Fogel, Richard L. v. Gordon & Glickson ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 04-1599, 04-2353
RICHARD L. FOGEL,
Plaintiff-Appellant, Cross-Appellee,
v.
GORDON & GLICKSON, P.C., et al.,
Defendants-Appellees, Cross-Appellants.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03 CV 1617—Joan Humphrey Lefkow, Judge.
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ARGUED OCTOBER 25, 2004—DECIDED DECEMBER 29, 2004
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Before POSNER, KANNE, and WILLIAMS, Circuit Judges.
POSNER, Circuit Judge. The cross-appeals in this diversity
suit present issues of fraud (under the common law of
Illinois) and arbitrability and a request by the defendants for
sanctions for the filing of a frivolous suit, along with
jurisdictional issues. The district court dismissed the suit for
failure to state a claim, enjoined arbitration, but denied
sanctions. The only sources of facts are the complaint and
contracts appended to it.
2 Nos. 04-1599, 04-2353
Fogel is a former member of the Chicago law firm of
Gordon & Glickson, a professional corporation until 1999
when it was converted for tax reasons to a limited liability
company. At that point Fogel, an employee and shareholder
of the PC, became an employee and member of the LLC.
Despite the conversion, the PC was not dissolved. It had
bought stock and stock options with money that would
otherwise have been income to its shareholders, and it re-
tained a portion of those assets after the conversion in order
to provide deferred compensation to the shareholders.
Fogel continued to work for the law firm until September
1999, when he announced his resignation and hence, pur-
suant to contracts that he had signed at the time of the
conversion, from the PC as well as the LLC. Pursuant to still
another contract, governing the disposition of the assets
retained by the PC, he became a creditor of the PC for his
share of those assets, some $463,000, which was to be paid
to him over a three-year period beginning in 2001. Oddly,
given his charge of fraud, had he not—at the firm’s
suggestion—postponed his resignation to the beginning of
the following year, he would have had a smaller entitlement
because the PC’s assets were revalued upward at the end of
1999.
The firm decided to sell some of the PC’s assets and dis-
tribute the proceeds to the shareholders in the form of cash.
Since Fogel was no longer a shareholder, he was not entitled
to share in the proceeds of the sale. The firm, however,
offered to treat him as if he were still a shareholder and thus
to let him share in the proceeds of the sale—further para-
doxical behavior for a defrauder. He declined, preferring to
remain a general creditor. The sale took place and was
profitable, and despite the distribution of the proceeds the
PC’s remaining assets had sufficient value to cover the debt
to Fogel. But shortly afterwards, and before the payments to
Nos. 04-1599, 04-2353 3
him were due to begin, the dot-com bubble burst, the PC’s
remaining securities tanked, and the value of the PC’s assets
fell to a level at which it was able to pay Fogel only 60
percent of what it owed him, precipitating this lawsuit.
Fogel alleges that when the firm gave him a choice whether
to be treated as a shareholder of the PC and thus participate
in the sale of some of its assets, it failed to warn him that if
he didn’t go along but instead stood on his rights as a
creditor there mightn’t be enough assets left to pay him the
full amount of the PC’s debt to him. But it isn’t fraud even
for a fiduciary to fail to tell his principal something that is
obvious. “A party cannot close its eyes to obvious facts and
then charge that it has been deceived.” Modern Track
Machinery, Inc. v. Bry-Lon, Ltd., 554 N.E.2d 1104, 1107-08 (Ill.
App. 1990); see also Costello v. Liberty Mutual Ins. Co., 348
N.E.2d 254, 257 (Ill. App. 1976); Vigortone AG Products, Inc.
v. PM AG Products, Inc., 316 F.3d 641, 645 (7th Cir. 2002)
(Illinois law); AMPAT/Midwest, Inc. v. Illinois Tool Works Inc.,
896 F.2d 1035, 1041-42 (7th Cir. 1990) (ditto). Fogel knew
that he might not be paid in full if the PC’s assets declined
in value because of the vicissitudes of the stock market. He
also knew that if assets were sold and the proceeds distrib-
uted to the PC’s shareholders, of whom he was no longer
one, the diminished pool of assets remaining would be even
less likely to cover what the PC owed him.
A sale of a corporation’s assets followed by the distribu-
tion of the proceeds to the owners might be a fraud against
the corporation’s creditors, such as Fogel (apparently the
PC’s only creditor). 740 ILCS 160/5(a), 6(a); Cannon v.
Whitman Corp., 569 N.E.2d 1114, 1116-17 (Ill. App. 1991);
Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995) (Illinois
law); Pierce v. United States, 255 U.S. 398, 403 (1921); William
T. Vukowich, “Civil Remedies in Bankruptcy for Corporate
Fraud,” 6 Am. Bankr. Inst. L. Rev. 439, 444-47 (1998). Maybe
4 Nos. 04-1599, 04-2353
a concern with the possibility of being accused of such a
fraud was what led the firm to offer Fogel a chance to
participate in the sale of assets as if he were still a share-
holder. By declining, he placed himself at risk that the assets
might be dissipated to the point at which his claim as a
creditor would be endangered. For not only did he know
that some of them were about to be sold and the proceeds
distributed to the shareholders; he also knew exactly which
ones would be sold and what would be left in the PC.
He is left to argue only that the firm falsely assured him
that there would be value enough remaining in the PC to
pay his claim in full. But he could not have believed any
such assurance. He knew what the remaining assets were;
he knew they were stocks and stock options rather than
Treasury bills; he knew the law firm did not control the
stock market; and so he knew that the firm’s representation
to him concerning the future value of the PC’s remaining
assets was a prediction, rather than a promise on which a
reasonable person could rely. Lidecker v. Kendall College, 550
N.E.2d 1121, 1125 (Ill. App. 1990); Madison Associates v. Bass,
511 N.E.2d 690, 699 (Ill. App. 1987); Hofner v. Glenn Ingram
& Co., 489 N.E.2d 311, 317 (Ill. App. 1985); Continental Bank,
N.A. v. Meyer, 10 F.3d 1293, 1298-99 (7th Cir. 1993) (Illinois
law). Often what sounds like a “promise” is actually “a
hope or possibly a prediction rather than a commitment to
do something within the ‘promisor’s’ power to do (‘I prom-
ise it will rain tomorrow’); and the ‘promisee’ would, if
sensible, understand this. He would rely or not as he chose
but he would know that he would have to bear the cost of
any disappointment.” Garwood Packaging, Inc. v. Allen & Co.,
378 F.3d 698, 703-04 (7th Cir. 2004).
If Fogel wanted to minimize the risk to him of stock
market fluctuations, he should either have accepted the of-
Nos. 04-1599, 04-2353 5
fer to be treated as a participant in the sale of assets, and
thus received a portion of the proceeds (and therefore ad-
vance payment of a part of his entitlement), which were in
cash, or have objected to the distribution of the proceeds,
which reduced the assets available to pay the PC’s debt to
him. He did neither. He gave knowing consent to the chain
of events that resulted in the PC’s inability to honor its debt
to him. So the claim of fraud was rightly dismissed, al-
though we do not think the claim was so frivolous that the
district judge can be said to have abused her discretion in
declining to award sanctions.
After filing his suit in the district court, Fogel served a
demand for arbitration on the LLC, contending that it had
violated a contractual obligation to pay him, when he with-
drew from the firm, both deferred compensation and the
value of his equity interest in the firm. His contracts with
the PC and the LLC contain an identical, broadly worded,
“mandatory arbitration” clause, which provides that “any
dispute, claim, question or disagreement . . . aris[ing] as a
result of or in connection with this Agreement, or the breach
thereof, . . . shall be resolved through arbitration.” Although
the clause was broad enough to encompass Fogel’s fraud
claim against the PC, Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U.S. 395, 402-04 (1967); Matthews v. Rollins
Hudig Hall Co., 72 F.3d 50, 54 (7th Cir. 1995); Pierson v. Dean,
Witter, Reynolds, Inc., 742 F.2d 334, 338 (7th Cir. 1984), Fogel
had disregarded it in suing in the district court; and the PC,
content to litigate the fraud case there, had not invoked the
arbitration clause either. When the firm learned of Fogel’s
demand for arbitration of his breach of contract claim
against the LLC, it asked the district court to rule that Fogel
was splitting his claim, that res judicata forbade him to do
so, and therefore that he should be enjoined from arbitrat-
ing. The district court agreed and enjoined the arbitration.
Fogel as part of his appeal asks us to vacate the injunction.
6 Nos. 04-1599, 04-2353
There is a jurisdictional hiccup. The district court dis-
missed the fraud suit while the motion to enjoin arbitration
was pending. When Fogel filed his notice of appeal from
that dismissal we ordered the appeal stayed pending dis-
position of the motion to enjoin, which would end the pro-
ceedings in the district court, thus enabling us to exercise
jurisdiction under 28 U.S.C. § 1291 (appeal from final
decision). When we received notice that the district court
had amended its judgment to include the injunction, we set
a briefing schedule for the appeal, but Fogel failed to file a
new notice of appeal.
Had we dismissed the appeal, back when the notice of
appeal was filed, for want of appellate jurisdiction, on the
ground that there was then no final judgment in the district
court and the appeal was therefore premature, Katerinos v.
United States Department of the Treasury, 368 F.3d 733, 737-38
(7th Cir. 2004) (per curiam); Florian v. Sequa Corp., 294 F.3d
828, 829 (7th Cir. 2002) (per curiam), Fogel would have
known to file a new notice of appeal when the amended
judgment was issued. Fed. R. App. P. 4(a)(4)(B)(ii); Gripe v.
City of Enid, 312 F.3d 1184, 1186 (10th Cir. 2002). By instead
merely staying the appeal, we may have led him to believe
that his appeal was perfected and merely awaiting the
completion of formalities in the district court. He should not
have been fooled; it is settled law that the kind of stay
issued in this case does not excuse the appellant from hav-
ing to file a fresh notice of appeal if he wants to appeal from
the district court’s final decision. Katerinos v. United States
Department of the Treasury, supra, 368 F.3d at 737-38; see also
Life Plus Int’l v. Brown, 317 F.3d 799, 804-05 (8th Cir. 2003).
And anyway when a rule is unambiguous a litigant is not
permitted to rely on erroneous advice, even by a court.
Properties Unlimited, Inc. Realtors v. Cendant Mobility Services,
384 F.3d 917, 921-22 (7th Cir. 2004); Panhorst v. United States,
241 F.3d 367, 373 (4th Cir. 2001); Endicott Johnson Corp. v.
Nos. 04-1599, 04-2353 7
Liberty Mutual Ins. Co., 116 F.3d 53, 57-58 (2d Cir. 1997).
(What is more, as we shall see, it would have been an error
for us to dismiss the appeal for want of jurisdiction; there
was a final judgment in the district court when we granted
the stay, although we didn’t know it.)
The cases we have just cited are ones interpreting the
unhelpfully named “unique circumstances” doctrine, which
is actually a form of equitable tolling that relieves against
the consequences of an untimely filing of a notice of appeal
if the appellant relied on a “specific assurance by a judicial
officer.” Osterneck v. Ernst & Whinney, 489 U.S. 169, 179
(1989); Rezzonico v. H&R Block, Inc., 182 F.3d 144, 152 (2d Cir.
1999); Moore v. South Carolina Labor Board, 100 F.3d 162, 164
(D.C. Cir. 1996) (per curiam). Questionable on its face—the
judge-made tolling rules, such as equitable tolling, are
designed for statutes of limitations, not for jurisdictional
deadlines, Zipes v. Trans World Airlines, Inc., 455 U.S. 385,
393 (1982); Cada v. Baxter Healthcare Corp., 920 F.2d 446, 451
(7th Cir. 1990); David v. Hall, 318 F.3d 343, 345-46 (1st Cir.
2003); Hardin v. City Title & Escrow Co., 797 F.2d 1037, 1040-
41 (D.C. Cir. 1986)—and rarely invoked successfully, the
doctrine in operation is best illustrated by Harris Truck Lines,
Inc. v. Cherry Meat Packers, Inc., 371 U.S. 215 (1962) (per
curiam). The district court had granted an extension of time
within which to file the notice of appeal because the appel-
lant’s lawyer was out of the country. In reliance on the
court’s order, the appellant filed its notice of appeal within
the extended deadline, but after the original 30-day deadline
had expired. The court of appeals reversed the grant of the
extension, which made the appeal untimely, but the Su-
preme Court reversed the court of appeals. The appellant
had relied on the extension (for had it been denied, he could
have filed the notice of appeal within the original deadline),
and his reliance had been reasonable because the judge’s
granting of the motion for an extension of time hadn’t been
8 Nos. 04-1599, 04-2353
an obvious abuse of discretion. On this basis the Supreme
Court held that the appeal was timely after all. As the
subsequent cases make clear, the reliance must indeed be
reasonable, and it was not here.
The two cases on which Fogel places particular weight are
not on point. In Allen v. Transamerica Ins. Co., 128 F.3d 462,
463 (7th Cir. 1997), the original “judgment” was not a real
judgment, but merely the announcement of the court’s
decision before entry of judgment, and so the notice of
appeal from the first “judgment” was not premature. Fed.
R. App. P. 4(a)(2). And in Cardoza v. Commodity Futures
Trading Commission, 768 F.2d 1542, 1545-47 (7th Cir. 1985),
the notice of appeal was timely. The defect in the notice was
not jurisdictional and it was therefore forgivable. Fed. R.
App. P. 3(a)(2).
A more interesting jurisdictional issue has to do with the
fraud suit itself. A premature notice of appeal becomes
effective on the denial of a pending motion only if the
motion is one enumerated in Fed. R. App. P. 4(a)(4)(A), see
Fed. R. App. P. 4(a)(4)(B)(i), such as a motion to alter or
amend judgment under Fed. R. Civ. P. 59(e). The defendants
did file a motion to amend the judgment to include an
injunction against Fogel’s seeking arbitration. But it was not
a Rule 59(e) motion because it was filed more than 10 days
after the judgment sought to be amended—that is, the
judgment dismissing the fraud suit. So it did not extend
Fogel’s deadline for filing his notice of appeal from that
judgment.
But Fogel’s appeal from that judgment is saved by the
following sentence in the district judge’s minute order di-
recting the entry of judgment: “All pending motions are
terminated.” One of those motions was the defendants’
motion to bar arbitration. That motion was denied by the
language we just quoted. A Rule 58 judgment was entered,
Nos. 04-1599, 04-2353 9
pursuant to the minute order. That was a final and
appealable judgment because nothing remained pending in
the district court (all motions having been terminated,
remember), and the defendants’ subsequently filed motion
to amend the judgment was a nullity, as the district judge
failed to realize in granting it. Cf. Salton, Inc. v. Phillips
Domestic Applances & Personal Care B.V., No. 04-1042, 2004
WL 2801691, at *1 (7th Cir. Dec. 7, 2004).
The motion cited no rule that authorizes a district judge to
revise a final judgment; cited, in fact, no rule at all. The
logical rule to cite would have been Fed. R. Civ. P. 60(b), the
deadline for filing a Rule 59(e) motion having passed.
Instead of citing Rule 60(b) or any other rule or doctrine
governing postjudgment motions, the defendants invoked
Nelson v. Adams, USA, Inc., 529 U.S. 460 (2000), for the pro-
position that a district court has the authority to revise a
judgment to grant additional relief provided that the party
against whom the judgment is entered has an opportunity
to be heard on the matter. What Nelson actually holds is that
Rule 15(a), governing the amending of complaints, cannot
be used after final judgment has been entered to add
another party to the judgment. The case does not suggest
that a party can ignore the limitations that Rules 59(e) and
60(b) place on motions to amend final judgments. Even if
the defendants’ motion were construed as one under Fed. R.
Civ. P. 60(b), it would not arrest the 30-day limit for filing a
notice of appeal from a final judgment; and so Fogel was
correct to file that notice within 30 days of the final judg-
ment in the fraud suit, Browder v. Director, Department of
Corrections, 434 U.S. 257, 263 n. 7 (1978); Hall v. Life Ins. Co.
of North America, 317 F.3d 773, 775 (7th Cir. 2003); American
Federation of Grain Millers, Local 24 v. Cargill Inc., 15 F.3d 726,
728 (7th Cir. 1994); Cody, Inc. v. Town of Woodbury, 179 F.3d 52,
56 (2d Cir. 1999) (per curiam); cf. Simmons v. Ghent, 970 F.2d
10 Nos. 04-1599, 04-2353
392, 393 (7th Cir. 1992); Kraus v. Consolidated Rail Corp., 899
F.2d 1360, 1362 (3d Cir. 1990), even though the defendants’
motion to amend was pending. Hatfield v. Board of County
Commissioners, 52 F.3d 858, 861-62 (10th Cir. 1995); Marshall
v. Shalala, 5 F.3d 453, 454 (10th Cir. 1993). The notice of
appeal was not premature. But to challenge the amended
judgment, and thus the injunction, Fogel would have had to
file a new notice of appeal, and he failed to do so. So the
appeal from the injunction must be DISMISSED for want of
appellate jurisdiction, and so we do not address the issue of
res judicata. The dismissal of the fraud suit and the denial
of sanctions are AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-29-04