Stewart Title Guar. Co. v. Cadle Co.

• Decision Date: 01 February 1996
• Docket Number: No. 95-2404,95-2404
• Citation: 74 F.3d 835
• Parties: STEWART TITLE GUARANTY COMPANY, Plaintiff-Appellant, v. The CADLE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 835

74 F.3d 835

33 Fed.R.Serv.3d 743

STEWART TITLE GUARANTY COMPANY, Plaintiff-Appellant, v. The CADLE COMPANY, Defendant-Appellee.

No. 95-2404.

United States Court of Appeals Seventh Circuit.

Argued Jan. 12, 1996.

Decided Feb. 1, 1996.

Michael A. Pollard, William M. Sneed, Thomas A. Doyle (argued), Baker & McKenzie, Chicago, IL, for Plaintiff-Appellant.

F. Dean Armstrong (argued), Flossmoor, IL, for Defendant-Appellee.

Before CUMMINGS, FLAUM and DIANE P. WOOD, Circuit Judges.

PER CURIAM.

Stewart Title Guaranty Company ("Stewart") appeals from the district court's order dismissing its declaratory judgment action and denying its motion to enjoin parallel proceedings in the Northern District of Ohio. For procedural reasons, we reverse and remand the case for a new decision on the merits.

In 1985, Stewart issued a mortgagee title insurance policy insuring the first lien and priority on certain property at 222 N. Michigan Avenue, Chicago, Illinois. The property secured a $7,100,000.00 loan originally made by Lyons Savings and Loan Association, an Illinois lender, and subsequently purchased on March 3, 1994 by The Cadle Company ("Cadle"), an Ohio Corporation. One year later, on March 31, 1995, an Illinois appellate court (affirming a lower court decision) found that a mortgage held by Firstmark Standard Life Insurance Company ("Firstmark") had priority over the mortgage now held by Cadle.

Thereafter, on May 1, 1995, Stewart filed the instant declaratory judgment action in the Northern District of Illinois. Stewart requested a declaration that Cadle was neither an insured nor an assignee under the policy or, alternatively, that Stewart's liability was limited to the value of the property on the date of foreclosure by Firstmark. Eleven days later, Cadle filed a breach of insurance contract action based on the same policy in the Northern District of Ohio. Cadle claims that it would have filed suit earlier, and won the "race to the courthouse," absent Stewart's representations that suit would be premature given the pending Illinois appellate court proceedings.

In response to Cadle's suit, Stewart moved the court below to enjoin Cadle's later-filed, duplicative action in Ohio. The motion was properly served and noticed for presentment on June 6, 1995. At the hearing on June 6, Cadle's counsel tendered to Stewart's counsel Cadle's motion to dismiss the Northern District of Illinois action, as well as a thirty-two page brief in support of Cadle's motion to dismiss and in response to Stewart's motion to enjoin. Stewart's counsel claims he had not previously seen either of the documents presented to him that morning. Cadle's counsel maintains that the motion and brief were to be delivered to Stewart's counsel by messenger late the preceding afternoon, although there is no evidence that Stewart's counsel actually received the brief at that time. Both parties agree that the motion to dismiss was not noticed for hearing that morning.

The court began the hearing by considering the pending motion to enjoin, and when the motion to dismiss was raised, the court acknowledged that it had not seen or read either of Cadle's documents. The court was not even sure if it had a copy of Cadle's motion and brief. Nevertheless, in a sudden and unexpected turn of events, the district court dismissed Stewart's action based on the proceedings in Ohio and denied Stewart's motion to enjoin the parallel proceedings. The court announced these rulings after hearing an abbreviated argument by Cadle that the instant suit was an improper, preemptive, declaratory judgment action. The court, however, heard no argument from Stewart. It is apparent from the transcript that Stewart's efforts to respond to Cadle's argument, both orally and in writing, were decisively cut short. Despite his requests, Stewart's counsel was not afforded a meaningful chance to rebut Cadle's contentions, nor was he allowed to present Stewart's account of the facts or the law. Stewart appeals this decision, both on procedural grounds and on the merits.

We find that Stewart was denied notice and an opportunity to be heard before its action was dismissed. Consequently, we do not reach the merits of the parties' arguments concerning the propriety of Stewart's original declaratory judgment action. It is unclear from the record whether the district court's dismissal was a grant of Cadle's surprise motion or whether (given that the court was unaware of the motion until that morning and apparently had not reviewed Cadle's brief prior to its ruling) the dismissal was sua sponte. In either event, error occurred requiring remand.

If the district court dismissed Stewart's action sua sponte, it was required to give Stewart notice of its intent to do so and an opportunity to respond. Ricketts v. Midwest Nat'l. Bank, 874 F.2d 1177, 1185 (7th Cir.1989). We have found that sua sponte dismissals without such procedures conflict with our traditional adversarial system principles by depriving the losing party of the opportunity to present arguments against dismissal and by tending to transform the district court into "a proponent rather than an independent entity." Id. at 1184; Horn v. City of Chicago, 860 F.2d 700, 703 n. 6 (7th Cir.1988). In addition, such dismissals often create avoidable appeals and remands, draining judicial resources and defeating the very purpose for which sua sponte actions are employed. Ricketts, 874 F.2d at 1184; Horn, 860 F.2d at 703 n. 6; Sawyer v. United States, 831 F.2d 755, 759 (7th Cir.1987) (finding error where summary judgment granted sua sponte without notice and...