Teamsters Local 282 Pension Trust Fund v. Angelos

• Decision Date: 09 December 1986
• Docket Number: No. 86 C 3936.,86 C 3936.
• Citation: 649 F. Supp. 1242
• Parties: TEAMSTERS LOCAL 282 PENSION TRUST FUND, Plaintiff, v. Anthony G. ANGELOS, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

649 F. Supp. 1242

TEAMSTERS LOCAL 282 PENSION TRUST FUND, Plaintiff, v. Anthony G. ANGELOS, et al., Defendants.

No. 86 C 3936.

United States District Court, N.D. Illinois, E.D.

December 9, 1986.

Sherman Carmell, Lisa B. Moss, Carmell, Charone, Widmer & Mathews, Ltd., Chicago, Ill., Edward J. Boyle, Thomas R. Manisero, Michael M. Feigin, Wilson, Elser, Moskowitz, Edelman & Dicker, New York City, for plaintiff.

John Powers Crowley, Matthew F. Kennelly, Cotsirilos & Crowley, Ltd., Chicago, Ill., Richard B. Gould, Mt. Prospect, Ill., Ira J. Bornstein, Harvey J. Barnett & Assoc., Ltd., Jerome H. Torshen, Abigail K. Spreyer, Jerome H. Torshen, Ltd., Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Teamsters Local 282 Pension Trust Fund ("Fund") sues seven defendants¹ for common law fraud.² Several defendants now move for summary judgment under Fed.R. Civ.P. ("Rule") 56,³ contending the present action is barred by principles of issue preclusion — "collateral estoppel."⁴ For the reasons stated in this memorandum opinion and order, that motion is granted and the action is dismissed as to all defendants.⁵

Facts⁶

Early in 1979 Angelos approached Fund's Trustees ("Trustees") seeking a $2 million loan (the "Loan") to Des Plaines Bank ("Bank"), a wholly owned subsidiary of Bancorporation. Bancorporation and Fund quickly reached consensus on the terms of the Loan, signing a loan agreement March 1, 1979. Bancorporation made all payments required under the loan agreement through September 1980, the last payment date before Bank was closed by federal and state regulatory officials March 14, 1981. No payments have been made since then.

In 1981 certain Fund beneficiaries sued Trustees under ERISA, 29 U.S.C. § 1104(a), charging a breach of Trustees' fiduciary duties in connection with the Loan to Bancorporation. In 1982 the Secretary of Labor commenced an action against Trustees, alleging the same breach of duty.⁷ Fund was joined as a defendant in each action. After the actions were consolidated for pretrial purposes, Fund and Trustees brought third-party actions in each case against ten of Bancorporation's directors and Jenner & Block, asserting:

1. violation of Securities Act of 1933 ("1933 Act") § 17(a), 15 U.S.C. § 77q(a);

2. violation of Securities Exchange Act of 1934 ("1934 Act") § 10(b), 15 U.S.C. § 78j(b) and related SEC Rule 10b-5;

3. common law fraud; and

4. negligent misrepresentation.⁸

In July 1983 District Judge Jacob Mishler issued his findings and conclusions based upon the evidence adduced during his bench trial, Katsaros v. Cody, 568 F.Supp. 360 (E.D.N.Y.1983), aff'd, 744 F.2d 270 (2d Cir.1984). Judge Mishler found Trustees had violated their fiduciary duties in making the Loan and held Trustees jointly and severally liable for all losses incurred on account of that breach. In particular Judge Mishler found (id. at 367):

1. Trustees violated their fiduciary duty by failing to make an adequate independent investigation of Bancorporation's and Bank's financial situation.

2. Such duty to make an independent investigation included the duty not to rely on "representations, predictions and hopes" of Bancorporation's directors.

3. Had Trustees made an independent investigation, they would have discovered it was imprudent to make the Loan to Bancorporation and Bank based upon the financial information presented by Bancorporation's directors.

After that adverse determination Fund sued Directors⁹ and Jenner & Block in this Court, advancing the same claims set forth in the third party actions before Judge Mishler. This Court held justifiable reliance was an essential element of all four of Fund's causes of action. Consequently this Court decided Directors and Jenner & Block were entitled to judgment as a matter of law because of the issue-preclusive effect of Judge Mishler's determination that Fund had no right to rely on the alleged misrepresentations (585 F.Supp. 1401 (N.D.Ill.1984), "Teamsters I"). On appeal that decision was reversed as to Fund's 1933 and 1934 Act claims but affirmed as to Fund's misrepresentation claim (762 F.2d 522 (7th Cir.1985), "Teamsters II").¹⁰ On remand this Court again dismissed (1) Fund's 1933 and 1934 Act claims, this time because those securities law claims were brought after the statute of limitations had run, and (2) Fund's state law fraud claim, because it had been advanced as a pendent claim with no stated independent ground for federal jurisdiction (624 F.Supp. 959 (N.D.Ill.1985), "Teamsters III").

Fund has now refiled its common law fraud action, grounding jurisdiction in diversity of citizenship under 28 U.S.C. § 1332. Defendants have renewed their reliance on Katsaros as the basis for summary judgment.

Illinois Common Law Fraud

None of us — even appellate judges — comes equipped with an unclouded crystal ball. Teamsters II, 762 F.2d at 531 anticipated the survival of Fund's 1933 and 1934 Act claims and hence the likely irrelevance of the common law fraud claim:

Because we conclude that the securities claims must be resurrected, we need not pass on the adequacy of the claims based on the common law of fraud in Illinois. The Fund does not suggest that it would be entitled to any remedy under Illinois law of fraud that is unavailable under Rule 10b-5, or that its burden of proof on claims of intentional misstatements would be any easier under Illinois law. To the contrary, Illinois law may impose on plaintiffs a slightly greater burden of investigation than we believe the securities laws create.

* * * * * *

We therefore are not persuaded that there is a significant difference between state and federal law here. But we lack the authority to interpret state law with the same freedom we possess in construing federal law, and we shall refrain from harmonizing the state cases unless we are persuaded that it is important to the further conduct of this litigation.

Now this Court is constrained to do the job of "harmonizing the state cases" eschewed by the Court of Appeals, though on analysis no real disharmony in the Illinois cases is really apparent.

In Illinois the elements of a cause of action for fraud are well established. As reaffirmed in Soules v. General Motors Corp., 79 Ill.2d 282, 286, 37 Ill.Dec. 597, 599, 402 N.E.2d 599, 601 (1980) (citations omitted), those elements are:

(1) false statement of material fact (2) known or believed to be false by the party making it; (3) intent to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; and (5) damage to the other party resulting from such reliance.... Furthermore, the reliance by the other party must be justified, i.e., he must have had a right to rely.

To recover against defendants, Fund would have to establish each of those elements at trial by clear and convincing evidence. National Republic Bank of Chicago v. National Homes Construction Corp., 63 Ill. App.3d 920, 924, 21 Ill.Dec. 80, 83, 381 N.E.2d 15, 18 (1st Dist.1978). Defendants address only one of the elements — justifiable reliance. But because each element is a sine qua non for Fund to prevail in this action, defendants' successful attack on that single issue dooms Fund's claim.

Bowyer v. United States Department of Air Force, 804 F.2d 428, 430 (7th Cir.1986) (citations omitted) has just repeated long familiar doctrine:

Summary judgment is properly granted only when no genuine issues exist as to any material facts and the moving party is entitled to judgment as a matter of law.... A district court examines the evidence in a light most favorable to the non-moving party and draws all reasonable inferences in favor of the party opposing the motion.

Defendants argue the Katsaros factual determinations are binding on Fund and conclusively negate Fund's justifiable reliance on defendants' alleged misrepresentations. That contention really involves three separate issues:

1. the issue-preclusive effect of Judge Mishler's factual determinations;

2. what those factual determinations were; and

3. the legal effect of those factual determinations on Fund's right to rely under Illinois law.

Issue Preclusion

This Court has already decided the first question: the effect of fact-finding in Katsaros (Teamsters I, 585 F.Supp. at 1403-05). Its decision in that respect was specifically confirmed on appeal (Teamsters II, 762 F.2d at 525-26):

The application of issue preclusion here means at least that the trustees breached a duty to investigate and that but for the failure to investigate the loss would not have occurred.

See also Teamsters III, 624 F.Supp. at 960-61 n. 3. In brief, Fund cannot relitigate the factual questions it had a full and fair opportunity to litigate before Judge Mishler and on which Judge Mishler actually and necessarily made a determination.

Fund does not dispute Judge Mishler's having actually and necessarily decided factual issues relevant to the issues in this case. Instead it urges that because the legal issues in this dispute are different from those in Katsaros, the earlier factual determinations are not now binding on Fund. That reflects a total misperception not only of issue preclusion doctrine but of the significance of Teamsters II as well.

Falconer, 804 F.2d at 76 (citations, including one to Teamsters II, omitted) explains why Fund is wrong in its basic premise:

Collateral estoppel is proper ... when facts giving rise to a later cause of action were adversely decided against the plaintiff in a prior action, even if in the prior action a different legal theory was argued ... For if we rejected the use of collateral estoppel in such a case and remanded, the district court would merely be deciding the same factual issues that were decided earlier.

Teamsters II, 762 F.2d at 526-30 decided Fund's securities law claims were not foreclosed by Judge Mishler's holding that Trustees could not rely on defendants' representations for ERISA purposes — but...