Court Opinion

ID: 3000145
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:01:39.076532+00
Date Added: 2024-06-11T15:03:20.581796
License: Public Domain

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

No. 06-2033
CADLEWAY PROPERTIES, INC.,
                                           Plaintiff-Appellant,
                               v.

OSSIAN STATE BANK and RICHARD A. MAGLEY,
                                         Defendants-Appellees.
                         ____________
       Appeal from the United States District Court for the
       Northern District of Indiana, Fort Wayne Division.
            No. 1:04cv441—William C. Lee, Judge.
                         ____________
  ARGUED JANUARY 8, 2007—DECIDED FEBRUARY 15, 2007
                     ____________

 Before EASTERBROOK, Chief Judge, and ROVNER and
WOOD, Circuit Judges.
  EASTERBROOK, Chief Judge. Cadleway Properties and
Ossian State Bank filed suits in state court to foreclose
on security interests that Richard A. Magley and several
of his businesses had given to secure loans. The Small
Business Administration, a guarantor on some of these
loans, removed both proceedings, which were consoli-
dated in federal court. The current appeal arises from a
dispute between Cadleway and Ossian State Bank about
which of them is the beneficiary of Magley’s guaranty of
a loan to 5620 Industrial Road, LLC. Cadleway is the
creditor, but the district court held that the Bank receives
2                                             No. 06-2033

the proceeds of the guaranty because Cadleway sold the
Bank a package of other notes, one of them secured by a
mortgage that contains a “dragnet clause.” The district
court treated this clause, which says that any security
granted by the borrower in the future may be applied not
only to this loan but also to any other indebtedness to
the same lender, as assigning to the Bank all security
interests within the dragnet’s scope.
  On appeal, Cadleway and the Bank debate whether the
ruling reflects a correct understanding of Indiana law.
Neither side discussed either the district court’s juris-
diction to make such a decision (which does not affect
the SBA) or our jurisdiction to entertain an immediate
appeal. At oral argument, therefore, we directed each
side to file supplemental memoranda on the multiple
jurisdictional issues that dog this appeal. These have been
received, and it is now clear that the appeal must be
dismissed for want of jurisdiction.
  At least 15 banks, governmental bodies, natural persons,
corporations, and limited liability companies are parties
to the litigation in the district court. The SBA’s rights
apparently have been adjudicated, and many (if not all) of
the parcels of real estate have been sold at auction. But
the district court has not entered a final judgment. Who
owes how much to whom remains to be resolved. The
lawyers for Cadleway and the Bank saw the controversy
about who benefits from Magley’s guaranty of the loan to
5620 Industrial Road, LLC, as a discrete dispute, and they
asked the court to enter a judgment under Fed. R. Civ. P.
54(b). The district court obliged but did not explain why
such a partial final judgment is appropriate. Neither the
district judge nor the parties analyzed the relation be-
tween this issue and the rest of the litigation, which
remains on the district court’s docket.
  Rule 54(b) allows a district court to enter a judgment
that resolves either (i) all aspects of the litigation con-
No. 06-2033                                                 3

cerning particular parties, or (ii) all aspects of a discrete
controversy within a larger litigation. Cadleway and the
Bank agree that the first option does not apply; both
Cadleway and the Bank are parties to other aspects of
this litigation. Therefore we must decide whether the
dispute about who benefits from Magley’s guaranty is
sufficiently discrete that an appeal now would not lead to
duplicate or overlapping appellate proceedings later. See
Horn v. Transcon Lines, Inc., 898 F.2d 589 (7th Cir. 1990);
United States v. Ettrick Wood Products, Inc., 916 F.2d 1211
(7th Cir. 1990).
  The answer is no, for a fundamental reason: the district
judge has not specified who is entitled to what relief.
Cadleway did not begin this litigation in quest of a declara-
tory judgment about ownership; it wants money from
Magley. So does the Bank. Does Magley owe any money
on this guaranty? The district court has not decided. It has
held so far that whatever Magley owes goes to the Bank
rather than Cadleway, but it has not decided whether
Magley owes even 1¢; for all we can tell, the lenders may
collect in full from other sources and never draw on the
guaranty. (This is undoubtedly why Magley himself has
not participated in the appeal; he cares about how much
he must pay rather than who receives the money.) If
Magley does owe something, the amount may be dis-
puted and another appeal will be required. That’s why
a decision that resolves a dispute about liability while
leaving relief to be determined cannot be appealed under
Rule 54(b). See Liberty Mutual Insurance Co. v. Wetzel, 424
U.S. 737 (1976). And that’s the position these contestants
are in. The appeal must be dismissed.
  A few additional words may ward off further problems.
Even if the district court had specified just how much
money Magley owes on this guaranty, a serious question
would remain whether the dispute about the guaranty is
so linked to the rest of the litigation that appellate resolu-
4                                               No. 06-2033

tion must be deferred. The mortgage and its dragnet clause
secure multiple notes, and the obligations on some of those
loans appear to remain in dispute. If that’s so, then the
whole shebang must be resolved before any aspect is
appealed.
  But resolved in which court? The SBA removed because
Cadleway’s complaint put in issue the liability of the
federal government. A district court may remand distinct
aspects of the litigation to state court, even while federal
issues are resolved in the federal tribunal. 28 U.S.C.
§1441(c). When the federal claim drops out before trial (as
it appears to have done), and only the supplemental
jurisdiction provides any basis for decision, then remand
is presumptively appropriate. 28 U.S.C. §1367(c)(3);
Contreras v. Suncast Corp., 237 F.3d 756, 766 (7th Cir.
2001). (The requirements of the diversity jurisdiction are
not satisfied; only the SBA’s interests can account for
the presence of this litigation in federal court.)
  A district court has discretion to resolve claims under
state law even after all federal claims have been resolved,
but discretion should be exercised only after thinking
through all salient factors. See Carnegie-Mellon University
v. Cohill, 484 U.S. 343, 350 (1988) (discussing practice
before the enactment of §1367, but stating a principle
equally applicable today); Groce v. Eli Lilly & Co., 193 F.3d
496, 500-01 (7th Cir. 1999). As far as we can tell, however,
the district court has given no thought to the possibility of
remand (nor did counsel until we raised the subject at oral
argument); certainly the judge has not explained why it is
appropriate to retain a sprawling commercial dispute after
the only reason for its removal was quickly and easily
resolved. Everyone has simply assumed that, once a suit
has been removed, every facet of the dispute is handled in
federal court.
  Yet if the parties are correct that appellate jurisdiction
is appropriate (once Magley’s liability, if any, has been
No. 06-2033                                              5

quantified) because this dispute has nothing at all to do
with the questions that remain open in the district court,
then remand is obligatory. The supplemental jurisdiction
covers only “other claims that are so related to claims in
the action within such original jurisdiction that they
form part of the same case or controversy under Article III
of the United States Constitution.” 28 U.S.C. §1367(a). The
claim over which the district court had original jurisdic-
tion is the liability of the Small Business Administration.
A dispute utterly unrelated to that subject—indeed,
unrelated to the loans that the SBA had guaranteed—does
not “form part of the same case or controversy under
Article III of the United States Constitution.”
   Each of the two complaints that have been consoli-
dated in federal court includes many subsidiary disputes,
having in common only the fact that Magley was an
investor in or proprietor of the borrowers. Permissive
joinder under both state and federal practice allows
such a collection of loosely related disputes, but this
does not imply that they are part of a single case or
controversy. And, to repeat, the parties’ justification for
taking this appeal is that the many loans and security
instruments are not all part of one big controversy. They
may well be wrong, of course; the loans and security
interests may be so connected that the only sensible thing
to do is decide in one forum who owes how much to
whom—though this also would mean that appeal must
be deferred until a final judgment has been entered
wrapping up the whole case. Before going any further
into this litigation, the district court should ensure that
it has subject-matter jurisdiction under §1367(a) and, if
it does, carefully consider its options under §1367(c).
  The appeal is dismissed for want of jurisdiction.
6                                        No. 06-2033

A true Copy:
      Teste:

                   ________________________________
                   Clerk of the United States Court of
                     Appeals for the Seventh Circuit

               USCA-02-C-0072—2-15-07