Opinion ID: 2999151
Heading Depth: 3
Heading Rank: 2

Heading: All EMS’ Due Process Rights

Text: All EMS further contends that the district court’s decision, at the conclusion of the bifurcated bench trial, to “resolve with finality all issues pending before the Court,” R.311 at 9, deprived it of due process of law. We note, as a preliminary matter, that the district court’s original decision to bifurcate was interlocutory, and a trial court has discretion to revise or set aside its interlocutory orders before the entry of final judgment. See Fed. R. Civ. P. 54(b); Partmar Corp. v. Paramount Pictures Theatres Corp., 347 U.S. 89, 100 (1954); O’Malley v. United States Fid. & Guar. Co., 776 F.2d 494, 500-01 (5th Cir. 1985). We therefore are confined to determining whether, under the circumstances here, the bifurcated proceeding deprived the Wagdys of their constitutional entitlement to due process. In Partmar, the Supreme Court considered whether due process was violated when a district court dismissed a party’s claims in a bifurcated proceeding without conducting a separate trial as to their merits. In that case, Partmar and Paramount entered into a franchise agreement in which Partmar agreed to exhibit Paramount’s first-run films at a cinema leased from Paramount. Subsequently, a decree was entered in an antitrust suit initiated by the United States against Paramount, which enjoined Paramount from performing under existing franchise agreements and from entering into future franchise agreements. Paramount relied on the antitrust decree as cause for terminating Partmar’s franchise and lease 5 (...continued) court sitting without a jury . . . .” Fed. R. Civ. P. 39(a). The language of Rule 39 “has been interpreted broadly so as to encompass orders entered by the court and not objected to; statements by the judge on the record that are not objected to; and briefs arguing that the judge can decide certain matters as a legal question.” Lovelace v. Dall, 820 F.2d 223, 227 (7th Cir. 1987). Nos. 05-1234, 05-1330 Page 12 agreements. See Partmar Corp., 347 U.S. at 93. When Partmar refused to vacate the leased premises, Paramount sued Partmar for unlawful detainer and for a declaratory judgment. Partmar subsequently filed a counterclaim against Paramount seeking treble damages for alleged antitrust violations. Partmar’s counterclaim asserted that the franchise and lease agreements had “excessive terms and conditions” as a result of an unlawful conspiracy between Paramount and others. Id. at 93-94. The district court ordered separate trials for Paramount’s claims and Partmar’s counterclaims. Before trial, however, the United States Supreme Court overturned a portion of the antitrust decree, holding that Paramount’s franchise agreements were not per se unlawful. Following the trial on Paramount’s claims, the district court found that the franchise and lease agreements were not illegal, so Paramount had no basis for terminating them. The district court, therefore, dismissed Partmar’s counterclaims without proceeding to the second trial. On appeal, Partmar did not challenge the district court’s findings pertaining to Paramount’s claims, but challenged instead the dismissal of its counterclaims without the benefit of trial. The Supreme Court affirmed the dismissal, concluding that the district court’s finding of no conspiracy “determined the key ingredient of Partmar’s counterclaims . . . and thus precluded recovery upon such claims.” Id. at 101. The bifurcated proceeding comported with due process because Partmar “had ample opportunity upon trial to present evidence and to contest the conspiracy finding.” Id. In a similar situation, the Second Circuit heard an appeal of an action brought by attorneys to recover a $155,000 bonus owed by a client for services rendered under a retainer agreement. See Knapp v. McFarland, 457 F.2d 881 (2d Cir. 1972). At the outset of that action, the district court directed that the trial of issues pertaining to the $155,000 bonus agreement be bifurcated: the court would determine first whether such an agreement was made, and if an agreement was found, then a jury would hear evidence at a deferred proceeding as to whether the bonus was conscionable. During the bench trial, the court refused to hear certain expert evidence on the conscionability issue, noting that the trial on that issue had been deferred. Much of the other evidence that was introduced related to the making of the agreement, but was relevant also to the issue of conscionability. As a result, the district court resolved the parties’ entire dispute at the conclusion of the bench trial, finding “on the basis of the evidence already introduced that the bonus contract was ‘a fair and reasonable compensation agreement.’” Id. at 887. The Second Circuit reversed and remanded to the district court, directing it to afford the parties “a fair opportunity to offer proof with respect to the deferred issue.” Id. The court of appeals reasoned that, “[a]lthough most of the essential proof as to conscionability may well have been received by the court in connection with other issues and [the client] not only cross-examined others but also testified personally with respect to circumstances bearing on reasonableness, he was not given the Nos. 05-1234, 05-1330 Page 13 opportunity to introduce expert witnesses, and he may not have fully cross-examined [the attorneys] as to the issue.” Id. The court then distinguished the case from Partmar, in which the only evidence not offered--the Paramount case decree--would not have changed the result. In Knapp, by contrast, the client’s proffered evidence potentially could have altered the district court’s determination of whether the attorneys’ bonus was fair and reasonable. The principle to be drawn from Partmar and Knapp is that a court has discretion not to hold a subsequent trial if undisputed evidence already adduced can resolve the issues reserved for the deferred proceeding. To demonstrate that due process was violated, a party must explain how additional process, in the form of expert testimony or cross-examination, see, e.g., Knapp, 457 F.2d at 887, potentially could have altered the bench trial’s result. Turning to All EMS’ contentions regarding the district court’s failure to hear evidence on certain counts, we shall determine whether All EMS has proffered any evidence, not introduced at the bench trial, that would have altered the outcome on those issues. Each of the counts shall be addressed in turn. a. violation of the Illinois Franchise Disclosure Act At the conclusion of the bench trial, the district court decided that, because it already had found All EMS to be in breach of the franchise agreement, the Illinois Franchise Disclosure Act (“IFDA”) did not prevent 7-Eleven from terminating the agreement. The IFDA requires a franchisor to show good cause before terminating a franchise. Good cause as it relates to this case means “the failure of the franchisee to comply with any lawful provisions of the franchise or other agreement and to cure such default after being given notice thereof and a reasonable opportunity to cure such default, which in no event need be more than 30 days.” 815 ILCS 705/19(b). All EMS undisputedly let its net worth deficit go uncured for more than 30 days. By the plain terms of the IFDA, then, 7-Eleven had the statutory right to terminate the franchise. See Original Great American Chocolate Chip Cookie Co., Inc. v. River Valley Cookies, Ltd., 970 F.2d 273, 279 (7th Cir. 1992). All EMS does not proffer evidence that would change this result. In fact, All EMS’ appellate briefing does not even address the IFDA count. b. breach of contract The district court’s dismissal of All EMS’ breach of contract count merits little discussion. It is fairly obvious that, in concluding that All EMS breached the agreement’s net worth provisions before 7-Eleven did anything to induce that Nos. 05-1234, 05-1330 Page 14 breach, the district court had to decide, a fortiori, that 7-Eleven did not breach the agreement. The bench trial, even if confined to 7-Eleven’s breach of contract claim, gave All EMS adequate opportunity to introduce evidence that 7-Eleven breached first. Due process guarantees, therefore, were not violated. c. 1996 dispute over retail price misreporting At oral argument, counsel for All EMS argued strenuously that the district court, in calculating damages, failed to account for the $11,013 previously deducted from the Wagdys’ net worth account due to the 1996 dispute over retail price misreporting. In a June 2000 trial, a jury could not reach a verdict on the misreporting dispute, and the issue lingered as the parties’ litigation developed to encompass later instances of material breach. The district court seemed to assume, by the time the bench trial concluded, that the parties had settled their dispute pertaining to the price misreporting. See R.311 at 10 (“We note that subsequent to the filing of the Fourth Amended Complaint, 7-Eleven agreed to, and did, credit All EMS and the Wagdys with $11,013.53.”). All EMS now contends that this assumption was incorrect and unsupported by evidence. More specifically, All EMS contends that the court’s starting point for calculating damages--the $55,422 net worth shortage indicated on the March 13, 2002 Notice of breach--did not take into account the $11,013 still in dispute. All EMS also maintains that the court failed to account for interest that accrued on this amount and was charged against the Wagdys’ net worth. A closer look at the March 13, 2002 notice reveals that 7-Eleven was willing to accept $9,648 less than the Wagdys’ actual net worth deficit because it had charged the Wagdys that amount following the 1996 incident. The notice reiterated 7-Eleven’s position that it actually was owed $65,422, but stated that 7-Eleven was willing to accept $55,733 ($65,422 - $9,648) in light of the dispute between the parties. Thus, the court’s starting point, $55,422, came close to accounting for the 1996 dispute. Unfortunately, it did so by the wrong amount. The parties now do not contest that $11,013 is the actual amount remaining in dispute after the 1996 misreporting incident. For whatever reason, 7-Eleven’s notices of breach used the figure $9,648, which the district court then adopted in calculating damages. Despite the discrepancy, there is no need to remand, as the district court’s principle for calculating damages was sound. We agree with its use of the statement of net worth reflected in the March 13, 2002 notice as a starting point, and it was appropriate to adjust this figure by any amount charged against the Wagdys’ net worth following the 1996 incident. Everyone agrees at this stage that $11,013, rather than $9,648, was the disputed charge. See Appellants’ Br. at 34; Nos. 05-1234, 05-1330 Page 15 Appellee’s Br. at 24-25; R.311 at 10. The parties also seem to agree that interest was charged on this amount. See Appellants’ Br. at 34; Appellee’s Br. at 25. Therefore, we shall recalculate damages to account for these oversights. As of the March 13, 2002 notice of breach, the Wagdys’ net worth account showed a negative balance of $55,422, meaning they needed to pay 7-Eleven $65,422 to cure their breach. Applying the $11,013 credit to this amount makes the starting point for damages $54,409, instead of the $55,422 amount that the district court used. From that, we subtract $8,536 for the interest assessed, as of March 2002, against the Wagdys’ net worth account. See Appellants’ Separate App., Tab 15. We then subtract, as the district court did, the amounts by which 7-Eleven caused the Wagdys’ net worth to decline when it failed fix their freezers or provide them with adequate consulting support ($37,091 and $15,600 respectively). In the end, these subtractions entirely wipe out 7-Eleven’s damages, and we therefore modify the district court’s damage award by reducing it to zero. We reiterate, however, that All EMS remains liable for breach of contract and must surrender possession of the store. This is because the date for determining contractual liability, as we discussed earlier, is different from the date for assessing damages. As of February 4, 2000--the Wagdys’ deadline for curing their net worth deficit--7-Eleven was still in compliance with its obligations under the agreement; it had not yet let the freezers fall into disrepair and still was providing adequate consulting support. It also, as of this date, had assessed only $4,446 worth of interest on the disputed charge. See Appellants’ Separate App., Tab 15. Therefore, as of the date for determining liability, the Wagdys’ net worth still was $5,303 below the $10,000 contractual minimum. They were in breach of the franchise agreement, and our modification of the damage award does not alter that conclusion. d. spoliation of evidence Counts VI and VII of All EMS’ complaint asserted that 7-Eleven destroyed records that allegedly were doctored to give the impression that the Wagdys were underreporting retail prices in 1996. The court denied the relief requested in these counts on two grounds: (1) lack of credible evidence that 7-Eleven negligently or intentionally destroyed the records; and (2) lack of prejudice to All EMS because the allegedly destroyed evidence would not have affected the determination of breach. Although the district court found for 7-Eleven without allowing a factual presentation, the court’s second, independent ground represented a legal conclusion based on the facts already established at bench trial. This legal conclusion was correct because the allegedly spoliated evidence related to a disputed charge that, as we have mentioned, was reversed for purposes of calculating the Wagdys’ net worth balance. The Wagdys would have been in material breach with or without Nos. 05-1234, 05-1330 Page 16 the information contained in the allegedly spoliated evidence. Accordingly, the court’s resolution of All EMS’ spoliation claims comported with due process. e. fraud Counts IV and V of All EMS’ Fourth Amended Complaint sought damages arising from “7-Eleven’s fraudulent conversion of the Wagdys’ Net Worth” in the amount of $11,013. Appellants’ Br. at 46. The fraud counts are essentially a restatement of the 1996 misreporting dispute styled as allegations of 7-Eleven’s intentional scheme to defraud. The $11,013 that remained in dispute over the 1996 incident is being taken into account in 7-Eleven’s damage award. This accounting renders All EMS’ fraud allegations moot.