King v. Gibbs
| Decision Date | 01 June 1989 |
| Docket Number | 88-3441,Nos. 88-2668,s. 88-2668 |
| Citation | 876 F.2d 1275 |
| Parties | , Fed. Sec. L. Rep. P 94,466, 13 Fed.R.Serv.3d 1378 Joan Harding KING, et al., Original Plaintiffs, v. Bruce J. GIBBS, Defendant and Cross-Claim Plaintiff-Appellant, v. Richard C. BLUM, William Roach, Edward Scarff, Arthur H. Stromberg, William D. Walsh and Advanced Systems, Inc., Defendants and Cross-Claim Defendant-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
John A. Cook, Richard D. Darby, Jr., Chicago, Ill., for defendant and cross-claim plaintiff-appellant.
Joel G. Chefitz, Patrick J. Lamb, Katten Muchin & Zavis, Chicago, Ill., for defendant and cross-claim defendants-appellees.
Before COFFEY, FLAUM, and RIPPLE, Circuit Judges.
In Heizer Corporation v. Ross, 601 F.2d 330, 334 (7th Cir.1979), we held that a securities wrongdoer was not entitled under federal law to indemnification for its liabilities. Gibbs, the cross-claim plaintiff, claims that as an innocent defendant, rather than a wrongdoer, the rule of Heizer is inapplicable to his case. The district court held that even if Gibbs could prove that he was innocent, and the cross-claim defendants were wrongdoers, he would still have no federal right to indemnification. We agree with the district court that there is no right to indemnification under the securities laws or federal common law and, therefore, affirm.
The underlying action in this case was a securities fraud claim in which King and several fellow plaintiffs alleged that the defendants had made material misstatements in connection with the purchase and sale of securities in violation of Sec. 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. Sec. 240.10b-5 (1975). The defendants in the underlying action included: Advanced Systems, Inc. (ASI); William Roach, ASI's president; Bruce Gibbs, ASI's controller and assistant treasurer; as well as various members of ASI's board of directors. The action was eventually settled for a substantial amount of money, to be funded entirely by ASI, resulting in all claims against the defendants being dismissed with prejudice.
During the pendency of the underlying action, Gibbs filed cross-claims against the other defendants alleging that he was an innocent conduit of false information transmitted by the defendants to the underlying plaintiffs. Gibbs prayed for contribution indemnification for the money Gibbs expended in defending the underlying action, 1 and for damages based on pendent state claims for retaliatory discharge, constructive discharge, and intentional infliction of emotional distress.
The cross-claim defendants moved to dismiss Gibbs' contribution and indemnification cross-claims for failure to state a ground upon which relief could be granted. The cross-claim defendants argued that the contribution count should be dismissed because no possibility existed that Gibbs would have to pay damages to the underlying plaintiffs given ASI's agreement to satisfy the amount of the settlement. The district court agreed and dismissed the cross-claim for contribution with prejudice. Gibbs does not appeal that decision. The district court also dismissed the indemnification claim with prejudice. Citing only Heizer, 601 F.2d at 330, the court held that there is no right to indemnification under the federal securities laws. With all of Gibbs' federal claims dismissed, the court proceeded to dismiss without prejudice the pendent state claims. Gibbs now appeals the dismissal of his cross-claim for indemnification and his pendent state claims. We affirm.
Initially, we must determine whether we have jurisdiction over this appeal. The cross-claim defendants have objected to our jurisdiction on the grounds that Gibbs has not appealed from a final judgment entered pursuant to Rule 58 of the Federal Rules of Civil Procedure or from an interlocutory decision certified by the district court under Rule 54(b). 28 U.S.C. Sec. 1291 gives us jurisdiction over an appeal only if the district court has rendered a "final decision." According to the cross-claim defendants, without a Rule 58 judgment or a Rule 54(b) certification, there is no "final decision" of the district court from which Gibbs can properly appeal to give us jurisdiction. 2
The district court orally granted the cross-claim defendants' Motion to Dismiss Gibbs' Cross-Claims for failure to state a ground upon which relief could be granted on July 27, 1988. At that time the court had not yet granted final approval to the settlement of the underlying claims and, thus, the court's order was interlocutory in nature. Such an order can be a final decision only if the specific procedural requirements of Rule 54(b) are satisfied. Ohio-Sealy Mattress Mfg. Co. v. Duncan, 714 F.2d 740, 743 (7th Cir.1983) (). Since everyone agrees that the requirements of Rule 54(b) were not satisfied, the July 27 order was not a final decision for purposes of Sec. 1291. 3
The district court granted final approval to the underlying settlement on August 22, 1988, in an order which it denominated "Final Judgment And Order Approving Settlement." No mention was made in the order of Gibbs' cross-claims and the order neither was denominated a Rule 58 final judgment nor met the requirements of a Rule 58 judgment since it did not state "the fact that the plaintiff [Gibbs] has been denied all relief." Reytblatt v. Denton, 812 F.2d 1042, 1044 (7th Cir.1987). Thus, as of August 22, no proper final decision had been entered on Gibbs' cross-claims.
Nevertheless, on August 25, 1988, Gibbs filed a notice of appeal of the district court's July 27 order. In the course of briefing the appeal, the cross-claim defendants objected to appellate jurisdiction arguing that the July 27 order was not a final judgment pursuant to either Rule 58 or Rule 54(b) and, therefore, the appellate court had no jurisdiction over the appeal. Gibbs then returned to the district court to attempt to perfect the posture of the case for appeal.
On December 15, 1988, the district court entered an order entitled "Rule 58 final judgment," which dismissed Gibbs cross-claims nunc pro tunc as of August 22. The district court's order corrected its failure to enter a Rule 58 judgment with regard to Gibbs on August 22. The December 15 order rectified that problem because it explictly stated that Gibbs' cross-claims were dismissed nunc pro tunc as of August 22. The cross-claim defendants argue, however, that there are still two jurisdictional problems.
First, the cross-claim defendants argue that the August 22 order is irrelevant because Gibbs has only appealed from the July 27 order. We agree that Gibbs has only purported to appeal from the July 27 order but we do not find this dispositive of our jurisdiction. We have jurisdiction to consider an appeal from a non-final judgment where a subsequent judgment effectively terminates the litigation. Rivers v. Washington County Board of Education, 770 F.2d 1010, 1011 (11th Cir.1985); Sandidge v. Salen Offshore Drilling Company, 764 F.2d 252, 255 (5th Cir.1985); Anderson v. Allstate Insurance Company, 630 F.2d 677, 680-81 (9th Cir.1980). 4 In this case, the order of August 22 effectively terminated the litigation and thus we can consider the appeal from the non-final July 27 judgment of the district court dismissing Gibbs' cross-claims.
Second, the cross-claim defendants contend that once Gibbs filed his notice of appeal, the district court was without jurisdiction to enter its December 15 nunc pro tunc order. By making this argument, the cross-claim defendants put themselves in the anomalous position of arguing that after the August 25 notice of appeal, neither the district court nor the court of appeals had jurisdiction over this action. In fact, jurisdiction remained in the district court because Gibbs' notice of appeal was ineffectual until the district court entered its December 15 order. See Local P-171, Amalgamated Meat Cutters and Butcher Workmen of North America v. Thompson Farms Company, 642 F.2d 1065, 1073 (7th Cir.1981) (); United States v. Hitchmon, 602 F.2d 689, 694 (5th Cir.1979) (en banc); Ruby v. Secretary of United States Navy, 365 F.2d 385, 388 (9th Cir.1966). We agree with the statement of the court in Ruby that "[i]f, by reason of defects in form or execution, a notice of appeal does not transfer jurisdiction to the court of appeals, then such jurisdiction must remain in the district court; it cannot float in air." 365 F.2d at 388 (). Thus, until December 15, when the notice of appeal became effective by virtue of the nunc pro tunc order, jurisdiction of this action remained in the district court.
In sum, we find that any defect in the jurisdiction of this court was corrected by the district court's nunc pro tunc order and we may reach the merits of the appeal.
Gibbs' cross-claim seeks indemnification for the expenses he incurred in defending the underlying lawsuit. Those expenses are recoverable from the cross-claim defendants, Gibbs asserts, because the expenses would have been unnecessary but for the wrongdoing of the cross-claim defendants. Gibbs intends to prove that the cross-claim defendants were wrongdoers and that he was simply an innocent conduit of the false information supplied by the cross-claim defendants.
To be successful on his cross-claim, Gibbs must show that he has a right to indemnification under federal law. 5 It is beyond dispute that indemnification is not explicitly permitted by...
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