Telemark Development Group, Inc. v. Mengelt
| Decision Date | 12 December 2002 |
| Docket Number | No. 02-1331.,No. 02-1280.,02-1280.,02-1331. |
| Citation | 313 F.3d 972 |
| Parties | TELEMARK DEVELOPMENT GROUP, INC., a Nevada corporation, Plaintiff-Appellee, v. John P. MENGELT, Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Robert K. Blain (argued), Elmhurst, IL, for Plaintiff-Appellee, Cross-Appellant.
Martin W. Salzman (argued), Eric S. Rein, Schwartz, Cooper, Greenberger & Krauss, Chicago, IL, for Defendant-Appellant, Cross-Appellee.
Before COFFEY, RIPPLE and MANION, Circuit Judges.
Telemark Development Group, Inc. ("Telemark") brought this action against John Mengelt for breach of contract on a $55,000 promissory note. It alleged that Mr. Mengelt had refused to accept tender of payment on the note and had failed to return stock given as collateral. Mr. Mengelt brought a counterclaim, seeking the principal balance and accrued interest owed on the note. Both sides moved for summary judgment. The district court granted Telemark's motion as to liability but left the calculation of damages unresolved. The parties subsequently filed cross-motions for summary judgment on the issue of damages, and the district court granted Telemark's motion.
Mr. Mengelt appeals from the district court's grant of summary judgment in favor of Telemark on both liability and damages. Telemark appeals only from the district court's calculation of damages. We now affirm the judgment of the district court in all respects except as to prejudgment interest. On that matter, we remand the case to the district court for further consideration in conformity with this opinion.
On August 27, 1997, Telemark executed and delivered to Mr. Mengelt a promissory note in the principal amount of $55,000 plus interest at 12% per annum retroactive to April 15, 1997.1 The total amount was to be paid by April 15, 1998. As security for the note, Telemark endorsed to Mr. Mengelt 160,000 shares of Wasatch International, Inc. ("Wasatch"), a publicly traded corporation.2 The stated value of the stock on the date of the note's execution was $.35 per share.
On April 6, 1998, Telemark partner Lawrence Muno wrote Mr. Mengelt a letter, informing him that Telemark did not have sufficient funds to pay the note on its April 15 due date. Muno further advised Mr. Mengelt that Telemark considered the note to be a "term note with no renewal provision" and that if Mr. Mengelt "wish[ed] to assert [his] remedies under the terms of the note," he should do so. R.22, Ex.G. Telemark, in fact, did not pay Mr. Mengelt when the note became due. Under the terms of the note, Mr. Mengelt, upon default, had the right to liquidate or possess the pledged stock for his own account; however, he did not exercise this right.
On December 23, 1998, Muno sent Mr. Mengelt another letter, again stating that Telemark lacked the funds necessary to retire the debt. In the same letter, Muno also indicated that, if Mr. Mengelt wanted to obtain a judgment against Telemark, the corporation would "be pleased to save [him] the litigation costs and execute a Confession of Judgment." R.22, Ex.I. Despite these communications, Mr. Mengelt did not take legal action to enforce the terms of the note, apparently because of a long-standing relationship with Muno.
More than a year elapsed without any further communication between the parties. During this time, the value of Wasatch stock increased dramatically.3 In a letter dated March 7, 2000, Telemark's counsel offered to settle Telemark's indebtedness to Mr. Mengelt.4 Specifically, the letter proposed a settlement in which Telemark would pay Mr. Mengelt the principal sum of $55,000 plus interest at the rate of 12% per annum through April 15, 2000. The computed total under this plan payable to Mr. Mengelt was $77,270. In return, Mr. Mengelt was required to return the 160,000 shares of Wasatch stock that he held as collateral for the note. The letter did not provide a specific date upon which the proposed transaction would take place but it did request a "prompt response" from Mr. Mengelt. R.22, Ex.J.
Within a few days of receiving the March 7, 2000, letter, Mr. Mengelt responded by telling Telemark's counsel "that any kind of settlement that [Telemark] might propose should be much more substantial in line with what [he] might have made in the stock market and that [he] didn't feel like this particular amount was appropriate." R.24, Ex.1 at 40. Mr. Mengelt also indicated that $200,000 would sufficiently compensate him for his losses. Telemark's counsel replied that he would speak to his clients. Following the March 7, 2000, letter, Telemark did not present Mr. Mengelt with a check or cash in satisfaction of the note, nor did Mr. Mengelt release the Wasatch stock.
On March 26, 2000, Telemark's counsel made another attempt to settle the dispute. Telemark's counsel faxed Mr. Mengelt a proposed settlement agreement that again called for Telemark to pay Mr. Mengelt $77,270 in exchange for his return of the Wasatch stock held as collateral and further provided that the parties would "agree to forever hold each other harmless from any and all future claims regarding the subject note." R.22, Ex.K. The fax instructed Mr. Mengelt to execute and return the settlement agreement by way of fax if he consented to its terms, and that "[u]pon receipt of the signed agreement by fax, [Telemark would] cause certified funds to be issued to [him] at which time [Telemark] would appreciate return of the subject stock certificates." Id. Mr. Mengelt did not sign the settlement agreement, nor did he return the pledged stock as Telemark requested. Telemark, in turn, did not pay the note. Meanwhile, the value of Wasatch stock declined rapidly; by the end of 2000 the stock was trading at pennies per share.
Telemark filed this action against Mr. Mengelt on June 15, 2000. It alleged that he had breached the terms of the note by refusing to accept Telemark's tendered payment and by failing to return the pledged stock. In addition to the return of the Wasatch stock, Telemark sought damages in an amount equal to the difference between the value of the stock on March 8, 2000, and the value of the stock on the date of return. On July 21, 2000, Mr. Mengelt filed a counterclaim to collect the principal balance and accrued interest owed on the note.
On April 4, 2001, Telemark and Mr. Mengelt filed cross-motions for summary judgment. The parties' submissions focused on whether Telemark's March 7, 2000, settlement offer constituted a legally sufficient "tender of payment" under Illinois law. On May 4, 2001, the district court granted summary judgment in favor of Telemark on the issue of liability, finding Mr. Mengelt liable for conversion of the pledged stock. The district court found that "no genuine issue of fact [stood] in the way of its determination that Telemark's March 7, 2000 offer constituted a valid tender so that Mengelt's rejection of that offer was a breach of his obligations under the Note." R.30 at 15. The district court reserved judgment on the issue of damages pending the parties' submission of additional evidence. On September 21, 2001, Telemark and Mr. Mengelt filed cross-motions for summary judgment on damages. On January 17, 2002, the district court granted summary judgment in favor of Telemark and ordered Mr. Mengelt to pay Telemark damages in the amount of $520,000, offset by $77,270, the amount still owed to Mr. Mengelt under the terms of the note.
The district court granted summary judgment in favor of Telemark on both liability and damages. We review a district court's decision to grant a motion for summary judgment de novo, construing all facts, and drawing all reasonable inferences from those facts, in favor of the nonmoving party. See Nevel v. Vill. of Schaumburg, 297 F.3d 673, 678 (7th Cir. 2002). Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).
Under Illinois law, "[t]he primary duty of a pledgee is to return the article pledged to the pledgor immediately upon the performance of the obligation for which the security was given, or on tender of such performance, and his refusal so to do amounts to a wrongful conversion." Cottrell v. Gerson, 371 Ill. 174, 20 N.E.2d 74, 78 (1939).5 It follows that if Telemark made a legally sufficient tender of the amount owed under the note, it was entitled to a return of the Wasatch stock, and Mr. Mengelt's failure to do so amounts to conversion.
Accordingly, the controlling issue on appeal is the legal effect of Telemark's March 7, 2000, letter and Mr. Mengelt's ensuing response to that letter.6 Telemark maintains that it made a legally sufficient tender on March 7, 2000, when it offered to pay Mr. Mengelt $77,270 in satisfaction of the note and that Mr. Mengelt refused the tendered payment, insisting on a payment of $200,000 for return of the stock. In the alternative, Telemark submits that it was excused from tendering payment because Mr. Mengelt made it clear in advance of payment that he would not accept the amount actually due in discharge of the debt. In either case, Telemark asserts that Mr. Mengelt wrongfully retained the pledged stock in contravention of the terms of the note.
Mr. Mengelt, on the other hand, asserts that the March 7, 2000, letter did not constitute a legally sufficient tender under Illinois law because it was not accompanied by actual payment. According to Mr. Mengelt, the letter constituted no more than an offer to tender payment at some undetermined point in the future. Mr. Mengelt further argues that Telemark was not excused from its obligation to...
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