Ashenden Reply Brief
Lloyd's v. Ashenden, on Appeal
filed July 26, 2000


Nos. 99-3195, 99-4064, 00-1066, 00-1371, 00-1430 and 00-1702

IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT


The Society of Lloyd's, )
Plaintiff - Appellee ) Appeal from the United States District Court
) for the Northern District of Illinois
v. )
) No. 98 C 5335
James F. Ashenden et al. (No.99-3195) )
Defendants - Appellants ) Hon. Harry D. Leinenweber
) United States District Judge
) Judge Presiding

The Society of Lloyd's, )
Plaintiff - Appellee ) Appeals from the United States District
) Court for the Northern District of Illinois
v. )
) No. 99 C 2651
Eugene G. Callahan et al. (No. 99-4064) )
Henry D. Paschen, Jr. (No. 00-1066 )
Patrick Collins (No. 00-1371) ) Hon. Harry D. Leinenweber
Eugene G. Callahan et al. (No. 00-1430) ) United States District Judge
Patrick Collins (No. 00-1702) ) Judge Presiding
Defendants - Appellants

REPLY BRIEF OF APPELLANTS
Counsel for Appellants:
Robert Bennett Theodore W. Grippo, Jr.
357 East Chicago Avenue Pembroke & Brown
Chicago, Illinois 60611 422 North Northwest Highway
(312) 503-8430 Suite 150
Park Ridge, Illinois 60068
(847) 696-0060
July 26, 2000

Table of Contents

Table of Authorities
ii
Prefatory Note
1
Argument
Part A - Recognition of Foreign Judgment
2
Part B - Judgment on the Pleadings
13
Part C - Citation to Discover Assets
15
Part D - Counterclaim for Setoff of PTD Funds
18
Certificates of Compliance and of Service following text

Table of Authorities

Cases
Bonny v. Society of Lloyd's, 3 F. 3d 156 (7th Cir. 1993) cert. den., 510 U.S. 1113
18, 19
Brock v. Roadway Express, Inc. 481 U.S. 252 (1987)
6
Cleveland Bd. of Ed. v. Loudermill, 470 U.S. 532 (1985)
5
Connecticut v. Doehr, 501 U.S. 1 (1991)
8
D. H. Overmyer Co. v. Frick, 405 U.S. 174 (1971)
5
Hanlon v. Town of Milton, 186 F.3d 831 (7th Cir. 1999)
15
Ingersoll Milling Machine Co. v. Granger, 833 F. 2d 780 (7th Cir. 1987)
2, n.1
Kasper v. St. Mary of Nazareth Hosp., 135 F.3d 1170 (7th Cir. 1997)
2, n.1
Michigan v. Tyler, 436 U.S. 499 (1978)
12
Penn Central Corp v. Railroad Vest Corp., 955 F. 2d 1158 (7th Cir. 1992)
11
Society of Lloyd's v. Fraser (C.A. Jul. 31, 1998) (reproduced in full as Ashenden Ex. 28 at R. Doc. 15-3, Tab 28, and in Lloyd's Supplemental Appendix, Tab F)
7, 8, 11
Swarb v. Lennox, 405 U.S. 191 (1975)
5
Tri-State Development Ltd. v. Johnston, 160 F.3d 528 (9th Cir. 1998)
8
United States v. James Daniel Good Realty, 510 U.S. 43 (1993)
6
Vrozos v. Sarantopolous, 195 Ill. App. 3d 610, 552 N.E.2d 1093 (1st Dist. 1990)
16

Statutes

Illinois Uniform Foreign Money Judgments Recognition Act, 735 ILCS 5/12-618 through -626. (Reproduced in full in Appendix 8 to Appellants' Brief (Nov. 29, 1999)

2, 5,
16, 18

735 ILCS 5/1-1401(b)
17
735 ILCS 5/2-1402(m)
17
Rules
Fed. R. Civ. P. 12(c)
13
Fed. R. Civ. P. 56(a)
13

 

Prefatory Note

This is a consolidation of six appeals as to which three briefs have been filed by Appellants (dated Nov. 29, 1999, Mar. 22, 2000 and Apr. 26, 2000), and one consolidated brief has been filed by Appellee. For clarity, when a reference is made to one of the briefs filed by Appellants, the date of the brief will be stated, e.g., Appellants' Brief (Nov. 29, 1999) at __.

Lloyd's filed in this court a Supplemental Appendix containing copies of the rulings of the English courts which had been filed in the district court by the Ashendens as their Exhibits 23 through 28 to their Motion for Summary Judgment. Although references to these English rulings in earlier Appellants' briefs were made to their location in the Record, in this Reply Brief they will be referred to by their location in Lloyd's Supplemental Appendix.

As in the Appellants' earlier briefs, references to the Record in the form "R. Doc. ___" will also designate which record is being referred to by including the Appellate Court number, e.g., R. (99-3195) Doc. ___.

This consolidated reply brief is divided into four parts, labelled A through D, one for each of the appeals (or cluster of appeals involving the same issue), each with its own argument and conclusion.

Finally, Appellants object to that portion of Lloyd's "Statement of the Case" (pp.3-4) which discusses Lloyd's motions (filed and intended) to dismiss the bankruptcies of certain of the Appellants herein on account of "bad faith." It is inflammatory, outside the record of this case, and irrelevant.

Part A - Appeals Nos. 99-3195, 99-4064, 00-1066 and 00-1371
(Recognition of Foreign Judgment)

I. Introduction
Under the Uniform Foreign Money Judgments Recognition Act ("UFMJRA"), foreign judgments can be enforced in Illinois only if they were "rendered under . . . procedures compatible with the requirements of due process of law." 735 ILCS 5/12-621(a)(1). This provision frames the sole question on this appeal: whether the English judgments here sought to be enforced by appellee Lloyd's were obtained pursuant to procedures that met American standards of due process.

The Names' due process grievance is grounded in two summary disposition provisions of the Equitas Reinsurance Contract to which they were involuntarily subjected. These were the "pay now sue later" and the "conclusive evidence" provisions. Because of these two clauses, the Names were deprived of the meaningful hearing. The issues on which they did not receive such a meaningful hearing are two: 1) the basis for the amount of money Lloyd's asserted that they owed and that has now been reduced to judgment; and 2) whether they had been defrauded by Lloyd's and its agents through representations that initially caused them to invest in Lloyd's and then periodically to reinvest. These two issues are intimately linked in that the Names claim that the first (the amount due Lloyd's) derives directly from the second (Lloyd's fraud). In other words, the second would be a compulsory counterclaim against the first if the case were heard in a United States district court.

The omission of a meaningful pre-deprivation hearing is justified only when there are exigent circumstances and an adequate post-deprivation remedy for wrongful taking. And in a summary judgment, which is what this case is, the record must show that there is evidence of such exigent circumstances and adequate remedy to the degree that there is "no genuine issue as to any material fact" and that the moving party is "entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

II. Lloyd's attempt to avoid the district court's conclusion that there was no meaningful hearing in England.
The question of due process compliance is a very uncomfortable one for Lloyd's to confront, because, as the district court held, the English judgments were obtained without the "meaningful pre-deprivation hearing" normally required by due process. Mem. Op. and Order (Apr. 22, 1999), Appellants' Brief (Nov. 29, 1999), App., Tab 3, p. 15. Moreover, the reasons given by the district court for granting enforcement nonetheless cannot survive serious scrutiny-as appellants argued in portions of their initial brief largely ignored by Lloyd's. Appellants' Brief, (Nov. 29, 1999) pp. 20-30. Apart from the half-hearted support for the court's ground, Lloyd's response here tracks its approach below: insistence that the district court was wrong in finding that there was no meaningful pre-deprivation hearing in England.

In support of this position Lloyd's provides ritual-and repetitious-incantation of just how much time and ink the English courts expended on some things about the dispute between the parties. See Appellee's Brief, pp. 21, 23 ("25 days of hearings"), 15 ("opinions totaling hundreds of pages").

But mostly Lloyd's argument is an attempt to assimilate what the English courts did decide to the due process question. Lloyd's repeatedly suggests that the sole question under Illinois law is whether the English courts complied with English law. See Appellee's Brief, p. 24 ("claim that the English courts do not 'provide procedures compatible with due process' is . . . simply an attempt to relitigate issues already addressed and carefully decided by the English courts. This Court should not act as a second tier English court of appeals."); see id. at 23. The questions in this case are said to be solely ones of "substantive" English law. Appellee's Brief, p. 29.

This argument reflects rampant confusion. The question of whether English courts complied with English law is hardly an intelligible one. The English courts determined that the two clauses were valid as a matter of English statutory and common law, but they had no occasion to address the American constitutional law of due process. Assuming for the sake of argument (and quite contrary to fact) that the Names had meaningfully agreed that Lloyd's could use summary procedures in enforcing the contract, the enforceability of that provision as a matter of "substantive" contract law (English or American) does not prevent enforcement from simultaneously raising a question of procedural due process. D. H. Overmyer Co. v. Frick Co., 405 U.S. 174, 183 (1972); Swarb v. Lennox, 405 U.S. 191 (1972).

Perhaps Lloyd's argument is that the only process due is that which was given. That, of course, would erase the constitutional line between substance and procedure, a move the Supreme Court has ruled out as reducing procedural due process to "a mere tautology." "Property," the Court has made clear, "cannot be defined by the procedures provided for its deprivation any more than can life or liberty." Cleveland Board of Education v. Loudermill, 470 U.S. 532, 541 (1985). Whether the English procedures were fully compatible with American constitutional standards must be decided by this court. The inquiry requires of this court not the assumption of the role of "a second tier English court of appeals" but the performance of a clear duty under the UFMJRA.

This then is all there is to Lloyd's insistence that "the Names had notice and hearings where their defenses were heard before judgments were entered against them." Appellee's Brief, p. 26. Once this is seen as pure obfuscation, the way is clear to the conclusion that enforcement of each of the two summary disposition clauses deprived the Names of due process of law.

III. The "Conclusive Evidence" Clause
Most legal questions are suffused with normative considerations, but the issue posed by the conclusive evidence clause of the Equitas "contract" comes very close to being one of pure fact and logic. Pursuant to that provision, Lloyd's calculations of the amounts owed by appellants were to be accepted in the absence of a showing by appellants of "manifest error," which showing had to be made without the benefit of discovery of the basis for the calculations or of cross-examination of those who did the calculations. Unless there is both very substantial justification for proceeding in this way initially (usually taking the form of an exigency) and adequate later process, enforcement of this requirement constitutes an obvious violation of due process. See, United States v. James Daniel Good Realty, 510 U.S. 43, 48 (1993); Appellants' Brief (Nov. 29, 1999), pp. 17-18. We will reserve the exigency question for Section III, below. What makes this issue such a clear one is that there was no process whatsoever available by which the Names would be able to test the amount claimed with discovery and/or cross-examination. See, Brock v. Roadway Express, Inc. 481 U.S. 252 (1987).

Lloyd's makes only two points that come close to genuine argument about this provision. First it points out that it did provide some bare-boned constituent figures of the final amounts claimed, and under pressure from the English courts did divulge more about its calculations than was initially presented. Lloyd's again borders on misrepresentation when it characterizes this divulging as "detailing the basis for each Names' Equitas premium," Appellee's Brief, p. 33, and again when it says that there was "production of the records of MSU/CSU and its calculations." Appellee's Brief, p. 39. Because of these questionable characterizations, appellants will provide further explanation of how the English courts in fact proceeded under the "conclusive evidence" provision.

Operating under the provision and through the bodies referred to "MSU" and "CSU" Lloyd's unilaterally calculated the amount of the Names' supposed liability, tracing that liability through the many stages of the Lloyd's insurance and reinsurance drama, with its debits and credits to the accounts of each Name. "The exercise" was obviously, as the English court put it, "a highly complex one." Society of Lloyd's v. Fraser (Ct. App.), Lloyd's Supp. App., Tab F, p. 35. None of those constituent calculations was turned over to defendants, only the final figures claimed to be due. Appellants' Brief (Nov. 29, 1999), p. 8. Under the purported "agreement" between the parties, these figures were to be "conclusive," unless, as the English court put it, "in their own terms they manifestly cannot be correct . . . " Fraser (Ct. App.), Lloyd's Supp. App., Tab F, p. 36. Without benefit of discovery, disclosure, or cross-examination of those who produced the figures, it was, as the English court put it, "for the Name to identify and demonstrate some clear error." Id.

The slim foundation for Lloyd's characterizations is that some of the defendants in the English proceedings were able to tease out further explanations, and even occasional corrections, of Lloyd's claims against them, because, in some instances Lloyd's admitted error. But unless Lloyd's admitted error, its explanations of discrepancies were accepted by the English court without further probing. Fraser (Ct. App.) Lloyd's Supp. App., Tab F, pp. 35-37. The English court concluded that "[t]he explanation having been given there is no further point which the [Names] can raise on the basis of that argument. It does not demonstrate manifest error." Id. at 36-37.

Lloyd's admitted in the district court that it could not trace the Names' losses, but later withdrew that admission. See, Appellants' Brief, p. 25, n. 4, and items from the Record cited therein.

The natural inference from some such instances, of course, is that additional errors likely lurk in others of the unilaterally provided figures, errors that are real even if not "manifest," and hence might be uncovered by reasonable testing by those affected. In the American-and usually the English-context that information and testing would be obtained through a discovery process and cross-examination. For "the risk of erroneous deprivation is high . . . [when the] case involves a factual inquiry and is not amenable to realistic assessment based only on 'one-sided, self-serving, and conclusory submissions.'" Tri-State Development, Ltd. v. Johnston, 160 F.3d 528, 531 (9th Cir. 1998), quoting Connecticut v. Doehr, 501 U.S. 1, 14 (1991).

But the English court, relying on clause 5.10, drew no such inference and provided no such testing process. In fact, the English court drew the opposite inference-that acknowledgment by Lloyd's of certain errors shown to be "manifest" demonstrated Lloyd's willingness to admit errors. The following passage from the court's opinion shows its almost otherworldly way of proceeding:

Another argument which was advanced was that since [Lloyd's] has for some individual Names admitted that the figures were wrong and has corrected them shows [sic] that all figures need to be thoroughly checked and that no judgment should be given until further checking has taken place. This argument does not support the conclusion which it seeks to reach. It shows that in cases of manifest error . . . [Lloyd's] has been prepared to recognise that the error has been made and to correct the figures accordingly. It is not to be concluded that in respect of Names where there is no basis for suggesting that there has been a manifest error that such an error has occurred. Fraser (Ct. App.), Lloyd's Supp. App., Tab F, p. 47 (emphasis supplied).

If this passage is true at all, it is made true only through adept use of grammar (italicized above), producing a tautology (viz., "It is not to be concluded that there is no manifest error where there is no manifest error"). The relevant truth is that the fact that there are some glaring (i.e., manifest) errors suggests precisely that there are even more errors that are real even if not so glaring.

It is no answer that the Names were required to delegate the purchase of reinsurance to their underwriting agents under their original agreements with Lloyd's. For this reason it is said that the manifest error barrier is no more serious than what Lloyd's has imposed on its Names "for hundreds of years." Appellee's Brief, p. 39. The plausibility is only on the surface, however, for several reasons. First, there was no conclusive evidence clause acting as a barrier to a Name's challenge to an underwriting agent's calculations. R. (99-3195) Doc. 15-3, tab 22 (Ashenden Ex. 22 - Managing Agent's Agreement, which is Sched. 3 to Member's Agent's Agreement.) Second, the underwriting agents were real agents of Names, with fiduciary responsibilities to them. Id. Lloyd's operates under no such burden. And third, the calculations of underwriting agents were subject to independent audit, id., while Lloyd's are not.

The only other responses Lloyd's offers are mumbo jumbo. The Names are chided for complaining of not receiving a hearing when they haven't "specified the issues on which they need a hearing." Appellee's Brief, p. 38. The issue on which the Names seek a hearing is, of course, the basis for the amount claimed, and if the Names cannot specify more precisely problems in the calculation, it is because they have been told almost nothing about those calculations and do not have discovery or cross-examination available by which they might find out more. Next, the Names are saddled with not charging Lloyd's with "bad faith" in the calculations, for which it apparently could be held liable. Appellee's Brief, p. 38. But of course the Names could not responsibly charge Lloyd's with bad faith in making the calculation when all the information that might form the basis for such a charge is withheld from them.

Last, Lloyd's asserts that the "Names could have claimed their entire Equitas premium as part of their damages in a [post-deprivation] fraud case." Recovery there, it is said, "would moot any questions regarding its calculations." Appellee's Brief, p. 39. But the possibility of suing for fraud in the inducement (which we take up in the section below), provides no remedy where the claim is one of erroneous calculation. The errors may well have been non-fraudulent, and Lloyd's does not deny that such non-fraudulent errors cannot be litigated at any time in the future. The English judgments are, all parties agree, "final and conclusive and fully enforceable in England." Appellee's Brief, p. 22.

IV. The "Pay Now, Sue Later" Clause.
Freed of Lloyd's obfuscatory rhetoric, the simple facts of the operation of the pay now sue later provision are 1) without that provision appellants would have been able to interpose a defense of fraud in the inducement in the English action yielding the judgments here sought to be enforced, R. (99-3195) Doc. 19 (Aff. of Michael Freeman); and 2) by virtue of that provision, appellants could not interpose that defense. This means that at the time of the English litigation, appellants were faced with the prospect of being deprived of large property interests before receiving a hearing on a very substantial defense that they wished to present. Lloyd's makes much of the fact that an English action for fraud in the inducement is being pursued by a number of aggrieved Names and that some of them are doing so before having relinquished their property. Appellee's Brief, pp. 22-23. But the Equitas Contract itself recites that:

5.5 . . .
(b) the Name shall not be entitled to issue proceedings and no cause of action shall arise or accrue in connection with his obligation to pay his Name's Premium unless the liability for his Name's Premium has been discharged in full.
See, Fraser (Ct. App.), Lloyd's Supp. App., Tab F ("Appendix to the Judgment of the Court") p. 44 (p. 3 of Appendix).

Thus, at the time of the English action in issue here, there was no reason to believe that property could be retained before commencing an affirmative fraud action.

The due process issue posed by the English case was thus, as the district court found, whether property could be taken without any meaningful predeprivation hearing on a matter central to the claimant's entitlement. Lloyd's argument that the Names could theoretically recover their Equitas Premium in a later fraud suit is one that was rejected by this Court in Penn Central Corp. v. Railroad Vest Corp., 955 F.2d 1158 (7th Cir. 1992), a case relied upon by the Names in their Appellants' Brief (Nov. 29, 1999, at p. 17) but not even mentioned by Lloyd's in its brief.

The answer to the district court's question, as a matter of established American law of procedural due process, is that deprivation is permissible without a meaningful predeprivation hearing only if there was a very substantial justification for proceeding in that way, which must usually take the form of exigent circumstances, supplemented by the availability of a meaningful post-deprivation hearing. These conditions were not met. Appellants will not reiterate the substantial showing in this regard provided at pages 20-30 of their Brief (Nov. 29, 1999). Suffice it to say here that the district court's conclusion of exigent circumstances is predicated on an entirely uncritical assumption that the presence in the Equitas contract of the two summary disposition clauses was in fact responsible for acceptance of the Equitas settlement arrangement by a large number of Names.

No such assertion was ever advanced by Lloyd's in the proceeding below; there is no basis for it in the record; it could easily have been tested in an evidentiary hearing; and it is almost surely false. See Appellants' Brief (Nov. 29, 1999), pp. 23-24. Lloyd's only real answer to this argument is lame. It insists that "exigency" was to be judged not as of the time the summary procedures were employed but as of the time that they were embodied in a document supposedly agreed to. This, however, drains the notion of an "exigency" of both its meaning and the substance that justifies the exception. Not surprisingly then it is contrary to the nearest available Supreme Court precedent. Michigan v. Tyler, 436 U.S. 499 (1978), discussed at Appellant's Brief (Nov. 29, 1999), p. 22, and entirely ignored in Appellee's Brief.

V. Conclusion
This is an action to enforce an English judgment, but it seeks to reach American-based property through American courts, and it must satisfy the condition of American law that the predicate English proceeding shall have complied with American standards of due process of law. The English courts were unconcerned with such questions-quite properly by the lights of English law unconstrained by American constitutional restrictions. When examined against the standards of due process, however, the process employed by the English courts was deficient. Under those circumstances, the English judgments are not enforceable in Illinois, including by federal courts applying Illinois law. For that reason, the judgments and decision of the lower court must be reversed.

Part B - Appeals Nos. 99-4064, 00-1066 and 00-1371
(Judgment on the Pleadings)

Argument
Upon a motion to reassign the Berkos case to the judge who had heard the Ashenden case, a motion directly solely at the goal of judicial economy, and which alleged only that common questions of law and fact were predominant, Lloyd's seeks to build the conclusion that the cases were identical. Lloyd's apparently did not believe that when it filed the first case, for it kept seventeen eggs out of the Ashenden basket in case that ruling should go against them.

But identity is not the issue here. The issue is the right of a litigant to make a record, and in particular, a record for appeal. That is why Rule 12(c) unambiguously requires that if matters outside the pleadings are presented to the court and not excluded on a motion for judgment on the pleadings, the motion must be converted to one for summary judgment. And Lloyd's cannot deny that it presented matters not only outside the pleadings, but outside the record of the case in its motion for judgment on the pleadings. See Appellants' Brief (Mar. 22, 2000) at pp. 13-14.

Lloyd's attempts to get around this problem by arguing that all matters material to the court's judgment could be found in the pleadings themselves. See, Appellee's Brief at 41-42, 44. If this is so, then Lloyd's cannot explain why the district court, in its ruling, relied on so much material which came to it from outside the pleadings. Lloyd's argues that the district court did not in fact rely on that material, and reads Rule 12(c) as implying, by the words "not excluded" that only if the district court relies on the material must the motion be converted. But Lloyd's can point to no place in the Record where the material was excluded, and in fact, since the district court cited such material in its Ruling, it must be presumed to have relied on it.

Lloyd's claims that the Names' request for an opportunity to prove that Clauses 5.5 and 5.10 did not, and could not, contribute to the wide acceptance of R & R by Names, was "vague" and "never made by an offer of proof by affidavit or otherwise." Appellee's Brief at 46. This belied by the request itself, and the offer of proof itself, which are in the Record, and are quoted extensively in the Appellants' Brief (Mar. 22, 2000) at pp. 18-19.

Conclusion
Lloyd's offers no reason, other than its own convenience, why Rule 12(c) should not have been followed in this case. It sought the benefit of all the material it had submitted in the Ashenden case, incorporated that material by reference into its motion for judgment on the pleadings, while seeking at the same time to deprive these defendants in the later-filed Berkos case of the right to make any record at all, the vice that Rule 12(c) was obviously intended to prevent. For these reasons, the district court's ruling granting Lloyd's motion for judgment on the pleadings, and the judgments predicated thereon, should be reversed.

Part C - Appeal No. 00-1430
(Citations to Discover Assets)

Reply to Objection to Motion for Certification of State Law Question
Lloyd's objection to certification of the question begins with a curious obfuscation deriving from the fact that this case has been consolidated with five others. Citing Hanlon v. Town of Milton, 186 F.3d 831 (7th Cir. 1999) Lloyd's focuses first on the "outcome determinative" test, and argues that the question is "not one which will 'control the outcome' of this appeal or be 'determinative' of the Ashenden and Berkos cases. Of course it will not determine the outcome of the other cases with which this case is consolidated, but it will determine the outcome of this appeal, and that is what is important for purposes of the test.

Lloyd's next objects that the matter can be derived from existing Illinois law, with which the Names agree. But again, that is not the point. The Hanlon case speaks of a situation where "the state supreme court has yet to have an opportunity to illuminate a clear path on the issue," Hanlon, 186 F.3d at 835. That is the case here, as the district court noted, when it called this an "issue of first impression" and said that "no Illinois court has addressed the precise issue . . . ." Mem. Op. and Order of Jan. 14, 2000, App. to Appellants' Brief (Apr. 26, 2000), Tab 2, p. 3.

Naturally Lloyd's will call every legitimate motion made by the Names "just another tactic to delay," but those words sound hollow in the context of Lloyd's having employed "tactics" to obtain summary judgments in the amount of approximately $100 million against approximately 250 Americans without their having had a meaningful hearing. See, Appellants' Brief (Nov. 29, 1999) at 3.

Argument
Lloyd's has misread Vrozos v. Sarantopolous, 195 Ill. App. 3d 610, 552 N.E.2d 1093 (1st Dist. 1990). Noting that Vrozos was decided before the change in the Enforcement (Sister State) Act, when a petition was required to be filed under that Act, Lloyd's argues that the Vrozos court's conclusion that a petition had to be filed under the Recognition (Foreign Country) Act has disappeared now that the Enforcement (Sister State) Act no longer requires the filing of a petition.

But Vrozos did not derive its conclusion that a petition had to be filed under the Recognition (Foreign Country) Act from anything in the Enforcement (Sister State) Act. Its conclusion was derived from the general principles embodied in the Illinois Code of Civil Procedure. The Vrozos court was well aware that the Recognition Act did not provide a procedure, and rather than looking to the Enforcement Act for guidance, looked to the Code of Civil Procedure which states that the provisions of the Civil Practice Law apply to all proceedings not regulated by other statutes. Id. at 614-615, 552 N.E.2d at 1096.

Nothing relevant has changed since then. The provisions of the Recognition Act are the same and the relevant provisions of the Code of Civil Procedure are the same. Vrozos is still good law.

Lloyd's next argument, that the Citations complied "substantially" with Illinois law, is a stretch. Lloyd's does not even mention the fact that the Citations were never issued by the Clerk of the Court, although such issuance is required by the applicable statute. See, Appellants' Brief (Apr. 26, 2000) at pp. 19-20,

As to the omission of required language, Lloyd's argues that this is a "technicality." Appellee's Brief at 56. A phrase omitted or a typographical error might qualify as a "technicality," but in this case the omitted language amounts to more than 500 words, which words contain virtually everything the statute requires to be stated with respect to the judgment debtor's rights, both substantive (the nature and extent of the debtor's exemption rights) and procedural (the debtor's manner of claiming those exemptions.) 735 ILCS 5/1-1401(b) (beginning with the word "NOTICE.")

Finally Lloyd's misconstrues the "proof of service" issue. Lloyd's own correspondence (cited in Appellants' Brief (Apr. 26, 2000) at p. 22) acknowledged that counsel's appearance in the Recognition case was not an appearance in any Citation proceedings, but Lloyd's persists in saying it was. Lloyd's further argues that failure to file a proof of service does not render the Citation invalid, a point with which Appellants do not disagree. But the importance of the proof of service is the lien. As was pointed out in Appellants' Brief (of April 26, 2000) the Illinois statute gives a creditor a lien over non-exempt property of the debtor, but the lien attaches only upon proper service. 735 ILCS 5/2-1402(m). Without filing a proof of service, the existence of a lien, and the date of its attachment, if any, can never be determined. Unless Lloyd's is prepared to acknowledge that it can claim no lien with respect to any of these Citations, it must face this issue, which it has thus far failed to do.

Conclusion
Lloyd's Citations were premature. To enforce a judgment from a foreign country before it has even been recognized is to put the cart before the horse. It would make the due process (and other) requirements of the Recognition Act a chimera, a protection which would disappear before the unfortunate subject of the judgment ever knew what his rights were. The property in question would be beyond the borders of the United States before any judge could ever say whether it was rightfully taken or not.

Lloyd's did not even come close to complying with the statute governing Citations, not in issuance, not in form and not in service.

For these reasons, the judgment of the district court denying the Names motion to strike the Citations to Discover Assets should be reversed.

Part D - Appeal No. 00-1702
(Counterclaim for Setoff of PTD Funds)

Argument
Lloyd's blithe insistence that this matter is governed by cases which have upheld the Lloyd's choice of forum and choice of law clauses, e.g., Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993), is not warranted. The situation is more complicated than that. While Lloyd's was (and still is) asserting in the district court and in this court that Collins owes two separate debts to Lloyd's, it led the bankruptcy court to believe otherwise. In its motion to dismiss Collins's bankruptcy Lloyd's stated:

The $1,000,000 debt Lloyd's [sic] listed by Debtor is his own approximation. This Court recently granted Lloyd's motion to modify the automatic stay in this matter on December 21, 1999. Lloyd's seeks to recover 271,856.76 (approximately $433,000) plus post-judgment interest in The Society of Lloyd's v. Berkos et al., No. 99 C 2651 (1999), pending before Judge Leinenweber, in which Debtor is a defendant.

(In Re Patrick J. Collins, Debtor, No. 99 B 31891, United States Bankruptcy Court, Northern District of Illinois, "The Society of Lloyd's Motion to Dismiss Petition in Bankruptcy for Bad Faith Filing," at 2, n.1)

Naturally, by minimizing the amount Lloyd's claims is due it in the bankruptcy court Lloyd's increases the chances the bankruptcy court will look favorably on its motion to dismiss the bankruptcy. But by maximizing the amount Lloyd's claims is due in the district court, Lloyd's increases the chances that the district court will regard Collins claim for a setoff of 170,000 (approximately $255,000) as something that cannot affect the amount of the judgment the district court is being asked to recognize. This is deeply troubling.

All of this was pointed out to the district court. R. (00-1430) "Sur-Reply of Patrick Collins in Opposition to Lloyd's Motion to Dismiss Counterclaim," (Feb. 2, 2000), but the district court did not mention it in its ruling. Transcript of Oral Ruling Dismissing Collins Counterclaim, Feb. 16, 2000, Appellants' Brief (Apr. 26, 2000), App., Tab 4.

Now, many months later, Lloyd's announces that it has applied more than 140,000 of Collins fund to the "Central Fund Debt" a debt on whose existence it cast doubt in its bankruptcy court filing. The amount of the "Central Fund Debt," which Lloyd's asserts is 537,600 (Appellee's Brief, p. 48) means that Collins $1,000,000 "approximation," as Lloyd's scornfully referred to it, was actually somewhat short of the mark. The two debts together total 809,456.76, which is approximately $1.2 million.

Conclusion
The recognition by this Court of a separate, independent duty on the part of the judgment creditor to state what credits the judgment debtor is entitled to, as urged in Appellants' Brief (Apr. 26, 2000), p. 25, and as warranted by the statute cited therein, and the acknowledgement of a right on the part of the judgment debtor to claim that credit, by way of counterclaim for setoff if necessary, would eliminate a profoundly disturbing extension of the Bonny holding, an extension which is not justified by the language of Bonny, and an extension which permits a party to use choice of forum and choice of law clauses to make just such credits vanish from the court's purview. For these reasons, the dismissal of Collins's counterclaim for setoff should be reversed.

Date: July 26, 2000

  Respectfully submitted,
  ___________________________
  Theodore W. Grippo, Jr.
  One of Appellants' Attorneys
 
Counsel for Appellants:
   
Robert Bennett Theodore W. Grippo, Jr.
357 East Chicago Avenue Pembroke & Brown
Chicago, Illinois 60611 422 North Northwest Highway, Suite 150
(312) 503-8430 Park Ridge, Illinois 60068
   
   

Footnotes
In its oral discussion on rehearing, the district court mentioned but did not resolve the further issue of whether the Names had waived their due process rights. That issue had been raised by Lloyd's in the district court, and in an excess of caution appellants addressed it in their initial Brief, pp. 30-35. As Lloyd's advances no argument about the question in its Brief and does not mention it in its statement of issues this argument is waived by Lloyd's. Kasper v. St. Mary of Nazareth Hosp., 135 F. 3d 1170, 1174 (7th Cir. 1997).

The statute speaks of a "system" characterized by due process, and this could conceivably be interpreted to require an inquiry into the foreign system as a whole rather than the procedures used in obtaining the particular judgments in issue. Any wholesale inquiry would be entirely unworkable, of course, and interpreting the statute to require or even invite such an inquiry would thus be absurd. Understandably courts (including those cited by Lloyd's) have focused on the procedures used in obtaining the judgments in issue, see Ingersoll Milling Machine Co. v. Granger, 833 F.2d 780 (7th Cir. 1987), and, despite occasional paeans by Lloyd's to the virtues of the English system as a whole, see Appellee's Brief, pp. 28-29, it has introduced no evidence that might make some systemwide inquiry even thinkable. The proceedings here under challenge were, of course, part of the "system" as a whole, and indeed the only parts as to which there is evidence in the record.

Lloyd's ventures further to characterize just what that attention was lavished upon, and in doing so it comes close to the line of misrepresentation. Appellee's Brief, p. 23 ("exhaustive[]" consideration of "the Names defenses and objections to . . . enforcement of the Equitas contract"); see also id. at 24, 29.

Lloyd's argument on this point is again filled with the rhetoric of assimilation of the English law and due process questions. Appellee's Brief, pp. 30-32 (e.g., "the Names are asking this Court to sit as the House of Lords").

That some Names were apparently later able to join the fraud action without having first paid in full, apparently with the acquiescence of Lloyd's, does not rescue the clause from constitutional infirmity. Due process does not require that a litigant depend on an opponent's (perhaps strategic) failure to assert a bar to litigation.

Lloyd's does assert that "[t]he English courts found that the pay now, sue later and conclusive evidence clauses were necessary parts of R & R and the Equitas reinsurance contract because reinsurance could not succeed if individual Names could decide to separately litigate the amount of the premium and set off other claims against the reinsurance premiums." Appellee's Brief at 37-38, but no citation is provided for this claim, and in fact the English courts did not so hold.

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