Pine Top Receivables of Illinois, LLC v. Banco Seguros del Estado

Filing 110

MEMORANDUM Opinion and Order. Signed by the Honorable Marvin E. Aspen on 7/18/2013. Mailed notice(meg, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
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PINE TOP RECEIVABLES OF
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ILLINOIS, LLC, a limited liability
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corporation,
)
)
Plaintiff,
)
)
v.
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BANCO DE SEGUROS DEL ESTADO,
)
statutory corporation wholly owned by the )
Sovereign Republic of Uruguay,
)
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Defendant.
)
)

Case No. 12 C 6357
Judge Marvin E. Aspen

MEMORANDUM OPINION AND ORDER
MARVIN E. ASPEN, District Court Judge:
Plaintiff Pine Top Receivables of Illinois, LLC (“PTRIL” or “Plaintiff”) filed a threecount amended complaint (“FAC”) on March 13, 2013 to collect payments allegedly due its
assignor, Pine Top Insurance Company (“Pine Top”), from Defendant Banco de Seguros del
Estado (“Banco” or “Defendant”). (Dkt. No. 59-1.) We assume familiarity with the factual
background of this case as set forth in our prior orders. On June 11, 2013, we dismissed Counts
I and II of the FAC, as well as Plaintiff’s duplicative motion to compel arbitration. (Dkt. No.
95.) Plaintiff filed an interlocutory appeal of our dismissal, pursuant to 9 U.S.C. § 16(a)(1)©.
(Dkt. Nos. 96, 98 ¶ 1.) Presently before us is PTRIL’s motion to stay proceedings pending
appeal. (Dkt. No. 98.) For the following reasons, we grant the motion.

I.

MOTION TO STAY PROCEEDINGS
In Bradford-Scott Data Corporation, Inc. v. Physician Computer Network, Inc., the

Seventh Circuit explained that the filing of a notice of appeal “confers jurisdiction on the court
of appeals and divests the district court of its control over those aspects of the case involved in
the appeal.” 128 F.3d 504, 505 (7th Cir. 1997). Specifically in the context of appeals filed
under Section 16 of the Federal Arbitration Act, the court held that “[c]ontinuation of
proceedings in the district court largely defeats the point of the appeal and creates a risk of
inconsistent handling of the case by two tribunals.” Id. We agree with Plaintiff that BradfordScott is squarely applicable to this case. (Reply at 3–5.)
Here, the issue on appeal is whether the Purchase Agreement (Dkt. No. 67-1) between
Plaintiff and the Liquidator in charge of Pine Top’s affairs assigned Plaintiff the right to compel
arbitration. The resolution of that issue will determine whether this case proceeds before us or
an arbitrator. It would undermine the purpose of the interlocutory appeal to allow Defendant to
continue pursuing discovery here, before the Seventh Circuit confirms that the case is properly
before us. If the Seventh Circuit decides to send this case to arbitration, we will have wasted the
resources of both the parties and this court on unnecessary and invalid proceedings. As the court
explained in Bradford-Scott, “[i]mmediate appeal under § 16(a) helps cut the loss from
duplication. Yet combining the costs of litigation and arbitration is what lies in store if a district
court continues with the case while an appeal under § 16(a) is pending.” Id. at 506.
Defendant’s attempt to distinguish Bradford-Scott is unpersuasive. Defendant points out
that the parties in Bradford-Scott had voluntarily entered into a contract containing an arbitration
clause, so the stay was necessary to protect the appellant’s “benefit of the bargain.” (Resp. at

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6–8.) But here, according to Defendant, the parties never entered into a contract with each other,
so there is no valid arbitration agreement to protect. (Id.) This argument simply assumes the
outcome of the appeal. It is irrelevant that Plaintiff and Defendant never entered into a contract
together, if the Seventh Circuit finds that the Purchase Agreement assigned Plaintiff the right to
compel arbitration. In those circumstances, Plaintiff would be enforcing the rights of its
assignor, the Liquidator acting on behalf of Pine Top, with whom Defendant did enter a contract.

Defendant’s argument that the appeal is frivolous also fails. It relies primarily on a
handful of documents culled from early discovery requests that purport to undermine Plaintiff’s
claims about the intent of the parties who drafted the Purchase Agreement. We cannot conclude,
on this slim evidentiary basis, that Plaintiff’s appeal is so utterly meritless as to be frivolous.
While we rejected Plaintiff’s right to compel arbitration, we do not believe that Plaintiff filed this
appeal in bad faith or in the complete absence of colorable legal arguments. Therefore, we see
no basis for denying the motion for stay.1
II.

PRESERVATION OF RELEVANT DOCUMENTS
Defendant raises one other issue that requires our attention. It claims that “PTRIL’s

counsel has advised Banco that the Liquidator has begun the process of destroying Pine Top’s
records. Although Banco has asked PTRIL to confirm that relevant documents have not been
destroyed, PTRIL has yet to provide the requested assurances.” (Resp. at 12.) We disagree with

1

Defendant also argues that “Congress did not provide for an automatic stay or divesting
of jurisdiction pending interlocutory appeal anywhere in the text of 9 U.S.C. § 16.” (Resp. at
10.) We express no opinion on that particular issue. Our holding relies on the reasoning in
Bradford-Scott, from which we see no reason to deviate.
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Defendant that these circumstances justify denying the motion for stay, but we agree that the loss
of relevant evidence is a legitimate concern.
As we explained above, the decision whether to grant a stay is a jurisdictional issue. See
Bradford-Scott, 128 F.3d at 505. The pendency of the appeal divests us of jurisdiction over this
case, which includes the jurisdiction to proceed with discovery matters. The appeal does
nothing, however, to release the parties from their obligation to preserve relevant evidence.
“A party has a duty to preserve evidence over which it had control and reasonably knew
or could reasonably foresee was material to a potential legal action.” MacNeil Auto. Prods., Ltd.
v. Cannon Auto. Ltd., 715 F. Supp. 2d 786, 800–01 (N.D. Ill. 2010); Bryant v. Gardner, 587 F.
Supp. 2d 951, 967–68 (N.D. Ill. 2008). On the issue of control, “it is well-settled that a party
need not have actual possession of the documents to be deemed in control of them.” Dexia
Credit Local v. Rogan, 231 F.R.D. 538, 542 (N.D. Ill. 2004). Instead, “the test is whether the
party has a legal right to obtain them.” Id.; see also Miniace v. Pac. Martime Ass’n, No. 04 C
03506 (SI), 2006 WL 335389, at *1 (N.D. Cal. Feb. 13, 2006) (“‘Control’ need not be actual
control; courts construe it broadly as ‘the legal right to obtain documents upon demand.’”)
(quoting United States v. Int’l Union of Petroleum & Indus. Workers, 870 F.2d 1450, 1452 (9th
Cir.1989)); McBryar v. Int’l Union of United Auto. Aerospace & Agr. Implement Workers of
Am., 160 F.R.D. 691, 695 (S.D. Ind. 1993) (“A party has control or custody of a document or
thing when he has the legal right to obtain the document, even though in fact he has no copy.”)
(internal quotation omitted); Camden Iron & Metal, Inc. v. Marubeni Am. Corp., 138 F.R.D.
438, 441 (D.N.J. 1991) (“Control is defined as the legal right, authority or ability to obtain
documents upon demand.”) (citing Searock v. Stripling, 736 F.2d 650, 653 (11th Cir. 1984)).

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In this case, the Purchase Agreement gave Plaintiff the legal right to access the
Liquidator’s records related to Pine Top. (Dkt No. 67-1 ¶¶ 4.1.3–5.) Courts have routinely held
that a party controls records within the meaning of the rules of discovery if it has a contractual
right to access those records. Haskins v. First Am. Title Ins. Co., No. 10 C 5044 (RMB/JS), 2012
WL 5183908, at *1 (D.N.J. Oct. 18, 2012) (“. . . a litigating party has control of documents if a
contractual obligation requires a non-party to provide requested documents to the litigating party
upon demand.”); Boucher v. First Am. Title Ins. Co., No. 10 C 0199 (RAJ), 2011 WL 5299497,
at *4 (W.D. Wash. Nov. 4, 2011) (finding the defendant had control over its agents’ documents
because of the agents’ contractual obligation to provide them); In re NTL, Inc. Sec. Litig., 244
F.R.D. 179, 195–96 (S.D.N.Y. 2007) (finding the defendant has control over documents in the
possession of a separate company because of a document sharing clause in an agreement
between them); Rosie D. v. Romney, 256 F. Supp. 2d 115, 119 (D. Mass. 2003) (“[C]ontrol may
be established by the existence of . . . a legal right pursuant to a contractual provision.”) (internal
quotes and citations omitted).
Therefore, we hold Plaintiff responsible for the preservation of relevant documents that it
has a legal right to obtain from the Liquidator pursuant to the Purchase Agreement. If Defendant
believes further steps are necessary to preserve any evidence in this case, it may seek relief from
the Seventh Circuit during the pendency of the appeal.

CONCLUSION
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For the reasons stated above, we grant Plaintiff’s motion for stay pending appeal. It is so
ordered.

________________________________
Honorable Marvin E. Aspen
U.S. District Court Judge
Date: July 18, 2013

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