In Their Opinion Is On Hiatus
In Their Opinion will be on hiatus for a few months. I hope to be back in the fall.
Wisconsin's "Disorderly House" Statute Is Not Void For Vagueness"
HEGWOOD v. CITY OF EAU CLAIRE (April 9, 2012)
Nasty Habit is a popular bar in Eau Claire, Wisconsin. Between 2003 and 2006, the bar was the scene of many disturbances involving either over-served patrons or fights between patrons and the bar's own employees. Although the City expressed its concerns to the bar in late 2005 and received a commitment to change, the incidents continued. The City issued a complaint for revocation of the Nasty Habit's liquor license. It alleged that the bar was a "disorderly house" under Wisconsin law. After an administrative hearing, the City Counsel revoked the license. The bar filed suit in federal court alleging a due process violation. Chief Judge Conley (W.D. Wis.) granted summary judgment to the City. Nasty Habit appeals.
In their opinion, Seventh Circuit Judges Flaum and Rovner and District Judge Castillo affirmed. The bar alleged that the statute was unconstitutionally vague, both as applied and on its face. The Court noted that the void for vagueness doctrine required sufficient definiteness for ordinary people to understand whether conduct is prohibited. Here, the statute allows for license revocation if the holder of the license "keeps or maintains a disorderly or riotous, indecent or improper house." The Court recited the litany of incidents at the bar, including fights involving employees, hiding underage girls, and over-serving customers, to name a few. Given that history, Court concluded that there was "no doubt" that the conduct met the statutory definition, even commenting that the bar was probably the wrong plaintiff to challenge the statute. Having concluded that the statute was not unconstitutional as applied, the Court had no need to address the facial attack.
Court Lacked Jurisdiction Over Former Employees' Inadequate Bargaining Claim
COPELAND v. PENSKE LOGISTICS LLC (April 6, 2012)
When Penske Logistics lost its contract to provide transportation services for the Indianapolis Star, it went out of business. It agreed to provide its employees several benefits, including recall rights, severance, and reemployment assistance. Several former employees filed suit against both Penske and the Union pursuant to Section 301 of the Labor-Management Relations Act. Chief Judge Young (S.D. Ind.) granted summary judgment to the defendants. He concluded that plaintiffs failed to meet either prong of a Section 301 action. First, they did not even allege that Penske violated the collective bargaining agreement. Second, they cannot contend that the Union violated its duty of fair representation since they never even complained to the Union. Plaintiffs appeal.
In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Tinder and Hamilton affirmed in part and vacated and remanded in part. The Court addressed the two arguments made on appeal. First, the plaintiffs contend that Penske could have been more generous with its benefits and had the cost covered by the Star under its contract with the Star. The Court noted that this claim was not a federal labor law claim, but rather a common law contract claim. The claim does not arise out of the same "controversy" as the alleged breach of the collective bargaining agreement so there is no supplemental jurisdiction. Although the plaintiffs allege diversity jurisdiction, they failed to provide any facts in support and the Court noted that it appeared that diversity jurisdiction did not exist. Second, with respect to the plaintiffs' contention that the Union failed to bargain hard enough, the Court identified a second jurisdictional problem. Section 301 only covers actions for violation of the collective bargaining agreement. The plaintiffs do not allege a violation of the agreement -- only a failure to bargain hard enough to get a better agreement with Penske. That claim is a claim alleging an unfair labor practice which is within the exclusive jurisdiction of the National Labor Relations Board. The Court affirmed summary judgment on the contract claim and remanded to dismiss for lack of jurisdiction on the unfair labor practice claim.
Complaint Adequately Alleged Enough Facts To Proceed In Face Of In Pari Delicto Defense
PETERSON v. MCGLADREY & PULLEN (April 3, 2012)
Gregory Bell established several mutual funds in 2002 and raised $2.5 billion. Most of the money was invested in companies controlled by Thomas Petters. It turns out that Petters was running a Ponzi scheme rather than a legitimate organization. He was exposed in late 2008. The funds lost approximately 60% of their value and entered bankruptcy. Ronald Peterson was appointed trustee. Peterson brought suit against McGladrey & Pullen, the funds' auditors. He alleged that the auditors were negligent in failing to discover the irregularities. Judge Bucklo (N.D. Ill.) dismissed the complaint on in pari delicto grounds. Under that doctrine, one cannot claim to be the victim of a fraud in which one participated. Therefore, if Bell was in on the scam, neither he nor his funds have a claim against the auditors. Peterson appeals.
In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Bauer and Sykes vacated and remanded. The Court noted that Peterson's complaint alleges that Bell was part of the scheme beginning in early 2008 and seeks damages only for the auditors' activity prior to that time. The district court was wrong in presuming that Bell was involved earlier. The Court was not troubled by the fact that Peterson, as Trustee, had a separate suit against Bell alleging that he was involved in the scheme earlier then 2008. There is nothing wrong with inconsistent pleadings and, since that suit is still pending, the doctrine of judicial estoppel does not apply. Although the Court agreed with the Trustee that the district court erred, it rejected the Trustee's contention that the in pari delicto doctrine should not apply once a firm enters bankruptcy. Generally, bankruptcy law relies on state laws for defining property. If a state accepts the in pari delicto doctrine, it should be applied in the bankruptcy courts applying that state's laws.
Post-Trial Motion Due Date Extension Does Not Extend Date For Appeal
BLUE v. INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (April 2, 2012)
Susan Blue had an outstanding performance record as an administrative assistant at the International Brotherhood of Electrical Workers for thirty years until early 2006. It was then that Alexander Phillips filed a race discrimination complaint against the Union. When she questioned her immediate supervisor about what she perceived as discrimination, Blue alleges that he started treating her differently. He changed her job responsibilities, denied her overtime, disciplined her for minor infractions, accused her of being excessively tardy, and suspended her without pay. Blue ended up taking medical leave and filed a federal complaint. After a jury trial, Blue was awarded over $200,000 in damages. Chief Judge Conley (W.D. Wis.) entered judgment on August 9, 2010. At the request of the Union, and without Blue's opposition, Conley later extended the post-trial motion deadline. The Union filed Rule 50(b) and Rule 59(a) motions on September 10. The court denied both motions. The Union appeals.
In their opinion, Seventh Circuit Judges Rovner, Wood, and Williams affirmed. The Court first turned to its jurisdiction. It noted that an appeal was not filed within the requisite 30-day period but that the timely filing of certain post-trial motions tolls the beginning of the period. But here, the Union did not file its a post-trial motions within the 28-day period required by Rules 50 and 59. Although the district court purported to extend the 28-day deadline, the Court noted that it was prohibited from doing so. Since the motions were not timely, they did not affect the time within which the Union had to appeal from the underlying judgment. Therefore, the Union's only appeal is from the district court's denial of the two motions. The Court rejected the Union's request to consider Blue's failure to object to the extension as a reason to allow the tolling. It sided with authority from the Third Circuit, rather than the Sixth, on that question. The Court turned to a second jurisdictional issue -- whether the district court even had the authority to rule on the untimely motions. Since Rule 50 and 59's timeliness were not set by Congress but were set by the Supreme Court pursuant to the Rules Enabling Act, they are claims processing rules and not jurisdictional. The district court therefore had the authority to consider the motions. Although the district court had the authority to consider the motions, its authority is provided by Rule 60, not by Rules 50 or 59. The only possible relief under Rule 60 is the "exceptional circumstances" standard in rule 60(b)(6). The Union argues that it meets that standard because the district court admitted parts of Phillips' case file into evidence and because there was insufficient evidence to support the verdict. The Court rejected both arguments. It found the Phillips' evidence relevant to Blue's burden to show a causal relationship between her involvement in Phillips' case and her treatment. The Court did not abuse its discretion in allowing it. It also found "more than sufficient" evidence to support the jury verdict.
Individuals Not Liable For Fees Are Not Entitled To Fee Award
OWNER-OPERATOR INDEPENDENT DRIVERS ASSOCIATION v. FEDERAL MOTOR CARRIER SAFETY ADMINISTRATION (April 2, 2012)
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Three individual truck drivers and the Owner-Operator Independent Drivers Association petitioned for review of a final order of the Federal Motor Carrier Safety Administration regarding electronic monitoring devices. In its opinion on the merits, the Seventh Circuit vacated the rule in question. The three individuals petitioned for attorney's fees under the Equal Access to Justice Act. Although represented by the same lawyers, the Association itself did not petitioned the Court for fees.
In their opinion, Seventh Circuit Judges Rovner and Wood and District Judge Gottschall denied the petition. The Act requires a court to award fees and costs to the prevailing party unless the United States' position is substantially justified. But it excludes from the definition of prevailing party any individual with a net worth in excess of $2 million or any organization with a net worth in excess of $7 million. Since the Association did not join in the petition, the Court assumed that it did not qualify under the net worth test. The issue for the Court, therefore, was whether it should award fees to the qualifying individuals. It concluded that it should not, based on the specific relationship between the individuals and the law firm representing them. Here, the law firm representing all the parties had a 20-year relationship with the Association and no prior relationship with the individuals, the Association's agreement with the law firm required it to pay all the fees and costs in litigating the case, and the firm's time records show numerous consultations with the Association but none with the individuals. Under the circumstances, the Court concluded that a fee award was inappropriate. The Court emphasize, however, that a party's liability for fees is not necessarily always going to be dispositive. For example, fees could be awarded even if an insurance company covered the fees or if the petitioner was represented pro bono or by a legal services corporation.
"Holder" Claim In Heavily Traded Stock Fails
ANDERSON v. AON CORPORATION (March 29, 2012)
Robert Anderson owned shares in Aon Corporation during a time when, he alleges, the company was mismanaged and, furthermore, was concealing the mismanagement. He brought suit, alleging that the concealment caused him to hold his shares rather than sell them. In an earlier appeal, the Seventh Circuit held (opinion and intheiropinion) that he stated a "holder" claim under California law. Unlike federal law, California does not require the purchase or sale of a security for a damages claim. On remand, Judge Pallmeyer (N.D. Ill.) dismissed the complaint on the grounds that the complaint did not adequately allege defendants' state of mind, Anderson's reliance, or the damages related to the concealment rather than the mismanagement. Anderson appeals.
In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Williams and Tinder affirmed. The Court concluded that the district court was correct -- albeit for a different reason. The first appeal identified causation as an issue and Aon advanced it as an alternative grounds for affirmance. The Court noted that many active professional traders trade in Aon stock. As a result, the price adjusts more quickly than individual traders can respond. Anderson complains that he was damaged by Aon's concealment. But if Aon had disclosed the corporate mismanagement earlier, the market would have responded before Anderson could have. He cannot show otherwise.
Silent History Supports Conclusion That NRC Amendment Did Not Reverse Long-Standing View
EXELON GENERATION COMPANY v. LOCAL 15, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (March 29, 2012)
In 1991, the Nuclear Regulatory Commission promulgated regulations requiring nuclear generator operators to develop programs governing unescorted access within their nuclear facilities. Among other things, the regulations provided that only a licensee could grant unescorted access, that a licensee could delegate to a contractor certain elements of the authorization program, and that a licensee had to have review procedures for any employee whose unescorted access privileges were revoked or denied. For almost 20 years, the Commission took the position that labor arbitrators could review and reverse access denials for employees in unionized plants. In 2008, in a lawsuit between Exelon and Local 15 of the International Brotherhood of Electrical Workers, a federal district court held that access denials were grievable and that the regulations did not foreclose an arbitrator's review In 2009, the Commission revised the regulations. After the revisions, an operators' consortium updated its implementation criteria in which it stated that unescorted access decisions are subject only to an internal management review and could not be reviewed by a third party (including an arbitrator). The Commission staff reviewed the implementation criteria and found that it met "the intent and substance of" the new regulations. Exelon filed another complaint for a declaratory judgment that the 2009 amendments changed the Commission's view on the issue. Judge Gettleman (N.D. Ill.) granted summary judgment to Exelon. Local 15 appeals.
In their opinion, Seventh Circuit Judges Kanne, Sykes, and Hamilton reversed. The Court applied the same rules of construction it would apply to statutes. The first of those rules is to determine whether the regulation has a plain and unambiguous meaning. If so, that meaning governs. If not, the Court will resort to other means to ascertain the intended meaning. The Court first addressed the modification that required an independent internal management review as part of the review procedure. The earlier version of the regulation allowed, but did not require, an internal management review. The Court concluded that the regulation was clear and unambiguous and did not, as Exelon urged, preclude any form of review that was not the internal management review. The Court turned to another section of the regulation that provided that a licensee was the only one who could grant unescorted access. Exelon urged that the regulation therefore prohibited an arbitrator's review. Although the Court agreed that the provision was ambiguous and susceptible to multiple meanings, it ultimately concluded based on context that Exelon's reading was wrong. Most significant to the Court was the fact that review by an arbitrator was a very controversial issue when the regulation was first promulgated, that the Commission adopted an unequivocal position that the regulation did not prohibit review by an arbitrator, and that nowhere in the text of the modified regulation or any of its history does the Commission suggest that it is adopting such a fundamental change. The Court reasoned that it can expect an agency to say something when it reverses a significant, long-standing policy. Finally, the Court rejected Exelon's contention that the Commission's acceptance of the industry consortium's position is entitled to Auer-Seminole Rock deference. Under that concept, an agency's interpretation of its own regulation is generally controlling unless it is plainly erroneous or inconsistent with the regulation. The Court declined to give deference to the Commission's action. The Commission merely described the guidance as acceptable. It did not adopt or incorporate it by reference. In fact, the APA would not have permitted the Commission staff to endorse an interpretation that contradicts the Commission's own prior interpretation. The guide is the industry's interpretation -- not the Commission's -- and is not entitled to deference.
Failure To Protect Confidential Information Forfeits Protection
FAIL-SAFE, LLC v. A.O. SMITH CORP. (March 29, 2012)
Sometimes the suction created by a swimming pool drain can trap a swimmer underwater. Both Fail-Safe and A. O. Smith have been involved in developing technologies that prevent such entrapment. Several years ago, representatives of both companies began discussing a possible joint development project. Although the discussions continued over the course of years, no formal agreement was ever reached. Fail-Safe agreed to A.O. Smith's standard confidentiality agreement but never requested, or even mentioned, a reciprocal agreement from A.O. Smith. Notwithstanding this lack of protection, Fail-Safe freely shared information with A.O. Smith. By late 2004, the companies had ended their discussions of a joint project. In 2006, A.O. Smith introduced two new pump motors. Fail-Safe filed suit alleging misappropriation of trade secrets and unjust enrichment, claiming that the motors incorporated Fail-Safe's trade secrets. Judge Stadtmueller (E.D. Wis.) granted summary judgment to A.O. Smith. The court found that both claims failed because Fail-Safe did not take reasonable steps to protect its information. Fail-Safe appeals.
In their opinion, Seventh Circuit Chief Judge Easterbrook, Circuit Judge Cudahy, and District Judge Pratt affirmed. The Court first addressed the trade secret misappropriation claim. It noted that Wisconsin law requires an owner of proprietary information to take reasonable steps to maintain its secrecy. The Court agreed with the district court that Fail-Safe failed to take those reasonable steps and thereby forfeited any trade secret protection. In fact, the Court stated that Fail-Safe took no steps to protect its information even after it agreed to A.O. Smith's confidentiality request. Furthermore, the record contains no evidence that any relationship existed between the two companies that would have excused Fail-Safe's failure to protect its information. The unjust enrichment claim fails for much the same reason. Under Wisconsin law, one who profits from another's idea is not liable for unjust enrichment if the idea was not a trade secret.
"Arguable Probable Cause" Leads To Qualified Immunity
FLEMING V. LIVINGSTON COUNTY (March 28, 2012)
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Roger Fleming was walking his dog in a Flanagan, Illinois alley in the early morning hours one summer day when Sheriff's deputy David Turner arrested him for burglary and aggravated sexual assault. Turner had come from a local residence where two teenage girls reported being sexually assaulted in their living room. Fleming and his clothing matched the general description given by one of the girls and Turner came across him just a short distance from the crime scene. Before arresting Fleming, Turner spoke with a local state's attorney to confirm his belief that he had probable cause for the arrest. He told the prosecutor that he came upon Fleming two to three minutes after first hearing of the assault. The prosecutor confirmed his belief that probable cause existed. Before transporting Fleming to jail, Turner also had one of the girls identify him in "show up" under a streetlight. Charges were later dismissed and Fleming filed suit against Turner for false arrest and against the County for indemnification. During summary judgment briefing, and after the close of discovery, Fleming submitted a report from a private investigator that concluded that the activities in the time span Turner estimated at 2 to 3 minutes would have had take almost 7 minutes to complete. Although Judge McDade (C.D. Ill.) granted the defendants' motion to strike the evidence, he nevertheless considered it in ruling on the summary judgment motions. He granted summary judgment to the defendants on qualified immunity grounds. Fleming appeals.
In their opinion, Seventh Circuit Judges Manion and Williams and District Judge Castillo affirmed. The Court noted that Turner would prevail either a) if probable cause existed or b) if he was entitled to qualified immunity. The Court declined Turner's invitation to revisit the district court's refusal to conclude that probable cause existed as a matter of law because of its belief that the district court was correct to find qualified immunity. The arresting officer is entitled to qualified immunity in a false arrest case if a reasonable officer could have concluded that probable cause existed, even if that conclusion is a mistaken one. Here, the Court had no difficulty in concluding that "arguable probable cause" existed. Fleming was spotted within minutes of the assault, he was the only person around, and he matched the victim's description in most respects. Turner even took the additional step of confirming his belief with the prosecutor. The fact that Turner may have been wrong about the 2 to 3 minutes and that Fleming's t-shirt may not have matched the description perfectly do not compel a different conclusion. In order to attack Turner's probable cause finding on the ground that he fabricated evidence with respect to the time span, Fleming would have to show that Turner was either intentional or reckless in disregarding the truth and that the falsifications are material. He can satisfy neither of those requirements. Since Turner is entitled to qualified immunity, the indemnification claims must also fail.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select