIPPLE, Circuit Judges.

EASTERBROOK, Circuit Judge.

Robert Nanz ran up large debts by kiting checks. He left a half-dozen banks holding worthless paper and spent some time in jail. One of his victims was the First National Bank of Waukesha. The Federal Deposit Insurance Corp. believes that another victim was the American City Bank & Trust Co. of Milwaukee, a defunct bank. The FDIC, acting as receiver, sold some of American City Bank's claims (including, it says, the right to bring this suit) to itself in its corporate capacity. The FDIC contends that the Bank of Waukesha defrauded American City Bank by arranging for two loans of $250,000 to cover part of the deficit in Nanz's account. American City Bank lent the $500,000, which was deposited directly into Nanz's account at American City Bank and transferred forthwith to the Bank of Waukesha, which promptly paid $428,000 to cover a check against Nanz's account, a check it had certified despite the absence of funds in that account. The nominal borrowers never repaid American City Bank. The FDIC's theory is that these borrowers--one the Chairman of the Board of the Bank of Waukesha--were in cahoots with Nanz and the Bank in an effort to reduce the Bank's losses. Each, according to the FDIC, misrepresented his personal assets to obtain the loan and then filed a petition for bankruptcy.

We do not know whether the FDIC can prove its claims, because the case has yet to go to trial. It began as an action sounding in fraud and unjust enrichment. The fraud component presented problems under the statute of limitations, but the FDIC articulated a theory of quasi-contract and constructive trust that persuaded the district judge not to dismiss the case. The district court set the case for a jury trial, which the Bank of Waukesha had requested. The parties estimated that the trial would last five weeks. Two weeks before the trial was to begin, the FDIC stated that it was electing to proceed solely on its theory of unjust enrichment. The FDIC sought to avoid the jury trial. The district court agreed with the FDIC that its election overcame the Bank of Waukesha's demand for a jury trial. A week before trial the judge stated in open court: "I conclude ... on the basis of Sears Roebuck, Roberts v. Sears & Roebuck, 617 Fed.2d, 460, a 1980 case, that restitution for the disgorgement of undue enrichment is an equity remedy with no right to trial by jury--from Page 465 of the Roberts case. ... I am sometimes prone to flop around and not get too concerned about other circuits, but when you have got a Seventh Circuit case directly on point, that is the law of the case. So I'm forced to the conclusion that we have a Court trial for unjust enrichment seeking the disgorgement of the allegedly unjust proceeds...."

The Bank of Waukesha immediately filed a petition for a writ of mandamus, asking us to compel the district court to hold a jury trial. We stayed the trial and set the case for accelerated briefing and oral argument. The only thing clear after our full consideration is that very little is clear. Roberts v. Sears, Roebuck & Co., 617 F.2d 460, 465 (7th Cir.), cert. denied, 449 U.S. 975, 101 S.Ct. 386, 66 L.Ed.2d 237 (1980), does say that "[r]estitution for the disgorgement of unjust enrichment is an equitable remedy with no right to a trial by jury", but this is obiter dictum. The question in the case was whether the plaintiff, having already had a jury trial and recovered damages, could have a second go-round on "equitable" theories; the court held that one bite at the apple is enough, and whether there should have been a jury trial in an equitable action (had there been one) was irrelevant in Roberts.

The full picture is more complex. Remedies known as "restitution" were available in courts of law and equity alike before their merger, and terms such as "restitution" and "unjust enrichment" have slowly changed from distinctive forms of action to measures of damages available in actions of all sorts. See Goff & Jones, The Law of Restitution (2d ed. 1978); Dobbs, Handbook on the Law of Remedies 229-36 (1973); 1 Palmer, The Law of Restitution Sec. 1.1 (1978). The evolution of the legal terms, coupled with the merger of the court systems, makes it difficult to say when a request for "restitution" or "constructive trust" is distinctively legal and when it is distinctively equitable--if these distinctions any longer have meaning for remedies measured solely in money. See Medtronic, Inc. v. Intermedics, Inc., 725 F.2d 440 (7th Cir.1984). Roberts supported its statement with two cases--SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d 90, 94-97 (2d Cir.1978); SEC v. Asset Management Corp., 456 F.Supp. 998, 999-1000 (S.D.Ind.1978)--that involve a very different kind of disgorgement remedy: an order in a suit by a public agency compelling the defendant to pay money to a victim, a third party not involved in the litigation. In such cases the agency seeks no money for itself. The characterization of these actions as "equitable" does not control when as here the plaintiff seeks money for its own coffers.

The parties, anticipating that we would not think Roberts dispositive, press with great vigor competing characterizations of the FDIC's claim. The Bank of Waukesha insists that the claim is "legal" because the FDIC seeks money damages on account of fraud. "Unjust enrichment," the Bank insists, is just another way to plead fraud, and the FDIC is not entitled to a "constructive trust" because the Bank paid out the funds and has nothing left that can be held in trust, constructive or express. The alternative to fraud is breach of contract, and this too is legal, if it is available at all given the lack of privity between the banks. The FDIC replies that the remedy is "equitable" because it seeks damages measured by the Bank of Waukesha's gain rather than the American City Bank's loss. The Bank of Waukesha is at least $428,000 to the good, according to the FDIC, and it is entitled to this plus any profit the Bank of Waukesha made. An accounting for profits sometimes is equitable if very complex; the FDIC says its claim also should be treated as equitable. Because the prime rate of interest (at which the Bank of Waukesha could have re-lent the $428,000) exceeded 15% in the late 1970s, the FDIC claims it is entitled to more than $2 million under this approach. The remedy at law is "inadequate," according to the FDIC, because under Wisconsin law the rate of interest on the $500,000 the American City Bank lost would be much lower. To this the Bank of Waukesha replies that the remedy the FDIC describes is at law if available at all, and that a remedy measured by American City Bank's loss is not "inadequate" just because it is lower than some alternative remedy.

We could go on, but this is enough to show the nature of the dispute. The parties disagree about the appropriate characterization of the loans made by American City Bank and about the characterization of the proceeds that were briefly in the hands of the Bank of Waukesha. They disagree about the appropriate remedies for any wrongs and about the availability of prejudgment interest. Decisions about the characterization of the wrong usually are for the trier of fact, and questions about the nature of the remedy are for the district court in the first instance. The trier of fact has yet to characterize these events, to decide who did what to whom and for whose benefit. The district judge has yet to decide whether prejudgment interest would be available on the $500,000, and if so at what rate. The parties want us to jump the gun, to resolve these important issues in advance of trial, indeed in advance of a decision by the district court.

The request presents all of the vices of an interlocutory appeal. The trial, which was to have been held in April 1986, has been blocked. The district court's trial calendar has been disrupted; it is not easy to schedule (and then reschedule) a five-week trial. Witnesses have had to rework their plans and do not know when they must appear. Meanwhile we are asked to decide some abstract questions about the characterization of banking transactions and the availability of prejudgment interest under Wisconsin (maybe federal) law. We do not have a complete record on which to resolve them, we do not have the views of the district court, and we do not know whether their resolution is important to the case. Perhaps the FDIC will fail to prove that the borrowers misled the American City Bank or that the Bank of Waukesha was responsible for their conduct. In that event none of today's disputes matters. If the FDIC does prove its claims, however, the trial is sure to present still other issues that will bring this case to us a second time. All of the reasons that have led the Supreme Court to rebuff requests to enlarge the scope of interlocutory appeals counsel against interlocutory review here. See, e.g., Richardson-Merrell, Inc. v. Koller, --- U.S. ---, 105 S.Ct. 2757, 86 L.Ed.2d 340 (1985); Gardner v. Westinghouse Broadcasting Co., 437 U.S. 478, 98 S.Ct. 2451, 57 L.Ed.2d 364 (1978); Coopers & Lybrand v. Livesay, 437 U.S. 463, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978); Flynn v. Merrick, 776 F.2d 184 (7th Cir.1985); United States General, Inc. v. Albert, 792 F.2d 678 (7th Cir. 1986). If the Bank of Waukesha had taken an interlocutory appeal, we would have had no...