Lisak v. Mercantile Bancorp, Inc.

• Decision Date: 25 November 1987
• Docket Number: No. 86-3126,86-3126
• Citation: 834 F.2d 668
• Parties: RICO Bus.Disp.Guide 6804 Arthur LISAK, Plaintiff-Appellant, v. MERCANTILE BANCORP, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 668

834 F.2d 668

RICO Bus.Disp.Guide 6804

Arthur LISAK, Plaintiff-Appellant, v. MERCANTILE BANCORP, INC., et al., Defendants-Appellees.

No. 86-3126.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 3, 1987.

Decided Nov. 25, 1987.

Nicholas T. Kistos, Chicago, Ill., for plaintiff-appellant.

Ronald N. Heftman, Martin, Craig, Chester & Sonnenschein, Chicago, Ill., Carl N. Carpenter, Galvin, Galvin & Leeney, Hammond, Ind., for defendants-appellees.

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

EASTERBROOK, Circuit Judge.

The Superior Court of Lake County, Indiana, issued a decree of divorce between Arthur Lisak and Augusta Lisak in 1974. The decree ordered Arthur to pay $355,000 to Augusta. In 1976 Arthur, then (as now) a resident of Texas, visited Indiana; Augusta, contending that Arthur had not paid the 1974 judgment, obtained a bench warrant for his arrest. After a week in jail focused his mind, Arthur agreed to establish a trust worth $95,000 in settlement of the dispute. Augusta would be entitled to $600 per month and could invade principal for necessaries; Arthur would have a reversionary interest if more than $20,000 remained at Augusta's death. Arthur signed a settlement agreement, deposited with the court assets worth about $20,000, and was released from jail. A month later he ponied up $80,000 in cash. He steadfastly declined to sign the instrument creating the trust, contending that he had been coerced into the settlement and that the trust instrument supplemented its terms.

The settlement provided that "in the absence of agreement as to such further provisions ... the matter will be submitted to the Judge then sitting in Lake Superior Court, Room Number One, who shall make said decision, and the decision of said Judge shall be final and without recourse by either of the parties hereto." Augusta asked the Superior Court to approve the terms of the trust despite Arthur's recalcitrance. The court did so and appointed a commissioner to execute the instrument on Arthur's behalf. The commissioner signed on May 26, 1977, and the trust was funded. Arthur immediately filed a motion objecting to "errors" in the trust agreement. While this motion was pending, the trustee, Mercantile National Bank of Indiana, applied for permission to invest the corpus and distribute the monthly $600. The court granted permission and also allowed the Bank to distribute $3,500 of principal so that Augusta could buy household furnishings. Arthur had notice of both motions.

The Superior Court denied Arthur's motion to correct errors in February 1978 with an order providing that if Arthur wished to file any additional papers--including a notice of appeal from the judgment that he had agreed could not be appealed--he had to post a bond for $5,000 to cover any fees and costs Augusta might incur in hiring counsel to resist. Arthur did not file the bond, appeal, or ask any higher court in Indiana to issue a prerogative writ.

The trust agreement approved by the commissioner on Arthur's behalf in 1977 permitted the trustee to pay Augusta's medical and burial expenses. She died in Florida in August 1985. The Bank asked the Superior Court for permission to disburse all of the money in the trust, about $40,000, to pay Augusta's medical and burial expenses. This motion was accompanied by correspondence from Arthur's current lawyer, showing that Arthur was no more reconciled to the trust in 1985 than in 1977; an undisputed affidavit states that despite knowing the address of both Arthur (the holder of the reversionary interest) and Arthur's lawyer, the Bank did not serve copies of its motion on them.

Within a month of learning that his reversionary interest was worthless, Arthur filed this suit in federal court in Chicago against the Bank, its parent corporation (Mercantile Bancorp, Inc.), Harry F. Smiddy, Jr. (an officer of the Bank), and John Widmar, Augusta's husband at the time of her death. Arthur never served Smiddy, so the district court dismissed him from the suit; we discuss him no further. The district court also dismissed Mercantile Bancorp, the holding company; Arthur's brief on appeal does not discuss the propriety of his attempt to "pierce the corporate veil," and there is no apparent basis for doing so. The claim against the holding company therefore has been abandoned, leaving only the Bank and Widmar as interested parties. We shall return to the question how a domiciliary of Texas can litigate in Illinois against an Indiana bank and a domiciliary of Florida on account of events in Indiana and Florida.

The complaint, which by accretion has grown to five counts, charges the Bank with fraud in the establishment and operation of the trust in 1977 and 1978; it charges both the Bank and Widmar with substantive and conspiratorial violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-65. The RICO claims are based on federal law and invoke federal-question jurisdiction; the fraud claim is based on state law and supported by diversity of citizenship (as well as pendent jurisdiction).

We can terminate with dispatch the claims against the Bank--no matter their legal theory--arising out of the establishment and early operation of the trust. They are barred, as the district court held, by claim preclusion, a branch of res judicata. Arthur litigated and lost in 1976-78 all dispositive questions about the establishment, terms, and administration of the trust. He agreed to accept the decision of the Superior Court; nevertheless he litigated and lost a motion to "correct errors"; he resisted the Bank's applications to pay money out of the trust and lost. No method of attacking the creation and operation of the trust survives. True, the Bank as trustee was not technically a party to the proceedings creating the trust (though it was a party to the proceedings approving its administration of the trust), and Indiana still requires mutuality of estoppel, but the Bank was in privity with both Arthur and Augusta. It inherited Augusta's defenses. A court of Indiana would not entertain the contentions Arthur presses, to the extent he wants review of the establishment and early administration of the trust. See Town of Flora v. Indiana Service Corp., 222 Ind. 253, 53 N.E.2d 161 (1944); Jones v. American Family Mutual Insurance Co., 489 N.E.2d 160 (Ind.App.1986). A federal court, required by 28 U.S.C. Sec. 1738 to give the judgments the same force they would have in Indiana, see Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); Harris Trust and Savings Bank v. Ellis, 810 F.2d 700 (7th Cir.1987), may not entertain Arthur's effort to reopen what was settled in the 1970s.

Preclusion applies only if the party to be bound had a full and fair opportunity to litigate, and Arthur insists that he did not: the Superior Court required the posting of a bond. This effort to sidestep the effects of the judgments fails for two reasons. First, Arthur never used the remedies available to him in Indiana, such as a petition for mandamus, that might have eliminated the bond requirement. Having bypassed his remedies, Arthur may not start up seven years later in a different system of courts. E.g., Harris Trust, 810 F.2d at 705-06; cf. Graham v. Schreifer, 467 N.E.2d 800 (Ind.App.1984) (observing that a party may return to the rendering court to attack a judgment improperly obtained).

Second, there is nothing wrong with requiring a party to post a bond to cover costs. Whatever problems a penalty bond may create, see Lindsey v. Normet, 405 U.S. 56, 74-79, 92 S.Ct. 862, 874-77, 31 L.Ed.2d 36 (1971), a subject the Supreme Court may revisit in Crenshaw v. Bankers Life & Casualty Co., 483 So.2d 254 (Miss.1986), prob. juris. noted, --- U.S. ----, 107 S.Ct. 1367, 94 L.Ed.2d 683 (1987), a bond to secure the payment of costs creates none. See Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 547-55, 69 S.Ct. 1221, 1226-29, 93 L.Ed. 1528 (1949). Indiana allows courts to require losing litigants in divorce cases to pay their former spouse's attorneys' fees. Ind. Code Sec. 31-1-11.5-16. A state that elects to shift the costs of litigation also may require a solvent litigant such as Arthur to make an earnest of payment. See DeLong v. DeLong, 161 Ind.App. 275, 289-91, 315 N.E.2d 412, 421-22 (1974). (Arthur does not contend that fee shifting is unconstitutional as a price on access to the courts, and could not plausibly do so. Premier Electrical Construction Co. v. National Electrical Contractors Ass'n, Inc., 814 F.2d 358, 373-74 (7th Cir.1987); Coleman v. CIR, 791 F.2d 68, 71-72 (7th Cir.1986).) Arthur has not been a shy litigant, and the Superior Court may have suspected (based on Arthur's attitude about the 1974 judgment) that any subsequent fee-shifting order would be hard to enforce. The bond did not deprive Arthur of any entitlement to litigate, and the decisions of 1977 and 1978 are entitled to full preclusive effect.

It is not so easy, however, to mop up Arthur's contention that Widmar and the Bank defrauded him in administering the trust after 1978. Arthur apparently contests applications to, and payments by, the trust in the 1980s. To the extent these grow out of the decision of 1977, the claims are foreclosed. So, for example, Arthur's contention that the Bank could not pay Augusta's medical expenses because the trust should not have contained Article III p 9, which permitted the money to be used in this way, is barred by issue preclusion. But to the extent Arthur contends that the Bank has been a faithless fiduciary--and that Widmar has submitted false claims--the record does not support the district court's grant of summary judgment. Arthur and his current lawyer filed uncontroverted affidavits stating that they did not receive notice of the Bank's application for approval of the final disbursal and the...