Stephan v. Rocky Mountain Chocolate Factory, Inc.
| Decision Date | 27 November 1996 |
| Docket Number | No. 96 C 4587.,96 C 4587. |
| Citation | 948 F.Supp. 765 |
| Parties | Lawrence F. STEPHAN, a citizen of Illinois, and Patricia L. Stephan, a citizen of Illinois, Plaintiffs, v. ROCKY MOUNTAIN CHOCOLATE FACTORY, INC., a Colorado corporation, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Mitchell Bryan, Scott Howard Reynolds, Levenfeld, Eisenberg, Janger & Glassberg, Chicago, IL, for Plaintiffs.
George N. Vurdelja, Jr., John M. Heaphy, Jr., and Griswold L. Ware, Vurdelja & Heapy, Chicago, IL, for Defendants.
Lawrence Stephan ("Lawrence") and his wife Patricia ("Patricia"), collectively "Stephans," have sued Rocky Mountain Chocolate Factory ("Rocky Mountain") for a declaration of rights, basing their resort to federal jurisdiction on diversity of citizenship: Stephans are Illinois citizens (Complaint ¶¶ 1 and 2), while Colorado is the site of both facets of Rocky Mountain's corporate citizenship under 28 U.S.C. § 1332(c)(1)1 (Complaint ¶ 3). Rocky Mountain has moved alternatively for dismissal of this action under Fed.R.Civ.P. ("Rule") 12(b)(6) or for summary judgment under Rule 56. Because the parties' submissions in connection with the motion had failed to supply this Court with two documents essential to full analysis, this Court has requested and has now received copies of those missing documents. At this point the motion is fully briefed and ready for decision, and for the reasons explained hereafter both Stephans prevail — in Lawrence's case, almost despite himself.
This is the third act of a legal drama that, like most conventional dramas, involves some set changes. Act I was played out in a state court in Colorado (in the "Colorado Action"), then Act II was set in the Circuit Court of Cook County (in the "Illinois Action") and now Act III has found its way to this District Court. In the meantime a continuing entr'acte (referred to later in this opinion) is being played out on the same Circuit Court set as Act II. All of the action revolves around an August 16, 1991 Sublease Agreement ("Sublease") between Rocky Mountain as Sublessor and, depending on whose version is accepted, either Rocky Mountain Chocolate Factory of Illinois, Inc. ("Rocky Mountain-Illinois") or the combination of Rocky Mountain-Illinois and Stephans as Sublessee.2
Rocky Mountain is a franchisor of confectionery stores, while Stephans formed Rocky Mountain-Illinois to engage in a franchise operation under Rocky Mountain's auspices here in Chicago. On that same August 16, 1991 date Rocky Mountain took on the firstline responsibility for the leasing of store premises for the Rocky Mountain-Illinois operation by signing a lease with Equity Property Management Corp. ("Equity") as Lessor, so that the contemporaneously-executed Sublease required the Sublessee's performance of all of the terms of the Equity-to-Rocky-Mountain lease (the "Lease").
When Rocky Mountain-Illinois' confectionery business went sour, defaults ensued under the Sublease, so that as of May 1995 Rocky Mountain had been forced to pay Equity $23,145.38. Rocky Mountain then began Act I by suing Rocky Mountain-Illinois and Lawrence in the Colorado action, and when no appearance was filed by either defendant there, the case went to a default judgment on August 14, 1995 (that judgment is Ex. 2 to this opinion — another picture, though worth somewhat fewer words than Ex. 1, the picture of the Sublease).
Rocky Mountain-Illinois and Lawrence continued to ignore the Colorado Action judgment (which thus became final and appealable) until Rocky Mountain filed it in the Circuit Court of Cook County under the Illinois Uniform Enforcement of Foreign Judgments Act (735 ILCS 5/12-651 and -652) and proceeded with post-judgment enforcement efforts in the Illinois Action (Act II of the drama). When Lawrence was unsuccessful there in his attempts to attack the judgment on the theories that it had been fraudulently obtained and that the Colorado court had lacked jurisdiction over him, the Illinois Action was settled: Rocky Mountain-Illinois and Lawrence paid Rocky Mountain $55,000,3 and for its part Rocky Mountain released the judgments and judgment liens and covenanted not to sue Patricia. But the Settlement Agreement also included this reservation of rights (Settlement Agreement ¶ D):
This Agreement does not relate to, release, waive or settle any claims or defenses among Rocky Mountain, RMCFI ["Rocky Mountain-Illinois"], L. Stephan, and P. Stephan that may arise out of the lawsuit styled Equity Properties And Development, Inc. v. Rocky Mountain Chocolate Factory, Inc. and Rocky Mountain Chocolate Factory of Illinois, Inc., case number 95 Ml 726198, currently pending in the Circuit Court of Cook County, Illinois, Municipal Department, First District; and the parties hereto reserve all rights of action, defenses, cross-claims and counterclaims any of them may have as of the execution date of this Agreement against the other with respect to or relating to that certain: 1) Lease Agreement dated August 16, 1991 between Equity Properties and Rocky Mountain, and 2) Sublease Agreement dated August 16, 1991 between Rocky Mountain, and RMCFI....
In the meantime Equity has continued to pursue its accruing claims against Rocky Mountain under the Lease in the Circuit Court of Cook County in a combined forcible and rent collection action (that is the ongoing entr'acte). Because Stephans fear that they will be pursued individually for the recapture of any payments that Rocky Mountain may have to make as a result of that action (or perhaps for any other claims that Rocky Mountain may assert under the Sublease) Stephans have brought this Act III for a declaration that they have no further financial exposure stemming from the Sublease. In turn Rocky Mountain has responded with the current motion, rather than by way of answer.
To narrow the area of controversy at the outset, Rocky Mountain has acknowledged in its Amended Memorandum ("Am.Mem.") 11 that it can have no further claims against Patricia under the Sublease because of its covenant not to sue her, contained in the Settlement Agreement. Accordingly there is plainly no case or controversy involving Patricia, and Stephans' Mem. 9 n. 7 therefore consents to the dismissal of her claims. Complaint Count III is consequently dismissed in its entirety, as is Count IV to the extent that it seeks to present any claim on Patricia's part.
Article III case or controversy problems are by definition jurisdictional, so that they must be addressed at the threshold. Yet Rocky Mountain's Am. Mem. 10-11 turns to that subject only as the third of its four challenges to Stephans' lawsuit (and Stephans' Mem. 18-19 essentially follows suit by addressing that subject as the last of its four topics). That sequence in the treatment of issues on Rocky Mountain's part might create some suspicion as to its lack of confidence in the jurisdictional argument — and if so that is entirely understandable, for such lack of confidence is entirely justified.
For purposes of considering the justiciability of Section 2201 declaratory judgment actions, GNB Battery Techs., Inc. v. Gould, 65 F.3d 615, 620 (7th Cir.1995), quoting Nuclear Eng'g Co. v. Scott, 660 F.2d 241, 251-52 (7th Cir.1981) (citations omitted) has defined the Article III requirement in these terms:
The test to be applied to determine the existence of an actual controversy in the context of a declaratory judgment action is "whether ... there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment."
And Trippe Mfg. Co. v. American Power Conversion Corp., 46 F.3d 624, 627 (7th Cir. 1995), this time quoting International Harvester Co. v. Deere & Co., 623 F.2d 1207-1210 (7th Cir.1980), has framed the concept of "sufficient immediacy and reality" in terms of whether defendant had "engaged in conduct giving rise to a reasonable apprehension on plaintiff's part that it will face suit ... or the threat of one...."
That test is plainly met here. Rocky Mountain is actively engaged in litigation with Equity as to its own ongoing liability under the Lease, having made substantial Lease payments the last time around and having then (in the Colorado Action) successfully laid off that liability onto Rocky Mountain-Illinois and Lawrence under the Sublease. If that scenario does not inspire a "reasonable apprehension" by Lawrence that he will confront a like effort by Rocky Mountain this time around, it is difficult to conceive of a situation that would fit that requirement.
For its part Rocky Mountain's Am. Mem. 10-11 urges that the matter is not ripe because several contingencies stand in the way of Lawrence's exposure to actual liability in favor of Rocky Mountain. That argument is unpersuasive in light of the high degree of probability that each of the claimed contingencies will be met (presenting a sharp contrast to the famous "choke hold" case, City of Los Angeles v. Lyons, 461 U.S. 95, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983), where each of several contingencies was viewed as presenting a low level of probability, so that their combination amounted to the multiplication of a number of very small fractions and hence as constituting an impermissibly speculative prospect overall). High probabilities of the occurrence of any preconditions to suit by a declaratory judgment plaintiff, such as those involved here, are after all the reason that the case or controversy test is framed in terms of "reasonable apprehension" rather than requiring a higher level of certainty. In short, Rocky Mountain loses on the jurisdictional component of its attack.
Rocky Mountain's Am. Mem. 8-9 () advances an abstention argument, but it too fails to persuade....
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Stephan v. Rocky Mountain Chocolate Factory, Inc.
...because it had covenanted not to sue, and hence there was no case or controversy that involved her. Stephan v. Rocky Mountain Chocolate Factory, Inc., 948 F.Supp. 765, 768 (N.D.Ill.1996). Judge Shadur also granted summary judgment sua sponte in favor of Lawrence, on the ground that he had n......
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Stephan v. Rocky Mountain Chocolate Factory, Inc.
...opinion, the general rule once was that a default judgment gave rise to collateral estoppel. See Stephan v. Rocky Mountain Chocolate Factory, Inc., 948 F.Supp. 765, 772 (N.D.Ill.1996) (citing E.H. Schopler, Annotation, Doctrine of Res Judicata as Applied to Default Judgments, 77 A.L.R.2d 14......