Court Opinion

ID: 2808504
Source: CourtListenerOpinion
Date Created: 2015-06-15 21:05:53.013615+00
Date Added: 2024-06-11T12:08:34.371357
License: Public Domain

In the

      United States Court of Appeals
                     For the Seventh Circuit
                          ____________________  

No.  14-­‐‑3045  
GLOBAL  TECHNOLOGY  &  TRADING,  INC.,  and  MANOJ  JAIN,  
                                          Plaintiffs-­‐‑Appellants,  
                                         v.  

TECH   MAHINDRA   LIMITED,   formerly   known   as   SATYAM  
COMPUTER  SERVICES  LIMITED,  
                                          Defendant-­‐‑Appellee.  
                          ____________________  

            Appeal  from  the  United  States  District  Court  for  the  
              Northern  District  of  Illinois,  Eastern  Division.  
                No.  09  C  5111  —  William  T.  Hart,  Judge.  
                          ____________________  

         ARGUED  MAY  28,  2015  —  DECIDED  JUNE  15,  2015  
                   ____________________  

    Before  BAUER,  EASTERBROOK,  and  RIPPLE,  Circuit  Judges.  
    EASTERBROOK,  Circuit  Judge.  The  Illinois  Business  Brokers  
Act  of  1995  requires  brokers  for  the  sale  of  businesses  in  the  
state   to   register.   815   ILCS   307/10-­‐‑10.   Brokerage   agreements  
must  be  in  writing.  815  ILCS  307/10-­‐‑35.  Promises  to  pay  un-­‐‑
registered   brokers   for   their   services   are   unenforceable.   815  
ILCS   307/10-­‐‑60.   Global   Technology   &   Trading,   Inc.,   appar-­‐‑
ently  was  unaware  of  this  statute  when  it  orally  agreed  with  
2                                                                 No.  14-­‐‑3045  

Satyam  Computer  Services  to  act  as  a  broker  in  the  purchase  
of   Bridge   Strategy   Group,   LLC,   a   business   operating   in   Illi-­‐‑
nois.  (Satyam,  based  in  India,  is  now  known  as  Tech  Mahin-­‐‑
dra;   we   use   its   old   name   for   congruence   with   the   district  
court’s  opinion  and  the  parties’  submissions.)  
     Global   brokered   the   acquisition,   but   Satyam   refused   to  
pay  for  its  services.  Global  sued  in  state  court,  seeking  a  3%  
commission   (about   $600,000).   Satyam   removed   to   federal  
court   under   the   alien   diversity   jurisdiction.   28   U.S.C.  
§§  1332(a)(2),  1441(b).  It  contended  that  Bridge  Strategy  had  
compensated   Global   for   its   services   as   an   intermediary   and  
that   it   had   never   promised   any   additional   compensation.  
The   lack   of   a   writing,   according   to   Satyam,   reflects   the   fact  
that  there  is  no  agreement,  period.  
    Pleadings   were   exchanged   and   discovery   conducted.  
When   the   litigation   was   four   years   old,   Satyam   filed   a   mo-­‐‑
tion   for   summary   judgment   with   a   brand   new   argument:  
that  Global  is  not  registered  under  the  Business  Brokers  Act  
and  for  this  reason,  as  well  as  the  oral  nature  of  the  promise  
Global   sought   to   enforce,   the   Act   blocks   any   relief.   Global  
was   taken   aback;   apparently   its   lawyers,   like   its   principals,  
had  never  heard  of  the  Business  Brokers  Act.  Global  has  not  
denied   that   the   Act,   if   applied,   dooms   this   lawsuit.   But   it  
maintains   that   the   Act   is   an   affirmative   defense,   which   un-­‐‑
der  Fed.  R.  Civ.  P.  8(c)  had  to  appear  in  Satyam’s  answer  to  
the   complaint.   By   waiting   four   years   to   invoke   the   Act,  
Global  insists,  Satyam  has  forfeited  its  benefit.  
    Rule  8(c)  says  that  a  defendant  “must”  include  all  affirm-­‐‑
ative   defenses   in   the   answer   to   the   complaint.   The   district  
court   analogized   §307/10-­‐‑35   (the   written-­‐‑contract   require-­‐‑
ment)  to  a  Statute  of  Frauds  and  concluded  that  the  Business  
No.  14-­‐‑3045                                                                    3  

Brokers   Act   is   an   affirmative   defense.   But   the   court   added  
that  Rule  8(c)  does  not  specify  a  consequence  for  a  litigant’s  
failure   to   include   an   affirmative   defense   in   an   answer.   Sev-­‐‑
eral  of  our  decisions  hold  that  a  district  court  may  (though  it  
need  not)  permit  an  untimely  affirmative  defense,  provided  
the   plaintiff   does   not   suffer   prejudice   from   the   delay.   See,  
e.g.,   Williams   v.   Lampe,   399   F.3d   867,   871   (7th   Cir.   2005);  
Schmidt  v.  Eagle  Waste  &  Recycling,  Inc.,  599  F.3d  626,  632  (7th  
Cir.  2010).  Most  other  circuits  follow  the  same  approach.  See,  
e.g.,  Brinkley  v.  Harbour  Recreation  Club,  180  F.3d  598,  612–13  
(4th  Cir.  1999);  Camarillo  v.  McCarthy,  998  F.2d  638,  639  (9th  
Cir.   1993);   Moore,   Owen,   Thomas   &   Co.   v.   Coffey,   992   F.2d  
1439,   1445   (6th   Cir.   1993);   Kleinknecht   v.   Gettysburg   College,  
989   F.2d   1360,   1374   (3d   Cir.   1993);   Ball   Corp.   v.   Xidex   Corp.,  
967  F.2d  1440,  1443–44  (10th  Cir.  1992).  
     Williams  and  Schmidt  add  that  the  expense  of  conducting  
a  suit  does  not  count  as  prejudice;  what  they  mean  by  “prej-­‐‑
udice”  is  a  reduction  in  the  plaintiff’s  ability  to  meet  the  de-­‐‑
fense   on   the   merits—if,   say,   a   witness   has   died,   or   docu-­‐‑
ments  have  been  destroyed,  during  the  time  between  when  
the  defense  should  have  been  raised  and  when  it  was  actual-­‐‑
ly  raised.  Finding  that  Global  had  not  suffered  prejudice,  the  
district  court  excused  Satyam’s  delay  and  entered  judgment  
in  its  favor.  
    Global   contends   that   Williams   and   similar   decisions   are  
inconsistent  with  the  language  of  Rule  8(c),  which  says  that  
affirmative   defenses   “must”   be   raised   no   later   than   the   an-­‐‑
swer  to  the  complaint.  Yet  Rule  8(c)  does  not  provide  a  con-­‐‑
sequence   for   delay.   It   differs   in   this   respect   from   Fed.   R.  
Crim.  P.  12(e),  which  until  recently  provided  that  the  omis-­‐‑
sion  of  an  affirmative  defense  from  pretrial  motions  practice  
4                                                                     No.  14-­‐‑3045  

in   a   criminal   case   “waives”   that   defense;   the   civil   rules   say  
nothing  of  the  sort.  Criminal  Rule  12(e)  has  been  replaced  by  
Fed.  R.  Crim.  P.  12(c)(3),  which  says  that  failure  to  raise  a  de-­‐‑
fense  on  time  blocks  its  presentation  unless  the  district  judge  
finds  “good  cause”  for  the  delay;  this  language,  too,  is  with-­‐‑
out  a  parallel  in  Civil  Rule  8(c)—though  it  does  have  a  paral-­‐‑
lel   in   Civil   Rule   12(h)(1),   which   says   that   four   specific   de-­‐‑
fenses   are   waived   by   their   omission   from   the   answer   or   a  
motion  governed  by  Rule  12(g)(2).  Affirmative  defenses  un-­‐‑
der  Rule  8(c)  are  not  on  the  list  of  those  waived  by  omission.  
      Although  Civil  Rule  8(c)  does  not  specify  a  consequence  
for   the   omission   of   an   affirmative   defense,   a   different   rule  
authorizes   district   judges   to   excuse   untimely   filings.   Rule  
6(b)(1)(B)   provides   that   a   judge   may   extend   the   time   to   do  
something,  even  after  the  deadline  has  passed,  “if  the  party  
failed   to   act   because   of   excusable   neglect.”   See   Pioneer   In-­‐‑
vestment  Services  Co.  v.  Brunswick  Associates  L.P.,  507  U.S.  380  
(1993)  (defining  “excusable  neglect”).  Some  deadlines  cannot  
be   extended   under   any   circumstances,   see   Rule   6(b)(2),   but  
Rule   8(c)   is   not   on   that   list.   The   district   court   did   not   make  
an   excusable-­‐‑neglect   finding,   perhaps   because   none   of   the  
litigants   drew   Rule   6(b)(1)(B)   to   its   attention—even   in   this  
court  neither  side  mentions  it—but  a  basis  for  such  a  finding  
is   easy   to   appreciate.   Until   shortly   before   Satyam   filed   its  
motion,  no  one  knew  about  the  Business  Brokers  Act.  Global  
and   its   lawyers,   Satyam   and   its   lawyers,   and   the   judge   all  
were  in  the  dark  about  a  statute  that  has  been  called  a  pitfall  
for  the  unwary.  The  Illinois  Business  Brokers  Act:  Pitfalls  for  the  
Unwary,  85  Ill.  B.J.  542  (1997).  Professional  business  brokers  
doubtless   know   about   the   Act   and   follow   its   rules,   but  
someone  who  occasionally  or  rarely  serves  as  an  intermedi-­‐‑
ary   may   not.   Pioneer   Investment   Services   holds   that   district  
No.  14-­‐‑3045                                                              5  

judges  have  discretion  when  evaluating  claims  of  excusable  
neglect;  had  the  judge  been  asked  to  exercise  that  discretion,  
he   would   not   have   abused   it   by   allowing   Satyam   to   invoke  
the  Act  belatedly.  As  a  practical  matter,  that’s  what  the  dis-­‐‑
trict  judge  did  by  relying  on  Williams  and  similar  decisions.  
    Alternatively,   the   district   court   might   have   turned   to  
Rule   15(a)(2),   which   provides   that   judges   may   allow   plead-­‐‑
ings  to  be  amended  and  “should  freely  give  leave  when  jus-­‐‑
tice  so  requires.”  The  only  circuit  that  has  nominally  rejected  
the   approach   of   Williams   and   Schmidt   has   reached   the   same  
functional   result   by   using   Rule   15(c)(2)   to   allow   belated  
amendments  to  add  affirmative  defenses.  See  Jackson  v.  Dis-­‐‑
trict  of  Columbia,  254  F.3d  262,  267  (D.C.  Cir.  2001);  Harris  v.  
Secretary  of  Veterans  Affairs,  126  F.3d  339,  345  (D.C.  Cir.  1997).  
Jackson  says  that  the  district  judge  should  allow  the  amend-­‐‑
ment   when   that   would   not   prejudice   the   plaintiff’s   oppor-­‐‑
tunity  to  address  the  merits.  That’s  the  Williams  and  Schmidt  
approach   by   another   name.   (The   Fifth   Circuit’s   approach  
likewise   differs   from   Williams   and   Schmidt   in   nomenclature  
but  not  result.  See  Lucas  v.  United  States,  807  F.2d  414,  417–18  
(5th  Cir.  1986).)  
   Global  observes  that  litigation  should  be  efficiently  man-­‐‑
aged,  see  Fed.  R.  Civ.  P.  1,  and  that  it  is  inefficient  to  allow  
matters   to   last   for   four   years   longer   than   necessary.   That’s  
true   enough,   but   it   takes   chutzpah   for   Global   to   blame  
Satyam.  Had  Global’s  lawyers  done  better  legal  research  be-­‐‑
fore  suing,  see  Fed.  R.  Civ.  P.  11(b)(2),  they  would  have  rec-­‐‑
ognized   that   the   Business   Brokers   Act   makes   recovery   im-­‐‑
possible.  The  bills  Global  has  footed  in  this  suit  stem  from  its  
own   lawyers’   poor   preparation.   Global   should   count   itself  
lucky  that  the  district  court  did  not  impose  a  sanction  for  fil-­‐‑
6                                                                No.  14-­‐‑3045  

ing  what  is,  with  knowledge  of  the  Act,  a  frivolous  suit.  For  
their   part,   Satyam’s   lawyers   failed   to   track   down   the   Busi-­‐‑
ness  Brokers  Act  early  in  the  litigation,  but  that  delay  carries  
a   self-­‐‑inflicted   penalty:   under   the   American   Rule,   Satyam  
must  bear  its  own  legal  fees  for  the  extra  years  this  suit  lin-­‐‑
gered.   It   is   unnecessary   for   the   judiciary   to   be   stingy   with  
extensions   of   the   Rule   8(c)   deadline,   or   with   amendments  
under   Rule   15(a)(2),   since   both   plaintiffs   and   defendants  
want   to   recognize   and   raise   affirmative   defenses   as   soon   as  
possible,  in  order  to  cut  their  own  legal  bills.  
     We  need  not  decide  whether  the  Business  Brokers  Act  is  
an   affirmative   defense   for   the   purpose   of   Rule   8(c).   We   de-­‐‑
cline   to   overrule   Williams   and   similar   decisions.   District  
judges  have  authority  to  authorize  a  litigant  to  assert  an  af-­‐‑
firmative  defense  despite  its  omission  from  the  answer.  That  
authority  was  not  abused  in  this  case.  
                                                                    AFFIRMED