Leblang Motors, Ltd. And Wayne A. Leblang v. Subaru of America, Inc., Leblang Motors, Ltd. And Wayne A. Leblang v. Subaru of America, Inc., Timothy Wright and Larry Knight

Citations: 148 F.3d 680; 40 Fed. R. Serv. 3d 1357; 1998 U.S. App. LEXIS 11912Docket: 97-2045

Court: Court of Appeals for the Seventh Circuit; June 8, 1998; Federal Appellate Court

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LeBlang Motors, Ltd. and Wayne A. LeBlang (collectively "LeBlang") filed three consolidated appeals against Subaru of America, challenging a variety of district court decisions. These challenges include the awarded amount of attorneys' fees to Subaru, the dismissal of a stay of enforcement on those fees, the involuntary dismissal of one of LeBlang’s actions, two pretrial orders, and the dismissal of individual defendants Timothy Wright and Larry Knight. The Court of Appeals for the Seventh Circuit affirmed the district court's orders, finding no errors in its management of the case.

The background of the case reveals that in March 1989, LeBlang purchased the assets of Ray Subaru, Ltd., becoming a Subaru franchise dealer in Park Ridge, Illinois, until November 1993. LeBlang filed its first lawsuit against Subaru in March 1995, alleging violations of state and federal statutes, breach of contract, and fraud. Central to LeBlang's claims was the assertion that Subaru misrepresented the planning volume number for the dealership, initially stating it was 299, which significantly impacted LeBlang’s operational decisions regarding capital and inventory. Later, LeBlang was informed by another Subaru employee that the planning volume was actually reduced to 217, which would have allowed them to offer another car manufacturer’s product line. LeBlang alleged damages of $1,350,000 due to reliance on the initial misrepresentation.

LeBlang initiated a lawsuit, LeBlang I, in state court, which Subaru removed to the U.S. District Court for the Northern District of Illinois based on diversity of citizenship. The case proceeded until January 1996, when the court deemed LeBlang's expert report insufficient and barred any supplementation, citing potential prejudice to Subaru. LeBlang's subsequent motions for reconsideration were denied, and the court sanctioned LeBlang by requiring payment of Subaru's attorneys' fees related to the final reconsideration motion. Shortly before trial, LeBlang sought a continuance, which was denied, leading to a voluntary dismissal of the case nine days before trial. The dismissal was granted with conditions, including payment of Subaru's reasonable attorneys' fees and costs, adherence to prior rulings in any refiled action, and readiness for trial upon refiling. The court later fixed Subaru's fees at $89,032.29, which LeBlang appealed, though some pretrial orders were dismissed for lack of jurisdiction due to a late notice.

In November 1996, while the appeal of LeBlang I was ongoing, LeBlang filed a second lawsuit, LeBlang II, which incorporated six of the seven counts from LeBlang I. This lawsuit was dismissed in March 1997 for failure to adhere to the conditions of the voluntary dismissal of LeBlang I, particularly the non-payment of fees and appeals of pretrial orders, violating the agreed conditions. LeBlang's motion to stay enforcement of the fee award was deemed moot. In April 1997, LeBlang appealed the dismissal of LeBlang II, including challenges to the stay of enforcement and two pretrial orders from LeBlang I.

LeBlang subsequently filed a third lawsuit, LeBlang III, in January 1997, which included the final count from LeBlang I and named former Subaru employees Tim Wright and Larry Knight as defendants, all of whom were Illinois citizens. Subaru removed this action, alleging fraudulent joinder to defeat diversity jurisdiction. LeBlang moved to remand the case, but the district court dismissed Wright and Knight, ruling that the claims against them were time-barred, and also denied the remand motion.

In May 1997, the district court dismissed LeBlang III under Fed. R. Civ. P. 41(b) due to non-compliance with conditions set during the voluntary dismissal of LeBlang I. LeBlang appealed, arguing that the court improperly dismissed individual defendants Wright and Knight as fraudulently joined. Appeals from LeBlang I, II, and III were consolidated, addressing several key issues: 1) whether the district court abused its discretion in determining the attorneys' fees owed to Subaru in LeBlang I; 2) the dismissal of LeBlang II; 3) the denial of a stay of enforcement in LeBlang II; 4) the denial of two pretrial motions in LeBlang I related to expert reports and trial continuance; and 5) the dismissal of Wright and Knight in LeBlang III.

Regarding attorneys’ fees, LeBlang had agreed to pay Subaru reasonable fees as a condition of voluntarily dismissing LeBlang I. Subaru requested $127,188.98 for fees incurred after discovery closed, which LeBlang contested as excessive, arguing that many fees were for work useful in future litigation. The district court, after reviewing the motions and attorney time sheets, concluded that 70% of the fees were appropriate for trial preparation and granted that percentage of the fee request. LeBlang appealed this decision, maintaining that fees should only compensate for work not useful in future litigation, citing previous cases. The court acknowledged the limitations suggested in those cases but emphasized that conditions for voluntary dismissal could be flexible, allowing the district court discretion to set appropriate terms to mitigate potential prejudice to the defendant.

The trial court indicated that it would grant LeBlang's motion for voluntary dismissal only if LeBlang paid Subaru's trial preparation costs. During a hearing, the court clarified that these costs would include what Subaru incurred in preparing for the upcoming trial, regardless of whether the work would be useful in any future litigation. LeBlang's attorney sought clarification on whether the costs would include attorney fees applicable to a potential retrial, to which the court responded affirmatively regarding trial preparation expenses.

LeBlang subsequently agreed to the conditions set forth by the court, which included paying Subaru's trial preparation costs and stipulating that all rulings and orders from the current case would apply to any refiled action. LeBlang also noted that this acceptance did not waive their right to appeal the current rulings.

The appellate court determined that it would not interpret prior cases as limiting the district court's discretion in awarding fees upon voluntary dismissal. Because LeBlang had explicitly consented to pay Subaru's trial preparation costs, the appellate court found no abuse of discretion by the district court in awarding these costs and fees. The appellate court affirmed that it typically defers to the district court's fee awards, citing the court's superior understanding of the case and the desire to minimize extensive appellate review of factual matters. Additionally, it emphasized the importance of maintaining uniformity in fee awards while avoiding unnecessary litigation over fees.

The district court's award of $89,032.29 in costs and fees to Subaru was upheld, as the court appropriately determined that only 70% of the attorneys' work constituted 'trial preparation,' justifying the reduced fee amount. Regarding the involuntary dismissal of LeBlang II, the court first established jurisdiction under 28 U.S.C. § 1291, concluding that the dismissal was a 'final decision' as it acted as an adjudication on the merits, given the lack of specification in the dismissal order. The dismissal was warranted because LeBlang violated conditions agreed upon when LeBlang I was dismissed, specifically by failing to pay Subaru's attorneys' fees and by appealing pretrial orders. These violations justified the dismissal under Fed. R. Civ. P. 41(b). The appellate review applied a narrow abuse-of-discretion standard, and since LeBlang did not demonstrate that the reasons for dismissal were incorrect, the court affirmed the dismissal of LeBlang II.

LeBlang asserted that it reserved the right to appeal all orders from the voluntary dismissal of LeBlang I, claiming that this reservation was part of its agreement with the court. However, the court found this argument unpersuasive, noting that accepting the dismissal meant LeBlang agreed to be bound by the court's rulings. LeBlang’s interpretation would undermine the conditions of the dismissal, allowing it to appeal rulings while simultaneously agreeing to be bound by them. Furthermore, the court highlighted that LeBlang did not possess the right to appeal pretrial orders, as the voluntary dismissal was not a final decision and did not meet the criteria for an interlocutory appeal. Thus, LeBlang's attempts to appeal these orders were premature and violated the dismissal conditions, justifying the involuntary dismissal of LeBlang II under Fed. R. Civ. P. 41(b).

In a separate claim regarding its motion for a stay of enforcement of the attorneys' fee award, LeBlang argued that the district court abused its discretion in denying this motion. However, this argument was deemed moot because the involuntary dismissal was supported by other grounds, making the failure to pay attorneys' fees irrelevant. Although LeBlang attempted to frame this as an independent claim on appeal, the court concluded that the motion was moot since LeBlang was already pursuing an appeal. Thus, granting a stay would not provide any assistance at this stage.

A finding that the court should have granted the stay does not benefit LeBlang, as he has not been prejudiced by the court's denial of his motion. The court's involuntary dismissal was justified by independent reasons, and LeBlang has yet to pay the awarded attorneys' fees to Subaru. Thus, the court deems the issue of granting or denying the stay moot and will not evaluate LeBlang's arguments further.

LeBlang also appeals two pretrial orders from a previous case, LeBlang I, which are applicable to LeBlang II due to a court order that mandates treating all pretrial orders from LeBlang I as valid in subsequent filings. The involuntary dismissal of LeBlang II is considered an adjudication on the merits, allowing for the review of these orders on appeal.

Regarding LeBlang's motion to continue the trial date, the court found no abuse of discretion in its denial. LeBlang's argument hinges on the notion that a granted continuance would have prevented his voluntary dismissal, but the court held that he had known about the trial schedule for over five months and waited until one month prior to request a continuance, justifying the denial.

Lastly, in the case of LeBlang III, the district court's order of involuntary dismissal was without prejudice, making it typically non-appealable. However, since the statute of limitations on the fraud claim against Subaru had expired by the time of dismissal, LeBlang could not refile. Therefore, the dismissal is treated as final and the appeal is valid.

LeBlang challenges the district court's dismissal of defendants Wright and Knight, arguing that the court incorrectly determined that the statute of limitations had expired against them, leading to their classification as fraudulently joined defendants. The court's dismissal was based on the expiration of the statute of limitations, which, for fraud claims in Illinois, is five years. A cause of action accrues when the injured party knows or should know of the injury and its wrongful cause.

Subaru contends that LeBlang's fraud claim accrued in mid-April 1990, when LeBlang discovered a reduction in planning volume numbers, which he interpreted as deceit. LeBlang, however, argues that he did not have a cause of action against Wright and Knight until late 1995 or early 1996, when he learned from discovery that they were aware of the inflated numbers.

The court found that LeBlang's fraud action against all potential defendants accrued in mid-April 1990, as he recognized both the injury and its wrongful cause at that time. Consequently, the statute of limitations began to run at that point, affirming the district court's dismissal of Wright and Knight as defendants.

LeBlang's lack of knowledge regarding Wright and Knight's involvement at the time is deemed irrelevant; they provided the purportedly fraudulent information to him. Despite claiming ignorance, once LeBlang was aware of the wrongful injury, he had a duty to investigate further, which included assessing all potential liabilities related to the planning volume number, including that of Wright and Knight. LeBlang could not wait nearly seven years for pretrial discovery to uncover grounds for a cause of action against them. The legal principle established is that once a plaintiff is aware of being wronged, they are obligated to inquire about the responsible parties, regardless of their certainty about who caused the harm. LeBlang's assertion that his cause of action against Wright and Knight accrued only after he learned of their fraudulent knowledge is rejected. His awareness of Subaru's fraudulent misrepresentation was sufficient to trigger the duty to investigate further, establishing that his cause of action against Subaru, Wright, and Knight arose in mid-April 1990. Consequently, the district court correctly determined that the statute of limitations barred LeBlang's claims against Wright and Knight and appropriately dismissed them as fraudulently joined.

The district court's orders and decisions are affirmed. "Planning volume" refers to the estimated market potential in the dealer's area. The involuntary dismissal of LeBlang II is treated as an adjudication on the merits, allowing for review of pretrial rulings, which LeBlang has contested. In LeBlang II, the court did not address the merits of LeBlang's motion for a stay, dismissing it as moot after granting the involuntary dismissal. LeBlang III included a denial of a stay motion, but this denial is not under appeal, leaving only the appeal of the dismissal from LeBlang II.

LeBlang contends the trial court erred in disallowing supplementation of its expert disclosure, but this issue is moot due to the involuntary dismissal. The court's dismissal acts as a final adjudication, rendering pretrial discovery orders irrelevant. Regarding jurisdiction, only the fraud claim against Subaru is considered, as Wright and Knight were previously dismissed. The statute of limitations for these dismissed defendants is central, but its resolution is not necessary for this appeal.

Typically, the start of the statute of limitations is a factual issue for a jury; however, undisputed facts can lead to a judicial determination. Here, the circumstances surrounding LeBlang's claim are sufficiently clear. Despite LeBlang's assertion of an open question regarding the timing of its injury, seeking legal counsel after the reduction of the planning volume indicates it recognized its injury at that point. The over-capitalization resulting from inflated planning volume estimates constitutes this injury, as acknowledged in LeBlang's complaint, which states the dealership's value diminished when Subaru revised the planning volume, not at a later sale date.