Rose v. Franchetti

• Decision Date: 25 September 1992
• Docket Number: Nos. 89-2765,90-1371,s. 89-2765
• Citation: 979 F.2d 81
• Parties: William R. ROSE, Plaintiff-Appellee, v. Greg FRANCHETTI, doing business as Fall River Airways, Defendant-Appellant. . Re
• Court: U.S. Court of Appeals — Seventh Circuit

Page 81

979 F.2d 81

23 Fed.R.Serv.3d 1047

William R. ROSE, Plaintiff-Appellee, v. Greg FRANCHETTI, doing business as Fall River Airways,

Defendant-Appellant.

Nos. 89-2765, 90-1371.

United States Court of Appeals, Seventh Circuit.

Reargued Sept. 25, 1992 ^*.

Decided Oct. 21, 1992.

Warren R. Fuller (argued), Karen Arndt Berres, South Barrington, Ill., for plaintiff-appellee in No. 90-1371.

Warren R. Fuller, Karen Arndt Berres (argued), South Barrington, Ill., for plaintiff-appellee in No. 89-2765.

Judith E. Fors, Chicago, Ill. (argued), for defendant-appellant.

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

EASTERBROOK, Circuit Judge.

Military pilots do not start at the Top Gun school. Their education begins with trainers, simple aircraft that are easy to fly and have two sets of controls, so that instructors can take over if necessary. Airframe manufacturers also cut their teeth on easy projects. The Canadian affiliate of de Havilland Aviation, an old British firm, entered business with a trainer. De Havilland U.K. long had supplied the R.A.F. with the Mosquito and Tiger Moth trainers. In 1947 de Havilland Canada delivered a successor, the Chipmunk. Using the same Gypsy Major 4-cylinder engine that powered the Tiger Moth, the Chipmunk had a cruising speed of 119 miles per hour and a maximum speed of 138 m.p.h. See The Observer's Basic Military Aircraft Directory 170 (William Green & Gordon Swanborough eds.); Jane's All the World's Aircraft 1949-50 50c (Leonard Bridgman ed. 1949). De Havilland eventually made more than 1000 Chipmunks. Sixty of these were the model DHC-1B-2, only a few of which still are outfitted as military planes (the rest having been retired or converted to civilian instruments).

Greg Franchetti, an aircraft broker, owned one of the military DHC-1B-2 versions, made in 1956, and advertised that he wished to sell it. William Rose, a collector, saw the ad and told two of his agents, William Meier and Andrew Spak, to investigate and, if appropriate, negotiate for its acquisition. Spak called Franchetti, a citizen of Rhode Island doing business in Massachusetts. According to Spak's affidavit, during a series of telephonic conversations Franchetti assured him that the plane was in good condition, having been maintained to the Federal Aviation Administration's specifications. Spak liked what he heard. Meier and Spak traveled from Illinois to Massachusetts, inspected and bought the Chipmunk for $29,000, and flew it back to Illinois.

En route the engine lost a lot of oil. Meier, the pilot, had to land to replace it. At home base in Illinois, on inspecting the engine more carefully than he had in Massachusetts, Spak, a federally certified mechanic, discovered the cause: a large crack in the engine block. The crack had been covered with epoxy, painted black to hide this irregular, and ineffectual, "repair." Spak found the patch only after disassembling the engine. Parts for Gypsy Major engines are not readily available, and whole engine blocks are hard to come by. So the plane sits in the hangar, its engine still in pieces. At least this is the story as Rose tells it. Franchetti denied responsibility, leading to this diversity suit for breach of contract and fraud.

Franchetti contested personal jurisdiction, Fed.R.Civ.P. 12(b)(2), contending that he neither conducted business in Illinois nor committed a tort there. Unless he did one or the other, the Illinois long-arm statute in force at the time did not permit service of process. Franchetti asked the judge to transfer the case to Massachusetts in the event he found jurisdiction. See 28 U.S.C. § 1404(a). The judge concluded that Franchetti had committed a tort in Illinois by initiating phone conversations with Spak, making misrepresentations that led Rose to spend money to send Meier to Massachusetts. 713 F.Supp. 1203 (N.D.Ill.1989). The court declined to transfer the case, observing that Rose would be as inconvenienced by litigation in Massachusetts as Franchetti is by litigation in Illinois. Id. at 1213-15.

Having concluded that Franchetti must defend, the judge set a timetable for discovery. The cutoff date passed without any response from Franchetti--no answers, not even objections or motions for more time. Franchetti's lawyer asked for permission to withdraw, telling the judge that his client would not cooperate. Counsel stated in open court that he sent Rose's discovery requests to Franchetti and discussed them with him by phone, but that Franchetti refused to respond. The judge granted the motion to withdraw and added: "I am defaulting [Franchetti] for failure to cooperate with the Court.... If he wants to come in and conform, he may, I won't default him. If he comes in and shows me any reason at all, I will vacate it." The clerk sent Franchetti, now without a lawyer, a notice of this order. He did not respond. At the hearing to prove damages, Franchetti's first lawyer sent an associate as an accommodation to his former client, who had yet to retain a replacement. This lawyer knew nothing about the case and had no defense to offer. The court received one-sided evidence and fixed damages at $29,000, the price of the airplane, plus attorneys' fees, finding that the airframe was worthless without a functional engine.

Two months later Franchetti's new lawyer filed a motion under Fed.R.Civ.P. 60(b) to set aside the default and judgment. Franchetti signed an affidavit asserting that he had not known about the discovery requests and would have replied, had only his first attorney told him about the need to do so. At an evidentiary hearing Franchetti testified to the same effect. He added that he had not made any misrepresentations about the condition of the engine. Walter Schulz, a mechanic and friend of Franchetti, described the repairs he had made to the engine, including a patch to the lower engine case. Schulz related that he had flown the Chipmunk without losing significant amounts of oil.

Rose called Arnold Landis, Franchetti's first attorney, who testified that he sent the discovery requests to Franchetti and discussed the subject with him by phone on five occasions. Contemporaneous time records showed these calls (although not their content). Landis produced a receipt for a copy of his motion to withdraw, which he sent to Franchetti by certified mail. The receipt was signed by Ken Almeida; Franchetti concedes knowing Almeida and letting him fly the Chipmunk and other planes but denies that Almeida is his agent or employee. At the conclusion of the hearing the judge stated:

I will make a finding of fact that he [Franchetti] did receive the interrogatories, that he did receive the notice of withdrawal, that he did receive every phone call that Mr. Landis said that he gave him and that he is not here in good faith.

I think he is a liar, I think he is a phony, and I think to use up this Court's time and make me sit here until 5:30 at night and stay here all day long on a case that he shouldn't have had in the first place--now, I'm not called upon to make a decision on this airplane business because he has been defaulted, but I think he is a fraud and I think the airplane deal was a fraud, and I would throw him in jail if I had a chance to tonight, but I'm not going to because he is going to catch an airplane and go back to Massachusetts and stay out of here.

However, he is going to pay the attorney's fees for Mr. Fuller [Rose's lawyer] for being here and he is going to pay the reasonable hourly rate for Mr. Landis for being here today and having to testify.

He is also going to pay a Rule 11 sanction of two thousand dollars for what it costs to run this courtroom today with all of the staff and all of the heat and the judge's time and everybody else's.

Needless to say, the court denied the motion to vacate the judgment.

At the time this case began, the long-arm statute, Ill.Rev.Stat. ch. 110 p 2-209, asserted jurisdiction when the claim arises out of "(1) The transaction of any business within this State; [or] (2) The commission of a tortious act within this State". Both the district court and the parties concentrated on p 2-209(a)(2), believing that ads and phone calls do not satisfy the "transaction of ... business" section. Cook Associates, Inc. v. Lexington United Corp., 87 Ill.2d 190, 57 Ill.Dec. 730, 429 N.E.2d 847 (1981).

Pinning down the location of a tortious act in a multi-state transaction is no picnic. If Franchetti, standing in Massachusetts, told a lie while talking on the phone with Spak, is this a tort "in" Illinois? It takes an injury to turn a wrong into a tort, and the injury was the purchase of a defective plane, which occurred in Massachusetts. That was Franchetti's final act, and Illinois equates "the tort" with the last wrongful act. Green v. Advance Ross Electronics Corp., 86 Ill.2d 431, 437, 56 Ill.Dec. 657, 661, 427 N.E.2d 1203, 1207 (1981). Yet the injury was felt when the oil leaked (over New York or Ohio?) and when the plane was grounded in Illinois.

After Rose filed this suit, but before the district court entered judgment, Illinois added some bases of personal jurisdiction to its long-arm statute. A new p 2-209(a)(7) provides that "[t]he making or performance of any contract or promise substantially connected with this state" creates personal jurisdiction. By specifying that jurisdiction depends on a substantial connection between the transaction and the state, this language eliminates the fruitless search for the one "right" place to litigate a multi-state transaction. See Continental Bank, N.A. v. Everett, 964 F.2d 701, 703 (7th Cir.1992). Paragraph 2-209(a)(7) fits our case nicely. Franchetti's ad reached Illinois and attracted a buyer; Franchetti knew that he was dealing with a customer in Illinois, to which the plane would head and in which any injury would register; the warranty accompanying the sale would lead to performance in or affecting Illinois. Such dealings...