Rothwell Cotton Co. v. Rosenthal & Co.

Decision Date11 December 1987
Docket NumberNo. 86-1510,86-1510
Citation827 F.2d 246
PartiesROTHWELL COTTON COMPANY, a Texas Corporation, Defendant-Appellant, v. ROSENTHAL & COMPANY, a partnership, and FGL Commodity Services, Inc., an Iowa Corporation, Plaintiffs-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

John Roberson, Philip T. Powers & Associates, Chicago, Ill., for defendant-appellant.

Ralph A. Mantynband, Arvey Hodes Costello & Burman, Chicago, Ill., for plaintiffs-appellees.

Before BAUER, Chief Judge, FLAUM, Circuit Judge, and REYNOLDS, Senior District Judge. *

REYNOLDS, Senior District Judge.

Rosenthal & Company ("Rosenthal") and FGL Commodity Services, Inc., ("FGL"), plaintiffs-appellees, brought an action against Rothwell Cotton Company ("Rothwell"), defendant-appellant, claiming that Rothwell owed Rosenthal and FGL $26,563.74 for a trading deficit in the commodities trading account Rothwell had maintained with Rosenthal and FGL. Rothwell counterclaimed that Rosenthal and FGL had breached various duties owed to Rothwell and had allowed excessive trading in Rothwell's account.

Rosenthal moved for summary judgment on the counterclaim on the grounds that, due to a provision in the parties' contract, Rosenthal could not be liable for such misconduct because Rosenthal was merely responsible for executing orders placed and was not responsible for checking the wisdom of those orders. The district judge granted Rosenthal's motion for summary judgment on Rothwell's counterclaim and also denied Rothwell's motion to reconsider that decision, after Rothwell presented Judge Marshall with what it claimed was newly discovered evidence. This appeal followed.

RELEVANT FACTS

Jimmy Don Rothwell is the president of the Rothwell Cotton Company in Childress, Texas. Larry Jones ("Jones"), a friend of Jimmy Don Rothwell, owns and runs FGL-Childress in Texas. FGL-Childress opened a commodities trading account for Rothwell with FGL in Des Moines, Iowa. FGL and FGL-Childress are separate corporations, though they have a contractual relationship. FGL is a future commissions merchant registered with the Commodities Future Trading Commission, but it is not a member of any exchange. Rosenthal is a clearing member of the major commodities exchanges, and FGL contracted with Rosenthal to have Rosenthal execute orders for all FGL's customers.

Rosenthal, in turn, had FGL customers sign an agreement directly with Rosenthal. The agreement signed by Jimmy Don Rothwell on May 13, 1983, was entitled "Introduced Customer Commodity Agreement" ... not be responsible or liable whatsoever for any matters relating to sales practices, trading practices or recommendations or any similar or other matter, whether authorized or unauthorized by the undersigned, it being expressly understood, agreed and acknowledged that your sole responsibilities hereunder relate to the execution, clearing and bookkeeping of transactions for the accounts on various exchanges in accordance with the instruction you receive from the introducing broker(s) of the undersigned in accordance with the usual practice and that the undersigned shall look to said introducing broker(s) for any redress with respect to any matter other than your gross negligence or wilful misconduct in executing, clearing and/or bookkeeping transactions for the accounts of the undersigned.

("Agreement"), and it provided in relevant part, at paragraph 12, that Rosenthal would:

Immediately above the signature of Jimmy Don Rothwell, who signed the agreement on behalf of Rothwell, is the warning in upper case that, "AS THIS IS AN INTRODUCED ACCOUNT ROSENTHAL & COMPANY'S ROLE AND LIABILITY IS LIMITED TO EXECUTION AND CLEARING MATTERS. SEE PARAGRAPH 12 ABOVE." Rosenthal provided the district court with an uncontradicted affidavit that this provision was subject to negotiation and did not appear in some other similar accounts.

Rothwell alleged that it authorized FGL and Jones to trade on Rothwell's account only in cotton, wheat, and cattle commodities. The agreement between Rothwell and FGL provided that Jimmy Don Rothwell was to approve all trades on Rothwell's account. Jones allegedly engaged in excessive and unauthorized trading in the account which resulted in a loss to Rothwell of $278,000 and an additional $178,000 in commissions.

On April 5, 1985, ten months after the original complaint had been filed, the district court granted Rosenthal's motion for summary judgment. The court found that the agreement between Rothwell and Rosenthal properly limited Rosenthal's liability to willful misconduct or gross negligence relating to executing and clearing matters. The court further found that public policy did not prohibit Rosenthal from limiting its liability to its own conduct and that the provision was not unconscionable. Finally, the district court found that Rothwell's allegations and the offered proof failed to establish a case against Rosenthal for a claim upon which it could be sued; namely, clearing and execution of trades.

Rothwell waited 1 1/2 months after the district judge's decision on the motion for summary judgment, and then it filed a motion asking the judge to reconsider his decision on the basis of newly-discovered evidence. In support of its motion to reconsider, Rothwell attached the following: (1) deposition testimony of three witnesses, all of whose depositions had been taken at least a month before the district judge's decision; (2) a memorandum Rosenthal had filed in support of its motion for summary judgment more than five months before the judge's decision; (3) a memorandum from a Rosenthal employee that had been produced at a deposition more than a month before the judge's decision; and (4) two decisions of the Commodity Futures Trading Commission, both of which had been rendered more than a year before the judge issued his decision granting Rosenthal's motion for summary judgment.

In its reply brief in support of its motion for reconsideration, filed four months after the district court's decision and order, Rothwell attached yet more "newly discovered evidence." The evidence, with the exception of a decision by the Commodity Futures Trading Commission, was either available to Rothwell before the original decision for summary judgment was issued, or it related to dealings between the parties that were not relevant to the questions at issue in the suit. Finally, and more than five months after the district judge's decision, Rothwell filed a supplemental reply brief to which it attached still more "newly discovered evidence," which included The district judge denied Rothwell's motion to reconsider his earlier decision, and he later expressly found that there was no just reason for delay and ordered the clerk to enter final judgment against Rothwell on its counterclaim against Rosenthal. This appeal followed.

some excerpts from a deposition that had just been taken and some commodities trading rules published months before this action was commenced in the district court.

ANALYSIS

This court must decide two questions: (1) Whether the district court properly granted summary judgment on the counterclaim for Rosenthal on the original motion in light of the evidence then before the court; and (2) whether the judge abused his discretion in denying Rothwell's motion to reconsider. The decision of the district court will be affirmed because Rosenthal was entitled to summary judgment on the record presented at the time of the original motion and because the district judge did not abuse his discretion in denying the plaintiff's motion to reconsider his earlier decision.

Rothwell argues, as it must, that the district court was wrong as a matter of law in granting Rosenthal's original motion for summary judgment on the counterclaim and abused its discretion in denying Rothwell's motion to reconsider. Rothwell's brief on appeal is mostly an attack on the district court's alleged abuse of discretion in denying the motion to reconsider, with special emphasis on the arguments and evidence Rothwell filed along with its reply brief and supplemental reply brief on the motion for reconsideration. During oral argument, Rothwell downplayed the question of abuse of discretion and added yet another legal theory; that Rosenthal could not have been granted summary judgment on the original record because it had "judicially admitted" that it owed additional duties to Rothwell in an answer to Rothwell's counterclaim. 1

Conspicuously absent from Rothwell's briefs and arguments on appeal is any justification for Rothwell's failure to raise the arguments or evidence upon which it now relies before the district court granted summary judgment to Rosenthal.

The heart of Rothwell's argument on appeal is that the district court's analysis that Rosenthal had only limited duties to Rothwell is contrary to duties assumed voluntarily by Rosenthal and imposed by law. Rothwell argues that Rosenthal is legally responsible for the defalcations of Jones and FGL and that to allow Rosenthal to avoid this duty by contract would be contrary to the public policy of both the United States and Illinois. In addition, Rothwell argues that material issues of fact existed as to Rothwell's claims that the limitation of liability provision was a term of adhesion and that Rosenthal assumed and breached additional duties, beyond those addressed by the parties' contract.

Rosenthal emphasizes that all of the evidence or legal authority presented by Rothwell in its memorandum in support of the motion to reconsider could have been presented to the district court before the decision on summary judgment was issued. In fact, much of it was in existence before the lawsuit was even filed. Rosenthal next argues that the district judge was compelled to grant Rosenthal's motion for summary judgment on the counterclaim on the record...

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