Southmark Corp. v. Cagan
| Citation | 950 F.2d 416 |
| Decision Date | 06 December 1991 |
| Docket Number | No. 91-1190,91-1190 |
| Parties | SOUTHMARK CORPORATION, Plaintiff-Appellee, v. Jeffrey CAGAN and Cagan Realty, Inc., et al., Defendants. Dolores Fuhrman, Individually and on Behalf of a Class of Investors, Proposed Intervenor-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Hal R. Morris (argued), Michael R. Turoff, Debra Williams, Arnstein & Lehr, Chicago, Ill., for plaintiff-appellee.
David A. Genelly (argued), Kenneth F. Berg, Fishman & Merrick, Chicago, Ill., for defendants.
Lawrence W. Schad, James Shedden, Beeler, Schad & Diamond, and David A. Genelly (argued), Kenneth F. Berg, Fishman & Merrick, Chicago, Ill., for intervenor-appellant.
Before CUMMINGS, COFFEY and KANNE, Circuit Judges.
This appeal is by Dolores Fuhrman, an Illinois school teacher who unsuccessfully sought to intervene in this foreclosure litigation on behalf of herself and all other persons who invested in one of the "Diamondhead Partnerships" 1 between June 1987 and March 1988 and whose money was allegedly diverted from those partnerships by Earl Dean Gordon and his partner, Kenneth Boula.
The petition to intervene was sought as of right under Federal Rule of Civil Procedure 24(a)(2) or alternatively as a permissive intervention under Rule 24(b)(2). Judge Nordberg denied the intervention as of right on the ground that the class (1) had no direct and significant interest in this action, (2) could sue Southmark Corporation, the plaintiff in this action, and (3) was adequately represented by the receiver herein. Permissive intervention was also denied on the ground that Fuhrman's claims would "not preserve judicial resources" and would threaten "to undermine the efficiency" of the foreclosure suit (Appellant's App. A-14). We affirm.
This lawsuit is best understood by considering the first amended complaint filed below by Southmark Corporation, a Georgia corporation with its principal place of business in Dallas, Texas. That pleading shows that defendant Jeffrey Cagan and Cagan Realty, Inc. (lumped together as one entity) was appointed as receiver for Equity Builders, Inc. ("EBI") and Riviera Utilities of Arkansas, Inc. ("Riviera") in another action entitled Gaskill v. Gordon, Boula, et al., No. 88 C 3404 (N.D.Ill.), pending before Judge Williams. 2 In the first amended complaint herein, plaintiff Southmark stated that the receiver took possession of all property of EBI and Riviera on March 17, 1989.
In June 1989, the district court granted Southmark leave to file this foreclosure complaint against the receiver, which was ancillary to the primary Gaskill suit. Southmark brought the present suit on two promissory notes to foreclose a mortgage on real and personal property in Arkansas and to foreclose a security interest in the stock of Riviera. 3 Southmark's subsidiary, Resort Land Corporation ("Resort"), sold the Diamondhead real property and the Riviera shares to EBI for $3,539,703 on June 15, 1987, and Resort took two promissory notes, a mortgage on the real property and a security interest in the Riviera stock. In November 1987, Resort assigned to Southmark its right to receive payments from EBI. That company paid approximately $900,000 toward the agreed-upon purchase price but paid nothing on the notes or mortgage after December 1988. Thus, as of October 24, 1990, the notes were delinquent in the amount of $3,429,463.90, with interest accruing at $772.80 a day. As a consequence, Southmark filed this action to foreclose its mortgage and security interest and filed a motion for summary judgment which still pends.
On September 14, 1990, Cagan filed an amended counterclaim (which was not docketed until December 27, 1990). The amended counterclaim was brought not only by Cagan but also by Dolores Fuhrman, individually and on behalf of the investors in the Diamondhead Partnerships. In the amended counterclaim, among other matters, Cagan and Ms. Fuhrman sought an equitable lien on the Diamondhead properties and Riviera stock. Five days later Dolores Fuhrman's petition to intervene was filed and was supported by the amended counterclaim. 4 Intervention was denied on December 21, 1990, 1990 WL 251824. Consequently in June 1991, Ms. Fuhrman and the receiver filed a class action against Southmark, Resort and North American Corporation, a wholly owned subsidiary of Southmark, seeking, inter alia, to impose an equitable lien and constructive trust on Diamondhead. Cagan and Cagan Realty, Inc. and Fuhrman v. Southmark Corp., et al., No. 91 C 3720 (N.D.Ill.), pending before Judge Grady on defendants' motion to dismiss.
We affirm the denial of intervention.
Federal Rule of Civil Procedure 24(a) states in relevant part that:
Upon timely application anyone shall be permitted to intervene in an action: * * * (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
Thus, as we noted in Meridian Homes Corporation v. Nicholas W. Prassas & Co., 683 F.2d 201, 203 (7th Cir.1982), the following four elements for intervention as of right must be satisfied:
(1) timely application; (2) an interest relating to the subject matter of the action; (3) potential impairment, as a practical matter, of that interest by the disposition of the action, and (4) lack of adequate representation of the interest by the existing parties to the action.
Petitioner has failed to satisfy the timeliness, potential impairment and lack of adequate representation requirements.
As to timeliness, Ms. Fuhrman did not seek to intervene until more than fifteen months after this action was filed, and indeed on the same day that Southmark filed its motion for summary judgment on its first amended complaint. Southmark's suit for foreclosure was not still in the initial pleading stage, as petitioner argues, for the complaint was answered on September 18, 1989, a year before intervention was sought, and the first amended complaint was answered May 25, 1990, several months before intervention was sought. Since petitioner is represented by the same lawyer as the receiver and is a member of the class involved in the 1988 related lawsuit of Gaskill v. Gordon, Boula, et al., No. 88 C 3404, also pending below, the delay in seeking to intervene herein is particularly inexcusable. Schultz v. Connery, 863 F.2d 551 (7th Cir.1988); Bloomington, Ind. v. Westinghouse Elec. Corp., 824 F.2d 531 (7th Cir.1987); Federal Deposit Ins. Corp. v. Hanrahan, 612 F.2d 1051, 1053 (7th Cir.1980); Preston v. Thompson, 589 F.2d 300, 304 (7th Cir.1978); 7C Wright, Miller & Kane, Federal Practice and Procedure § 1916 (1986). In these circumstances, timeliness has not been shown.
Petitioner argues that her petition to intervene was timely because it was filed within three months after Southmark challenged Cagan's standing to raise fraud and breach of fiduciary duty counterclaims. This argument is without merit. At the time the suit was filed, petitioner was aware that Cagan was not her legal representative. In any event, the court below has not yet decided that Cagan has no standing to pursue these claims, and it is premature to assume that it will do so.
We need not decide the difficult question of whether petitioner's interest in the action is direct and...
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