Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

FOSTER V. DELUCA (September 29, 2008)

Stacie Foster, a Democrat, was employed by the City of Chicago Heights, Illinois. Shortly after the citizens of Chicago Heights elected a Republican mayor, Anthony DeLuca, her employment was terminated. Foster brought suit against the City and DeLuca under 42 U.S.C. §1983, alleging that her First Amendment freedom of association rights had been violated. The district court granted a motion to dismiss and, on the same day, entered final judgment. Foster moved to alter the judgment pursuant to Rule 60(b) of the Federal Rules of Civil Procedure (FRCP) and to amend her complaint. The court denied the motions. Foster appeals.

In their opinion, Judges Rovner, Evans, and Williams reversed. The Court noted that relief under Rule 60(b) is extraordinary and that its review of the lower court’s denial of leave to amend is for abuse of discretion. Notwithstanding these high bars, the Court determined that the circumstances warranted a reversal. FRCP 15(a) provides that amendments to pleadings should be “freely given” and that one opportunity to amend is available “as a matter of course” before a responsive pleading is served. Since the motion to dismiss is not considered a responsive pleading under Rule 15(a), the court have either given Foster an opportunity to amend or provided an explanation for its denial. The court abused its discretion in not doing either. Also, the court left Foster with no option but to move to alter the judgment since it entered final judgment the same day.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

ANDREWS v. CHEVY CHASE BANK (September 24, 2008)

The Andrews refinanced their home through Chevy Chase Bank in 2004. They knew a great deal about mortgages, having taken out many for both residential and investment properties. For their 2004 mortgage, they chose a unique and flexible loan that allowed them to vary their monthly payment based on their cash flow. Chevy Chase provided preliminary disclosures, truth-in-lending disclosures at closing, and an adjustable rate rider. The Andrews believed that the minimum monthly payment and interest rate were fixed for a term of five years. In fact, the minimum monthly payment was fixed but the lender adjusted the interest rate each month. The Andrews filed a class action against Chevy Chase Bank, alleging that its disclosures were confusing, misleading, and violations of the Truth in Lending Act (“TILA”). They sought statutory damages, rescission, and attorneys’ fees. The district court granted summary judgment to the Andrews on their rescission and fees claims and denied their claim for statutory damages. The court also granted class certification under FRCP 23(b)(2) and declared that all class members would have the ability to rescind. Chevy Chase appeals.

In their opinion, Judges Manion, Evans (dissenting), and Sykes reversed. The majority noted that TILA allows class actions in a damages action but whether a class can be certified in a TILA rescission action is a matter of first impression in the Seventh Circuit. The First and Fifth Circuits and the California Supreme Court have each held that it cannot. The Court first examined the rescission remedy in TILA. Unlike a statutory or actual-damages remedy, rescission requires the unwinding of a particular transaction and imposes duties on the creditor and debtor in working out the logistics of the rescission. These variations, in the Court’s view, make rescission a poor candidate for class action procedures. The panel distinguished the Supreme Court’s Yamasaki decision, which held that class relief is appropriate “[i]n the absence of a direct expression by Congress” otherwise. The Court focused on the distinction between the jurisdictional statute in Yamasaki and the private rescission process written into the TILA. The majority conceded that the presence of a cap in class action suits seeking damages, and not suits seeking rescission, can support either argument. It can be read to just mean that Congress intended no cap in rescission suits, but the majority thinks that interpretation “strains credulity” and opts instead for the explanation that Congress did not provide a class action vehicle for the rescission remedy. The majority considered and rejected the Andrews’ other arguments.

In dissent, Judge Evans first stated that the statute is unambiguous and does not present a legal bar to a rescission class action, relying on Yamasaki. He added that, even if ambiguous, the statute should be construed consistent with and supported by the language and purpose of the statute. Thus, TILA should favor the victims of the ills sought to be controlled by its terms. Judge Evans also addressed the individual nature of the unwinding process relied on by the majority. He noted that a particular class may not meet the requirements of Rule 26, but whether it does depends on Rule 26, not the TILA.
  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 UNIV. OF CHICAGO HOSPITALS v. UNITED STATES (September 23, 2008)

The University of Chicago Hospitals (“UCH”) is an Illinois not-for-profit corporation that administers graduate medical education programs. One such program is its residency program, in which medical school graduates perform services at the hospital as part of their medical training. In return for these services, UCH paid residents a salary and paid FICA taxes to the United States on their behalf. UCH applied for a refund of the FICA taxes paid in 1995 and 1996 on the grounds that the residents qualified for the “student exemption” to FICA in the Internal Revenue Code (“IRC”). In the district court, the United States moved for summary judgment, arguing that residents could not qualify as “students” as a matter of law under the IRC. The district court rejected the argument, denied summary judgment, and certified its order for appeal.

In their opinion, Judges Bauer, Cudahy, and Sykes affirmed. The Court started with the language of the student exemption itself, which excludes from the term “employment” any “service performed in the employ of . . . a school . . . if such service is performed by a student who is enrolled and regularly attending classes at such school . . . .” Then the Court addressed the government’s argument that residents did not qualify under the unambiguous, literal language of the statute. The government argued that a resident is not a “student” and a hospital is not a “school” in the common and natural meaning of those words. The Court disagreed with such a narrow reading of the words. In fact, it held that the unambiguous language of the clause did not exclude residents from qualifying.
Although it found the statute unambiguous, the Court nevertheless addressed the government’s arguments that it would have considered had it found ambiguity. The government relied on the legislative histories of the student exemption and the intern exemption, the later repeal of the intern exemption, and a post-1996 amendment to the student exemption that excluded students who worked in excess of forty hours per week. It concluded that, combined, these supported an interpretation that excluded residents from the definition of “student.” The Court did not agree. Instead, it found that, to the extent the statute was ambiguous, the relevant regulations called for a case specific approach to eligibility and that approach was a permissible and proper interpretation of the statute. 
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 UNITED STATES V. CAPITAL TAX CORP. (September 19, 2008)

National Lacquer operated a paint and coatings business on Chicago’s south side for years. Hazardous materials were used, stored, and spilled at the site. When National Lacquer fell on hard times and lagged on its property taxes, the county made five of the seven separate parcels comprising the site available at a tax scavenger sale. Capital Tax Corporation (“Capital”), which buys and sells distressed properties, acquired tax certificates to the five parcels. The certificates did not pass title but gave Capital the option, if the parcels were not redeemed by the owner, to petition for a tax deed. Capital then (it is alleged) entered into an oral agreement for the sale of the parcels to Dukatt. Capital obtained the tax deeds only after receiving a payment from Dukatt, ostensibly a partial payment for the property. Beginning in 2002, the local and federal environmental authorities became interested and inspected the property. The EPA ordered Capital to clean up the property. After Capital refused, the EPA conducted its own cleanup. It sued Capital (and the owners of the other two parcels) to recover the costs of cleanup, civil penalties, and punitive damages. The district court granted summary judgment to the government on liability and damages. It found Capital jointly and severally liable for response costs in excess of $2.6 million and assessed civil penalties of $230,250. Capital appeals.

In their opinion, Judges Cudahy, Posner, and Rovner vacated the decision of the district court and remanded. After a brief statement regarding the government’s authority to conduct the cleanup and impose strict joint and several liability in defined circumstances, the court moved directly to the government’s basis for holding Capital liable. The government argued that Capital was liable as an “owner” because it held legal title to several of the parcels. Capital, on the other hand, argued that it held title only as security for the balance of the agreed sales price. It therefore fit into an exception whereby a person who “holds indicia of ownership primarily to protect his security interest” in land is not an “owner.” The district court had rejected Capital’s argument because it did not hold title as a traditional security interest.

The Court decided that the parties' reliance on the "security interest" exemption to the definition of owner was the wrong way to analyze the issue. In fact, the Court declined to decide that issue, although it found Capital's argument "colorable." Instead, it defined the issue as whether Capital was even an "owner" under section 107(a)(1) of CERCLA. The Court recognized the long-held principle that the equitable interest in the five parcels passed from Capital to Dukatt at the time of the contract for sale. The more difficult questions it faced were whether that doctrine, equitable conversion, was recognized by CERCLA and, if so, whether the court should develop a federal common law or rely on state law. On the first question, the Court noted that CERCLA did rely on common law analogies. The court cited favorably to two federal appellate cases and a number of district court cases that had held that a holder of legal title in a non-traditional arrangement was not an owner under CERCLA. Relying on these cases as well as general principles of common sense and common law analogies, the court found a sufficient basis to proceed in its analysis. On the second question, it saw no need for a federal common law. It held that state property law should apply in determining property ownership under CERCLA. Because neither the equitable conversion nor the Illinois property law issues were fully developed in the court below, the Court remanded for a full consideration by the district court of whether there was an enforceable land sales contract under Illinois law and whether the doctrine of equitable conversion applies in the case.

Capital also argued that it should have been liable for only a portion of the costs of cleanup. The Court recognized the CERCLA principle that a party can avoid joint and several liability if it can carry the burden of establishing divisibility of harm. Capital relied on an EPA document that tracked the parcels from which each of thousands of containers was removed. But the fact that the document did not include many other costs of cleanup, as well as the facts that a) many of the containers had been moved, b) the facility was historically operated as a single enterprise, and c) spills and leaks caused the product to cross parcel lines led the court to reject Capital’s divisibility argument.

Finally, the Court did not rule on Capital’s objection to the imposition of costs and penalties related to the two parcels it did not own. Given that it was remanding on liability, it vacated the district court’s award of damages for reassessment, if necessary, after the determination of liability. 
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

DEICHER v. CITY OF EVANSVILLE, WISCONSIN (September 19, 2008)

Mary Mezera divorced Jimmy Reiners after years of alleged physical and psychological abuse. She remarried and moved from Evansville, Wisconsin into a new community, keeping her location secret from Reiners. In February 2006, Reiners phoned the Evansville Police and asked for Mezera’s current address, claiming he needed to contact her in relation to past due mortgage payments. The police obtained her address from the state motor vehicle records and gave it to Reiners. He began to contact Mezera, putting her and her husband in fear of their safety. Mezera and her husband sent a Notice of Claim to the Police Department on April 22. They filed suit on June 30, alleging a violation of the Driver’s Privacy Protection Act (“DPPA”). During damages deliberations at trial, the jury asked for the date of the filing of the complaint, a date which was not in the record. The plaintiffs asked that instead they be given the Notice of Claim, which was a trial exhibit. The trial judge gave the jury the date of the complaint and refused to provide the Notice of Claim. The jury awarded $25,000 in compensatory and punitive damages. The district court granted plaintiffs’ request for attorney fees under DPPA but reduced the amount from almost $200,000 to $25,000 on the ground that the fee award should not exceed the damage award. Then he reduced their request for fees in preparing the fee petition by an equal percentage on the ground that that was the degree to which their petition was successful. Plaintiffs appeal.

in their opinion, Judges Posner, Rovner, and Williams reversed and remanded for a new trial on damages. The Court considered whether the lower court erred in providing the date of the complaint to the jury or erred in not providing the Notice of Claim. First, the Court held that the date of the filing of the complaint is a public record, not extrinsic evidence, and therefore the court did not err. Next, the Court observed that it is generally within the trial court’s discretion to determine which exhibits are provided to the jury. Thus, a trial court’s decision is reviewed under a clear abuse of discretion standard. Nevertheless, the court found a clear abuse of discretion here. At trial, the plaintiffs argued that the police officer who gave the address to Reiners had fabricated his report in order to come within an exception to DPPA liability. The date on which the police first learned of the claim (i.e., the date of the Notice) was a key part of this argument. The plaintiffs argued to the trial court that the real target of the jury’s inquiry during their deliberations was the date of the Notice, not the date of the complaint (which had not even been discussed at trial). The Court emphasized that the error was not in failing to provide the Notice but the possible prejudice in providing the date of the complaint without providing the Notice, thus possibly creating confusion in the eyes of the jury.
Although the Court did not rule on the plaintiffs’ objections to the district court’s fee decisions because of the remand, it did note that the automatic reduction of trial fees to the amount of the damage award and the automatic reduction of the fee petition fee in the same ratio were “likely unreasonable.”
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

TATE V. LONG-TERM DISABILITY PLAN FOR SALARIED EMPLOYEES OF CHAMPION INT’L CORP. #506 (September 19, 2008)

in 1988, Jo Ann Tate left her job with Nationwide Papers as a sales representative because of problems with anxiety and depression. Her employer’s benefits plan (the “Plan”), governed by ERISA, gave her the right to short-term and long-term disability benefits. The long-term disability program was divided into two stages. A person could receive up to two years of long-term disability on a showing that she was unable to perform the duties of her job. After two years, a person had to show that she was unable to perform the duties of any job for which she was or could be qualified. Tate received short-term disability benefits for six months and applied for and was granted long-term disability benefits in 1999. In 2003, the Plan notified Tate that she was no longer eligible for benefits because she did not meet the second stage (i.e., any job) test. The Plan based its decision terminating her benefits on the report of a physician who had not examined Tate but had access to her file. Tate appealed the denial. A second physician reviewed her file and came to the same conclusion. She based her conclusion on the facts that Tate kept her home, complied with her treatment schedule, and experienced some benefit from medication. Tate challenged the determination in district court. On cross motions for summary judgment, the court found that the Plan’s decision to terminate her benefits was arbitrary and capricious in that it consisted only of conclusory statements unsupported by fact. The court specifically noted the absence of any employability review or identification of jobs available to Tate. The Plan appeals. In addition, the court remanded in order for the Plan to make a proper determination of benefits and denied Tate’s request for attorneys’ fees. Tate appeals.

In their opinion, Judges Posner, Kanne, and Williams affirmed all aspects of the district court’s decision. On the Plan’s appeal, the Court noted its de novo review of the district court’s decision and the highly deferential, “arbitrary and capricious,” standard of review of the denial of benefits. Nevertheless, the panel found that it was arbitrary and capricious because neither physician’s report was based on any explanation or reasoning. The first physician apparently did not even review her employment file. The second physician reviewed her employment file but did not tie the conclusion that Tate was unable to work to anything that was relevant to that issue. ERISA requires the Plan to assess her qualifications to work and relate those to jobs she might be able to perform.

Tate’s appeal argued that reinstatement, not remand, was appropriate because the Plan terminated previously awarded benefits, and did not simply deny benefits. Tate relied on the fact that the Plan provided benefits for two years after the “any job” standard took effect. The Court was puzzled by the Plan’s continued payments of benefits after two years without any determination but still found no such determination and held that a remand was proper. The panel also agreed with the district court’s conclusion that obtaining a remand in an ERISA case is not equivalent to “prevailing” for purposes of attorneys’ fees awards. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

ABENA v. METROPOLITAN LIFE INS. CO. (September 16, 2008)

Albert Abena worked as a dentist for American Dental Partners, Inc. (“ADP”). ADP provided long-term disability benefits to eligible employees through a plan administered by Metropolitan Life Insurance Co. (“MetLife”). An employee seeking benefits had to file a “Proof of Disability” within three months of the end of an “Elimination Period” (a ninety day period from the date of disability during which benefits were not paid). The Plan provided that no legal action could be filed before the sixtieth day after the filing of the Proof of Disability or after three years from the date Proof of Disability had to be filed. Abena submitted a Proof of Disability on October 23, 2000. He asserted that his disability commenced on May 16, 2000. MetLife approved the claim in early 2001 and began paying benefits. After learning that Abena was again working as a dentist, MetLife reviewed his claim and notified him on August 8, 2002 that his benefits would be terminated. Abena took advantage of an internal appeals process. MetLife affirmed its decision on April 16, 2003. Abena filed suit on April 17, 2006 under ERISA against ADP and MetLife. The district court granted summary judgment to the defendants on the ground that the suit was not timely filed. Abena appeals.

In their opinion, Judges Manion, Rovner, and Evans affirmed. The Court agreed with the court below that the issue was controlled by the Court’s 1997 decision in Doe v. Blue Cross Blue Shield United of Wisconsin. In Doe, the Court noted that ERISA did not contain a Statute of Limitations and that the normal practice would be to borrow a limitations period from a closely analogous statute. It also held that a shorter contractual limitations period would be enforced if it was reasonable. Doe dealt with an employer-sponsored health plan. Like the ADP plan, the Doe plan provided that a claimant had to file for reimbursement within ninety days of the date of service and that the claimant could not initiate a suit after three years from the last day a claim could be filed. The plan also required a claimant to pursue an internal appeals process. The appeals process in Doe was concluded with seventeen months left in the three year limitations period. Particularly given that the claimant was represented by counsel, the Court held that the seventeen months was reasonable and enforceable. In applying Doe to Abena’s situation, the three year period expired in November of 2003. MetLife notified him of its affirmance of termination of benefits in April of 2003. Abena, therefore, had seven months to file suit. Abena argues that Doe was an initial claim case and his is a denial of previously granted benefits and therefore distinguishable. The Court agreed that the limitations provision may be better suited to an initial claim but did not see that as a reason to depart from Doe’s holding. The Court also agreed with Abena that a situation could arise in which benefits were paid for thirty nine months before termination, leaving no time to bring suit. Unfortunately for Abena, the Court’s view was that the possibility of that result did not invalidate the limitations period or make a seven month period unreasonable – it merely would have made the application of the provision in that case unreasonable. Abena, too, was represented by counsel. In those circumstances, the Court held that a seven month period was reasonable and enforceable. 
  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

REID v. KOHL’S DEPARTMENT STORES, INC. (September 16, 2008)

On a December afternoon, Lenora Reid and a friend were shopping for men's shirts at Kohl’s Department Store. As they moved through the store from a carpeted section into a tiled section, she slipped and fell. Reid noticed a pink milkshake and cup lying in a pool on the floor. A manager arrived to assist and also noticed the spill. The manager had passed through the same area ten minutes earlier and had not seen a spill. Reid brought a negligence action against Kohl’s. On Kohl’s motion, the court granted summary judgment. The court found that (a) Kohl’s had no actual or constructive notice of the spill, and (b) the spilled shake was an open and obvious condition that created no duty on the part of Kohl’s. Reid appeals.

In their opinion, Judges Bauer, Wood, and Williams affirmed. The Court restated the Illinois law that business owners owe their invitees a duty to keep their physical premises in a reasonably safe condition. Liability is found for a slip-and-fall on a foreign substance if the invitee establishes that the business had actual or constructive knowledge of a dangerous condition. Reid attempted to establish constructive knowledge. The Court held that Reid needed to present evidence on how long the foreign substance had been on the floor. She presented evidence only of a photograph of the scene and her and her friend’s lay opinion testimony. The Court found none of that evidence strong enough to support even an inference of any measurable length of time. Conversely, the manager testified that she was in the area ten minutes before the fall and that the spill had not been there at the time. The Court observed that Illinois law does not employ a bright line test but considers the circumstances of the case to determine the existence of constructive notice. Considering the circumstances here, including Kohl’s internal procedures for monitoring for dangerous conditions and the actual monitoring done in an “almost empty” store, the Court held that no reasonable person could conclude that ten minutes is constructive notice.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link