the Oilgear Company v. Robert A. Hitt

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 17‐2534
T HE OILGEAR C OMPANY,
Plaintiff‐Appellee,
v.
R OBERT A. HITT ,
Defendant‐Appellant.
____________________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 16‐CV‐742 — David E. Jones, Magistrate Judge.
____________________
A RGUED J ANUARY 8, 2018 — D ECIDED J ANUARY 12, 2018
____________________
Before EASTERBROOK and SYKES , Circuit Judges, and
BUCKLO, District Judge.*
EASTERBROOK , Circuit Judge. As Oilgear’s CEO, Robert
Hitt held restricted stock. When Hitt left his position in 2014,
Oilgear exercised its option to repurchase the shares. Oilgear
and Hitt agreed that he would receive $753,000: $108,000
* Of the Northern District of Illinois, sitting by designation.

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2 No. 17‐2534
immediately and $215,000 (plus interest) each June for the
next three years. The 2015 installment was paid but the 2016
and 2017 installments were not. In this suit under the diver‐
sity jurisdiction, Oilgear sought and received a declaratory
judgment that it is entitled to defer payment of the 2016 and
2017 installments.
Oilgear also owes money to JPMorgan Chase Bank. Hitt,
Oilgear, and the Bank signed an agreement acknowledging
that Oilgear’s debt to Hitt is subordinate to Oilgear’s debt to
the Bank. This tripartite agreement provides that Hitt will
not be paid while Oilgear is in default of its obligations to
the Bank. After paying the 2015 installment, Oilgear default‐
ed on an obligation to the Bank. Later the Bank agreed to
waive most consequences of the default. As a condition of
this waiver Oilgear promised the Bank that it would not re‐
sume paying Hitt without the Bank’s consent. The Bank did
not consent to the payment of Hitt’s 2016 installment. He
does not contend that the Bank’s decision was unreasonable
but nonetheless insists that he is entitled to be paid.
Hitt’s theme is that payment to him is deferred only
when Oilgear is in default. Once the Bank waived its reme‐
dies, Hitt insists, the bar to payment evaporated. Section 2.3
of the tripartite agreement indeed allows either the default’s
cure or the Bank’s waiver of remedies to permit a resump‐
tion of payments to Hitt. But Hitt does not contend that the
default has been cured, and the Bank conditioned its waiver
on a power to approve additional payments to Hitt. No ap‐
proval, no waiver; and no waiver (or cure), no payment.
Section 1 of the tripartite agreement provides that Hitt
may be paid only if “both before and after giving effect to any
such payments, no Senior Default exists or would exist” (em‐

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No. 17‐2534 3
phasis added). If Oilgear were to pay Hitt without the Bank’s
consent, that would vitiate the Bank’s waiver and a default
“would exist”.
Hitt protests that the consent condition is in a deal be‐
tween Oilgear and the Bank. That’s true but irrelevant. The
tripartite agreement defines a “Senior Default” as “any de‐
fault … under any Senior Debt Document”—documents that
are contracts between Oilgear and the Bank. The waiver and
its condition are in a “Senior Debt Document” within the
scope of the tripartite agreement, so any act that would rein‐
state Oilgear’s default status also affects payments to Hitt.
He maintains that this understanding would make the
tripartite agreement illusory. Not at all. Hitt already has re‐
ceived $323,000 for his stock. The other $430,000 remains
due, with interest accumulating. It will be paid as soon as (a)
Oilgear cures its default, (b) the Bank consents, or (c) the
debt to the Bank is paid off through Oilgear’s merger or liq‐
uidation. Of course, if Oilgear does not have (and never ob‐
tains) the money to pay the Bank and Hitt too, then Hitt will
lose out, but that’s what it means to hold junior debt.
A FFIRMED

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