In the

United States Court of Appeals

For the Seventh Circuit

Nos. 08-3961, 08-3966, 08-3967, 08-3981, 08-3988,

08-3989, 08-3990, 10-1043, 10-1045, 10-1046,

10-1049, 10-1056, 10-1058 & 10-1059

JOHN W. COSTELLO, not individually,

but as Litigation Trustee Under the

Comdisco Litigation Trust,

Plaintiff-Appellee,

v.

STEVEN R. GRUNDON, et al.,

Defendants-Appellants.

Appeals from the United States District Court 

for the Northern District of Illinois, Eastern Division.

Nos. 1:05-cv-727, -736, -740, -746, 

-763, -764, -767—Robert W. Gettleman, Judge.

ARGUED APRIL 6, 2010—DECIDED JUNE 28, 2011

Before KANNE, ROVNER, and TINDER, Circuit Judges.

TINDER, Circuit Judge. This consolidated case comes to

us on appeals from the district court’s grants of summary

judgment in favor of the plaintiff-appellee, John W.

Costello, Litigation Trustee under the Comdisco Litigation
2 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

Trust, and against defendants-appellants in an action to

enforce certain promissory notes. We originally issued an

opinion on October 18, 2010, affirming in part and

vacating in part. Defendants-appellants filed a petition

for panel rehearing, and we requested an answer, which

was filed. By separate order we granted the petition and

vacated the October 18, 2010 opinion and final judgment.

For the reasons that follow, we vacate the grants of summary judgment in favor of the Trustee and remand for

further proceedings consistent with this opinion.

I. BACKGROUND

The defendants-appellants (the “Borrowers”) are

former high-level employees of Comdisco Inc., who

participated in Comdisco’s shared investment plan (SIP)

program (“SIP Program”) offered in early 1998 by purchasing shares of Comdisco stock. One hundred percent

of the stock purchase price was funded by personal

loans from participating banks (“Lenders”) represented

by First National Bank of Chicago (later Bank One) as their

agent (the “Bank”). To secure the loans, the Borrowers

executed promissory notes (“SIP Notes” or “Notes”) in

their personal capacities. Comdisco chose to deal with

Bank One because of the bank’s experience in developing

and implementing SIPs for other companies.

Comdisco guaranteed the loans as provided in a

Facility and Guaranty Agreement between Comdisco and

the Bank (the “Facility Agreement”). The Comdisco

guaranty was “a condition to the loan arrangement” with

the Bank. (SA:244.) Comdisco received the loan proceeds
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 3

directly from the Lenders and held the SIP shares. It

seems probable that without the guaranty, most of the

loans would not have been made. SIP participants were

required to purchase a minimum of 8,000 shares of

Comdisco stock. At $34.50 per share, that resulted in

a minimum purchase price and loan of $276,000. The

loans’ principal amounts ranged from $276,000 to

$1,725,000. Loans were made in excess of $1,000,000 to

one borrower (05-737) who reported no net worth to the

Bank, to another borrower (05-745) for almost ten times

his net worth, and to two other borrowers (05-735 &

05-726) for more than five times their net worths.

Comdisco introduced the SIP Program to prospective

participants during a weekend meeting in Palm Springs,

California. Prospective participants had to attend the

meeting or listen to the presentation. The Borrowers

received a binder of materials explaining the terms of

the SIP Program (the “SIP Materials”). The SIP presentation and SIP Materials informed the prospective participants of various restrictions on their ability to sell the

SIP shares and that they would be obligated for a

specified time period to share any gains on the sale of

the shares with Comdisco. More specifically, they were

informed of restrictions including (a) Comdisco would

hold a borrower’s shares until the borrower’s loan

from Bank One was discharged; (b) the borrower had

to deliver to Comdisco a stock power, endorsed in blank,

concerning his or her shares (a blank stock power is

generally required when an institution holds securities

as collateral for a loan so the institution may transfer

and sell the stock to satisfy the debt); (c) the borrower
4 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

had to execute an irrevocable Letter of Direction with

Comdisco and the Bank to ensure that all cash dividends

on the shares went into the borrower’s account at Bank

One to pay the principal and accrued interest on the

loan; (d) the proceeds from a permitted sale of the stock

had to “first be used to repay the Loan,” interest and fees

at Bank One; (e) the borrower paid a prepayment

penalty to Bank One if the loan was paid early; and (f) the

certificate representing the borrower’s shares contained

a legend as to the stock’s restricted status. The SIP

Program was structured so that, with a few exceptions, the

SIP shares could not be sold during the first year of the

program. An “[SIP Participant was] entitled to 100% of

the gain, after payment of all amounts due on the loan,

unless [the Participant] voluntarily terminate[d] [his]

employment or [sold] the shares within three (3) years

after purchase. In either event, the Company [was]

entitled to 50% of any gain upon sale.” (SA:207.) The SIP

participants were required to notify Comdisco of any

intention to sell their SIP shares because Comdisco had

the right to repurchase the SIP shares. The SIP Materials

indicated that the promissory notes to be executed in

connection with the loans had a fixed maturity date and

a final balloon payment of principal and interest due

at maturity. The materials also indicated that Comdisco

would guarantee the SIP Notes.

The SIP Materials stated that “the Loan is not secured

by the stock” (SA:226) and the “SIP shares do not serve

as collateral for the loan . . .[;] the loan is not a margin

loan.” (SA:229.) When presenting the SIP Plan, Comdisco

advised prospective participants that the “loan is not
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 5

technically secured by the securities . . . and this is not a

margin account.” (SA:355.) During the SIP presentation,

however, Comdisco was asked, “[C]an th[e] shares be

used as security for other transactions or collateral for

other type[s] of loans?” A Comdisco representative answered:

No, and the reason being is they are restricted

from the standpoint that the company has certain

rights with respect to that stock, depending upon

your employment. And also there’s restrictions

under the terms of the bank loan that you have

that there are certain things that will happen

with the proceeds to the extent that you sell it

before the bank loan is paid off.

So while it is not technically a secured loan, the

company retains the stock physically and you

cannot pledge that for other loans.

(SA:365.) In addition, the language of the Notes reflected

that the stock was “Restricted Stock” and the Facility

Agreement, which was incorporated into the terms of

the Notes, likewise referred to the SIP shares as

“Restricted Stock.”

Comdisco provided prospective SIP participants with

information regarding whether (a) the proposed loans

were margin loans; (b) the proposed loans were secured

by the stock; (c) the stock could be pledged for another

loan; (d) the proposed loans would violate or be inconsistent with Regulation G or Regulation U; and

(e) Comdisco’s performance of its obligations under each

Loan Document (including the Facility Agreement, each
6 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

Note, and each Letter of Direction), to which it was a

party would violate any applicable legal requirement.

The SIP Materials included Comdisco, Inc.’s 1998 Stock

Option Program, which stated in a section titled, “No

Illegal Transactions”:

The Program and all Stock Options granted pursuant to it are subject to all laws and regulations

of any governmental authority which may be

applicable thereto; and notwithstanding any

provision of the Program or any Stock Options,

Participants shall not be entitled to exercise

Stock Options or receive the benefits thereof and

the Company shall not be obligated to deliver

any Common Stock or pay any benefits to a Participant if such exercise, delivery, or payment

of benefits would constitute a violation by the

Participant or the Company of any provision of

any such law or regulation.

(SA:237-38.)

The SIP Materials described the Facility Agreement

as “the agreement between Comdisco and [Bank One]

establishing the loan program” and stated that “[b]y

signing the Note, you . . . represent that you have carefully reviewed the Facility Agreement.” (SA:225.) In

the Facility Agreement, Comdisco represented and warranted that “[t]he execution and delivery of, and performance by the Company of its obligations under, each

Loan Document to which it is a party will not result in

a breach or violation of [or] conflict with . . . any Requirement of Law,” (SA:283), which included “the Securities
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 7

Act of 1933, the Securities Exchange Act of 1934, [and]

Regulations G [and] U . . . of the Board of Governors of

the Federal Reserve System.” (SA:276.) Comdisco further

represented and warranted:

No part of the proceeds of any Loan will be used

in a manner which would violate, or result in a

violation of, Regulation G [or] . . . Regulation

U . . . . Neither the making of any Loan hereunder

nor the use of the proceeds thereof will violate

or be inconsistent with the provisions of Regulation G [or] . . . Regulation U . . . .

(SA:283-84.)

In discussing Comdisco’s guaranty, the Facility Agreement repeatedly referred to the “collateral securing the

Guaranteed Debt.” However, the Agreement also provided:

No Collateral. Notwithstanding any reference herein to any collateral securing any of the

Guaranteed Debt, it is acknowledged that, on

the date hereof, neither the Company nor any

Borrower has granted, or has obligation to grant,

any security interest or other lien on any of its

property (including, without limitation, the Restricted Stock) to the Lenders as security for the

Guaranteed Debt.

(SA:290.) “Guaranteed Debt” included the principal of

and interest on the loans to the borrowers, plus any other

fees the Borrowers owed pursuant to the Notes. (SA:288.)

The Borrowers elected to participate in the SIP Program, executing a SIP option exercise form and a Letter of
8 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

Direction, authorizing the Bank to pay the proceeds of the

loan to Comdisco. Each Borrower also executed an SIP

Note. The proceeds of the SIP Loans were remitted to

Comdisco as consideration for the purchase of the SIP

shares. Comdisco caused the appropriate number of

shares to be allocated and transferred to its Registrar

and Transfer Agent, Mellon Investor Services, LLC, for

the Borrowers’ benefit. The Borrowers opened accounts

at the First National Bank of Chicago in order to receive

distributions of stock dividends that were used to

offset payments due under the SIP Notes.

Within six months, Comdisco’s stock split, doubling

the number of shares each SIP participant had obtained.

And in just over two years, the stock was trading at $53

per share. Several SIP participants sold their shares at

a price that not only satisfied their loan obligations

but also earned them a profit, even after sharing with

Comdisco the required 50% of the balance of the gain

realized on the sale. However, the tide turned and in

July 2001, Comdisco filed for bankruptcy. This was an

event of default under the Notes and caused Bank One

to accelerate all amounts outstanding on the Notes. The

bankruptcy also triggered an event of default under

the Facility Agreement. The Lenders filed a proof of

claim in Comdisco’s bankruptcy for approximately

$133 million. Comdisco settled its guarantor obligation

to the Lenders for a payment of over $126 million in

exchange for the Lenders’ assignment to the Comdisco

Litigation Trustee of all rights under the Notes

against the Borrowers. The bankruptcy court approved

the settlement, and the district court held that the
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 9

Trustee is the holder of the Notes with all rights of enforcement.

In 2005, the Trustee filed separate actions against each

Borrower, seeking to enforce the SIP Notes. The Borrowers

asserted several affirmative defenses, including fraud

and duress. The Trustee moved for summary judgment

against two of the defendants, James Duncan and Lyssa K.

Paul. Duncan and Paul filed a cross-motion for summary judgment, arguing that the Notes were unenforceable based on violations of federal margin regulations. In December 2007, the district court denied their

cross-motion and granted the Trustee’s motion. The

court determined that the Trustee proved his prima facie

case on the SIP Notes and rejected the “primary defense

that the SIP Program was fraudulent” (SA:177), having

concluded that Comdisco’s alleged misrepresentations

were expressions of legal opinion that could not support

a fraud claim. (SA:178.) The court further found that

Duncan and Paul had not shown reliance on the alleged

misrepresentations. (Id.). The court also concluded that

the defendants could not assert the alleged illegality of

the loans as an affirmative defense and thus rejected

the argument that the loans were unenforceable. (SA:180.)

As for the negligent misrepresentation defense, the

court found based on the record that the defense was not

available against Comdisco or the banks. The court

rejected all other affirmative defenses.

The Trustee subsequently moved for summary judgment against the remaining defendants, incorporating its

memorandum in support of its summary judgment mo-
10 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

tions against Duncan and Paul. The defendants amended

their affirmative defenses, asserting that Comdisco committed securities fraud and violated securities laws

in breach of contract, thus excusing the Borrowers’ nonperformance. And the Trustee supplemented his memorandum to address the new defenses. The district court

granted summary judgment to the Trustee, concluding

that the SIP Plan did not violate the margin regulations

and, even if it had, the defendants had no evidence of

scienter and thus could not establish the Rule 10b-5 claim

in their fifth affirmative defense. The court also decided

that even if there was a technical violation of any regulation, such a violation did not render the Notes unenforceable because the defendants were not within the

“zone of interests” protected by the regulations. Judgments were entered, and the Borrowers appealed.

Within a year of the entry of the judgments, the Trustee

moved to correct or modify the judgments, seeking to

increase the amounts of the judgments. We granted the

district court leave to rule on the motion; amended judgments were entered; and the Borrowers timely appealed.

The appeals were consolidated for disposition. Additional facts are discussed as appropriate.

II. ANALYSIS

The Borrowers argue that the district court erred in

(1) concluding that they could not assert violations of

Regulations G and U as an affirmative defense; (2) concluding that Comdisco and Bank One did not violate

the Regulations; (3) placing the burden of proving a

violation of the Regulations on the Borrowers; (4) con-
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 11

Regulation G provided: “Limitation on extending purpose 1

credit. No lender . . . shall extend any purpose credit, secured

directly or indirectly by margin stock in an amount that exceeds

the maximum loan value of the collateral securing the credit

as set forth in § 207.7 of this part [’The maximum loan value

of any margin stock . . . is fifty per cent of its current market

value.’].” 12 C.F.R. § 207.3(b). Unless otherwise noted, all

citations in this opinion are to the 1998 edition of the Code

of Federal Regulations, which contains the versions of the

regulations in effect at the relevant time.

cluding that even if the Borrowers proved regulatory

violations, they could not avoid summary judgment in

favor of the Trustee based on such violations; (5) granting

summary judgment on the affirmative defenses based

on illegality under Section 10(b) of the Securities Exchange

Act of 1934 and SEC Rule 10b-5, illegality under Section

17(a) of the Securities Act of 1933, and the excuse-ofnonperformance defense; (6) extending its Duncan/Paul

summary judgment rulings to the Borrowers; and

(7) granting the Trustee’s Rule 60(a) motion. We will

address each argument as necessary.

A. Regulations G and U

The Borrowers contend that Comdisco violated Regulation G by extending purpose credit to each Borrower

(in the form of Comdisco’s guaranty to the Bank) secured

by his margin stock in an amount exceeding 50% of the

purchase price of the stock. They claim that the Bank 1

violated Regulation U by arranging for Comdisco to

extend credit to them on better terms and conditions
12 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

Regulation U provided: “Arranging credit. No bank may 2

arrange for the extension . . . of any purpose credit, except

upon the same terms and conditions under which the bank

itself may extend . . . purpose credit under this part.” 12 C.F.R.

§ 221.3(a)(3). It also provided: “Extending credit. No bank

shall extend any purpose credit, secured directly or indirectly by

margin stock, in an amount that exceeds the maximum loan

value of the collateral securing the credit.” Id. § 221.3(a)(1).

Regulation G required that in the case of extension of credit 3

secured directly or indirectly by margin stock, “the lender

shall require its customer to execute Form FR G-3.” 12 C.F.R.

§ 207.3(e). And Regulation U required a bank that extends

such credit in an amount greater than $100,000 to “require

its customer to execute Form FR U-1.” Id. § 221.3(b).

than it could legally extend credit under the regulation.

They also allege that the Bank violated Regulation U by

extending purpose credit (the loan) to each Borrower,

indirectly secured by his margin stock in an amount

exceeding 50% of the purchase price of that stock. In 2

addition, they maintain that Comdisco and the Bank

committed “purpose statement” violations of Regulation

G or U by failing to obtain from each Borrower a

Federal Reserve Form FR G-3 or U-1.3

1. Whether the Borrowers May Assert Violations of

Regulations G and U as an Affirmative Defense

We begin by considering whether the district court

erred in concluding that the Borrowers lacked standing

to assert violations of Regulations G and U as an affirma-
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 13

Section 7(d) provides in pertinent part: “It shall be unlawful 4

for any person not subject to subsection (c) of this section to

extend or maintain credit or to arrange for the extension or

maintenance of credit for the purpose of purchasing or

carrying any security, in contravention of such rules and

regulations as the Board shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading

in securities in circumvention of the other provisions of this

section.” 15 U.S.C. § 78g(d). 

Section 29(b) provides: “Every contract made in violation of

any provision of this chapter or of any rule or regulation

thereunder . . . the performance of which involves the violation of, or the continuance of any relationship or practice in

violation of, any provision of this chapter or any rule or regulation thereunder, shall be void (1) as regards the rights of any

person who, in violation of any such provision, rule, or regulation, shall have made or engaged in the performance of any

such contract, and (2) as regards the rights of any person

who, not being a party to such contract, shall have acquired

any right thereunder with actual knowledge of the facts by

reason of which the making or performance of such contract

was in violation of any such provision, rule, or regulation . . . .”

15 U.S.C. § 78cc(b).

tive defense. The district court’s conclusion was based

on Bassler v. Central National Bank, 715 F.2d 308 (7th

Cir. 1983), which held that investment borrowers have

no private right of action against investment lenders

under Section 7(d), Section 29(b), or any other provision 4

of the Securities Exchange Act of 1934. Id. at 313. The

district court also relied on Blair v. Bank One, N.A., 307

B.R. 906 (N.D. Ill. 2004), appeal dismissed in light of settle-
14 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

ment with instructions to dismiss sub nom. In re Comdisco,

Inc., No. 04-2108, 2005 WL 6136323 (7th Cir. Jan. 28, 2005),

and vacated by Blair v. Bank One, N.A., 1:03-cv-3095 (N.D.

Ill. Mar. 31, 2008), which applied Bassler. The Borrowers

contend that the district court erred in relying on

Bassler and Blair. We agree.

The Bassler plaintiff entered into a series of loan transactions to finance the purchase of stock and pledged the

stock as security for the notes. The bank failed to obtain

a Regulation U statement from him, which he claimed

violated Section 7(d) of the Securities Exchange Act and

Regulation U. The plaintiff sought a judgment voiding

the loans. The district court dismissed the complaint,

holding that no private action was available. Bassler, 715

F.2d at 308-09. The plaintiff asserted that Section 7(d)

and Section 29(b) implied a private right of action for

borrowing investors against lending banks. Id. at 309,

311. We affirmed the district court, holding there was

no right of action in investment borrowers as against

investment lenders. Id. at 313.

Blair took Bassler a step further. Bank One filed a proof

of claim in Comdisco’s bankruptcy proceeding for the

outstanding loans to SIP participants. Blair, 307 B.R. at 908.

Comdisco filed an objection seeking to void Bank One’s

claim based on alleged margin violations. Several SIP

participants (including most of the Borrowers in our

case) intervened and sought a declaratory judgment that

Bank One could not pursue its claims against them. The

bankruptcy court held that neither Comdisco nor the

intervenors had statutory standing to challenge the
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 15

legality of the loans underlying Bank One’s claim. On

appeal to the district court, Comdisco and the intervenors

asserted that the loans violated Regulation U and that

Section 7(d) and Section 29(b) of the Securities Exchange

Act provided them with a defense to Bank One’s claim.

They argued that Bassler was not controlling because

they wished to assert an affirmative defense, not a

separate cause of action. The district court rejected the

argument as “one of semantics,” Blair, 307 B.R at 909,

noting that they were seeking a judgment in their favor

rather than raising an affirmative defense. Id. The court

concluded that Bassler was controlling because the

intervenors sought a declaration that the loans were

void. Id. at 909-10. The appellants argued that they could

assert Regulation U violations as an affirmative defense

under Section 7(d), relying primarily on Transamerica

Mortgage Advisors, Inc. (TAMA) v. Lewis, 444 U.S. 11 (1979).

TAMA held that § 215(b) of the Investment Advisers Act of

1940 created a private right of action in clients of investment advisers to void an investment contract based on

violations of the Act. Id. at 18-19. The court was not

persuaded. It said that Bassler had addressed TAMA,

concluding that TAMA “did not require an implied right of

action arising from § 7(d).” Blair, 307 B.R. at 910 (citing

Bassler, 715 F.2d at 311-12). Thus, Blair read Bassler as

precluding a party from raising margin violations defensively.

However, Bassler was an action by a plaintiff investor

against a lending bank to void a contract. Bassler did not

hold that Section 7(d) and Section 29(b) cannot be
16 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

raised defensively by a borrower against a lender in an

action to enforce a contract, which is the case presented

here. Thus, Blair extended Bassler beyond its reach.

Neither Blair nor Bassler offers authority for the proposition that the Borrowers need a private right of action

under Section 7(d) or Section 29(b) in order to assert an

affirmative defense that the Notes are void and unenforceable because they violate Section 7(d) and Regulations G and U.

No private right of action under a statute is necessary

to assert a violation of that statute as an affirmative

defense. See, e.g., Kaiser Steel Corp. v. Mullins, 455 U.S. 72,

86 (1982) (allowing defense under § 8(e) of the National

Labor Relations Act where defendant had no private

right of action to enforce the statute); United States

v. Miss. Valley Generating Co., 364 U.S. 520, 566 (1961)

(holding conflict of interest on the part of a government

official who participated in contract negotiations in

violation of federal law rendered contract unenforceable);

E. Bement & Sons v. Nat’l Harrow Co., 186 U.S. 70, 88 (1902)

(assuming that only the Attorney General could bring

an action to enforce the Sherman Act, yet allowing the

defense that the contract was illegal under the antitrust

laws); Rush-Presbyterian-St. Luke’s Med. Ctr. v. Hellenic

Republic, 980 F.2d 449, 455 (7th Cir. 1992) (noting that

illegality may be a defense to contract even though

statutes that make conduct illegal ordinarily prescribe

public remedies); Johnston v. Bumba, 764 F. Supp. 1263,

1279 (N.D. Ill. 1991) (allowing defendant to assert as a

defense to an action on a promissory note that the securi-
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 17

ties were sold in violation of securities laws), aff’d on

other grounds, 983 F.2d 1072 (7th Cir. 1992). Kaiser Steel

explains:

Refusing to enforce a promise that is illegal

under the . . . laws is not providing an additional

remedy contrary to the will of Congress. A defendant proffering the defense seeks only to be relieved of an illegal obligation and does not ask

any affirmative remedy based on the . . . laws.

“[A]ny one sued upon a contract may set up as

a defence that it is a violation of the act of Congress, and if found to be so, that fact will constitute a good defence to the action.”

455 U.S. at 81 n.7 (quoting E. Bement & Sons, 186 U.S. at 88).

Recognizing that only the National Labor Relations

Board could provide affirmative remedies for unfair

labor practices, id. at 86, the Court held that “a court

may not enforce a contract provision which violates

[federal law].” Id.; see also id. at 83 (“[A] federal court has

a duty to determine whether a contract violates federal

law before enforcing it.”). By refusing to enforce a contract that violates a statute, the court serves the public

interest of deterring contracts in violation of the law and

promoting adherence to the law. Id. at 77; see also N. Ind.

Pub. Serv. Co. (NIPSCO) v. Carbon Cty. Coal Co., 799 F.2d

265, 273 (7th Cir. 1986) (refusing to enforce a contract

that violates a statute deters behavior forbidden by

that statute). Accordingly, the Court held that the defendant was entitled to raise and have adjudicated its

defense that the agreement sued on was void and unen-
18 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

forceable as in violation of federal law. Kaiser Steel, 455

U.S. at 77-86.

The Trustee attempts to distinguish these authorities;

he stops short, however, of challenging whether they

support the proposition that no private right of action

is needed to assert an affirmative defense of illegality.

He first argues, citing Kaiser Steel and Rush-Presbyterian,

that some of the cases relied on by the Borrowers

required the parties asserting the illegality defense to

show that the statute at issue was designed to

protect their interests. Kaiser Steel did say that a

defense under § 8(e) of the National Labor Relations

Act could be “raised by a party which § 8(e) was

designed to protect.” Id. at 86. But this was in the context

of addressing whether the district court had authority

to adjudicate a defense based on the illegality of

a promise under the antitrust and labor laws, or

whether the NLRB had exclusive jurisdiction over

the matter. See, e.g., id. at 83 (“We also do not agree

that the question of the legality of the . . . [promise] under

. . . the NLRA was within the exclusive jurisdiction of

the [NLRB]. . . .”). In that context, the Court stated a

general rule with broad applicability: “a court may not

enforce a contract provision which violates [federal law].”

Id. at 86.

The Trustee also overreads Rush-Presbyterian. In that

case, two Chicago hospitals sued the government of

Greece and two of its agencies for payment of bills

for more than $500,000 for services provided in connection

with kidney transplants. The defendants argued that
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 19

one of the hospitals could not collect for its services because it had not obtained a required state permit.

Rush-Presbyterian, 980 F.2d at 451, 455. The illegality

defense did not fail on the ground that the statute

did not provide a private right of action or was not designed to protect the defendants’ interests. Instead, we

followed the equitable, balancing approach that applies

when a contract itself is not illegal but is carried out in

an illegal manner, and determined that the hospital’s

failure to comply with the permit requirement did not

bar it from collecting payment. Id. at 455-56; see also

NIPSCO, 799 F.2d at 272-74 (applying equitable, balancing

approach where, assuming a violation “lurking

somewhere in the background, the contract itself is

not illegal”). Important to our decision was the fact

that barring recovery would produce a sanction disproportionate to the wrong. Rush-Presbyterian, 980 F.2d at 455-

56. Thus, the defendants were allowed to assert the

defense of illegality; they just lost on the merits.

The Trustee next argues that other cases relied on

by the Borrowers such as Mississippi Valley Generating

Co. and E. Bement & Sons involved challenges to

contracts or conduct whose very subject matter was

illegal or infected by an illegal conflict of interest. Some

of the cases fall within this category; others such

as Rush-Presbyterian do not. Furthermore, “a court has

the power to refuse to enforce a contract when

enforcement would violate clearly articulated congressional goals and policies.” Stuart Park Assoc. v. Ameritech

Pension Trust, 51 F.3d 1319, 1326 (7th Cir. 1995).
20 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

The Trustee asserts that “[i]t has long been held that

a party is not entitled to raise a violation of a statute as

an affirmative defense unless it can be shown that the

party asserting the defense possesses a private right of

action under that statute.” Appellee Br. 14 n.2. He cites

Inland Commercial Property Sales, Inc. v. Atlantic Assocs., Inc.,

No. 90 C 1036, 1991 WL 278311, at *4 & n.3 (N.D. Ill. Dec.

18, 1991) (striking affirmative defenses based on noncompliance with statute because defendant “does not have

a private cause of action pursuant to the Real Estate

License Act and therefore cannot raise these affirmative defenses”), and Farm Credit Bank of St. Louis v. Dorr,

620 N.E.2d 549, 551-53 (Ill. App. Ct. 1993) (concluding

that a private cause of action is necessary to assert a

claim based on noncompliance with a statute whether

the claim is made in a complaint or as an affirmative

defense). These are the only authorities cited for this

proposition and they are relegated to a footnote. These

decisions are not persuasive; they erred in requiring a

private right of action as a prerequisite to the assertion

of a statutory violation as an affirmative defense.

Furthermore, Section 29(b) of the Securities Exchange

Act provides the Borrowers with the right to raise violations of the Act and margin regulations defensively

to preclude enforcement of a contract. As stated, TAMA

held that Section 215(b) of the Investment Advisers Act

created a private right of action in clients of investment

advisers to void an investment advisers contract. The

language of Section 215(b), 15 U.S.C. § 80b-1-15, closely

parallels the language of Section 29(b). While the Court

noted that the statutory sections involved were “intended
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 21

to benefit the clients of investment advisers,” TAMA,

444 U.S. at 17, it stated that “whether Congress intended

additionally that these provisions would be enforced

through private litigation is a different question,” id. at

18. To answer that question, the Court looked to the

legislative history, which was silent on the issue, and the

statutory language. Id. at 15-19. The Court concluded: 

[T]he statutory language itself fairly implies a

right to specific and limited relief in a federal

court. By declaring certain contracts void, § 215

by its terms necessarily contemplates that the

issue of voidness under its criteria may be

litigated somewhere. At the very least Congress

must have assumed that § 215 could be raised

defensively in private litigation to preclude the

enforcement of an investment advisers contract.

Id. at 18. The Court then observed that it has “recognized

that a comparable provision, § 29(b) of the Securities

Exchange Act of 1934, 15 U.S.C. § 78cc(b), confers a ‘right

to rescind’ a contract void under [that statute].” Id. at 18-

19 (citing Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 388

(1970)). And in Mills, a stockholders’ action to set aside

a corporate merger allegedly in violation of the Securities

Exchange Act, the Court stated that Section 29(b) “establishes that the guilty party is precluded from enforcing

the contract against an unwilling innocent party.” Mills,

396 U.S. at 387-88 (approving of the interpretation of

Section 29(b) as rendering a contract “voidable at the

option of the innocent party”); Sundstrand Corp. v. Sun

Chem. Corp., 553 F.2d 1033, 1051 (7th Cir. 1997) (affirming
22 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

dismissal of counterclaim for specific performance or

damages under agreement that violated the Securities

Exchange Act and Rule 10b-5 as “void as regards the rights

of [the violator] under Section 29(b) of the Act”). Accordingly, TAMA supports the conclusion that a borrower has

the right under Section 29(b) to assert violations of the

Securities Exchange Act and margin regulations as an

affirmative defense to a breach of contract action.

The Trustee asserts that TAMA, Mills, and Sundstrand

are in harmony with Bassler because the statutory provisions violated in those cases were intended to benefit

the parties seeking redress through Section 29(b). It is

true that TAMA and Mills addressed whether the

statute at issue created a cause of action, and Sundstrand

similarly considered whether a party could assert a

claim to enforce a contract. Nonetheless, their reasoning

supports the assertion that the Borrowers may assert

the alleged margin violations as affirmative defenses.

And there is more authority reinforcing the Borrowers’

position. See Blue Chip Stamps v. Manor Drug Stores, 421

U.S. 723, 735 (1975) (dictum noting that Section 29(b)

provides “that a contract made in violation of any provision of the [Securities Exchange] Act is voidable at

the option of the deceived party”); Natkin v. Exch. Nat’l

Bank of Chi., 342 F.2d 675, 676 (7th Cir. 1965) (“[A] violation such as here alleged [making loans in violation of

Regulation U] operates to void the contract rights of the

party in violation”); Staff Opinion of May 5, 1982, Federal

Reserve Regulatory Service 5-900.11 (“Contracts made

in violation of Regulation U are voidable under Section 29(b) of the [Exchange Act].”). Allowing the Bor-
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 23

rowers to assert the alleged violations of Regulations G

and U as an affirmative defense is consistent with the

Restatement (First) of Contracts § 598 (1932), which sets

forth the general rule that a party to an illegal bargain

cannot recover damages for breach of contract. It is also

consistent with the Restatement (Second) of Contracts § 178

(1981), which provides: “A promise or other term of an

agreement is unenforceable on grounds of public policy

if legislation provides that it is unenforceable . . . .”

Section 29(b) expressly provides that any “contract made

in violation of any provision of this chapter or of any

rule or regulation thereunder . . . shall be void. . . .” 15

U.S.C. § 78cc(b).

Shearson Lehman Bros., Inc. v. M & L Invs., 10 F.3d 1510

(10th Cir. 1993), is cited as additional authority for the

view that the Borrowers cannot assert violations of

margin regulations as an affirmative defense. In Shearson,

a stockbroker brought a breach of contract action and

the purchasers asserted an affirmative defense for nonpayment based on the broker’s violation of Regulation T,

a margin regulation. The court found that the broker

violated the regulation, id. at 1514, but concluded there

was no affirmative defense to breach of contract for

such violations. Id. at 1516. The court thought this conclusion was “most consistent” with the policy behind

Regulation T and other regulations which protect the

market in general. Id. Another consideration was that

the Securities Exchange Act and Regulation X required

clients to comply with margin requirements. The court

reasoned that since “the regulations place the burden
24 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

of margin requirement compliance equally upon broker

and client, it [would be] inconsistent to place the entire

burden of compliance upon brokers in contract disputes.” Id. In this case, though, it remains to be determined whether the Borrowers were responsible for compliance with margin requirements. Regulation X exempts from compliance “[a]ny borrower who obtains

purpose credit within the United States, unless the borrower willfully causes the credit to be extended in contravention of [the regulations].” 12 C.F.R. § 224.1(b)(1).

Moreover, Section 29(c) of the Securities Exchange

Act implies a right to assert a violation of the Act or

Regulation G or U defensively under Section 29(b). Section 29(c) provides in pertinent part:

Nothing in this chapter shall be construed (1) to

affect the validity of any loan or extension of

credit . . . unless at the time of the making of such

loan or extension of credit . . . the person making

such loan or extension of credit . . . shall have

actual knowledge of facts by reason of which the

making of such loan or extension of credit . . . is a

violation of the provisions of this chapter or any

rule or regulation thereunder, or (2) to afford a

defense to the collection of any debt or obligation . . . by any person who shall have acquired

such debt [or] obligation . . . in good faith for value

and without actual knowledge of the violation

of any provision of this chapter or any rule or

regulation thereunder affecting the legality of

such debt [or] obligation . . . .
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 25

15 U.S.C. § 78cc(c). By setting forth circumstances

under which a loan or extension of credit cannot be

avoided, Section 29(c) implies that a loan or extension

of credit can be avoided under other circumstances. See

Charles F. Rechlin, Securities Credit Regulation § 11:11

n.19 (2d ed. 2007, database updated June 2010); cf. Int’l

Union of Operating Eng’rs, Local 150, AFL-CIO v. Ward,

563 F.3d 276, 286-87 (7th Cir. 2009) (concluding that

the Labor Management Relations Act implied a right

in labor organizations to sue officers for breach of

fiduciary duties and stating that “[b]y nullifying any exculpatory provisions, the statute removes a possible defense

to liability. It follows that the union must have a

statutory remedy for liability for breach against which

this sort of defense might potentially be asserted.”).

The Trustee asserts that “the illegality defense may only

be asserted against contracts that are ‘intrinsically illegal’”

and not in cases where one party would have to violate a

statute to perform its obligations, citing NIPSCO. But

NIPSCO itself refutes this argument. NIPSCO and a coal

company entered into a contract for the purchase of coal

for twenty years. NIPSCO became able to buy electricity at

prices below the costs of generating electricity from coal

and stopped accepting coal deliveries. It then sued the coal

company, seeking a declaration that it was excused from its

obligations under the contract. NIPSCO argued that the

contract violated the Mineral Lands Leasing Act, which

prohibited railroads from holding leases or permits to mine

coal except for its own use for railroad purposes, because

the coal company was affiliated with a railroad. NIPSCO,
26 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

799 F.2d at 267-68. We stated: “this is not a case where

the contract itself is illegal.” Id. at 272. Nonetheless, the

analysis did not stop there. We assumed that the

contract violated the Act and considered whether the

contract was nonetheless enforceable. Id. at 273. We

compared the pros and cons of enforcement of

the contract, and concluded that the balance favored enforcement. Id. at 273-74. Similarly, in Rush-Presbyterian,

we held that the illegality defense did not bar the

hospital from collecting unpaid bills. We determined

that the forfeiture of $200,000 in voiding the contract

was an excessive punishment for an offense punishable

by a fine of $10,000. We noted that the permit violation

was neither a serious affront to public policy nor

harmful to the public welfare as would justify nonenforcement. Rush-Presbyterian, 980 F.2d at 455-56. In effect,

we weighed the pros and cons, or the equities, of enforcement.

In any event, the Trustee ultimately acknowledges that

“the weight of authority . . . holds that Section 29(b)

renders contracts made in violation of the regulations

voidable at the option of an innocent and unwilling

party.” While he may dispute whether the Borrowers

were innocent and unwilling parties, that determination

is for the district court. Given Section 29(b)’s provision

for voiding contracts made in violation of the Act or

any rule or regulation thereunder, the fact that neither

Regulation G nor Regulation U has a self-contained

provision for doing the same thing is no bar to the affirmative defense.
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 27

The Trustee asserts that when presented with the illegality defense, “a court must critically examine the

claimed statutory violations and determine whether

it is being asked to enforce the precise conduct that is

made unlawful by the statute, or if it is merely being

asked to give legal effect to an agreement that was otherwise lawful.” If the Borrowers are right that Comdisco

and/or the Bank violated Regulation G or U, then

enforcing the parties’ contracts would appear to enforce

the very conduct prohibited by the regulations. That

would make this case unlike Kelly v. Kosuga, 358 U.S.

516, 521 (1959), in which an unlawful agreement to fix

the price of onions was divisible from a lawful agreement to pay for purchased onions.

The district court erred in concluding that a private

right of action under Section 7(d) or Section 29(b) is a

prerequisite to asserting margin violations as an affirmative defense. The court misread Bassler; that case did not

address whether a private right of action is necessary

to raise a violation of law defensively. Similarly, the

court erred in concluding that the illegality defense

failed because the defendants were outside the “zone

of interests” protected by the margin regulations. The

“zone of interests” requirement is a limitation of prudential standing to maintain an action. Elk Grove Unified

Sch. Dist. v. Newdow, 542 U.S. 1, 11-12 (2004); Winkler v.

Gates, 481 F.3d 977, 979-80 (7th Cir. 2007). The Borrowers

do not seek to maintain an action under the Securities

Exchange Act or Regulations G and U, but rather, to

defend against an action based on alleged violations of the

statute and regulations. They therefore need not estab-
28 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

lish that they fit within the zone of interests protected

by those laws to be entitled to assert their affirmative

defense. 

Accordingly, we find that the district court erred in

deciding that the Borrowers could not assert alleged

violations of Regulations G and U as an affirmative defense. Therefore we must consider whether the

district court also erred in granting summary judgment

on the ground that Comdisco and the Bank did not

violate Regulation G or U.

2. Whether the Regulations Were Violated

The Borrowers assert that in moving for summary

judgment, the Trustee did not challenge whether

Comdisco violated Regulation G. It seems they are correct.

(See SA:442—Consol. Suppl. Mem. Supp. Pl.’s Mots.

Summ. J. 10 (“the SIP Defendants have not and cannot

prove that the Lenders violated the margin restrictions

set forth in Regulation G or Regulation U.” (emphasis

added)); see also Consol. Mem Supp. Pl’s Mots. Summ. J.

Against Duncan & Paul 20-SA:180 (asserting that the

defendants had no standing to raise a Regulation U

violation as an affirmative defense)). As such, the Borrowers were under no obligation to present all of their

evidence of Regulation G violations in order to defeat

the Trustee’s summary judgment motion. See, e.g., Sublett

v. John Wiley & Sons, Inc., 463 F.3d 731, 736 (7th Cir.

2006) (“[I]f the moving party does not raise an issue

in support of its motion for summary judgment, the

nonmoving party is not required to present evidence
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 29

on that point, and the district court should not rely on

that ground in its decision.”); Pourghoraishi v. Flying J,

Inc., 449 F.3d 751, 765 (7th Cir. 2006) (“The party opposing summary judgment has no obligation to address

grounds not raised in a motion for summary judgment.”).

(Of course, the Borrowers would have had to prove

Regulation G violations to obtain summary judgment

in their favor.) It would be unfair to uphold a grant of

summary judgment in favor of the Trustee based on the

lack of evidence that Regulation G was violated because

the Borrowers did not have an adequate opportunity

to respond to such an argument.

As for the Bank’s alleged violations of Regulation U,

the Trustee argued that the Bank had not relied on

the SIP shares as collateral, thus asserting the good-faith

non-reliance exception to the meaning of “indirectly

secured.” See 12 C.F.R. § 221.2(g)(2)(iv) (stating that

“indirectly secured” “[d]oes not include . . . an arrangement [under § 221.3(g)(1)] if: . . . [t]he bank, in good faith,

has not relied upon the margin stock as collateral in

extending . . . the particular credit”); 12 C.F.R. § 221.117

(discussing when a bank in “good faith” has not relied

on stock as collateral). This good-faith non-reliance exception only applies to extension or maintenance violations; it does not apply to arranging violations. See 12

C.F.R. §§ 221.2(g)(2)(iv), 221.117(a). (Nor would it apply

to Comdisco and its alleged violation of Regulation G.)

Furthermore, whereas the burden of establishing

the affirmative defense of illegality would be on the

Borrowers, the Trustee bore the burden of proving the
30 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

good-faith non-reliance exception. Cf. Knox v. Cook Cnty.

Sheriff’s Police Dep’t, 866 F.2d 905, 907 (7th Cir. 1988)

(stating that the statute of limitations is an affirmative

defense but the burden of proving an exception thereto

is on the plaintiff). “[T]he question of whether or not a

bank has relied upon particular stock as collateral is

necessarily a question of fact to be determined . . . in

the light of all relevant circumstances.” 12 C.F.R.

§ 221.117(b). The record establishes genuine issues of

material fact as to whether the Bank satisfied the

two criteria that provide “some indication” that it has

not relied on the stock as collateral such that the exception applies: 

(1) the bank had obtained a reasonably current

financial statement of the borrower and this statement could reasonably support the loan, and

(2) the loan was not payable on demand or

because of fluctuations in market value of the

stock, but instead was payable on one or more

fixed maturities which were typical of maturities

applied by the bank to loans otherwise similar . . . .

Id. Some of the Borrowers’ financial statements support

a reasonable inference that the statements could not

reasonably support the loan. For example, a loan was

made in excess of $1,000,000 to one borrower (05-737)

who reported no net worth to the Bank, a loan was made

to another borrower (05-745) for almost ten times his

net worth, and loans were made to two other borrowers

(05-735 & 05-726) for more than five times their net

worths. The transcript of the SIP presentation lends
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 31

support to the inference that the Bank did not rely on

the financial statements; Comdisco’s representatives

essentially said as much to the prospective SIP participants. (See SA:367 (“Obviously, most of us don’t have

a credit that can support a quarter million or half

million, whatever the number is, of loans, but there is a

Comdisco guaranty there. However, if someone is in

bankruptcy, [the Bank] probably would not let [the

loan] go through.”).) In addition, in arguing that the

Bank satisfied the good-faith non-reliance exception,

the Trustee did not assert that the SIP Notes were “payable

on one or more fixed maturities which were typical of

maturities applied by the bank to loans otherwise similar . . . .”

12 C.F.R. § 221.117(b) (emphasis added). Thus, the

Trustee did not carry his burden in proving that the

Bank in good faith did not rely on the stock as collateral.

In determining whether Regulations G and U were

violated, the district court considered whether the SIP

shares directly or indirectly secured the loans or the

guaranty. It wrote: “The restrictions placed on the SIP

shares do suggest that the shares indirectly secured the

loans, and if the court were writing on a totally clean

slate, it might agree with defendants’ argument. But

the slate is not entirely clean. . . .” Costello v. Haller, 2008

WL 4646335, at *5 (N.D. Ill. Sept. 24, 2008). The court

then considered that before implementing the SIP

Program, Comdisco, through its outside legal counsel, Lola

Hale, sought an opinion from the Federal Reserve Bank

that the SIP loans would not be directly or indirectly

secured by the securities purchased through the SIP

Program. Hale received a response in the form of a
32 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

letter from James B. McCauley, Senior Attorney for the

Federal Reserve Bank of Chicago. The McCauley letter

opined that the “proposed transaction d[id] not constitute a loan secured ‘directly or indirectly’ by the purchased stock as contemplated by Regulations G and U.”

(SA:512.) The letter stated that “[t]his opinion relies

heavily upon your assertion that ‘there is no reference . . .

either in the note or in the Facility Agreement to

any restriction on the transfer of the securities to be

purchased . . . nor do those securities form collateral for

the Note.’ ” (Id.) McCauley also wrote that “[t]he legal

staff of the Board of Governors [presumably of the

Federal Reserve System] has been consulted . . . [and] has

concurred in this opinion,” but emphasized that the

opinion was a staff opinion only—not that of the Board

and that “different facts could compel a different conclusion.” (SA:513.)

The Borrowers correctly pointed out to the district

court that Hale’s letter requested concurrence only that

Bank One’s loan would not be deemed to be, directly or

indirectly, secured by the securities purchased. It did

not ask whether Comdisco’s guaranty would be directly

or indirectly secured by the stock, whether Comdisco’s

guaranty would violate Regulation G, or whether Bank

One would commit an “arranging” violation of Regulation U. The Borrowers also stated that Hale’s letter failed

to mention several restrictions on the stock, including

that Comdisco had a right of first refusal on a sale of

the shares; Comdisco’s Compensation Committee could

impose restrictions on the timing, amount, and form of

the sale of the shares; and the stock could not be
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 33

pledged as collateral for any other loan. The Notes and

Facility Agreement referred to the stock as “Restricted

Stock,” and the Agreement referred to the “collateral

securing the Guaranteed Debt.” The district court

agreed that Hale’s letter did not provide a complete list

of the restrictions on the stock, but concluded that it

set out the “key restriction” that “any outstanding

amounts on the loan would be paid from the proceeds

of any sale of the stock at any time.” Costello, 2008 WL

4646335, at *6. The court found this restriction to be the

most suggestive “that the loans (or guarantee) were

indirectly secured by the stock because it is this restriction that would most likely ensure repayment of the

loan.” Id. Because “the Board” was informed of this restriction, the court saw “no reason to reject Hale’s reliance

on that opinion in advising Comdisco as to the legality

of the Plan.” Id. The district court gave the opinion in

the McCauley letter substantial weight and concluded

that the SIP Plan did not violate either Regulation G

or U. Id.

The Borrowers contend that the district court erred

in deferring to the McCauley letter. The Trustee

responds that it is unclear whether the court gave a

heightened level of deference to the letter and, in any

event, the court was entitled to defer to its reasoning.

Although the court stated that it was giving the

staff’s opinion substantial weight, other language in its

decision implies that it may have deferred to what it

believed (mistakenly) was an official opinion of the

Federal Reserve Board. The court said that “the Board

and its staff ha[ve] primary responsibility for inter-
34 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

preting the Exchange Act and [its] regulations,” citing

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565-68

(1980) (holding that deference was appropriate to official

staff opinions of Federal Reserve Board interpreting

the Truth in Lending Act and Regulation Z, unless demonstrably irrational), and Revlon, Inc. v. Pantry Pride, Inc.,

621 F. Supp. 804, 815 (D.C. Del. 1985) (“this Court will

accord substantial weight to the [Federal Reserve

Board] staff’s opinions”). The reliance on Milhollin and

Revlon suggests that the district court thought the

opinion was from “the Federal Reserve Board.”

But the McCauley letter is not an official staff opinion

of the Federal Reserve Board. McCauley works for the

Federal Reserve Bank of Chicago, not the Federal

Reserve Board. The Board and the Federal Reserve

Banks are “two expressly independent statutory entities.”

Research Triangle Inst. v. Bd. of Governors of the Fed. Reserve

Sys., 132 F.3d 985, 989 (4th Cir. 1997). The Board is

created and empowered by subchapter II of Title 12 of

the United States Code, 12 U.S.C. §§ 241-250; the

Federal Reserve banks are created and empowered by

subchapter IX, 12 U.S.C. §§ 341-361. The authority to

apply and enforce Section 7(d) of the Securities

Exchange Act is delegated to the Securities Exchange

Commission, 15 U.S.C. §§ 78u(d), 78u-3(a)—not the

Federal Reserve Bank of Chicago. And the authority to

undertake “administrative lawmaking” is delegated to

the Board of Governors. 12 U.S.C. § 248(k). The Board

may delegate certain of its functions to Federal Reserve

banks, but it may not delegate any of its functions “relating to rulemaking or pertaining principally to mone-
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 35

tary and credit policies.” 12 U.S.C. § 248(k). Although

McCauley consulted with the staff of the Board of Governors and the staff agreed with his opinion, the

McCauley opinion was not published in the Federal

Reserve Regulatory Service, the looseleaf service published

by the Board which includes official staff opinions, see

12 C.F.R. § 261.10(d)(4), or any other official source.

The Trustee asserts that “the best reading” of the

district court’s opinion is that it followed Krzalic v.

Republic Title Co., 314 F.3d 875, 879 (7th Cir. 2002) (explaining that an agency’s less formal pronouncements

may be entitled to some deference), and gave the

McCauley letter something less than Chevron-style deference, see Chevron USA, Inc. v. Natural Res. Defense

Council, Inc., 467 U.S. 837 (1984). This appears to be deference under Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)

(an agency’s interpretation may be entitled to some

deference according to its “power to persuade”). See

United States v. Mead Corp., 533 U.S. 218, 235-38 (2001).

Yet it is unclear how the Trustee reaches this conclusion.

Neither Krzalic, Chevron, nor Skidmore was mentioned in

the district court’s opinion. Nonetheless, the McCauley

letter is some indication that the regulations were not

violated, and the court could have considered it. Cf.

Skidmore, 323 U.S. at 140 (stating that informal agency

“opinions . . . while not controlling upon the courts by

reason of their authority, do constitute a body of experience and informed judgment to which courts . . . may

properly resort for guidance”); see also Sehie v. City of

Aurora, 432 F.3d 749, 753 (7th Cir. 2005) (considering

but ultimately finding unpersuasive opinion letters of
36 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

the Department of Labor interpreting the meaning

of a regulation promulgated under the Fair Labor Standards Act).

However, given the omissions in Hale’s letter and the

qualifications to the McCauley opinion, it cannot be

said that the record conclusively establishes that the

SIP Plan did not violate Regulation G or U. In Mead,

the Court reiterated that “an agency’s interpretation

may merit some deference whatever its form, given

the ‘specialized experience and broader investigations

and information’ available to the agency . . . .” 533

U.S. at 234 (quoting Skidmore, 323 U.S. at 139). The determination whether deference is owed turns on the “ ‘thoroughness evident in [the agency’s] consideration, the

validity of its reasoning, its consistency with earlier

and later pronouncements, and all those factors which

give it power to persuade . . . .’ ” Id. at 228 (quoting

Skidmore, 323 U.S. at 140); see also Am. Fed’n of Gov’t

Emps. v. Rumsfeld, 262 F.3d 649, 656 (7th Cir. 2001) (“informal [agency] interpretations are entitled to respect to

the extent that they have the power to persuade” (quotations omitted)). The Borrowers argued that the McCauley

letter was not entitled to deference based in part on

the omissions in Hale’s letter. The district court apparently thought that it owed the McCauley opinion

some deference. On remand, the district court should

assess how much deference, if any, is due to the McCauley

opinion, and further determine whether the record raises

a reasonable inference that the SIP shares indirectly

secured the loans and/or secured the guaranty.
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 37

We emphasize that the issue is not whether the stock

directly secured the Bank’s loans, but whether the

stock indirectly secured the loans and/or secured the

guaranty. In arguing that the stock did not indirectly

secure the loans, the Trustee contends that the Borrowers

failed to identify any restriction or limitation on the

stock itself requiring that the stock or its proceeds

be used to pay the Bank. In response, the Borrowers

identify several restrictions on the SIP shares, which

they claim implicate 12 C.F.R. § 221.2(g)(1)(i), which

states that “Indirectly secured (1) Includes any arrangement with the customer under which: (i) The customer’s

right or ability to sell, pledge, or otherwise dispose of

margin stock owned by the customer is in any way restricted while the credit remains outstanding . . . .” The

Trustee replies that the identified restrictions all operate

in favor of Comdisco, not the Bank, and, as a result,

the shares cannot amount to an indirect security—at

least not in favor of the Bank. The Trustee claims that

there was no restriction in the SIP Notes or any other

transaction document providing that the SIP shares

could not be pledged as security for other loans. But he

cannot dispute that there were restrictions on the SIP

shares, and the SIP participants were told that they

could not pledge the shares as collateral for other loans.

The Trustee further states that even if the stock was

restricted, the definition of “indirectly secured” is not

satisfied because the Bank in good faith did not rely on

the stock as collateral for the loans. See 12 C.F.R.

§ 221.2(g)(2)(iv). He submits that the following facts

show that the Bank did not rely on the stock as col-
38 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

lateral: (1) the Borrowers—not Comdisco or the Bank—

controlled the stock, (2) the Bank structured the transaction so it could collect the principal and interest

without having to liquidate the stock in the event of

default on the loans; and (3) the Bank could rely on

Comdisco’s guaranty in the event of defaults on the

loans. However, the evidence shows that the shares were

held by Mellon Bank, Comdisco’s transfer agent, in a

special account that only certain Comdisco officers

could sign to release the shares to ensure that the

shares would not be sold or transferred without paying

off the Note. (SA:496.) The accounts were described as

“inaccessible” (id.), presumably meaning that they were

inaccessible to the SIP participants. We are unsure how

the structure of the transaction shows that the Bank in

good faith did not rely on the stock as collateral. Rather,

the structure of the transaction seems to suggest that

the loans were not directly secured by the shares. The

Trustee points to the lack of any right of Comdisco to

sell or transfer the SIP shares without authorization

from the SIP participants. Yet each of the participants

had to execute a stock power endorsed in blank that

was held by Comdisco or Mellon Bank and would allow

the holder to sell the shares in the open market or

transfer the shares to itself. Thus, each participant effectively authorized Comdisco to sell his or her SIP shares.

The Trustee claims “the Bank could not have relied on

the stock as collateral because it had Comdisco’s

guaranty, and . . . Comdisco had sufficient assets to

satisfy its obligations under the guaranty without

resorting to the stock.” This unsupported conclusory
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 39

assertion does not establish as a fact that the Bank did not

rely on the stock as collateral. In addition, the Trustee

offers no explanation why the Bank could not have

relied on both the stock and the guaranty, and we are

unaware of any. The Bank relied on Comdisco’s

guaranty, which one could reasonably find was secured

by the stock. Thus, there is at least a reasonable

inference that the Bank indirectly relied on the stock as

collateral for the loans.

As noted earlier, the Trustee did not contest whether

Comdisco violated Regulation G. If Comdisco committed “extending” violations of Regulation G, then

it seems that the Bank likewise committed “extending” and

“arranging” violations of Regulation U. See 12 C.F.R. §

221.3(a)(3) (“No bank may arrange for the extension . . . of

any purpose credit, except upon the same terms and

conditions under which the bank itself may extend . . .

purpose credit under this part.”); 12 C.F.R. § 221.118

(referencing 12 C.F.R. § 207.103). In addition, the Trustee

does not contest that neither Federal Reserve Form FR G-3

nor Form FR U-1 was provided to the Borrowers. Thus,

if the guaranty and loans were secured directly or indirectly by the stock, then Comdisco and the Bank

would have committed “Purpose Statement” violations

of Regulations G and U as well. See 12 C.F.R. § 207.3(e)

(in the case of extension of credit secured directly

or indirectly by margin stock, the “the lender shall

require its customer to execute Form FR G-3); 12 C.F.R.

§ 221.3(b) (requiring a bank when extending credit

secured directly or indirectly by margin stock in an
40 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

Section 10(b) makes it “unlawful for any person, directly or 5

indirectly, . . . [t]o use or employ, in connection with the

purchase or sale of any security . . . any manipulative or

deceptive device or contrivance in contravention of such

rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the

public interest or for the protection of investors.” 15 U.S.C.

§ 78j(b). SEC Rule 10b-5 makes it “unlawful for any person . . .

(a) To employ any device, scheme, or artifice to defraud, (b) To

make any untrue statement of a material fact or to omit to

state a material fact necessary in order to make the statements made, in the light of the circumstances under

which they were made, not misleading, or (c) To engage in

any act, practice, or course of business which operates or

would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R.

§ 240.10b-5.

amount exceeding $100,000 to obtain an executed Form

FR U-1 from its customer).

We do not decide whether Comdisco or the Bank violated Regulation G or U, however. It is enough that there

are genuine issues of material fact as to whether the

regulations were violated and, if so, whether the Bank

satisfied the good-faith non-reliance exception.

B. Section 10(b) of the Securities Exchange Act of

1934 and SEC Rule 10b-55

The Borrowers argue that the grants of summary judgment in favor of the Trustee on the Section 10(b) illegality
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 41

defense should be vacated as well. The Trustee

sought summary judgment on this defense solely on

the basis that the Borrowers could not prove any

false statement (“falsity”). He did not challenge whether

they could establish the intent to deceive or reckless

disregard for the truth (“scienter”). Then in reply, he

argued that because he sought summary judgment

based on falsity, the Borrowers had the burden to

establish all elements of the Section 10(b) defense.

As the moving party, the Trustee had the initial

burden of identifying the basis for seeking summary

judgment. See Logan v. Commercial Union Ins. Co., 96

F.3d 971, 979 (7th Cir. 1996) (“Only after the movant has

articulated with references to the record and to the law

specific reasons why it believes there is no genuine issue

of material fact must the nonmovant present evidence

sufficient to demonstrate an issue for trial.”) (citing Celotex

Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The nonmovant

is not required to present evidence on an issue not

raised by the movant. See, e.g., Sublett, 463 F.3d at 736 (“[I]f

the moving party does not raise an issue in support of

its motion for summary judgment, the nonmoving party

is not required to present evidence on that point, and

the district court should not rely on that ground in its

decision.”); Pourghoraishi, 449 F.3d at 765 (“The party

opposing summary judgment has no obligation to

address grounds not raised in a motion for summary

judgment.”). The fact that the Borrowers filed an

expansive response brief, a Rule 56.1 response, and a

statement of additional facts did not alter this rule.

The responsive filings did not create a right in the
42 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

Trustee to assert for the first time in reply new challenges to the Borrowers’ evidence as to other aspects of

the Section 10(b) illegality defense. The Trustee offers

no authority to support his novel view that the “rather

unusual course of the motion for summary judgment”

made it necessary and proper for him to attack the additional elements on which he initially had taken a pass.

Granting summary judgment on the basis of the

newly raised scienter argument raises important fairness concerns, especially where the Borrowers alerted

the district court in their motion to strike that they had

additional evidence supporting the scienter element.

The Trustee asserts that the Borrowers deprived themselves of the opportunity to present evidence on the

scienter element: They offered some, but not all, of their

evidence on scienter. We are unaware of any authority

that required them to marshal all the evidence that they

had on an issue that was not asserted by the Trustee

in seeking summary judgment. Had scienter been

properly placed in issue, the Borrowers may have presented other evidence, or sought an extension and discovery under Rule 56(f). The Trustee criticizes the Borrowers for not seeking leave to file a sur-reply. But

“there is no requirement that a party file a sur-reply to

address an argument believed to be improperly addressed,” Hardrick v. City of Bolingbrook, 522 F.3d 758, 763

n.1 (7th Cir. 2008), and a party need not “seek leave to

file a sur-reply in order to preserve an argument for

purposes of appeal. . . .” Id. The Borrowers were not

wrong in their understanding of their summary judgment obligations. While their choice may have been
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 43

strategic—they could have sought leave to file a sur-reply

and/or filed a Rule 56(f) affidavit—we will not insist

that they have done so when the rules and case law

give them options on how to proceed. And by addressing

the newly raised arguments in their motion to strike, the

Borrowers did not become obligated to present all of

their evidence on the issue. Argument is not a substitute

for facts supported by evidence as necessitated by

Rule 56. The district court should not have granted summary judgment on the basis of the newly raised scienter

argument. See, e.g., Sublett, 463 F.3d at 736.

On a related point, the Borrowers indicate that the

district court held them to a heightened standard of

proof of scienter. Citing Tellabs, Inc. v. Makor Issues &

Rights, Ltd., 551 U.S. 308, 323 (2007), the district court

looked for evidence that would raise a “strong inference”

of scienter. Tellabs dealt with the heightened pleading

standard for private securities fraud suits under the

Private Securities Litigation Reform Act (“PSLRA”),

Section 21D(b)(2) of which provides that a complaint

shall allege “facts giving rise to a strong inference that

the defendant acted with the required state of mind.” 15

U.S.C. § 78u-4(b)(2). Neither the PSLRA nor Tellabs

changed the well-established summary judgment standard. See Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1239

(11th Cir. 2008) (noting that the PSLRA pleading standard

is not the same as the summary judgment standard).

Indeed, the Court observed that “the test at each stage

[pleading, summary judgment, and judgment as

a matter of law] is measured against a different backdrop.” Tellabs, 551 U.S. at 324 n.5. On summary judg-
44 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

ment, a court may not weigh the evidence or decide

which inferences should be drawn from the facts.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986);

Kodish v. Oakbrook Terrace Fire Prot. Dist., 604 F.3d 490, 507

(7th Cir. 2010). Rather, the court’s task is to determine

based on the record whether there is a genuine issue

of material fact requiring trial. Celotex Corp., 477 U.S. at

330; Anderson, 477 U.S. at 249; Kodish, 604 F.3d at 507.

The district court erred in holding the Borrowers to

proof of facts that would raise a strong inference of

scienter.

The district court had the discretion to rule on the

summary judgment motions without relying on the

newly raised arguments in the Trustee’s reply. On reviewing the Trustee’s reply brief and learning that

the newly raised arguments might have merit, the

court could have offered the Borrowers an opportunity

to file a sur-reply and additional evidence. It did not.

Instead, it denied their motion to strike as moot. But the

Borrowers’ objection to consideration of the newly

raised arguments did not become moot by the fact that

the district court (1) decided to consider them and

(2) decided them favorably toward the Trustee. The

analogy offered by the Borrowers is apt: “It would be

as if the plaintiff moved for a jury trial and the judge,

without ruling on the motion, conducted a bench trial,

rendered judgment for the defendant, and then

dismissed the plaintiff’s motion as moot.” Aurora Loan

Servs., Inc. v. Craddieth, 442 F.3d 1018, 1027 (7th Cir.

2006). And because the district court’s decision does not

explain why it thought the motion to strike was moot,
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 45

we are unsure how much consideration it gave to that

motion.

The Trustee submits that we can affirm the grants

of summary judgment on the Section 10(b) illegality

defense on several alternative grounds—there is no

evidence of any fraudulent misrepresentation, the Borrowers seek an unwarranted extension of the private

right of recovery under Section 10(b), they have no evidence of a manipulative or deceptive device, the alleged

misrepresentations regarding Regulations G and U were

not made “in connection with the purchase or sale” of a

security, the Borrowers cannot prove reliance, and they

cannot show that any alleged misrepresentation was

material. The Trustee cites Ruth v. Triumph Partnerships,

577 F.3d 790 (7th Cir. 2009), for the proposition that

“ ‘[w]e may affirm summary judgment on any basis

supported in the record.’ ” Id. at 796 (quoting Klebanowski

v. Sheahan, 540 F.3d 633, 639 (7th Cir. 2008)). This statement was made in the context of addressing the

appellant’s claim that the appellee could not make a

particular argument because it had not cross-appealed—

a procedural situation quite different from what we

have here. Ruth and the cases it cites do not address

whether we may affirm a grant of summary judgment

on an alternative ground newly raised in summary judgment reply brief. Although “we may affirm a grant of

summary judgment on any alternative basis found in

the record as long as that basis was adequately considered by the district court and the nonmoving party

had an opportunity to contest it,” Best v. City of Portland,

554 F.3d 698, 702 (7th Cir. 2009), we may not affirm on
46 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

a basis that was not raised in support of summary judgment, id. at 702-03 (reversing grant of summary judgment and remanding where “there [was] not enough of

a record . . . to affirm on an alternative basis”).

Here, the alternative bases argued by the Trustee

were not raised in the district court until the filing of

the reply, and the Borrowers did not have an adequate

opportunity to contest them. Further, it is unclear

whether the district court gave any consideration to

these other grounds. Thus, it would be unfair to affirm

summary judgment on these alternative bases, and we

decline the Trustee’s invitation to do so. The grants of

summary judgment to the Trustee on the Section 10(b)

illegality defense were in error.

C. Section 17(a) of Securities Act of 1933

As an affirmative defense, the Borrowers claimed that

the Notes are unenforceable because Bank One and

Comdisco violated Section 17(a) of the Securities Act of

1933, 15 U.S.C. § 77q(a). They alleged that “[t]he materially

false and misleading statements, omissions, and course

of conduct of Bank One and Comdisco were made

and employed as part of a scheme in order to deceive

the SIP Participant, to obtain the SIP Participant’s

property, and to operate as a fraud upon the SIP Participant . . . .” The version of Section 17(a) in effect at the

time of the transactions at issue read:

 It shall be unlawful for any person in the offer

or sale of any securities by the use of any means
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 47

or instruments of transportation or communication in interstate commerce or by use of the

mails, directly or indirectly—

(1) to employ any device, scheme, or

artifice to defraud, or 

(2) to obtain money or property by

means of any untrue statement of a material fact or any omission to state a

material fact necessary in order to make

the statements made, in light of the circumstances under which they were

made, not misleading, or

(3) to engage in any transaction, practice,

or course of business which operates or

would operate as a fraud or deceit upon

the purchaser. 

15 U.S.C. § 77q(a). 

The Borrowers contend that the grants of summary

judgment on their Section 17(a) defense should be

vacated because the district court did not articulate any

basis for granting summary judgment independent of

its holding that Regulations G and U were not violated.

The Trustee responds that the court relied on other

bases and implies that it concluded that the Borrowers

failed to establish that Comdisco had the requisite

scienter to establish a Section 17(a) violation. He also

argues that the Borrowers have waived any other arguments they may have regarding the Section 17(a) defense

by failing to assert them on appeal, which is correct. See,
48 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

Proof of scienter is an element of a violation of § 17(a)(1), but 6

not § 17(a)(2) or (a)(3). Aaron v. SEC, 446 U.S. 680, 695-97 (1980);

see also Mueller v. Sullivan, 141 F.3d 1232, 1235 (7th Cir. 1998).

The Borrowers’ allegations that the “materially false and

misleading statements, omissions, and course of conduct of

Bank One and Comdisco were made and employed as part of a

scheme to deceive the SIP Participant” (SA:136) seem to fall

within § 17(a)(1). The Borrowers’ reply brief implies that this

defense falls under § 17(a)(2) or (a)(3). We leave this matter

for the district court’s determination, if necessary.

e.g., Mendez v. Perla Dental, No. 08-2029, ___ F.3d ___, ___,

2011 WL 1990527, at *3 (7th Cir. May 24, 2011).

The district court’s reasoning for granting summary

judgment on the Section 17(a) defense is cryptic. As the

appellee, the Trustee may defend the judgment based

on any argument raised below. Truhlar v. U.S. Postal

Serv., 600 F.3d 888, 892 (7th Cir.), cert. denied, 131 S. Ct. 443

(2010). However, he has chosen to defend on only one:

the Borrowers’ failure to establish that “Comdisco had

an intent to deceive, manipulate or defraud.” (Appellee

Br. 59.) As discussed, the district court erroneously

granted summary judgment on the ground that the Borrowers failed to offer evidence of scienter. Therefore, 6

the grants of summary judgment on the Section 17(a)

illegality defense should be vacated.

D. Extension of the Duncan/Paul Rulings 

The Borrowers contend that the district court erred in

extending its Duncan/Paul summary judgment rulings.
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 49

The court’s opinion states that “[t]he instant defendants

raise the same counterclaims and defenses and the

court’s ruling in [Duncan/Paul] will not be revisited.”

Costello, 2008 WL 4646335, at *3. The Borrowers argue

that such language shows that the district court did

not reach the substance of their defenses but merely

gave its earlier rulings preclusive effect. Although one

might draw such a conclusion if the quoted language

is taken out of context, we do not read this language

in a vacuum. The record reveals that the district court

gave the Borrowers an opportunity to present their

own arguments and evidence and gave them some consideration. We understand the district court as saying

that it was adopting both its prior rulings and its supportive reasoning. (Whether the grants of summary

judgment were proper based on the same grounds on

which it was granted against Duncan and Paul is

another question addressed below.)

The Borrowers challenge the grants of summary judgment on the fraud set-off defense, which they assert

was based on a lack of evidence of reliance by Duncan or

Paul. In the Duncan/Paul decision, the district court

noted that the defendants had not attempted to show

reliance on the alleged misrepresentations. But the principal ground for the court’s ruling was that the alleged

misrepresentations were expressions of legal opinion,

which cannot support a fraud claim. (SA:178 (citing City

of Aurora v. Green, 467 N.E.2d 610, 613 (Ill. App. Ct. 1984)

(“As a general rule, one is not entitled to rely upon

a representation of law since both parties are presumed
50 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

In connection with the § 10(b) illegality defense, the Trustee

7

did assert that the Borrowers could not show reliance. But he

has not defended the application of the Duncan/Paul rulings

to the appellants based on non-reliance, and we will not make

a party’s argument for him. Vaughn v. King, 167 F.3d 347, 354

(7th Cir. 1999) (“It is not the responsibility of this court to

make arguments for the parties.”).

to be equally capable of knowing and interpreting the

law.”)). Thus, it is not surprising that the court did not

view the Borrowers’ declarations, which seem to support a reasonable inference of reliance, as requiring a

result different from that reached in Duncan/Paul. (The

Trustee does not argue that the Borrowers’ affidavits

could not support a reasonable inference of justifiable

reliance; he merely criticizes them as self-serving. (See

Appellee’s Br. 60-61.) As a result, he has waived any

such argument for purposes of this appeal. See, e.g.,

7

O’Neal v. City of Chicago, 588 F.3d 406, 409 (7th Cir. 2009)

(declining to consider argument not made on appeal)).

Nonetheless, the district court’s analysis falters. The

Borrowers argue that they identified an exception to the

general rule that legal opinions cannot support a fraud

claim and the district court never considered it. See West

v. W. Cas. & Sur. Co., 846 F.2d 387 (7th Cir. 1988). In

West, we recognized that under Illinois law, “[a] statement

that, standing alone, appears to be a statement of

opinion, nevertheless may be a statement of fact when

considered in context.” Id. at 393. We quoted an Illinois

Supreme Court opinion: 
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 51

Wherever a party states a matter which might

otherwise be only an opinion, but does not state

it as the expression of the opinion of his own, but

as an affirmative fact material to the transaction,

so that the other party may reasonably treat it as

a fact and rely upon it as such, then the statement clearly becomes an affirmation of the fact

within the meaning of the rule against fraudulent

misrepresentation.

Id. (quoting Buttitta v. Lawrence, 178 N.E. 390, 393 (Ill.

1931)). Thus, whether a statement is one of fact or

opinion depends on the factual circumstances. Id. Factors

to be considered in determining whether a plaintiff reasonably relied on an opinion as though it were a

statement of fact include “the access of the parties to

outside information,” the parties’ relative sophistication, and whether “the speaker has held himself out as

having special knowledge.” Id. at 393-94. Therefore, “it is

not ‘the form of the statement which is important

or controlling, but the sense in which it is reasonably

understood.’ ” Id. at 394 (quoting Prosser and Keeton on

Torts § 109, at 755 (W. Keeton 5th ed. 1984)). The

district court’s opinion does not reflect consideration

of whether the alleged misrepresentations should be

treated as statements of fact under this authority.

The Trustee further argues that the district court did

not have to address the fraud set-off defense in order

to rule in his favor because it concluded that the

Borrowers failed to present evidence of scienter, which is

necessary to prove a fraud set-off claim. As discussed,

the court erred in granting summary judgment on the
52 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

basis of a lack of proof of scienter. E.g., Sublett, 463 F.3d

at 736 (“[I]f the moving party does not raise an issue

in support of its motion for summary judgment, the

nonmoving party is not required to present evidence

on that point, and the district court should not rely on

that ground in its decision.”). So, too, it would be error

to extend the Duncan/Paul rulings on the basis of a lack

of evidence of scienter, particularly where the Trustee

did not even argue below that a failure of proof of

scienter warranted summary judgment on the fraud setoff defense. Cf. Best, 554 F.3d at 702-03. The district court

erred in granting summary judgment to the Trustee on

the fraud set-off defenses.

The Borrowers also challenge the district court’s

failure to address the merits of their negligent misrepresentation set-off defense. In the Duncan/Paul summary

judgment ruling, the court held that the record

did not support the claim that either Comdisco or the

Bank was “in the business of supplying information

for the guidance of others in their business transactions” (SA:182), which is necessary for that defense. The

Borrowers submit that they had such evidence but the

court did not consider it. The Trustee has not challenged

this assertion on appeal, and our review of the materials

cited by the Borrowers suggests that they may have

enough evidence to raise an issue of fact on this matter.

Whether they have presented enough evidence to

satisfy the “in the business of supplying information”

element and whether they ultimately can prevail on

their negligent misrepresentation defense are for determination in the district court.
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 53

E. Excuse-of-Nonperformance Defense

The Borrowers’ final challenge is to the grants of summary judgment on their excuse-of-nonperformance defense. Under Illinois law, they argue, the Bank’s compliance with Section 17(a), Section 10(b), and Regulation U

were implied terms of the parties’ contracts and, by

failing to comply with these laws, the Bank breached

the contracts, excusing their performance. The Trustee

does not dispute that under Illinois law, laws in existence at the time a contract is executed, “are deemed,

in the absence of contractual language to the contrary,

‘part of the contract as though they were expressly incorporated therein.’ ” Selcke v. New England Ins. Co., 995 F.2d

688, 689 (7th Cir. 1993) (quoting McMahon v. Chi. Mercantile

Exch., 582 N.E.2d 1313, 1319 (Ill. App. Ct. 1991)); see also

Ill. Bankers’ Life Ass’n v. Collins, 341 Ill. 548, 552 (1930).

Thus, Section 17(a), Section 10(b) and Regulation U are

implied terms of the Notes. The Borrowers assert that the

Bank’s noncompliance with these laws excuses their

performance. A “party cannot sue for breach of contract

without alleging and proving that he has himself substantially complied with all the material terms of the

agreement. . . .” George F. Mueller & Sons, Inc. v. N. Ill. Gas

Co., 336 N.E.2d 185, 189 (Ill. App. Ct. 1975). And a

material breach of a contract will excuse the other

party’s performance. Elda Arnhold & Byzantio, L.L.C. v.

Ocean Atl. Woodland Corp., 284 F.3d 693, 700 (7th Cir. 2002).

The Trustee first responds that the loans were not

illegal. Although he focuses on compliance with the

margin regulations, the defense is based not only on

alleged margin rule violations but also on violations of
54 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

In the district court, the Trustee also relied on ADM Investor 8

Servs., Inc. v. Collins, 515 F.3d 753 (7th Cir. 2008); he does not

do so here. ADM Investor Services held that a trader’s “failure

to post required margin for a futures contract does not

excuse him from paying.” Id. at 757. Here, in contrast, the

Borrowers assert that the Bank’s noncompliance with the

law excuses their performance.

Section 17(a) and Section 10(b). The grants of summary

judgment on the Section 17(a) and Section 10(b) defenses

were error, and it remains to be determined whether

the Bank violated a margin regulation. The Trustee

also maintains that the excuse-of-nonperformance

defense fails because the Borrowers are not in the zone

of interests protected by the margin regulations, citing

Thomson McKinnon Securities, Inc. v. Clark, 901 F.2d 1568

(11th Cir. 1990), for support. The case is inapposite. There,

a broker sued a former client to recover payment on

his account. The client raised as an affirmative defense

the broker’s breach of exchange rules, which were incorporated into the parties’ agreements. Id. at 1570. The

court rejected the defense because the client requested

the broker to ignore a contract term by placing a trade

on his behalf, thus waiving the term as a condition precedent to his obligation. Id. at 1571.8

Second, the Trustee argues that the Borrowers

impliedly waived any breach by accepting the loan proceeds, participating in the SIP Program, and failing to

object to the SIP Program or Notes until they had lost

the opportunity to profit from the program. As the party

claiming waiver, the Trustee had the burden to prove
Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al. 55

that the Borrowers (1) knew of their right to assert the

Bank’s breaches, and (2) intended to waive the alleged

breaches. Ryder v. Bank of Hickory Hills, 585 N.E.2d 46, 49

(Ill. 1991). Yet he did not do so in this court or in the

district court. Furthermore, the Trustee’s reliance on the

Borrowers’ failure to raise any objection to the SIP

Program or Notes reveals the weakness of his position.

“An implied waiver may arise when conduct of the

person against whom waiver is asserted is inconsistent

with any other intention than to waive it.” Wolfram P’ship,

Ltd. v. LaSalle Nat’l Bank, 765 N.E.2d 1012, 1026 (Ill.

App. Ct. 2001). Implied waiver arises “where (1) an

unexpressed intention to waive can be clearly inferred

from the circumstances or (2) the conduct of the

waiving party has misled the other party into a reasonable belief that a waiver has occurred.” Id. The Trustee

has not identified the facts in the record that would

support a finding of implied waiver. Thus, he has not

adequately developed his waiver argument, and the

result is a waiver of the waiver argument on appeal. See,

e.g., Argyropoulos v. City of Alton, 539 F.3d 724, 738 (7th

Cir. 2008).

Third, it is argued that if the Bank breached the

contracts by lending money in violation of the margin

regulations, then the Borrowers also breached the

contracts by borrowing money in violation of the

margin regulations. The Trustee asserts that the Borrowers cannot profit from their own breach of the

margin regulations, citing Goldstein v. Lustig, 507 N.E.2d

164, 168 (Ill. App. Ct. 1987) (“A party who materially

breaches a contract cannot take advantage of the terms
56 Nos. 08-3961, 08-3966, 08-3967, 08-3981, et al.

of the contract which benefit him.”). It is not clear that

the Borrowers violated the margin regulations. Regulation X exempts a borrower from the margin regulations

“unless the borrower willfully causes the credit to

be extended in contravention of Regulation G, T, or U.”

12 C.F.R. § 224.1(b)(1). The record before us does not

establish that the Borrowers willfully caused the Bank to

extend credit in violation of one of these regulations.

The district court erred in granting the Trustee

summary judgment on the Borrowers’ excuse-of-nonperformance defense.

III. CONCLUSION

For the foregoing reasons, the district court’s grants

of summary judgment in favor of the Trustee are

VACATED and these appeals are REMANDED for further

proceedings consistent with this opinion. Given our

disposition of the appeals from the grants of summary

judgment, the appeals from the Amended Judgments

are DISMISSED AS MOOT.

We appreciate the substantial efforts that the district

court and counsel have expended in these matters to

this point. However, for reasons discussed above,

more needs to be done before this litigation can be put

to rest.

6-28-11