Court Opinion

ID: 3001992
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:23:32.009387+00
Date Added: 2024-06-11T11:45:47.511389
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                       ____________

No. 06-3889
FABRIKO ACQUISITION CORPORATION,
                                            Plaintiff-Appellant,
                              v.

DEAN PROKOS, STEVEN SORENSON, &
GREEN LAKE MARINAPROPERTIES, LLC,
                                         Defendants-Appellees.
                       ____________
           Appeal from the United States District Court
               for the Eastern District of Wisconsin.
         Nos. 05 C 644 & 05 C 645—Lynn Adelman, Judge.
                       ____________
     ARGUED OCTOBER 26, 2007—DECIDED JULY 29, 2008
                       ____________

 Before POSNER, FLAUM, and ROVNER, Circuit Judges.
  ROVNER, Circuit Judge. This lawsuit arose out of a
commercial real estate transaction that was never com-
pleted. The plaintiff, Fabriko Acquisition Corporation
(“Fabriko”), brought this diversity action against defen-
dants Green Lake Marina Properties (“Green Lake Ma-
rina”), its managing partner Dean Prokos, and Wisconsin
lawyer Steven Sorenson. The facts leading up to the
proposed transaction are complex, and will be set forth
only insofar as is necessary for resolution of this appeal.
2                                              No. 06-3889

Essentially, Fabriko alleges that Prokos and Green Lake
Marina entered into a contract to purchase property in
Green Lake, Wisconsin, and failed to act in good faith to
comply with the financing contingency in the contract, with
the result that the transaction was never completed. The
Green Lake property at issue was owned by Alton
Prillaman, but Fabriko had a separate agreement with
Prillaman which gave it the exclusive right to market the
property and entitled it to a share of the purchase price.
Sorenson had represented Prillaman and Fabriko, Inc. (as
distinguished from Fabriko Acquisition Corp., which is
referred to as Fabriko here, and which acquired the
stock of Fabriko, Inc.) in an earlier transaction which
resulted in that division of rights between Prillaman and
Fabriko, and with the consent of the parties, Sorenson
served as a facilitator and dual agent in connection
with the transaction at issue in this lawsuit. In December
2003, Green Lake Marina offered to purchase the Green
Lake property for $850,000 contingent upon obtaining
financing and upon an environmental inspection. Green
Lake Marina initially considered the property as a poten-
tial boat dealership to compete with the Shoreline Marina
dealership (“Shoreline”) located directly across the street.
The Green Lake property contained a large warehouse
building which would have to be developed into a dealer-
ship. The offer was accepted, with Prillaman to receive
$270,000 and Fabriko to receive $580,000. With the con-
sent of Prillaman and Fabriko, Green Lake Marina began
storing boats on the property rent-free. The deal ultimately
was not completed, ostensibly because of an inconclusive
environmental inspection and inability to obtain financing.
  In April 2004, however, Green Lake Marina with
Sorenson as its agent, again offered to purchase the prop-
No. 06-3889                                              3

erty contingent on it obtaining financing. Fabriko feared
that Green Lake Marina was attempting to deal solely
with Prillaman to cut it out of the deal, and filed a law-
suit against Sorenson and Prokos in federal court in
Virginia seeking to enjoin the transaction. Fabriko also
alleged that Sorenson had revealed confidential informa-
tion in attempting to facilitate the deal between Green
Lake Marina and Prillaman. In order to settle the suit,
Green Lake Marina and Prillaman agreed to add Fabriko
as a party to the April 2004 contract and to allocate the
purchase price in the same way specified in the December
contract. The amended contract retained the financing
contingency clause. The deal again was not completed be-
cause Green Lake Marina was unable to obtain financing.
Fabriko then reinstated the lawsuit and in September 2004,
filed a second lawsuit alleging breach of the April 2004
contract. The Virginia court consolidated the suits and
transferred them to the Eastern District of Wisconsin.
   The defendants sought summary judgment, which the
district court granted. The district court began by noting
the serious procedural lapses by Fabriko in litigating
the case. First, Fabriko failed to respond to Sorenson’s
request for admissions. Pursuant to Fed. R. Civ. P. 36(a),
a party served with a written request to admit the truth
of matters within the scope of discovery has thirty days to
file an answer or objection, or the matters are deemed
admitted. Furthermore, Fed. R. Civ. P. 36(b) provides that
“[a] matter admitted under this rule is conclusively estab-
lished unless the court, on motion, permits the admission
to be withdrawn or amended.” Because Fabriko failed to
respond to the request for admission and that admission
was never withdrawn or amended with the court’s permis-
sion, the matters in the request to admit were con-
clusively established.
4                                               No. 06-3889

  Moreover, Fabriko failed to respond to the defendants’
proposed finding of facts as required under Civil Local
Rule 56.2(b) of the Eastern District Court of Wisconsin,
in that Fabriko responded only in undifferentiated nar-
rative form, without identifying paragraphs and without
specific citations to evidentiary materials in the record.
Fabriko now protests that it subsequently submitted a
response broken down by paragraphs, but those re-
sponses still failed to cite to the record, often mis-
characterized that record, and relied on inadmissible
evidence. We have held that a district court is entitled to
demand strict compliance with such rules for responding
to a motion for summary judgment, and that a court does
not abuse its discretion when it opts to disregard facts
presented in a manner inconsistent with the rules. Ciomber
v. Cooperative Plus, Inc., 527 F.3d 635, 642 (7th Cir. 2008).
  As a result of those procedural lapses, the district
court deemed admitted the following facts:
    Sorenson did not disclose confidential information to
    Prokos in an effort to cut Fabriko out of any interest
    it might have in the proceeds of sale of the com-
    mercial [Green Lake] property . . . .”; “at no time after
    Green Lake [Marina] executed the Offer would its
    bank, National Exchange Bank (the ‘bank’) have
    extended financing to purchase the Property on the
    terms of the April Offer;” “[t]he Bank had security
    interests in all of Prokos’[s] and Green Lake [Marina]’s
    assets, making it impossible for Green Lake [Marina] to
    obtain financing for the Property in April 2004 and
    thereafter from any lender, including Bank;” and
    “[Fabriko] was ultimately a party to the April Offer and
    thus was not cut out of any deal to purchase the
    Property.
No. 06-3889                                                 5

Those facts that are deemed admitted, along with the
dearth of evidence presented by Fabriko in support of its
claim, doom the case. Fabriko argues that the district
court erred in determining that there was no evidence
that Green Lake Marina could obtain financing and that
there was no evidence that Green Lake Marina and Prokos
did not act in good faith. Fabriko argues that it sub-
mitted sufficient evidence to raise an issue of fact as to
whether Green Lake Marina could have obtained fi-
nancing to complete the purchase. That contention is
merely an effort to avoid the impact of the admissions. The
district court properly deemed admitted that at no time
after the offer was extended would the bank have
financed the deal, and also admitted that the bank had
security interests in all of the Prokos and Green Lake
Marina’s assets, thus making it impossible for them to
obtain financing from any other lender. Those facts are
conclusively established for purposes of this case, and
Fabriko cannot now attempt to rebut them with other
evidence.
  Fabriko argues, however, that Green Lake Marina and
Prokos never sought to obtain that financing, so even if
the financing ultimately would have been denied, it
remains that they did not make a good faith effort to ob-
tain it. Setting aside the obvious problem of whether
one could establish a violation of a contract based on the
failure to pursue a futile effort at obtaining financing,
Fabriko has failed to establish a genuine issue of fact as
to the good faith efforts. Fabriko relies on the deposition of
David Moody who was the banker in charge of the loans
for Green Lake Marina and Prokos. The deposition,
however, established that they in fact sought to obtain
financing for the deal, but that they were unable to
obtain it. Moody made clear that Prokos initially ap-
6                                              No. 06-3889

proached him regarding financing for the purchase of the
Green Lake property to be used as a dealership, but
Moody indicated that he had many concerns about such
a project and concerns about the bank’s ownership of
that particular property if the endeavor failed. Moody
indicated that after the Shoreline deal presented itself,
the bank was willing to finance that whereas it would not
have financed the Green Lake property because the Shore-
line deal had so many positives lacking in the Green Lake
one, including that it was an established, reputable dealer-
ship with no need for renovation costs associated with the
Green Lake property. Moody further stated that Prokos
continued to seek financing for the Green Lake property
even as he pursued the Shoreline deal, because he wanted
to use the property for the storage of boats. The deposition
taken as a whole therefore reveals a continual effort by
Prokos and Green Lake Marina to obtain financing to
purchase the Green Lake property. Fabriko’s reliance on
isolated statements taken out of context are insufficient to
establish a genuine issue of fact.
  Fabriko also appears to believe that financing would
have been available for the deal if Prokos and Green
Lake Marina had not decided to purchase the Shoreline
dealership in May 2004. Moody made clear in the deposi-
tion that the Shoreline deal was a much better financial
situation. It was already operating as a dealership, had
an established reputation and a long history in the area,
had exclusive rights to a desirable line of top-end boats,
and the management had agreed to stay on to help run
the operation. In contrast, the Green Lake property
would have required renovations to transform it from a
warehouse to a dealership, and would lack the existing
customer base, physical layout, and product line that
Shoreline provided. Therefore, the ability to finance the
No. 06-3889                                                  7

Shoreline deal in the same time period does not indicate
that the Green Lake deal could have been financed. The
uncontradicted evidence from Moody is that the bank
considered the Shoreline deal to be a good financial
transaction, but would not finance the Green Lake one.
Even though Green Lake Marina wanted to establish
the dealership in the Shoreline location, it retained inter-
est in the Green Lake property because the warehouse
could be used to store boats in winter. Moody made
clear, however, that the bank would not finance that
transaction, particularly in light of substantial cost over-
runs that emerged around that time on another Green
Lake Marina project.
  Fabriko’s claim is unclear, but ultimately appears to
rest on the belief that Green Lake Marina and Prokos
somehow were precluded from entering into any other
business transactions during the financing contingency
period that would adversely affect their desirability to
lenders. Here, Green Lake Marina planned to open a
boat dealership across from Shoreline with the goal of
competing directly against Shoreline, but Green Lake
Marina was subsequently given the more enticing op-
portunity to purchase competitor Shoreline, thus avoid-
ing that competition entirely. There is nothing in the
contract that precludes the parties to the contract from
considering that or any other business transactions, and
no evidence that the bank would have funded the deal
even absent the Shoreline transaction. Nor does Fabriko
present any caselaw supporting its theory. It is not the
job of this court to develop arguments for appellants. See
Kramer v. Banc of America Securities LLC, 355 F.3d 961, 964
n.1 (7th Cir. 2004); United States v. Berkowitz, 927 F.2d 1376,
1384 (7th Cir. 1991) (“undeveloped arguments, and argu-
8                                              No. 06-3889

ments that are unsupported by pertinent authority, are
waived”). In fact, there is a noticeable dearth of case
support throughout the brief. Fabriko has presented no
evidence of bad faith here, and the district court properly
granted summary judgment.
  Fabriko also contends that the district court erred in
imposing a sanction in the amount of $2,500 on Fabriko’s
counsel under Federal Rule of Civil Procedure 11. Sorenson
sought that sanction in the district court arguing that the
case against him was frivolous. Fabriko claimed that
Sorenson revealed confidential information to Green
Lake Marina regarding the sale price that would be ac-
ceptable to Prillaman for the Green Lake property. Fabriko
contended that as a result, it sustained losses equal to the
difference between the amount orally offered for the
property, and the substantially lower amount set forth in
the written contracts of December 2003 and March 2004. As
the court pointed out, however, the contingencies in the
written contract were never fulfilled and therefore the
transaction did not take place. Thus, there is no damage
caused by the alleged actions here because the transaction
was never completed for the unrelated reason of the
inability to obtain financing.
  Although Sorenson informed Fabriko of the causation
problem in a letter and subsequently in a formal motion
for sanctions, Fabriko did not take advantage of the 21-
day window to withdraw or correct the claim. Under
Rule 11(c)(2), a motion for sanctions that is served on a
party cannot be filed or presented to the court if, within
21 days of service, the offending party withdraws or
appropriately corrects the challenged paper claim, de-
fense, contention or denial. Fabriko did not take ad-
vantage of that 21-day opportunity to withdraw or
No. 06-3889                                                 9

amend its frivolous claim against Sorenson, and instead
ignored the issue to its detriment. The district court
appropriately found that plaintiff’s counsel “clearly
failed to investigate the law or the facts or both when it
maintained the suit against Sorenson after being put on
notice of the problems with its case.” We review a dis-
trict court’s imposition of sanctions under Rule 11 for abuse
of discretion, Cuna Mut. Ins. Soc’y v. Office & Prof’l Employ-
ees Int’l Union, Local 39, 443 F.3d 556, 560 (7th Cir. 2006),
and find no such abuse here. We note in passing that in
addition to reiterating the merits of its meritless case,
Fabriko in arguing the inappropriateness of the sanction
focuses solely on the knowledge it had as of the date of its
filing of the case. Under Rule 11, however, an attorney
violates Rule 11 in maintaining a claim that is unwarranted
by existing law or has no reasonable basis in fact, and that
applies to claims presented to the court “whether by
signing, filing submitting, or later advocating it.” Fed. R.
Civ. P. 11(b). Fabriko continued to advocate a claim that
had no legal basis and refused to alter or withdraw it when
that deficiency was pointed out to it. That conduct war-
ranted Rule 11 sanctions.
  The decision of the district court is AFFIRMED.

                    USCA-02-C-0072—7-29-08