Xerox Financial Services Life Insurance v. High Plains Ltd. Partnership

                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 94-1382
No. 94-1456
   XEROX FINANCIAL SERVICES LIFE INSURANCE COMPANY, ET AL.,

                    Plaintiffs, Appellees,
                              v.

HIGH PLAINS LIMITED PARTNERSHIP, ALLIED FIRST CLASS PARTNERS, INC.,
   ALLIED PROGRAMS CORPORATION, M.S. STERMAN & ASSOCIATES,
            and THE MAYFLOWER GROUP, LTD., ET AL.,
                    Defendants, Appellees.

                                    
                     MARSHALL S. STERMAN,

                    Defendant, Appellant.
                                         

        APPEALS FROM THE UNITED STATES DISTRICT COURT
              FOR THE DISTRICT OF MASSACHUSETTS

           [Hon. Rya W. Zobel, U.S. District Judge]
                                                              
                                         

                            Before
                    Torruella, Chief Judge,
                                                      

                    Boudin, Circuit Judge,
                                                     
               and Barbadoro,* District Judge.
                                                         

                                         

George W.  Mykulak with whom Louis  J. Scerra,  Richard M. Gilbert
                                                                              
and Goldstein & Manello, P.C. were on briefs for appellant.
                                     
J.  Timothy Eaton  with  whom  Michael W.  Coffield,  Theodore  S.
                                                                              
Harman,  Coffield Ungaretti & Harris, John J. Curtin, Jr., Patricia J.
                                                                              
Hill, Daniel  S. Savrin and  Bingham, Dana &  Gould were on  brief for
                                                           
plaintiffs.

                                         

                       January 17, 1995
                                         

                

*Of the District of New Hampshire, sitting by designation.


     BOUDIN,  Circuit Judge.  This appeal has its origin in a
                                       

settlement agreement that purported to resolve the claims and

counterclaims   of   approximately   a  dozen   corporations,

partnerships, and  other business  entities in at  least four

separate lawsuits.   The settlement  went awry; and  one side

sought  to enforce  consent  judgments filed  as part  of the

settlement.  The  subject of those  judgments sought to  undo

them  and now appeals from the district court's denial of his

efforts.

                       I.  THE HISTORY

     The  appellant Marshall  S. Sterman ("Sterman")  and his

now-  deceased partner  Lester  Grant owned  or controlled  a

number  of business  entities ("the  Sterman entities")  that

engaged in  real estate development  projects in a  number of

states in  the late 1980s and early  1990s.  To finance these

projects, the Sterman entities entered into transactions with

appellee Xerox Financial Services Life Insurance Company  and

appellee Van  Kampen  Merritt,  Inc.  and  related  companies

(collectively, "Xerox-VKM").  Xerox-VKM provided financing to

the Sterman  entities in  exchange for security  interests in

the  real estate  and  in bonds  related  to the  development

projects.

     The  Sterman entities allegedly  defaulted on certain of

their obligations relating to at least three projects,  and a

succession of  lawsuits began.   The  first suit was  brought

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against the Sterman entities by Xerox-VKM in Illinois federal

district court  on  February  27,  1992,  and  related  to  a

Pennsylvania   hotels  development   project.1     A   second

transaction involved  a hotel  in Colorado; a  Sterman entity

had agreed to repurchase bonds from Xerox-VKM and Sterman had

personally guaranteed  the obligation.   When  the repurchase

did not occur, Xerox-VKM filed two lawsuits.

     The first of those two lawsuits was  brought against the

Sterman  entities   in  the   same  Illinois  court   as  the

Pennsylvania hotels lawsuit  on March 13,  1992.2  The  other

concerned  Sterman's   own   guaranty  which   contained   an

arbitration  clause; Sterman  was domiciled  in Massachusetts

and, to  compel arbitration,  Xerox-VKM brought  suit against

him personally in the federal district court in Massachusetts

on May 4,  1992.3  In  this action Sterman failed  to respond

to the  complaint  and  the court  entered  a  default  order

against him.

     The three  suits just  described are the  centerpiece of

the  present litigation but are not an exhaustive list of the

disputes between the parties.   Xerox-VKM brought yet another

                    
                                

     1Van Kampen  Merritt, Inc. v. Pilgrim  Financial Servs.,
                                                                         
Inc., No. 92-C-1476 (N.D. Ill.).  
                

     2Xerox  Financial Servs.  Life  Ins.  Co.  v.  Mayflower
                                                                         
Group, Ltd., No. 92-C-1809 (N.D. Ill.).
                      

     3Xerox Financial  Servs. Life  Ins. Co. v.  Sterman, No.
                                                                    
92-11029-Z (D. Mass.).

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                                         -3-


lawsuit against  the Sterman entities in  New Mexico relating

to a nursing home development  in that state.  In  several of

the lawsuits,  the Sterman entities filed  counterclaims.  In

addition,  several other transactions between the parties had

gone wrong and  were the subject of  litigation- and workout-

related discussions between the parties.

     Against  this  background,  in   May  1992  the  parties

negotiated  a  global  settlement  agreement to  resolve  all

pending  and a  host of  potential lawsuits.   The agreement,

signed on May  19, 1993, was  a lengthy document  stipulating

that it would be  governed by Illinois substantive law.   The

parties  agreed  to execute  mutual  releases.   The  Sterman

entities  agreed  to  transfer  their  interests  in  several

properties to Xerox-VKM; these  were apparently properties in

which  Xerox-VKM had  security interests  but for  which they

wanted clear title.   Sterman personally agreed to pay Xerox-

VKM $125,000 in 60 days--July 19, 1993--and to execute a note

for four more annual installments in the same amount.

     In  return,   Xerox-VKM  agreed  that,  in  addition  to

releasing the  Sterman entities from various  claims, Sterman

himself  could  within  60  days  repurchase  from  Xerox-VKM

certain  bonds  he had  originally  sold them  relating  to a

development  in Brush,  Colorado  ("the Brush  bonds").   The

bonds were priced at nearly $5 million but Sterman apparently

calculated that he could buy them at the stipulated price and

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then resell  them for a  profit of more  than $450,000.   The

bond  repurchase  was proposed  by  Sterman  as  part of  the

settlement  but  the  terms  were  contained  in  a  separate

agreement.

     The settlement agreement contained a back-up enforcement

mechanism  that is the center of this appeal.  Sterman agreed

to  the entry of a consent judgment against him personally in

one  of  the Illinois  actions  (concerning  the Pennsylvania

hotels)  and  in  the  Massachusetts  action (concerning  the

Colorado hotel);  but the settlement  agreement provided that

Xerox-VKM  would  not  enforce  either judgment  so  long  as

Sterman complied  with his  obligations under the  settlement

agreement.  Motions for entry of the consent judgments  noted

this condition.

     Pursuant to the  settlement agreement, the parties  made

the property transfers from the Sterman entities to Xerox-VKM

on  May  19,  1993,  coincident  with  the   signing  of  the

agreement.   On  June 7,  1993, the consent  judgment against

Sterman  and in favor of Xerox-VKM was entered in the pending

Massachusetts case in  the amount of about $2.3  million; and

on June 9, 1993, a similar judgment was entered in the amount

of  about $3.5 million in  the original Illinois  action.  On

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July 15, 1993, Xerox-VKM  registered the Illinois judgment in

Massachusetts.  28 U.S.C.   1963.4

     All that remained was for  Sterman to purchase the Brush

bonds by the  July 19 closing  date and to make  the $125,000

payment  on that  date, leaving  Xerox-VKM with  the note  to

cover four more installments.  Sterman was unable to purchase

the bonds  or  pay the  first  installment on  July  19.   It

appears that he had more  difficulty arranging in advance  to

resell the bonds than he had expected and that he had planned

to  use the  profits on the  resale of  the bonds  to pay the

first installment.  Xerox-VKM refused Sterman's request for a

delay  of  two months  and began  steps  to collect  on their

judgments in Massachusetts.

     Although  Sterman  resided  in  Beverly,  Massachusetts,

apparently there was  a scarcity  of assets held  in his  own

name.   Xerox-VKM  thus initiated  so-called  attachments  on

trustee process directed at a number of business interests in

Massachusetts.   This  procedure is used  under Massachusetts

state court rules primarily to attach  interests in the hands

of a  third party that are  owed to or indirectly  owned by a

judgment debtor;  and the procedure is  available to judgment

creditors in Massachusetts federal courts.  See Fed. R.  Civ.
                                                           

P. 64; Mass. R. Civ. P. 4.2.

                    
                                

     4Van Kampen  Merritt, Inc. v.  Sterman, No.  93-MC-10542
                                                       
(D. Mass.).

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                                         -6-


     Xerox-VKM filed motions  to initiate the attachments  in

both  the Massachusetts  dockets: the  original Massachusetts

consent  judgment  and  the  new docket  that  reflected  the

registration of  the Illinois consent judgment.   Judge Zobel

presided over both cases and eventually consolidated them, so

we  discuss the  proceedings without  differentiating between

the  two  dockets.   The  original  motion  to  initiate  the

attachments  ex  parte  was  filed on  August  12,  1993, and
                                  

allowed almost immediately.  

     On October 20, 1993, Sterman filed a motion captioned as

one  "to dissolve  trustee  process and  for other  equitable

relief."   In  substance,  Sterman claimed  that  he had  not

breached the  settlement agreement, and that even  if he had,

the fault  lay with Xerox-VKM.   Alternatively, he  said that

Xerox-VKM  had  to  give him  credit  for  the  value of  the

properties  transferred on May 19,  1993, and that  it was an

impermissible  penalty for  Xerox-VKM  to collect  almost  $6

million in  judgments for Sterman's failure to pay a $125,000

debt.  After  briefing and argument,  Judge Zobel denied  the

motion.  Sterman did not seek to appeal.

     Proceedings  continued  to  implement  the  attachments,

including  discovery directed against the putative "trustees"

who Xerox-VKM thought owed money to Sterman or held interests

owned by him.  Then on  February 1, 1994, Sterman filed a new

motion captioned as  one "to modify  judgment amounts or  for

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entry of satisfaction of  judgment or for accounting  and for

stay."    This motion  repeated  in  detail  the penalty  and

credit-for-previously-transferred-property claims made in the

November  motion; in a footnote the new motion also sought to

incorporate the  old one  by reference.   After  briefing and

argument, Judge Zobel denied the motion on February 25, 1994.

     In a memorandum and order Judge Zobel  said that Sterman

had breached  the settlement agreement by failing to make the

promised  $125,000  payment   and  Xerox-VKM  was   therefore

entitled  to enforce  the  judgments.   Further, Judge  Zobel

concluded  that  Sterman "has  used  a  variety of  means  to

obstruct collection of this debt"; and for this reason  Judge

Zobel  granted Xerox-VKM's  recently filed  "emergency motion

for  further injunctive relief" under Fed.  R. Civ. P. 65(b).

The  order enjoined Sterman, and  others under his control or

in concert  with him, from concealing  or otherwise disposing

of any interest held by or due to Sterman.

     Sterman filed a  timely notice  of appeal  from the  new

order,  entered February 25, 1994, and it is that appeal that

is now before  us.   Judge Zobel's order  also provided  that

discovery should  be completed by the  end of May 1994  and a

further conference was scheduled for June 1994.  However, the

briefs  are silent  as  to what  developments,  if any,  have

                             -8-
                                         -8-


occurred  in the district court since the order now sought to

be appealed.

                       II.  THE ISSUES

     1.  The first question concerns our jurisdiction, and  a

related claim  of waiver raised  by Xerox-VKM.   The district

court's order was in part an explicit preliminary injunction;

such  injunctions can  be appealed  immediately, 28  U.S.C.  

1292(a)(1),  and  Sterman's  appeal  was   filed  within  the

requisite  period.   But, argues  Xerox-VKM, this  should not

give Sterman a right  to relitigate issues on appeal  that he

raised by motion in October 1993, lost in the district court,

and  chose  then not  to  appeal.   According  to  Xerox-VKM,

Sterman has  "waived" his  right  to review  of the  district

court's rejection of his attacks on the judgments.  These, of

course, are the only issues that Sterman wants to litigate on

this appeal.

     We  regard both  of  Sterman's motions  in the  district

court as in substance motions under Fed. R. Civ. P. 60(b)  to

set aside final  judgments.   In form  the consent  judgments

were  both final  judgments; the  principal relief  sought in

Sterman's  two  motions  was  effectively to  set  aside  the

judgments; and  the arguments  made in the  motions concerned

the validity and enforceability  of the judgments rather than

the technicalities of trustee process.  Apparently both sides

share this view.

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                                         -9-


     Ordinarily  the  denial  of   a  Rule  60(b)  motion  is

immediately appealable since  there is nothing left to  do in

the district court.   See, e.g., FDIC v. Ramirez  Rivera, 869
                                                                    

F.2d 624,  626 (1st Cir. 1989).   Here neither denial of Rule

60(b) relief ended the proceedings;  they were ongoing at the

time of both  orders and so  far as  we know continue  today.

This raises interesting questions  about the appealability of

a Rule 60(b)  denial in  the context of  an ongoing  district

court proceeding.   See 15B  C. Wright &  A. Miller,  Federal
                                                                         

Practice  and  Procedure     3916,  at   363  (2d  ed.  1992)
                                    

("[Appeal]  may be denied if  the motion seems  bound up with

other proceedings that remain to be concluded.").

     In  our  view  it is  sufficient  that  as  part of  its

February  order  the  district court  entered  a  preliminary

injunction  in aid  of  enforcement of  the  judgments.   The

preliminary  injunction  is  immediately  appealable  and  is

itself colorably dependent on the denial of motions to vacate

the  judgments. "Our jurisdiction embraces a consideration of

such  questions  as  are  basic  to and  underlie  the  order

supporting the  appeal."     Alloyd  Gen. Corp.  v.  Building
                                                                         

Leasing  Corp., 361 F.2d 359, 363 (1st Cir. 1966).  Certainly
                          

the district  court would not have  continued the enforcement

proceedings if it  had agreed that the  judgments deserved to

be set aside.

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     This  brings us  to  Xerox-VKM's waiver  argument.   The

analogy it offers is  to one who, having suffered  an adverse

judgment, seeks to set it aside under Rule 60(b); fails; does

not appeal; and then, when the time for appealing has passed,

renews the very  same arguments  in a new  motion under  Rule

60(b) and then seeks  to appeal the new denial.   In Burnside
                                                                         

v.  Eastern Airlines, 519 F.2d 1127 (5th Cir. 1975), cited to
                                

us by Xerox-VKM, the  court held that the moving  party could

not effectively pursue an out of time appeal by the expedient

of renewing the same motion later on.

     The  difficulty with  the analogy  is  that even  if the

October and February motions are  treated as raising the same

arguments,  although with  different  emphases, it  is by  no

means clear  that Sterman could  have appealed the  denial of

the October  motion.  At that  time, there was no  grant of a

preliminary  injunction  as  the  vehicle  for  an  immediate

appeal.   Xerox-VKM gives us  no reason or  precedent to show

that  such an  appeal was  possible.   If  an appeal  was not

possible, the waiver argument is pretty lame.

     In these  somewhat unusual circumstances, we  think that

the proper course  is to  reject the waiver  argument and  to

treat Sterman's claims as sufficiently related to the clearly

appealable injunction to justify our consideration of them on

the  merits.   Since we  think that  the  claims fail  on the

merits, it is enough  to assume arguendo that the  waiver and
                                                    

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relatedness  points are  resolved in  Sterman's favor.   See,
                                                                        

e.g.,  Rhode   Island  Hosp.  Trust  Nat'l   Bank  v.  Howard
                                                                         

Communications  Corp.,  980 F.2d  823,  829  (1st Cir.  1992)
                                 

(avoiding difficult jurisdictional issue to resolve merits of

interlocutory appeal).

     2.   We  turn  now  to  the  main  arguments  raised  in

Sterman's  February motion  under  Rule 60(b).   The  consent

judgments  are  on  their  face unqualified  final  judgments

against Sterman, totally almost $6 million.  Still, under the

settlement agreement  the enforcement of  the final judgments

was  made contingent  on Sterman's  breach of  the agreement.

Had  Sterman complied  with the  agreement, Sterman  would be

entitled to some form of protection--we need not decide  what

kind.  But despite Sterman's original claim to have complied,

it is undisputed that he did not pay the $125,000 promised by

July 19 as provided in the written agreement.

     Sterman  might still  obtain  relief by  an  affirmative

showing of grounds sufficient to persuade a district court to

exercise  its  authority under  Rule 60(b)  to set  aside the

judgments.5    Rule 60(b)  needs  to  be emphasized  because,

while Rule 60(b) relief is not wholly a matter of discretion,

                    
                                

     5How  far the Massachusetts district court had authority
to  set aside the Illinois judgment is a debatable point, see
                                                                         
Carteret Sav. &  Loan Ass'n v. Jackson, 812 F.2d  36, 39 (1st
                                                  
Cir. 1987); Indian Head Nat'l Bank v. Brunelle, 689 F.2d 245,
                                                          
249-51 (1st Cir. 1982); see also 11 Wright & Miller, supra,  
                                                                      
2865, at  224  (1st  ed. 1973),  but  one that  need  not  be
resolved in view of our disposition of the merits.

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                                         -12-


relief from a  final judgment is "extraordinary";  discretion

plays  a role; and neither the grounds nor the procedures are

as rigidly prescribed as those  that would attend an ordinary

lawsuit seeking a judgment in the first instance.   Vasapolli
                                                                         

v. Rostoff, 39 F.3d 27, 37 n.8 (1st Cir. 1994).
                      

     Against  this background,  we  consider first  Sterman's

argument that  the judgments  represent a  contract "penalty"

forbidden  by   Illinois  law,   in  view  of   the  supposed

disproportion  between the $125,000  immediately owed and the

almost $6 million sought to be collected under the judgments.

The  parties appear to  treat Illinois law  as controlling on

this  point  because of  the  stipulation  in the  settlement

agreement.  They are arguably mistaken (for reasons explained

below)  but state law is pertinent by analogy and Illinois is

a perfectly good example.

     Illinois does refuse to enforce penalties  in contracts,

see, e.g.,  Lake  River Corp.  v. Carborundum  Co., 769  F.2d
                                                              

1284, 1288-91  (7th Cir. 1985);  Bauer v. Sawyer,  134 N.E.2d
                                                            

329,  333-34 (Ill. 1956), but the rule  may have little to do

with  final judgments.   Indeed, even a  contract agreeing to

settle a pending or  threatened suit--technically, a contract

of  "accord"  --may be  enforceable  despite  claims that  it

constitutes  a  penalty.   Williston  says  that the  penalty

defense is not available  in such cases; and the  sparse case

law is divided, weighted slightly in favor of Williston.  See
                                                                         

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                                         -13-


generally 5 Williston,  Contracts    780, at  700-01 (3d  ed.
                                             

1961).6

     The rationale  for the rule  against enforcing penalties

in  contract cases is not crystal clear.   But it is not hard

to imagine why a court might  be loath to enforce a  contract

provision  specifying  a disproportionately  large sum--which

courts  call  a penalty--for  breach  of the  contract.   The

parties  may make  such an  agreement far  in advance  of the

dispute  and may  not  appreciate  the  full  impact  if  the

unlikely  breach  does  occur.    Contract  damages,  broadly

speaking, aim  at compensation, not at  punishment.  Finally,

courts  do not  like results  that appear  unjust.   See Lake
                                                                         

River, 769 F.2d at 1288-91.
                 

     The  force of  such concerns  is lessened  where one  is

dealing  with a contract of accord that is entered into after
                                                                         

the  dispute  has arisen.   At  this  point, the  parties are

focusing  on the strength  of the claims,  the likely damages

and  the costs of litigating.  If the defendant, or potential

defendant, now consents to judgment in  a specific amount, it

                    
                                

     6Compare  Resolution Trust Corp.  v. Avon Ctr. Holdings,
                                                                         
Inc., 832 P.2d 1073, 1075 (Colo. Ct. App. 1992) (holding that
                
the  penalty  analysis  is  inappropriate);  (Crosby  Forrest
                                                                         
Products, Inc. v. Byers,  623 So.2d 565, 568 (Fla.  Dist. Ct.
                                   
App. 1993)  (same); Security Pacific Nat'l  Bank v. Roulette,
                                                                        
492  N.E.2d 438, 441 (Ohio 1986) (same), with Sybron Corp. v.
                                                                      
Clark Hosp. Supply Corp.,  143 Cal. Rptr. 306, 310  (Cal. Ct.
                                    
App. 1978)  (finding  an unenforceable  penalty);  Aubrey  v.
                                                                     
Angel  Enters., Inc., 717 P.2d 313, 315 (Wash. Ct. App. 1986)
                                
(same).   See generally 5 Williston, Contracts   780, at 700-
                                                          
01 (3d ed. 1961).

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                                         -14-


is  ordinarily done with eyes wide open, and in large matters

usually  with legal advice.  These attitudes seem to underlie

the Williston  view that the defendant  should be constrained

in attacking his own settlement.  

     Courts  that share  this  view may  also  feel that  the

plaintiff,  who  in settlement  often  accepts  less than  is

claimed,  ought not then be forced to litigate anew about the

propriety  of   the  discounted  amount.     After  all,  the

settlement  may be  attractive just  because it  assures that

litigation about liability and amounts is over.  If this view

is taken of  a contract in accord, one would  expect the same

considerations to  apply several times over  to insulate from

penalty defenses  a court-entered consent judgment,  which is

one step further down the line (and a very important step).

     The present case is  somewhat different from an ordinary

consent  judgment since Sterman's consent judgments, although

final in form, were contingent as to enforcement on a default

by  Sterman.   In that  sense  the analogy  to a  contract in

accord may  be a good one.   We have found  no Illinois state

decisions on whether the penalty defense applies to contracts

of accord.7   To the extent  we were forced to  guess at what

                    
                                

     7Two  federal  decisions  cited  to  us  assume  without
discussion that Illinois would  apply its penalty analysis to
a settlement agreement.  Justine  Realty Co. v. American Nat.
                                                                         
Can  Co., 976 F.2d  385 (8th Cir. 1992),  Yockey v. Horn, 880
                                                                    
F.2d 945 (7th Cir. 1989).  But neither decision considers the
possible distinction between ordinary contracts and contracts
of accord.

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                                         -15-


Illinois law might be, we would  incline toward following the

Williston  view that  something far  more  than a  showing of

"penalty" is needed to defeat an obligation expressly assumed

to settle a pending or threatened law suit.

     What  is more, we are not concerned here directly with a

contract suit governed by  Illinois law but with a  motion to

reopen  a federal judgment under Rule 60(b).  While state law

on  contracts  is  very  instructive--that  is  why  we  have

discussed  it--"[t]he grounds and  the procedure  for setting

aside a federal  judgment are  entirely a  matter of  federal

law, on  which state law  may be  disregarded."  11  Wright &

Miller, supra,    2353, at 147-48; see  also Johnson Chemical
                                                                         

Co.  v. Condado Center, Inc.,  453 F.2d 1044,  1046 (1st Cir.
                                        

1972).  Even  if Illinois did regard a contract  in accord as

subject to  a penalty defense,  it is  debatable whether  the

district  court  would have  been  forced  to  use  the  same

standard in deciding whether to reopen.

     In all events, there  is no showing that enforcement  of

the judgments involves a penalty.  This case does not involve

in  isolation the collection of $6 million for failure to pay

a  $125,000 debt.    Any judgment  about disproportion  would

depend  on  the reasonable  magnitude  of all  of  the claims

settled  by the  May 19  settlement and  all of  the benefits

                    
                                

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                                         -16-


received by Xerox-VKM.  The settlement covered four lawsuits,

three  projects,  and  a  substantial number  of  claims  and

counterclaims.  Xerox-VKM  may well receive less  than it was

originally  entitled to even if it collects the $6 million in

judgments and keeps  or collects everything else  that it was
                         

given or promised under the settlement.

     Even  if  the penalty  defense  were  available, it  was

Sterman's  burden  to make  a  colorable  showing of  overall

disproportion  through affidavits  before the  district court

needed even consider taking the claim  seriously.  His jumble

of assertions  and conclusions  does not even  begin to  make

such  a  showing.   Xerox-VKM  appears  to assert  that  even

collection  of the full judgment will not make them whole but

this is  beside the point.   What  they bargained for  in the

settlement included the right not to have to prove the actual
                                             

amount of  their  claims.   Instead,  Sterman  now  has  them

arguing about the matter.

     This discussion also disposes of Sterman's related claim

that he ought to  receive "credit" against the  judgments for

the value of assets transferred on May 19.   At first glance,

this might seem  to be a straightforward  suggestion that the

defendant suffered a  judgment, paid part  of it, and  should

naturally  be held to owe only  the unpaid balance.  When one

understands  what Sterman  is actually  saying, his  claim is

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                                         -17-


seen to  depend on the  same kind of false  comparison as his

penalty argument.

     Nothing in  the settlement agreement  suggests that  the

amounts specified in the consent judgments are to be  reduced

by  the assets transferred on  the same day  as the agreement

was  signed and well before the  judgments were even entered.

So  far as  we  know, the  transfers  may themselves  may  be

nothing  more than the  clearing of  title to  assets already

held  by Xerox-VKM as security.   And while  such security if

realized  would probably  reduce  liability, Sterman  has (as

noted) provided us with nothing to suggest that Xerox-VKM has

or ever will  collect as much as they might  have done if the

Sterman entities had compliedwith their original commitments.

     3.   This disposes of  the arguments made  by Sterman in

his February motion, but he also seeks to brief in this court

additional    arguments   made   in   his   October   motion.

Pertinently, he claims that parol agreements, both before and

after  the May  19 agreement,  made Sterman's payment  of the

$125,000 contingent on his ability to  resell the Brush bonds

and  provided that the July 19 closing date would be extended

upon Sterman's  request.  For  reasons already set  forth, we

think that these claims have arguably been preserved.

     At the oral argument on  the October motion, Judge Zobel

brushed aside the Sterman's claim that Xerox-VKM had from the

outset orally agreed to such a  linkage or a right of Sterman

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to  extend at will.  Her  ruling was understandable:  the May

19 agreement was a complex, lawyer-crafted,  written document

and it made  no mention of any such linkage  or right; on the

contrary, it said that  time was of the essence,  adding only

that the parties could agree to extend the closing date.  
                                        

     Under  parol evidence  rules,  followed  in Illinois  as

elsewhere, evidence  of an alleged "prior  or contemporaneous

agreement[]" is  inadmissible if  "it would have  been normal

for  the parties  to incorporate  [such an agreement]  in the

written  instrument   . . .  ."   Roth v.  Meeker, 389 N.E.2d
                                                             

1248, 1256  (Ill. App. Ct.. 1979).   In this case,  the parol

evidence rule applies with  full force.  Once again,  it does

not matter  whether Illinois  law governs the  decision under

Rule  60(b) whether  to reopen  the judgments,  for it  is at

least instructive by analogy.

     But the parol evidence rule generally governs only prior

or contemporaneous agreements.  Thus:

     [I]t   does   not   bar  evidence   of   subsequent
     negotiations to show modification of  the contract.
     Even   a   completely   integrated  agreement   can
     therefore be modified or rescinded orally, subject,
     of course, to the doctrine of consideration and the
     statute of  frauds.   In a few  states, legislation
     requires   a  writing   for  the   modification  or
     rescission of a written instrument.

A.  Farnsworth, Contracts     7.6, at  492 (1990)  (footnotes

omitted);  accord  A.W. Wendell  &  Sons, Inc.  v.  Oazi, 626
                                                                    

N.E.2d  280, 287 (Ill. 1994) ("Under Illinois law, parties to

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a  written  contract  may alter  or  modify  its  terms by  a

subsequent oral agreement . . . .").

     Xerox-VKM   has  not   troubled  to   address  Sterman's

modification claim  (except by  asserting that the  claim has

been waived).  Still, "[t]he court need not hold a hearing on

a  motion for relief from  judgment if the  motion is clearly

without  substance .  . . ."   11  Wright &  Miller, supra,  
                                                                      

2865, at 227.  We think that there is more than enough in the

record to  make clear that  Sterman's claim is  without merit

and that no evidentiary hearing was  needed to establish this

point (it was the subject of oral argument).  

     A close  reading of  Sterman's affidavits--one from  him

and another  from his broker--show that  neither provides any

basis for  believing that  the parties reached  an agreement,

after the original May 19 document was signed,  purporting to
                 

extend the  closing  date  or to  condition  the  closing  on

Sterman's resale of the Brush bonds.  Further, between May 19

and  the scheduled  closing  date, Xerox-VKM  twice wrote  to

Sterman  to  reconfirm  his  remaining  obligations;  neither

letter  evidenced  any  flexibility   on  the  date  and  one

explicitly reminded Sterman that he would be in default if he

failed to fulfill his obligations by July 19.

     Finally,  on July 19 Sterman himself faxed a letter to a

Xerox-VKM  representative  requesting  an  extension  of  the

closing date.  He made no  claim that Xerox-VKM had agreed to

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extend the closing date  or that he had any  unilateral right

to an extension.   Far from granting an  extension, Xerox-VKM

wrote  to  Sterman the  next day  informing  him that  he had

defaulted on  his  payment  obligation,  that  the  judgments

against him could  now be executed, and  that his opportunity

to  purchase the  Brush bonds  had now  expired.   Three days

later  Sterman  again  sought  an  extension,  and  Xerox-VKM

immediately refused.

     In sum,  despite references in  his brief to  a supposed

post-May 19  modification in the  settlement agreement, there

is  no  substantial  basis  for  such  a  claim,  and  it  is

contradicted by  Sterman's own  correspondence.  Under  these

circumstances, we think that  there is no reason to  take the

claim seriously.

     Xerox-VKM's motion to supplement the record by inclusion

of  a  previously omitted  exhibit  page  is  granted.    The
                                                                 

judgment is affirmed.
                                

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