Intern. Financial Services v. Chromas Tech.

• Decision Date: 23 January 2004
• Docket Number: No. 02-4079.,No. 02-4188.,02-4079.,02-4188.
• Parties: INTERNATIONAL FINANCIAL SERVICES CORPORATION, an Illinois corporation, Plaintiff-Appellee, Cross-Appellant, v. CHROMAS TECHNOLOGIES CANADA, INC., a Canadian Corporation, Defendant-Appellant, Cross-Appellee, and Didde Corporation, et al., Defendants, Cross-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

356 F.3d 731

INTERNATIONAL FINANCIAL SERVICES CORPORATION, an Illinois corporation, Plaintiff-Appellee, Cross-Appellant, v. CHROMAS TECHNOLOGIES CANADA, INC., a Canadian Corporation, Defendant-Appellant, Cross-Appellee, and Didde Corporation, et al., Defendants, Cross-Appellees.

No. 02-4079.

No. 02-4188.

United States Court of Appeals, Seventh Circuit.

Argued September 26, 2003.

Decided January 23, 2004.

COPYRIGHT MATERIAL OMITTED

Douglas A. Albritton, Freeborn & Peters, Steven J. Roeder (argued), Chicago, IL, for Plaintiff-Appellee.

Damon E. Dunn (argued), Funkhouser, Vegosen, Liebman & Dunn, Chicago, IL, for Defendant-Appellant.

Before FLAUM, Chief Judge, and BAUER and MANION, Circuit Judges.

MANION, Circuit Judge.

The International Financial Services Corporation (International) finances printing presses. It sued various defendants for breach of a contract to produce a printing press and for fraud. A jury found that defendant Chromas Technologies Canada, Incorporated (Chromas), was the alter ego of defendant Didde Web Press Corporation (Didde Web Press), that Chromas was liable for breach of contract, and that Chromas was not liable for fraud. The district court then entered judgment against Chromas in the amount of $1,099,277.38. Chromas appeals on the grounds that the district court, and not the jury, should have decided whether to pierce the corporate veil under an alter ego theory and that the damage award was irrationally high. We vacate the judgment and remand so that the district court may determine whether to disregard the corporate entity and so that it may reconsider the amount of the judgment.

I.

International finances printing presses for small to medium-sized businesses. Over the years, International has financed many presses, including the Aquaflex, Webtron, and Zig Zag brand names. Although the companies that made these presses had been independent competitors, by 1998 they were all owned by one company, the Didde Corporation.

In its complaint, International alleged that it advanced $949,649.60 for a printing press that was never built and that, from September 1999 through February 2000, it was misled into making payments to Didde Web Press, a manufacturer of printing presses that was well on its way to bankruptcy. All along, International thought it was really doing business with Chromas, an entirely different manufacturer. Didde Web Press and Chromas were not strangers. Both were then owned by the Didde Corporation. International sued Chromas and Didde Web Press in the district court for breach of contract and fraud, claiming $949,649.60 in damages, and it also brought action against various other defendants. To succeed in its claim against Chromas, International had to show that the separate corporate status between Chromas and Didde Web Press was invalid.

The district court heard the case under its diversity jurisdiction and applied the substantive law of Illinois. Overruling the objection of Chromas's counsel, the district court submitted to the jury the issue of whether the corporate veil should be pierced. The jury found that (1) the corporate veil should be pierced because Chromas was the alter ego of Didde Web Press, (2) Chromas was liable for breach of contract, and (3) Chromas was not liable for fraud. The jury awarded International $1,099,277.38 plus "documented incurred legal fees," which accounted for the monetary award that exceeded by $149,627.78 the amount that International actually claimed in damages. International, moreover, had not requested attorneys' fees. The district court then entered judgment against Chromas for $1,099,277.38 and, despite Chromas's motion under Fed. R.Civ.P. 59 to adjust the award to no more than International had claimed in damages, later refused to alter that judgment.

Because the only other remaining defendants were in bankruptcy proceedings, the district court concluded that there was no just reason to delay the appeal of that judgment, and it certified the judgment against Chromas for interlocutory appeal under Fed.R.Civ.P. 54(b). Chromas then filed this appeal, arguing that the issue of whether to pierce the corporate veil should not have been submitted to the jury, that there must be a new trial on the issue of damages because the jury's award was excessive, and that this court should enter summary judgment in its favor. International cross-appeals, requesting that, if this court were to remand for a new trial on the claim for breach of contract, we also would require a new trial on the claim for fraud.

II.

We turn first to the question of whether International had a right to a jury trial on the issue of piercing the corporate veil. Our review of this issue of law is plenary, as is our review of any issue of law. E.g., Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 749-50 (7th Cir.1993). Even where, as here, a district court is applying the substantive law of a state, federal procedural law controls the question of whether there is a right to a jury trial. Simler v. Conner, 372 U.S. 221, 222, 83 S.Ct. 609, 9 L.Ed.2d 691 (1963). Under Fed.R.Civ.P. 38(a), there is a right to a jury trial where either the Seventh Amendment or an ordinary statute of the United States so requires. Because International relies on no ordinary statute to support its assertion that it was entitled to a jury trial, its claimed right to a jury trial depended upon the Seventh Amendment. The Seventh Amendment limits the right to a jury trial to "[s]uits at common law, where the value in controversy shall exceed twenty dollars." It is therefore clear, and the parties do not dispute, that International was entitled to demand a jury trial on its breach of contract claim: on that claim, International sought money damages, and such a claim would have been brought as a suit at common law. See, e.g., Senn v. United Dominion Indus., Inc., 951 F.2d 806, 814 (7th Cir.1992).

That observation, however, is not determinative of this appeal. Even when a plaintiff is entitled to a jury trial on his legal claims, the district court must nonetheless make an independent judgment as to any equitable issue. Davenport v. DeRobertis, 844 F.2d 1310, 1314 (7th Cir.1988) (stating that "the district judge must make an independent judgment on equitable issues insofar as they are not identical to the legal issues" that the jury decided); Skinner v. Total Petroleum, Inc., 859 F.2d 1439, 1443 (10th Cir.1988) (stating that, where both equitable and legal issues are present, "trial is both to the jury and to the court"); see also Smith-Haynie v. District of Columbia, 155 F.3d 575, 578 (D.C.Cir.1998) (stating that, "[g]enerally speaking, questions sounding in equity are for a judge to decide"). This proposition is true even though the jury's determination of factual issues common to both the legal and equitable claims would bind the court. See Hunter v. Allis-Chalmers Corp., 797 F.2d 1417, 1421 (7th Cir.1986). The dispositive question, therefore, is whether piercing the corporate veil under the law of Illinois is, according to federal procedural law, a form of equitable relief. See GTFM, L.L.C. v. TKN Sales, Inc., 257 F.3d 235, 238-39 (2d Cir.2001) (stating that the right to a jury trial in federal court hinges on federal procedural law); 9 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 2303 (1995 & Supp.2003).

When deciding whether a remedy is equitable or legal, we engage in a two-pronged analysis. First, we must "compare the ... action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature." Tull v. United States, 481 U.S. 412, 417-18, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987). The latter inquiry is more important than the former. Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 42, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989); Lebow v. American Trans Air, Inc., 86 F.3d 661, 668 (7th Cir.1996). At first blush, it is not clear that the initial prong of inquiry, asking whether piercing the corporate veil is comparable to an 18th century action brought in the courts of England in law or in equity, is relevant. Piercing the corporate veil, after all, is not itself an action; it is merely a procedural means of allowing liability on a substantive claim, here breach of contract. Central States, SE and SW Areas Pen. Fund v. Brumm, 264 F.Supp.2d 697, 700 n. 3 (N.D.Ill.2003); 1 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 41.28 (1999 & Supp.2003) (hereinafter 1 Fletcher). Nonetheless, in these circumstances we must ask "whether a modern legal right has a sufficient analogy to a right enforced by common law courts in the eighteenth century." Marseilles Hydro Power v. Marseilles Land & Water, 299 F.3d 643, 649 (7th Cir.2002) (emphasis in original omitted).

Here, such an inquiry is inconclusive: as the Second Circuit has explained in detail, the doctrine of piercing the corporate veil has roots in both courts of law and equity. See Wm. Passalacqua Builders v. Resnick Developers, 933 F.2d 131, 135-36 (2d Cir. 1991). This conclusion is unsurprising, because most traditional issues have roots in both courts of law and equity. Crocker v. Piedmont Aviation, Inc., 49 F.3d 735, 745 (D.C.Cir.1995). As the historical inquiry is indeterminate, the outcome of this appeal hinges on the second half of our analysis, whether piercing the corporate veil under Illinois law is legal or equitable in nature.

When considering whether a remedy is equitable or legal, we look to the nature of the relief. State Farm Mut. Auto. Ins. Co. v. Mossey, 195 F.2d 56, 60 (7th Cir.1952). Unfortunately, there is no cut-and-dried rule that allows a court to determine whether a remedy is legal or equitable in nature. See 9 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 2302. It is possible, nonetheless, to draw...