In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 05-4523

HAL D. HICKS,

Cross-Claim Plaintiff-Appellant,

v.

MIDWEST TRANSIT, INC., and DONALD

HOAGLAND, as Interim Receiver of

Midwest Transit, Inc.,

Cross-Claim Defendants-Appellees.

____________

Appeal from the United States District Court

for the Southern District of Illinois.

No. 02 C 4033—G. Patrick Murphy, Chief Judge.

____________

ARGUED NOVEMBER 6, 2006—DECIDED SEPTEMBER 10, 2007

____________

Before POSNER, RIPPLE, and SYKES, Circuit Judges.

SYKES, Circuit Judge. Hal D. Hicks leased 100 mailcarrying trailers to Midwest Transit, Inc. (“Midwest”)

while he was the president, a director, and a majority

shareholder of the company. Shortly thereafter a receiver was appointed by an Illinois state court to protect Midwest from various breaches of fiduciary duties

alleged against Hicks in a shareholders’ derivative lawsuit.

The receiver refused to pay Hicks on the leases, arguing

that they were invalid under the Illinois Director Conflict of Interest statute.
2 No. 05-4523

While this litigation was ongoing in state court, Hicks’s

lender filed suit in federal court to foreclose on loans it

made to finance Hicks’s purchase of the trailers. Hicks

cross-claimed against Midwest and the receiver on a

variety of contract law theories. Hicks then settled with

his lender and the cross-claim litigation was stayed

pending the outcome of the state-court litigation. The

district court eventually dismissed most of Hicks’s

claims on summary judgment after concluding he failed

to comply with the requirements of the Illinois Director

Conflict of Interest statute; the parties settled the claim

that survived summary judgment. Hicks now appeals,

and we affirm.

I. Background

This case has a complex procedural history in both state

and federal court. When the events that ultimately led to

this lawsuit began in early 2000, Hicks was president, one

of two directors, and a 50% shareholder of Midwest

Transit, Inc., a closely held company with its principal

place of business in Illinois. Midwest is in the business

of providing mail-carrying trailers to the U.S. Postal

Service. Two other individuals, C. Michael Witters and

Diane Witters, were each 25% stockholders of Midwest;

Diane was also the other director. In January 2000 the

Witters initiated a shareholders’ derivative lawsuit in

Illinois state court to have Hicks removed from office

based on a host of financial misconduct allegations,

including personally purchasing and then leasing postalspecification trailers to Midwest at inflated rates since

1993. On April 20, 2000, the state court entered a temporary restraining order prohibiting Midwest from transferring any money to Hicks other than amounts due on

existing trailer leases.
No. 05-4523 3

1 Hicks maintained it was a clerical error. Ownership of the

trailers was disputed at least through summer 2002 and was not

formally resolved until the district court granted permission

to transfer title to Hicks on July 2, 2003.

2 Because these trailers generally have a life span much longer

than three years and the leases contained no option for Midwest

to purchase, Hicks could make up for this short-term loss on the

payments in the long-term profits he could reap from owning

the trailers.

Shortly thereafter, on May 31 and July 3, 2000, Hicks

secured two loans from General Electric Capital Business

Asset Funding Corporation (“GE Capital”), a Delaware

corporation with its principal place of business in Washington, to purchase 100 more postal-specification trailers.

Hicks granted GE Capital a security interest in the

trailers, and Midwest guaranteed the loans in agreements signed by its secretary, who was neither a director

nor a shareholder. The total amount of the loans was

$2,144,600, which broke down to payments of $677 per

trailer per month. For reasons uncertain, the trailers were

titled in Midwest’s name even though Hicks paid for

them.1

 Hicks then leased the trailers to Midwest in two

lease agreements dated June 27 and July 7, 2000, again

signed by Midwest’s secretary. Under those leases, Midwest agreed to pay Hicks $450 per trailer per month for

three years; Hicks then planned to pay GE Capital the

additional $227 per trailer due on the loans.2

 It is undisputed that Michael and Diane Witters did not participate

in or approve any of these transactions.

On July 25, 2001, the state court appointed Donald

Hoagland as interim receiver of Midwest based on findings

of misconduct, “including large sums paid to Hicks for

trailers leased by him to the corporation.” Hoagland then

dismissed Hicks from Midwest and ceased paying him

for the 100 trailers still in Midwest’s possession. Hicks
4 No. 05-4523

3 GE Capital sued Midwest in its capacity as guarantor of Hicks.

GE Capital’s complaint states that Midwest had paid approximately $90,000 directly to GE Capital as of February 2002.

brought a motion in state court in October 2001 to order

Midwest to pay on the leases or return the trailers to

Hicks. Hoagland refused to pay Hicks, arguing both that

the trailers were titled in Midwest’s name and that the

leases violated the Illinois Director Conflict of Interest

statute, 805 ILL. COMP. STAT. 5/8.60, which requires

authorization from a majority of disinterested shareholders

or directors when an interested director seeks to engage in

a business transaction with the corporation. The state

court denied Hicks’s motion on grounds that both title to

the trailers and the legitimacy of the leases remained in

dispute. The court further instructed Hoagland to maintain possession of the trailers pending resolution of the

dispute and suggested that Midwest send the

$450 payments directly to GE Capital, which Midwest

did from December 2001 through June 2002. Hicks

failed to make any payments to GE Capital between

July 2001 and February 2002.

On February 8, 2002, GE Capital filed suit in the

Southern District of Illinois against Hicks, Midwest, and

Hoagland seeking to foreclose on the loans, obtain possession of the trailers, and recover money due.3

 Hicks admitted GE Capital’s allegations but cross-claimed against

Midwest and Hoagland on a number of theories arising

out of Midwest’s continued possession of the trailers

and failure to make lease payments to Hicks. Those

claims, all governed by Illinois law, included two counts

of breach of lease, indemnification and contribution,

quantum meruit, conversion, a petition to quiet title, and

tortious interference with a business contract. The district

court exercised supplemental jurisdiction over Hicks’s
No. 05-4523 5

cross-claims pursuant to 28 U.S.C. § 1367(a). Hicks

subsequently settled with GE Capital by paying off the

amount due, after which the loans were reinstated.

As the cross-claim litigation continued, the district

court concluded that Hicks had the superior right to

possession of the trailers and on July 3, 2002, ordered

Midwest to return all trailers to Hicks by July 15, 2002.

Midwest was slow in complying and failed to return some

trailers until late August, prompting a motion from

Hicks for contempt damages. The court granted Hicks’s

motion and referred the case to a magistrate judge to

determine the appropriate amount of damages. Contempt

damages were assessed in two phases—the first for costs

resulting from the delay in returning the trailers, for

which Hicks was awarded $48,986.75, and the second

for repairs necessitated by the condition in which the

trailers were returned, for an amount to be determined

with the aid of a special master. On August 8 and November 11, 2003, the magistrate judge entered orders setting

forth how the phase two damages determination would

proceed and stating that “[i]n the event the Court does

not award Hicks damages for items claimed in Hicks’

pending Motion, Hicks reserves the right to seek any

such uncompensated damages to the trailers, costs for

repair or other elements of damage in the underlying

case.” The phase two damages proceedings concluded with

an order entered on March 11, 2004, stating that the

parties had agreed to settle for a lump sum payment of

$100,000.

Soon after this settlement, Hicks submitted discovery

requests to Midwest in an attempt to facilitate a claim for

additional compensation for physical damages to the

trailers based on the reservation of rights language

found in the August 8 and November 11, 2003 orders.

Midwest objected on grounds that further compensation

was precluded by the March 11, 2004 settlement, which
6 No. 05-4523

purported to cover all physical damages. The magistrate

judge agreed and issued another order concluding that

Hicks had settled all claims for physical damages to the

trailers in the March 11 agreement and could pursue no

further discovery.

In the meantime, Hicks filed a motion for summary

judgment on some of his cross-claims. With no objection

from Midwest, the district court granted Hicks’s claim to

quiet title to the trailers. The remaining claims were

then stayed pending resolution of the state-court derivative suit. Shortly after the state-court litigation concluded

and the stay was lifted, Midwest and Hicks filed crossmotions for summary judgment on all remaining claims

except quantum meruit. Midwest contended that Hicks’s

leases were invalid under the Illinois Director Conflict of

Interest statute because the Witters did not authorize

either lease and because the leases did not reflect fair

market value. Hicks argued that Hoagland had implicitly

validated the leases by maintaining possession of and

continuing to use the trailers after he was appointed

receiver. Hicks also submitted an affidavit stating that

the fair market value of postal trailers ranges from $360

to $600 a month. On September 1, 2005, the district court

granted summary judgment to Midwest on all claims

except quantum meruit. The court concluded (1) that

Hoagland had not validated the leases by retaining the

trailers because he had continuously challenged their

validity and only maintained possession under the direction of the state court, and (2) that Hicks had failed to

carry his burden of coming forward with evidence to create

a triable issue of fact on the fairness of the leases

under the Illinois statute.

The parties then agreed to settle the quantum meruit

claim for a lump sum that broke down to $400 per trailer

per month for Midwest’s unpaid use. Hicks now appeals

the summary judgment dismissing his claims for breach
No. 05-4523 7

4 At this point, there is no distinction in the remaining claims

between Midwest and Hoagland in terms of their liability.

Accordingly, we refer to them interchangeably for that purpose.

of lease, indemnification and contribution, conversion,

and tortious interference with a business contract in

hopes of recovering the monetary difference between the

leases and the quantum meruit settlement.4

 He also

appeals the district court’s denial of his discovery request aimed at securing additional recovery for physical

damage to the trailers.

II. Discussion

We review a district court’s entry of summary judgment

de novo, viewing the facts in the light most favorable to the

nonmoving party. Ruffin-Thompkins v. Experian Info.

Solutions, Inc., 422 F.3d 603, 607 (7th Cir. 2005). Summary judgment is appropriate when “the pleadings,

depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and that

the moving party is entitled to judgment as a matter of

law.” FED. R. CIV. P. 56(c). Although the moving party

bears the burden of proving that there is no genuine

issue of material fact and that it is entitled to judgment

as a matter of law, the nonmoving party “retains the

burden of producing enough evidence to support a reasonable jury verdict in [its] favor.” Ruffin-Thompkins, 422

F.3d at 607.

A. Applicability of the Illinois Statute

Hicks’s first two claims are for breach of lease based on

Illinois contract law. The district court granted summary
8 No. 05-4523

judgment for Midwest on these claims on the basis of the

Illinois Director Conflict of Interest statute, which states

in relevant part:

(a) If a transaction is fair to a corporation at the time

it is authorized, approved, or ratified, the fact that a

director of the corporation is directly or indirectly a

party to the transaction is not grounds for invalidating the transaction or the director’s vote regarding

the transaction; provided, however, that in a proceeding contesting the validity of such a transaction, the

person asserting validity has the burden of proving

fairness unless:

(1) the material facts of the transaction and the

director’s interest or relationship were disclosed

or known to the board of directors or a committee

of the board and the board or committee authorized, approved or ratified the transaction by the

affirmative votes of a majority of disinterested

directors, even though the disinterested directors

be less than a quorum; or

(2) the material facts of the transaction and the

director’s interest or relationship were disclosed

or known to the shareholders entitled to vote and

they authorized, approved or ratified the transaction without counting the vote of any shareholder

who is an interested director.

805 ILL. COMP. STAT. 5/8.60(a). It is undisputed that

Midwest’s other two shareholders, one of whom was also

the only other director, did not authorize the leases

with Hicks. Rather, at the time Hicks and Midwest

entered into the leases, the Witters had already initiated

their derivative suit challenging Hicks’s authority to

enter into precisely these kinds of leases. According to

the statute, Hicks, as the person asserting the validity

of the leases, has the burden of proving their fairness.
No. 05-4523 9

On appeal, Hicks makes two threshold arguments

challenging the applicability of the statute. First, he claims

the statute can only be used offensively by a corporation

challenging the director accused of profiting from the

interested transaction, i.e., in a derivative lawsuit. We

initially note that Hicks did not make this argument in the

district court, and arguments not raised before the district

court are waived on appeal. See, e.g., Belom v. Nat’l

Futures Ass’n, 284 F.3d 795, 799 (7th Cir. 2002). The

argument is meritless in any event. The statute provides

that “in a proceeding contesting the validity of [an interested] transaction, the person asserting validity has the

burden of proving fairness,” § 5/8.60(a); the statute does

not limit the proceedings in which it may be invoked, nor

is there any language limiting its applicability to suits

brought by the corporation against the interested director.

Nothing in the statute suggests it is inapplicable as a

defense against the validity of a transaction in the context

of a breach-of-lease claim. Hicks has not identified a single

Illinois case supporting his proposed interpretation of the

statute. Accordingly, we conclude the statute is applicable

as a defense as well as a ground for attacking a transaction.

Hicks alternatively argues that Midwest is bound by the

leases regardless of their validity because Hoagland

kept and continued to use the trailers after his appointment as receiver. Hicks relies upon Toushin v. Gonsky, 395

N.E.2d 1124, 1130 (Ill. App. Ct. 1979), but the case is

factually distinguishable from this one. The receiver in

Toushin had challenged the validity of two movie theater

leases on the ground that the shareholder who had signed

on behalf of the closely held company lacked sufficient

authority due to a pending action for accounting and

dissolution. While this action was pending, the receiver

retained possession of the theaters without making lease

payments and did not respond to letters from the lessee
10 No. 05-4523

informing him that rent payments were outstanding. Id.

at 1126. The receiver also treated the leases as valid in

reports to the court, which included amounts for rent

due on the leases as unpaid bills. Id. at 1130.

On the foregoing facts, the Illinois appellate court

concluded that “[a]lthough the receiver challenged the

validity of the leases based on [the alleged agent’s] authority to bind [the corporation], the continued possession o[r]

use of the premises was an election to adopt the lease.

Without reaching the merits of the issue of the validity of

the leases, it is clear that rent and other charges have

accrued for the period of the receivership.” Id. (emphasis

added). The court further held that “[i]f the receiver

remains in possession beyond a reasonable time to make

the election [to adopt or challenge a lease made prior to

his appointment], he elects to adopt the lease by implication, and is bound by its terms.” Id.

Toushin thus establishes that under Illinois law, a

receiver’s implied acceptance of a lease may trump the

lease’s invalidity in some circumstances. But the circumstances here are very different. In Toushin, the receiver

treated the leases as valid during the time in which he

failed to make payments, and he did not challenge their

validity until a court action was brought to repossess

the theaters. Moreover, the validity of the leases in

Toushin had nothing to do with the underlying litigation

that led to the receiver’s appointment. Here, in contrast,

the challenge to the validity of the leases was not only

in existence when Hoagland took over as receiver, but

Hicks’s practice of entering into insider leases was

actually one of the reasons for the appointment of a

receiver in the first place. See Witters v. Hicks, 780 N.E.2d

713, 720 (Ill. App. Ct. 2002) (listing as a reason for appointment that “Hicks’ leasing of trailers owned by him

to [Midwest] constituted a conflict of interest as set forth

in section 8.60”).
No. 05-4523 11

Moreover, when Hicks initially challenged Midwest’s

failure to pay the leases, the state court directed Midwest

not to return the trailers and suggested that Midwest

make lease payments directly to GE Capital until ownership of the trailers and the validity of the leases could be

determined. At the October 12, 2001 hearing on Hicks’s

motion, the court specifically noted: “[W]e have the validity

of the leases themselves in controversy. The burden of

proof is on Mr. Hicks to show that these were entered

into fairly, and that is something we’ll take up at trial.”

Accordingly, unlike in the receiver in Toushin, Hoagland

never accepted the validity of the Hicks leases and challenged them from the moment he learned of their existence. In addition, at the time of Hoagland’s actions, there

was legitimate confusion regarding whether Hicks or

Midwest was the rightful owner of the trailers, so

Hoagland was under no clear duty to return or pay for

the trailers. This was, as we have noted, one of the

factors cited by the state court in its conclusion that

Midwest should make payments directly to GE Capital

instead of to Hicks. It is abundantly clear that Hoagland

never acted in a manner that would support a conclusion that he adopted the leases by implication.

Hicks also cites Spencer v. World’s Columbian Exposition, 45 N.E. 250 (Ill. 1896), an early Illinois Supreme

Court case, but that case actually supports the receiver’s

position here. Spencer involved a receiver who had maintained possession of leased premises for the final months

of the World’s Columbian Exposition; the Illinois Supreme

Court held that under the circumstances, the receiver

could not subsequently avoid payment by claiming the

lease terms were too high. Id. at 253. However, the court

noted that the receiver’s failure to contest the validity at

the time he maintained possession of the premises was

dispositive:
12 No. 05-4523

[W]e have been referred to no cases holding that,

where the lease or contract is of itself a thing of value

to the creditors, and the receiver, under the order of

the court, takes possession of the premises, and

conducts the business which the insolvent had been

unable to continue, and, without any act of disaffirmance or notice that he would not be bound by

the contract, completes the term, and receives profits,

and all the benefits, from such possession and continuance of the business, the receiver may then repudiate the contract, and pay only on the basis of a quantum meruit.

Id. (emphasis added). Spencer thus stands for the proposition that a concurrent challenge to the validity of a lease

prevents a receiver’s continued possession from trumping

the invalidity of the lease. The district court properly

rejected Hicks’s argument that Hoagland implicitly

validated the leases.

B. Fairness of the Leases

The remaining question on the validity of the leases

is whether Hicks carried his burden of demonstrating a

genuine issue of material fact as to their fairness. Hicks’s

summary judgment motion attached two leases for comparison, as well as an affidavit from another leasing agent

regarding the fair market value of postal trailers. Hicks

did not develop an argument based on these documents,

however; instead, he repeatedly asserted before the

district court that the only issue it needed to consider

was his argument about the receiver. But Hicks had “the

burden to point to . . . information to show that a genuine

issue of fact exist[s]; the district court ‘need not scour

the record’ to find such evidence.” Ruffin-Thompkins,

422 F.3d at 610 (quoting L.S. Heath & Son, Inc. v. AT&T

Info. Sys., Inc., 9 F.3d 561, 567 (7th Cir. 1993)). We are
No. 05-4523 13

5 Rightway Trucking was owned by the Witters. Accordingly,

before entering into this insider transaction, Hoagland obtained the permission of the state court.

tempted to conclude that Hicks abandoned that task by

not developing an argument about how the documents

he submitted related to his burden of proving fairness. In

an abundance of caution, however, we will evaluate the

limited evidence Hicks submitted.

“Illinois defines ‘fair’ as market value. A transaction is

‘fair’ to a corporation when it receives at least what it

would have obtained following arms’ length bargaining

in competitive markets.” Olsen v. Floit, 219 F.3d 655, 657

(7th Cir. 2000) (citing Shlensky v. S. Parkway Bldg. Corp.,

166 N.E.2d 793 (Ill. 1960)). Hicks submitted three documents potentially relevant to fairness: an affidavit stating that the fair market value for a postal trailer ranges

from $360 to $600 per month and two leases Midwest

entered into with other companies after Hoagland was

appointed receiver. The affidavit is too generalized to

raise an issue of fact regarding the fairness of the particular leases in question in this case. The first of the two

comparison leases, a three-year lease with Rightway

Trucking Co., provided Midwest with trailers at a rate of

$250 per trailer per month, substantially lower than the

Hicks leases.5

 The lease also included an option to purchase, which was not available in the Hicks leases. Without additional information regarding the comparative

quality or age of the Rightway trailers, which Hicks did

not provide, there is nothing in this lease that would

support a conclusion that Hicks’s $450-per-trailer rate

was fair.

The second lease was between Midwest and XTRA Lease.

It is a short-term lease of an entirely different nature

in which trailers were provided for daily and weekly rates.
14 No. 05-4523

The district court noted during the contempt proceedings that short-term trailer rental rates are often higher

than long-term rates; this explains why Hicks was compensated at a rate of $450 per trailer in the contempt proceedings for the short-term continued possession of his trailers,

but received only $400 per trailer in the quantum meruit

settlement for the long-term use that occurred prior to the

July 2002 order mandating the trailers’ return. Hicks has

not provided any information regarding how the market

value for short-term leases such as those entered into with

XTRA compares with that of the long-term leases entered

into with him. He also has not provided any information

regarding the comparative age and quality of the trailers

XTRA offered.

By contrast, Midwest submitted three long-term leases

it has entered into since returning Hicks’s trailers. Each

lease contains an option to purchase and carries a significantly lower rate ($285, $185, and $225 per trailer per

month) than the Hicks leases. Midwest also submitted an

affidavit from its operations manager stating that the

XTRA lease rate was higher than all of Midwest’s other

leases because it was a short-term rate. Finally, Midwest

included a document from the state court containing

its bench trial finding that Hicks had failed to prove that

any trailer leases he entered into with Midwest since

1993 were fair under section 5/8.60. As we have discussed, Hicks has the burden of proving that a reasonable

jury could find in his favor on the issue of fairness; his

evidence is insufficient to create a genuine factual dispute

regarding the fairness of the leases.

C. Remaining Claims

Hicks’s remaining contract claims are meritless and

require little discussion. His contribution and indemnification claims arise out of the language of the leases; because
No. 05-4523 15

the district court correctly concluded that the leases

were invalid, these claims fail as a matter of law. Similarly, there is no legal support for Hicks’s conversion claim

because the state court instructed Midwest to maintain

possession of the trailers, establishing that Hicks did not

have an absolute and unconditional right to possession of

the trailers. The only period in which Midwest maintained

control without permission was the two-month delay in

returning the trailers pursuant to the court’s order, and

Hicks was compensated for all damages resulting from

that delay through the contempt proceedings. Finally,

Hicks’s tortious interference with a contract claim requires

Hicks to show that GE Capital was induced by Midwest’s

behavior to breach its loan agreements with Hicks. But

Hicks—not GE Capital—breached the loan agreements,

so this claim was also properly rejected.

D. Discovery Issue

Hicks’s remaining argument on appeal pertains to his

last-ditch effort to increase his recovery for physical

damage done to the trailers while they were in Midwest’s

possession. Hicks now contends the March 11 agreement

to settle the contempt damages for $100,000 was intended

only “to get the Trailers in a usable condition,” not “to

encompass all damages that Hicks may be entitled to

under industry leasing standards or under the Hicks

Leases.” He further claims his right to secure additional

damages was explicitly preserved by the language of the

earlier orders of the magistrate judge.

Neither of these contentions are supported by the district court record. The August 8 order specified that “the

court shall consider and assess the damages incurred by

Hicks as a result of the condition of the trailers when

delivered to Hicks . . . including the costs to complete

repairs, attorney’s fees, loss of use, storage charges, and
16 No. 05-4523

any other damages sought in Hicks’ Motion.” (Emphasis

added.) The magistrate appointed a special master to

assess damages, and the standards by which they were

assessed included applicable Department of Transportation and Federal Motor Carrier Safety Administration

regulations, as well as “applicable rules and regulations

promulgated by the United States Postal Service for

contractors hauling mail.” This language directly contradicts Hicks’s claim that the damages did not contemplate

industry leasing standards. Further, the damages order

ultimately entered by the court stated that the parties

had “amicably resolve[d] the physical damages to the

trailers” for $100,000, and Hicks submitted a satisfaction

to the court on March 25, 2004, asserting that Midwest

“paid and satisfied the Phase II contempt damages.” These

documents establish that Hicks conclusively settled his

entire claim for compensation for physical damages in the

March 11 settlement. As such, the district court did not

abuse its discretion in denying Hicks’s discovery requests aimed at augmenting his settlement recovery.

AFFIRMED.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—9-10-07