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

ANDONISSAMY v. HEWLETT-PACKARD CO. (November 7, 2008)

Sanjay Andonissamy, a French citizen of Indian ancestry, began his employment with Hewlett-Packard (“HP”) in April of 2001. He was in the country on an HP-sponsored H-1B visa. [The following is Andonissamy’s version of the story – HP’s version differs greatly] After the events of September 11, 2001, Ken Smith, Andonissamy’s supervisor, began to make derogatory racial, ethnic, and nationalist remarks to and about Andonissamy. Andonissamy frequently complained to Smith’s supervisor. Smith placed Andonissamy on remedial performance plans, allegedly in retaliation for Andonissamy’s complaints about Smith. Andonissamy began taking medication for anxiety and depression in 2002. He was being treated, but his physician never placed him on any restricted work schedule. Andonissamy’s condition worsened in early 2003 after the deaths of his brother and nephew. In May of 2003, Smith made a false report to the company implicating Andonissamy as a security threat. HP fired Andonissamy on June 23, 2003. On September 16, Andonissamy filed an EEOC complaint alleging national origin discrimination. The EEOC dismissed his complaint and issued a right to sue letter. Andonissamy filed a complaint in federal court in April of 2004. In addition to his complaints of national origin discrimination under Title VII and 42 U.S.C. § 1981, Andonissamy added a Family and Medical Leave Act count. In November of 2005, Andonissamy added Smith as a defendant on an assault count. The district court dismissed Smith and granted summary judgment to HP. Andonissamy appeals.

In their opinion, Judges Flaum, Williams, and Sykes affirmed. The Court first addressed Andonissamy’s Title VII hostile work environment claim. In order to survive summary judgment, Andonissamy had to show that a) he was subjected to unwelcome harassment, b) the harassment was based on his national origin, c) it was severe and pervasive enough to amount to a hostile and abusive environment, and d) there exists a basis for employer liability. The Court did not address the first three elements because it found no basis for employer liability. An employer can be vicariously liable for the conduct of a supervisor but can only be liable for the conduct of a co-worker if the company was negligent in discovering or remedying the harassment. A supervisor for purposes of Title VII is the person with the ability to affect the terms and conditions of the plaintiff’s employment. Smith, although he was Andonissamy’s “supervisor” in the sense that he directed his performance, was not a Title VII supervisor. There was no evidence that Smith was able "to hire, fire, promote, demote, discipline or transfer" Andonissamy. In order to hold HP liable for the acts of Smith as co-worker, Andonissamy had to establish that he complained or that the discrimination was so pervasive that HP’s knowledge could be inferred. Although Andonissamy did complain to Smith’s supervisor, he did not specifically complain about national origin discrimination. The Court agreed with the district court that Andonissamy therefore did not make out a Title VII claim. With respect to his companion § 1981 claim, the Court stated that a plaintiff can proceed under the direct or indirect method. The direct method requires evidence that an adverse employment action was based on the plaintiff's national origin. The Court found no such evidence in the record. Under the indirect method, a plaintiff must establish, among other elements, that he was meeting his employer’s legitimate performance expectations. The Court noted that the record contained numerous references to Andonissamy’s performance problems. The Court concluded that Andonissamy was therefore unable to establish a § 1981 claim under either method.

Andonissamy’s retaliation claim could also be established under the direct or indirect method. The indirect method for retaliation, like discrimination, contains an element that Andonissamy was meeting HP’s performance obligations. The Court rejected Andonissamy’s indirect method for establishing his retaliation claim for the same reason it rejected it for his discrimination claim. Under the direct method, Andonissamy had to establish that: a) he engaged in statutorily protected activity, b) his employer took an adverse employment action, and c) there was a causal connection between the two. The Court held that his complaints to HP did not include complaints of national origin discrimination. He was thus unable to establish the statutorily protected activity element. The Court concluded that he failed to establish a retaliation claim under either method. With respect to the FMLA count, the Court noted that Andonissamy never asked for any leave and did not exhibit any dramatic changes in behavior that would have put HP on notice of a need for leave. The Court agreed with the district court that Andonissamy failed to meet his burden under the FMLA.

Finally, the Court addressed Andonissamy’s assault claim against Smith. The assault claim was added to the case after the statute of limitations on the claim had expired. Andonissamy argued that the claim related back to the original claim and was thus permissible under FRCP 15(c). The Court affirmed the dismissal, stating that a claim against a new defendant relates back only when there is a case of mistaken identity. Since Smith supervised Andonissamy for years, that cannot be the case here.

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MARRS v. MOTOROLA, INC. (November 7, 2008)

Michael Marrs sued Motorola, Inc. and several of its benefit plans (“Motorola”), alleging violations of ERISA. The parties stipulated to class action certification. Marrs served as the class representative. The district court granted summary judgment to Motorola. Marrs appealed. Marrs moves for leave to correct his notice of appeal.

In their opinion, Judges Cudahy, Posner, and Flaum denied Marrs’ motion. Marrs’ original notice was in his name only. It did not mention other claimants or the class. In fact, it did not indicate that he is appealing in any capacity other than individually. Marrs moved to amend his notice to indicate that he is appealing on behalf of the class. The Court began with Rule 3(c) of the Federal Rules of Appellate Procedure. That rule provides that a notice of appeal in a class action is sufficient if it names one person who is qualified to bring the appeal. It also provides that an appeal should not be dismissed for failure to name a party “whose intent to appeal is otherwise clear from the notice.” The Court cited its decision in Murphy v. Keystone Steel & Wire Co. for the further proposition that the notice of appeal by a class representative must indicate the he is appealing in his representative capacity. One of the reasons the Court limited the appeal in Murphy to the named plaintiffs was the inclusion on the notice of another party who was not a class member. The Court also looked to its decision in Clay v. Fort Wayne Community Schools. In Clay, there were two separate classes. The Court held that the appeal in the name of one class did not support review of the claims of the other. Neither case involved a single class as the only plaintiff. Nevertheless, the Court found the differences “too slight” to warrant a different result.

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TRIGILLO v. SNYDER (October 31, 2008)

The Illinois Department of Corrections (“Department”) created a new position in 1999 dedicated to procurement matters. The Department hired Tracy Trigillo, an attorney, into the position. Her responsibilities included managing the Department’s contracting, purchasing, leasing, and inventories. She advised department officials on legal matters. She also was responsible for ensuring that contracts were properly bid and in compliance with the Illinois Procurement Act. From early in her employment, Trigillo had concerns about the Department’s procurement practices. She frequently advised her superiors of her concerns, with little effect. In late 2000, she drafted a report that summarized many of her concerns. The report was addressed to the Department of Central Management Services (“CMS”), an agency that provided procurement support to other state agencies. Trigillo also sent the report to the state Attorney General (“AG”). The report contained some allegations of misconduct, although it was principally addressed to policy disputes. Also in 2000, one of Trigillo’s staff members told her that Department officials had rigged the bid of a contract to benefit a friend of the governor. Although the incident predated Trigillo’s tenure in the Department, she was responsible for monitoring an extension of the contract. She reported the information to the FBI but did not advise her superiors that she had done so. When her term of employment was up for renewal in late 2001, the Department chose not to renew. Although she had received acceptable performance reviews during her tenure, her supervisor stated that her approach to procurement principles was “over-zealous” and that she was not a team player. Trigillo brought an action under 42 U.S.C. § 1983, alleging that she was non-renewed in retaliation for her reports of misconduct. The district court granted summary judgment to the defendants. The court separated her speech into three categories. The court held that: a) her routine communications with her superiors were part of her normal job duties and not as a citizen speaking out on matters of public interest, b) her CMS report referred principally to policy disputes and, to the extent it did raise matters of public interest, the Department’s interest in effective operations outweighed Trigillo’s interest as a citizen, and c) her report of misconduct to the FBI was constitutionally protected but there was no evidence that the person who decided not to renew her contract knew about it. Trigillo appeals.

In their opinion, Judges Rovner, Evans, and Williams affirmed. The Court first observed that the district court entered judgment just prior to the Supreme Court’s decision in Garcetti v. Ceballos. Garcetti reaffirmed the limitations imposed by the First Amendment on a public employer’s ability to restrict the “liberties employees enjoy in their capacities as private citizens.” The role of the Court is to determine whether the speech is that of an employee doing her job or that of a private citizen reporting on a matter of public interest. Garcetti requires an inquiry into whether the speech in question relates to the employee’s official obligations, even the more general ones. Trigillo conceded on appeal that her routine communications did not meet the Garcetti standard. The Court addressed the other two categories. The Court rejected defendants’ argument that the CMS report was per se “official” because it was required by statute. The Court noted that the statutory duty was very broad and applied to all employees. Instead of looking at a broad duty, the Court looked at the speech at issue and the responsibilities of the employee. The Court held that the CMS report did not meet the Garcetti standard. The report: a) made no “accusations”, b) sought “guidance” on procurement issues, c) was written on Department letterhead, d) was signed by Trigillo in her official capacity, and e) offered her group’s resources to any investigation. The Court held that the report fit squarely within Trigillo’s responsibilities of managing the procurement practices of the Department. With respect to the FBI report, the Court agreed with the district court that Trigillo had presented no evidence that the decision-maker even knew that she made the report. It could not have been the reason for her non-renewal.

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IOWA PHYSICIANS’ CLINIC MEDICAL FOUND. V. PHYSICIANS INSURANCE CO. (October 31, 2008)

Dr. Randall Mullin worked at a clinic in Geneseo, Illinois operated by the Iowa Physicians’ Clinic Medical Foundation under the name Iowa Health Physicians (“IHP”). Dr. Mullin provided anti-malarial therapy to his patient Dennis Goetz. Unfortunately, the treatment was not effective. Goetz contracted malaria and died. Goetz’ wife brought suit against Mullin and IHP. IHP provided malpractice insurance for Mullin through Physicians Insurance Company (“PIC”). PIC covered Mullin’s liability and defense up to $1 million. PIC did not insure IHP, however. Goetz’ widow offered to settle the case for $900,000 on more than one occasion before trial. When the defense’s own expert admitted in a deposition that Mullin’s treatment did not meet the standard of care, Goetz’ widow retracted the offer. At trial, the jury awarded Goetz’ widow $3.5 million in damages. PIC paid $1 million. IHP, under an agreement with Mullin, paid the rest. Mullin and IHP sued PIC in state court. They alleged that PIC breached its duty to settle in good faith. PIC removed the claim to federal court. The district court entered final judgment against IHP on the ground that PIC owed no duty to IHP. Mullin’s case remained pending. IHP appeals.

In their opinion, Judges Kanne, Evans, and Williams affirmed. The Court started with the “well-settled” recognition in Illinois of an insurer’s duty to settle in good faith. The duty arises from the covenant of good faith and fair dealing in an insurance contract. It arises when the insurer controls the litigation and the plaintiff seeks a settlement near the upper limits of the policy. The situation creates a conflict of interest for the insurer. Proceeding to trial presents little risk to the insurer and much risk to the insured. In fact, the Court observed that Mullin made out a good case for PIC’s breach of its duty. The Court had to consider, however, whether the Illinois Supreme Court would extend the duty of good faith to an uninsured policyholder, in addition to the insured himself. IHP argued that its contractual relationship with PIC supported such a duty. The Court pointed out that the Illinois Supreme Court has refused on numerous occasions to extend the insurer’s duty of good faith to contracts in general. Here, IHP could have purchased its own coverage. It chose not to. In addition, PIC did not control IHP’s defense. IHP could have settled the case before trial and limited its liability to Goetz’ widow. The Court concluded that the Illinois Supreme Court would not extend the good faith duty to settle to an uninsured policyholder.

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MAHER v. CITY OF CHICAGO (October 31, 2008)

Jerome Maher, a Naval Reservist, went to work for the City of Chicago in 1990. Although he alleges that he was promised an “assistant commissioner” position, his initial position involved managing accounts receivable and developing a computer system in the Aviation Department. In February of 1991, Maher was called to active duty. He alleges that his supervisor was displeased. Upon Maher’s return in September of the same year, he was named “Director of Revenue” at an increased salary. He alleges that his supervisor continued to criticize and threaten his employment because of his military obligations. He also was forced to report to a former subordinate. Maher filed, but later withdrew, a formal complaint with the Department of Labor. He alleged that he had been denied advancement and subjected to humiliation because of his military service. After an internal reorganization in 1993, Maher was named “Manager of Finance.” He received another salary increase and a larger staff. Maher alleged that his office was unusable for a week and that other supervisors harassed and were critical of him and his service. The Navy again called Maher to active duty from August 1996 to May of 1997. The City initially refused to assign Maher to his former duties upon his return. Following complaints and meetings, Maher was given his former responsibilities in July of 1997, although two former staff members were reassigned to work for his supervisor. In January, 1998, the City transferred Maher to its Landside Operations, a division of the Aviation Department that handles ground transportation at the city’s airports. In this position, Maher developed a high-speed rail system and an intermodal facility, operated the parking facilities, and supervised snow removal. Maher sued the City in 2003. He alleged that he suffered adverse employment consequences as a result of his military service on three separate occasions: a) when the City did not give him an assistant commissioner title in 1991, b) when the City named him Manager of Finance in 1993 but again did not give him an assistant commissioner title, and c) when the City transferred him to the Landside Division in 1998. He alleged a violation of the Uniformed Services Employment and Reemployment Rights Act (“USERRA”). The magistrate judge granted summary judgment to the City on the 1991 and 1993 claims, concluding that Maher produced no evidence that he was hired as an assistant commissioner and produced insufficient evidence that the City’s actions were motivated solely by his military commitment. The magistrate also ruled that laches barred the 1991 action. Maher’s 1998 claim went to trial. The magistrate ruled that evidence of the 1991 and 1993 claims could not be presented at that trial. After one hung jury, a second jury found for the City. Maher appeals: a) the summary judgment on the 1991 claim, b) the exclusion of evidence of the 1991 and 1993 claim from the jury, and c) the jury verdict on the 1998 claim.

In their opinion, Judges Manion, Wood, and Williams affirmed. On the 1991 claim, the Court noted that Maher challenged only the magistrate’s laches ruling. He did not challenge the magistrate’s alternative holding that there were no genuine issues of material fact and the City was entitled to judgment as a matter of law. When a lower court provides more than one independent ground for a holding, the appellant’s failure to challenge one of them is a waiver of any claim of error with respect to the entire holding. Notwithstanding the Court’s finding of a waiver, it did also address the laches argument on the merits. The Court agreed with the magistrate. Laches requires an unreasonable lack of diligence and prejudice. Maher points to both his Department of Labor complaint and his internal complaints as evidence of his due diligence. The Court noted that the Department of Labor complaint was withdrawn eleven years before the suit was filed. One informal complaint was made five years into that eleven year period. The Court found that the two complaints did not amount to reasonable diligence. The Court also found prejudice to the City. The person who hired Maher testified that he had very little recollection of the circumstances of Maher's hiring.

The Court next addressed the magistrate’s exclusion of the evidence of the 1991 and 1993 incidents at the second trial of the 1998 incident. The Court found that the magistrate did not abuse his discretion. Neither incident was relevant to any alleged adverse employment action in 1998 and both took place before the 1998 decision-maker was in charge.

Finally, Maher challenged the sufficiency of the evidence at the 1998 trial. The Court concluded that Maher’s challenge was procedurally defective. Maher did not file either a FRCP 50(a) or 50(b) motion, both of which are required before challenging the sufficiency of the evidence on appeal. Maher conceded as much at oral argument. Nevertheless, the Court proceeded to analyze his argument under the “heavy burden” of a sufficiency of the evidence challenge. Under the USERRA, Maher must establish that he suffered an adverse employment action motivated at least in part by his military service. The Court found against Maher on both points. Maher relied on the facts that he lacked a staff, was not using his CPA qualifications, had a supervisor with less college education, and was responsible for snow removal. The Court held that none of these establish the existence of an adverse employment action. In his new position, he was responsible for large-scale projects involving hundreds of millions of dollars and handled millions of dollars of billing. An adverse employment action must be more disruptive than just a change in responsibilities. Maher also did not establish that a reasonable juror must have found that hostility toward his service was the reason for his transfer. Maher relied on the promotions of others ahead of him, but the person who transferred Maher to Landside was not the same person who promoted the others. When different decision –makers are involved, said the Court, one should not conclude that the difference in their actions was the result of discrimination. The jury had the opportunity to make the inferences that Maher argued – but it didn’t. They were not required to on the record in the case.

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UNIVERSITY OF CHICAGO v. UNITED STATES (October 29, 2008)

The University of Chicago (“the University”) is an Illinois not-for-profit corporation and one of the world’s foremost universities. It maintains two separate retirement plans for employees. Highly compensated and academic employees are covered by the Contributory Retirement Plan (“CRP”). Other employees are covered by the Retirement Income Plan for Employees (“RIPE”). Employees are required to participate by contributing a percentage of their salary. The University, in turn, contributes additional amounts to each employee’s account. The University did not report, withhold, or remit FICA payroll taxes on any of the amounts contributed to the CRP or RIPE in the period 2000-2003. In 2005, the IRS assessed the University with additional FICA taxes and penalties. The University paid a portion of the assessment. The IRS assessed penalties for the University’s failure to pay the full amount. The University again paid only a portion of the assessment. The IRS denied the University’s claim for a refund. The University filed suit. The IRS filed a counterclaim for the still unpaid portions of the assessed amounts. The district court granted summary judgment to the United States. It held the University liable for all the assessed unpaid taxes and penalties. The University appeals.

In their opinion, Judges Kanne, Sykes, and Tinder affirmed. The Court started with the definition of “wages” in the Internal Revenue Code, one of its exceptions, and an exception to that exception. “Wages” includes “all remuneration for employment” but excludes payments made to an employee “under or to an annuity contract.” That exception itself has an exception for annuity contracts “made by reason of a salary reduction agreement.” The University takes the position that its payments to the CRP and RIPE are not wages, and therefore not subject to FICA, under the annuity contract exception to "wages." It also contends that the contributions are not excluded from the annuity contract exception under the “salary reduction agreement” language. The University’s position is that a salary reduction “agreement” must be a voluntary agreement by an employee to accept a reduced salary in return for the contribution to the plan. To resolve the issue, the Court considered the plain language of the exception as well as its context. It first rejected the University’s argument that the plain language of the statute and the use of the word “agreement” must lead to the single conclusion that the contribution must be voluntary. In fact, the Court found that the plain language was more closely aligned with the government’s position that it simply distinguished between salary supplements and salary reductions. The Court then “wade[d] into the murky waters of ‘context’” in the tax code to see if the context supported a different conclusion. After considering prior statutory provisions, revenue rulings, cross-references, and court decisions, the Court concluded that Congress intended “salary reduction agreements” to include both mandatory and voluntary agreements. Since the University failed to properly withhold FICA taxes from its employees, it is liable for both its and its employees’ contributions. The University is excused from paying the employees’ share if it can demonstrate that the obligation was speculative and not precise. Relying on the plain language and the same “context” it examined in reaching a decision on the merits, the Court rejected the University’s argument and held it liable for the assessed taxes.

The IRS also imposed both failure-to-deposit and failure-to-pay penalties. The former addressed the University’s original failure to withhold and deposit the required amounts. The latter addressed the University’s failure to pay the amount assessed. The Court noted that both penalties are required by law unless a taxpayer carries the “heavy burden” of showing that it exercised “ordinary business care and prudence.” The Court held that the University’s “unsupported and unreasonable” interpretation did not met that burden. Finally, the Court rejected the University’s argument that the “divisable tax doctrine” is incompatible with the failure-to-pay penalty. Under the “divisable tax doctrine,” a taxpayer is allowed to challenge an assessed tax without paying the full amount of the assessment, which is generally a jurisdictional requirement. If the tax is divisable, a taxpayer can pay the full amount for one transaction and have the result of its challenge to that transaction control the other transactions. Here, the tax was divisable and the University was able to have its day in court without having to remit the full assessed amount of taxes. Having lost its case, however, the University is still subject to penalties on the unpaid amount.

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BELL v. DAIMLERCHRYSLER CORP. (October 29, 2008)

In the late 1970s through 1980, DaimlerChrysler Corp. (“Chrysler”) laid off hundreds of workers at its New Castle, Indiana plant. The workers were members of the United Auto Workers (“the union”). The union and Chrysler were parties to a collective bargaining agreement and over seventy side letters. The side letters were collected in a so-called “Book of Letters.” The agreement between Chrysler and the union provided laid-off workers a preference over other applicants for job openings at any Chrysler facility within fifty miles of their former work locations. Later side letters expanded the area of preference to any opening within the same state as the employee’s last work location. From 1984 to 1987, Chrysler hired over seven hundred workers at its Kokomo, Indiana plant. It did not offer these jobs to the workers who had been laid off from the New Castle plant. In 2002, Local 371 of the union filed two grievances charging that Chrysler violated their labor agreements by not offering the Kokomo jobs to the laid-off workers. The grievances were filed pursuant to a multiple-step procedure defined by the labor agreements. Chrysler denied the grievances as untimely. Local 371 continued to pursue the grievances to the Appeal Board step of the procedure. At that step, the national union representative decide to withdraw the grievances. The basis for his withdrawal was twofold. First he believed that they were untimely. Second, they also presented significant proof problems due to the deaths and retirements of many necessary witnesses. A local or an individual union member can appeal a grievance withdrawal within thirty days. No appeal was taken of the withdrawal. Two groups of Chrysler employees filed suit in federal court pursuant to section 301 of the Labor Management Relations Act. They alleged that Chrysler breached its obligations under the labor agreements. After the two suits were consolidated, the district court granted summary judgment to Chrysler. The court held that the plaintiffs failed to exhaust their administrative remedies. The plaintiffs appeal.

In their opinion, Judges Flaum, Rovner, and Sykes affirmed. The Court noted the hybrid nature of a section 301 suit. Chrysler and the union have agreed to resolve their disputes privately. Union members must avail themselves of that process, up to and including binding arbitration. In a section 301 suit, the union member complains of an employer’s violation of the labor agreement but also complains of the union’s breach of its duty of fair representation with respect to that violation. A member cannot generally bring a section 301 suit until she has first exhausted all her available administrative appeals. There is no dispute in the case that the plaintiffs failed to exhaust available appeals. The Court noted that the Supreme Court, in Clayton v. UAW, has identified situations where that failure can be excused. They are: a) futility – where the union has displayed such hostility to the grievance that further appeals appear futile, b) inadequacy – where the procedure cannot lead to reinstatement of the grievance or result in full relief, and c) undue delay – where exhaustion of all appeals will result in undue delay. The plaintiffs take the position that futility and inadequacy excuse their failure to exhaust.

The Court first addressed plaintiffs' inadequacy argument. The plaintiffs argued that Chrysler should not be allowed to rely on one of the side letters because: a) Chrysler failed to raise it until its reply brief, and b) the collective bargaining agreement contained an integration clause. The Court rejected the arguments. It stated that: a) Chrysler’s reference to the side letter was in response to plaintiffs’ argument and properly appeared in their reply, and b) the plaintiffs could have filed a surreply to Chrysler’s reply, if they wanted an opportunity to address the document. The Court further held that the plaintiffs waived the integration clause argument by not raising it in the district court. The Court also rejected plaintiffs' argument that they are excused from further appeals because the appeals could not have provided them with full relief. The second Clayton factor of inadequacy excuses exhaustion only if neither reinstatement nor full relief is possible. Further appeals could have resulted in a reinstatement of the grievance. Plaintiffs’ final argument on the inadequacy factor is that they did not even know of the existence of the side letter. The Court conceded that plaintiffs did lack knowledge of the side letter. The Court concluded, however, that there was an insufficient record to excuse them from that knowledge. They knew of the existence of several side letters and made no showing that, with due diligence, they could not have discovered the letter.

With respect to the futility factor, the plaintiffs simply rely on one union representative’s comment that the appeal was a “dead issue” and the general lack of support or direction they received from the union. The Court noted that it had “repeatedly rejected” those kinds of statements as demonstrating the pervasive hostility required by the first Clayton factor. The district court did not abuse its discretion in granting summary judgment.

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U.S.O. CORP. v. MIZUHO HOLDING CO. (October 28, 2008)

U.S.O. Corp. (“USO”) is incorporated in Delaware but is the wholly-owned subsidiary of a Japanese company. Its headquarters are in Japan. USO invested in a limited partnership. Like USO, the partnership was incorporated in Delaware. It also had its principal place of business in Japan and the partners all had addresses in Japan. The partnership invested in another partnership, which acquired a building in Chicago, Illinois. The partnership held the building investment for ten years. USO sued Mizuho Holding Co. (“Mizuho”) and alleged that Mizuho failed to pay the amounts due to USO during its investment and misappropriated USO’s portion of the proceeds of the sale of the building, almost $7 million. The acts complained of occurred mostly in Japan. Most of the witnesses and record evidence exists in Japan. Mizuho brought a declaratory judgment suit in Japan raising the same issues, albeit eight months after USO sued in the United States. The district court dismissed the suit based on forum non conveniens. USO appeals.

In their opinion, Judges Posner, Ripple, and Evans affirmed. The Court thought that Mizuno’s case that it would be unreasonably burdened to have to defend in the United States was “compelling.” USO argued that its choice of forum, particularly as an American company, should not be rejected lightly. The Court did not question the existence of a presumption in favor of plaintiff’s choice of forum. But it also noted the many legal principles that limit a plaintiff’s choice – jurisdiction, venue, and removal, to name a few. The Court looked to the Supreme Court’s decision in Piper Aircraft Co. v. Reyno for guidance. There, the Supreme Court held that dismissal is proper, even for an American company, if the balance of conveniences demonstrates that the defendant would be burdened by being forced to litigate in the plaintiff’s chosen forum. The deference to Americans is not based on nationalism but on the assumption that a home forum is more convenient to an American than it likely would be to a foreign company. The Court noted that USO was not really “American” except through incorporation. The assumption of convenience did not apply in its case. Here, the Court listed a host of reasons to dismiss: a) the presence of witnesses and documents in Japan, b) the need for interpreters and translators if litigated in the U.S., c) the probable application of Japanese law, d) the pending, “well-advanced” case in Japan, and e) the refusal of the Japanese court to abate its case in favor of a U.S. case. Piper also directed the Court to look at how the public’s interest is affected. The public interest considerations include burdening an American jury with a wholly foreign dispute and forcing a court to struggle with Japanese law. The balance of conveniences and the public interest in this case clearly favor a dismissal.

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WOOLARD v. WOOLARD (October 29, 2008)

John F. Woolard established a trust in 1983. His infant son, John C. Woolard, was the sole beneficiary. John F. named his brother Robert as trustee. The Trust Agreement allowed Robert to distribute its assets for the sole benefit of John C. The trust allowed Robert to apply payments directly for John C.’s benefit or, in his sole discretion, directly to John C. , to John C.’s legally appointed guardian, or to a Uniform Gifts to Minors Act custodian. It did not specifically allow direct payments to John F., although it did prohibit loans to him. John F. initially funded the trust with $500. At one point, it contained over $800,000. When John F. died in 2002, the value of the trust was $18,000. Between 1990 and 2001, Robert distributed more than $850,000 directly to John F. Robert kept no record of the purpose of the distributions and never asked John F. for receipts. John C. brought an action against Robert for mismanagement of the trust. The district court granted John C.’s motion for summary judgment. The court found that Robert had breached the express terms of the trust and had violated his statutory and fiduciary duties. Robert appeals.

In their opinion, Judges Bauer, Cudahy, and Williams affirmed. The Court found that Robert’s reliance on certain aspects of the Illinois Trusts and Trustees Act (“Act”) was misplaced. The Act simply provides default rules applicable to a trust that otherwise does not specify the trustee’s rights and duties. John F.s trust did specifically limit the trustee’s powers. Robert’s distributions to John F. were not allowed. In making those distributions, Robert breached the express terms of the trust. The Act requires a trustee to provide an annual accounting to the beneficiaries. The accounting must give the status of the funds, list all receipts and disbursements, and provide the source and purpose of all payments. A trustee’s failure to provide an accounting, observed the Court, is an independent cause of action. The Court rejected Robert’s argument that the monthly brokerage account statements were sufficient to constitute the accounting. The brokerage records did not indicate the purpose of any distribution from the account. Therefore, they cannot constitute an adequate accounting under the Act. Finally, the Court agreed that the record amply supported the finding that Robert breached his fiduciary duty. A trustee has an obligation to manage the trust pursuant to its terms and be as diligent as he would with his own affairs. The Court noted that Robert never even asked John F. for receipts or for an explanation of what he was doing with the money. The Court made a special note of the six months when John C. was seventeen when Robert distributed over $300,000 to John F. The record did not support any semblance of diligence by Robert.

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THOROGOOD V. SEARS, ROEBUCK & CO.  (October 28, 2008)

Steve Thorogood bought a dryer at Sears, Roebuck & Co. (“Sears”). Sears’ point-of-sale literature stated that the drum inside the dryer was made of stainless steel. In fact, part of Sears’ dryer drum was made of a coated, non-stainless steel. Thorogood filed a class action on behalf of himself and other purchasers of the dryer in 28 states and the District of Columbia. He alleged that he thought that the entire drum was made of stainless steel, that the non-stainless part rusted and stained his clothes, and that Sears’ advertising was deceptive. Thorogood based his claim on the Tennessee Consumer Protection Act. The district court certified the class. Sears appeals.

In their opinion, Judges Posner, Kanne, and Evans reversed and remanded for decertification. The panel started by observing some of the benefits of the class action procedure, as well as some of its downsides. One particular downside of some class actions, according to the Court, is the undermining of federalism. Thorogood’s case presented a good example. Thorogood was attempting to litigate 500,000 claims of residents of 29 jurisdictions in one federal court. These claims would be “wrested from the control” of those jurisdictions and their laws. The Court was troubled that certain procedural rules that govern the relief to which those 500,000 claimants would be entitled would be ignored. Specifically, for example, Tennessee’s consumer protection act does not allow a class action in state court. Although the Court recognized that the Tennessee rule did not prevent the class action from proceeding under federal law, the expansion of available relief did trouble the Court. The Court’s concerns led it to approach the class action aspect of the case with caution.

The Court found the case to be a particularly poor candidate for class action treatment. Not only did common issues of fact not predominate over individual issues of fact, the Court stated that there were no common issues of fact. Thorogood’s concerns about rust were “idiosyncratic.” The Court doubted that any of the other 500,000 claimants believed as he did. Each class member would have to individually establish, at a hearing, his or her: a) understanding of the meaning of the stainless steel advertising, b) reliance on the advertising’s meaning that the stainless steel drum would prevent rust stains, and c) damages. Since there was no common, single understanding of the advertising, the class should not have been certified. The Court did note a certain difficulty in determining individual relief as well. That difficulty could have been managed through an aggregate class relief approach, had the case been otherwise suitable for class treatment.  

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SIERRA CLUB V. FRANKLIN COUNTY POWER (October 27, 2008)

In August of 2000, Franklin County Power of Illinois (“FCPI”) applied to the Illinois EPA (“IEPA”) for a Prevention of Significant Deterioration permit in order to construct a power plant. The IEPA issued the permit on July 3, 2001. The permit provided that it would become invalid if FCPI: a) did not begin construction of the plant’s boilers within eighteen months, or b) discontinued construction for eighteen months, or c) failed to complete construction within a reasonable time. On December 2, 2002, FCPI contracted with an engineering and construction company to work with it exclusively to negotiate a construction contract. On December 18, FCPI arranged for excavation to begin. Excavation equipment was delivered to the site on January 3, 2003. Although the contractor began the excavation on January 8, it terminated its work in February because of a dispute. The landlord filled in the excavation in July. FCPI began the excavation anew in September of 2004. Shortly afterward, the IEPA determined that construction had commenced. In November, the IEPA made a preliminary determination that the permit had expired. The determination was appealed and the appeal is still pending. In May of 2005, the Sierra Club filed suit under the citizen suit provision of the Clean Air Act (“CAA”). FCPI moved to dismiss and for summary judgment on the grounds that the permit was valid and that Sierra Club lacked standing. The district court denied the motion. Instead, it entered summary judgment for Sierra Club and permanently enjoined FCPI from building the power plant until it obtained a permit.

In their opinion, Judges Bauer, Ripple, and Williams affirmed. The Court first addressed Sierra Club’s standing. An organization has standing only if: a) one of its members has standing, b) the interests at stake in the litigation are germane to the organization’s purpose, and c) an individual’s participation is not required. FCPI challenged only the first prong. Sierra Club relied on its member Barbara McKasson. In order to prevail on summary judgment, Sierra Club had to submit evidence to establish that: a) she suffered an actual or imminent, concrete injury, b) the injury is traceable to the actions complained of, and c) a favorable decision would likely redress the injury. McKasson stated that she and her family have regularly traveled to within three miles of the proposed plant site and there engaged in such activities as camping, fishing, and kayaking. The Court found that Sierra Club satisfied the individual standing test: a) McKasson will either be exposed to pollutants if she continues her trips or will have to forego the trips, either of which is sufficient injury, b) the injury is actual even though the plant is not yet built, c) the injury is traceable to the plant, even if the plant reduces its emissions, and d) an injunction will redress the harm for some period of time, even if FCPI eventually obtains a new permit.

The Court next addressed FCPI’s claim that Sierra Club’s action is not ripe until IEPA issues a decision on the permit appeal. The Court said that the plain language of the CAA allows a citizen suit against a person who is alleged to be in violation of a permit or who proposes to construct without a permit. The Court found that FCPI was either in violation of the permit because it failed to commence construction in time or, if the expired permit is akin to no permit, it is proposing to build one without one. Either way, the Court found that the suit was proper under the CAA.

On the issue of whether FCPI “commenced” construction, the Court stated that FCPI could commence construction in either of two ways.  It could begin “ a continuous program of physical on-site construction” or it could enter into binding contracts to complete construction within a reasonable tim.  To qualify, the contracts could not be canceled without a substantial penalty.  FCPI argued that there were genuine issues of fact regarding this test, precluding summary judgment. The Court had little trouble concluding that FCPI could not meet the continuous construction test. The only work it did was to excavate a hole. Even that was not permanent, since it was later filled in. The Court also found that FCPI lapsed in its construction activities for over eighteen months, even if it did begin on time. The Court also rejected FCPI’s argument that it’s binding contract meant that it had “commenced construction.” The contract was merely an agreement to negotiate in good faith in an attempt to reach an agreement on a construction contract. The fact that it contained a penalty clause was not enough to make it a qualifying contract.

Finally, FCPI argued that the district court had no authority to enter an injunction or, in the alternative, that it erred in not applying the traditional four-part analysis for injunctive relief. The Court relied on the plain language of the CAA to reject FCPI’s lack of authority argument. Although the Court was a little more troubled by the second argument, it also resolved it in Sierra Club’s favor. It first found that the lower court’s merits decision that FCPI did not have a valid permit accomplished essentially the same thing as an injunction - it required FCPI to get a permit. The Court’s also conducted its own analysis of the four factors and found that they favored Sierra Club. 

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KAY V. BOARD OF EDUCATION (October 27, 2008)

Gail Kay taught in the Chicago public school system. After she retired in 1994, she brought a § 1983 action against the Board of Education (“Board”). She alleged that the Board penalized her on account of her speech. The parties settled the litigation in 1996 and her case was dismissed. In the settlement, the Board offered to rehire Kay into an available future position. In 1997, she was offered an opportunity to return to her former school. She taught for seven more years – yet she never received another paycheck. After retiring again in 2004, she brought suit against the Board in federal court to enforce the 1996 settlement, alleging that her seven years of teaching without pay was a breach of the settlement. The district court dismissed the case on its own accord for “lack of venue” because Kay was governed by a collective bargaining agreement that required arbitration. Kay appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder vacated the judgment of the court and remanded with instructions to dismiss for lack of subject matter jurisdiction. First, the Court listed several reasons why the court erred in dismissing the suit because of the collective bargaining agreement’s arbitration clause: a) only the union and employer can invoke the clause, b) a settlement of a dispute is not arbitrable as a claim arising under the agreement, c) a collective bargaining agreement cannot require the arbitration of civil rights claims, and d) the Board cannot compel arbitration with a volunteer, which they claim is Kay’s status. The panel also criticized the court below for acting independently, without benefit of the views of the parties.

Although the Court held that the lower court erred in dismissing the complaint, it identified (and asked for supplemental briefing on) a different problem. The Supreme Court’s decision in Kokkonen v. Guardian Life Ins. Co. makes clear that the vehicle for enforcement of a settlement of a federal case is a contract claim, which cannot be brought in federal court unless it qualifies independently under diversity principles. Apart from a settlement, a state’s wage-payment statute is the proper vehicle for a claim for unpaid wages. Kay conceded that she has no federal claim to enforce the settlement or for unpaid wages. She asserted, however, a claim that the Board’s failure to abide by the settlement is further retaliation for her assertion of constitutional rights. The only assertion of rights she maintains, however, are those that pre-dated the settlement. The Court noted that the Board’s failure to pay cannot be deemed a revived retaliation claim under Kokkonen. Finally, the panel did consider whether the Kokkonen rule applied in the context of a state actor defendant. It held that the Constitution does not require a state actor to keep its promise; it only requires some process before depriving a person of property. Kay’s opportunity to litigate her case in state court is process enough.  

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VIILO v. EYRE (October 27, 2008)

Virginia Viilo was enjoying a quiet August evening in her backyard, accompanied by several family members and Bubba, her dog. Suddenly, Bubba heard a commotion in Viilo’s front yard and ran down the side of the house. It seems that six Milwaukee police officers, acting on a tip that a felon had entered the house with a dangerous dog, had arrived and were approaching the house. Bubba leapt a three foot fence and ran toward the officers. Officer Carter shot Bubba twice, seriously injuring him. Bubba retreated into bushes near the house. Carter continued to watch Bubba while the other officers spoke with Viilo. Viilo asked to get Bubba or call for help. The police refused. Sergeant Eyre arrived about ten minutes after Carter shot Bubba. Eyre approached the bushes where Bubba was hiding. According to many witnesses, Bubba came out limping and whimpering. Eyre ordered Carter to shoot Bubba. Carter shot Bubba a third, and a fourth time, killing him. Viilo sued the city and Carter and Eyre under 42 U.S.C. § 1983, alleging a violation of her Fourth Amendment rights. The district court denied Carter and Eyre’s motion for summary judgment on qualified immunity grounds. Carter and Eyre appeal.

In their opinion, Judges Bauer. Cudahy, and Williams dismissed the appeal for lack of jurisdiction. The Court began with the familiar two-part analysis for qualified immunity – whether the alleged facts establish a violation of a constitutional right and whether that right was clearly established. Although the panel briefly discussed the application of the test and found it compelling, it decided it could not reach the merits.

Appeals are generally heard after a final order. Interlocutory appeals are an exception to that rule. The Supreme Court, in the Mitchell v. Forsyth and Johnson v. Jones cases, clarified the scope of the exception in qualified immunity cases. The appeal cannot attack the presence or absence of disputes of fact. It must be limited to the question of law: whether the facts establish a violation of a clearly established constitutional right. The panel pointed out that there can be disputed factual issues in the case. The appellants just cannot contend that the court below erred in ruling that the evidence created an issue for the jury. They must accept alleged or stipulated facts or the facts that the court below found had sufficient support to go to a jury. Here, the court below found that there were sufficient facts to support a reasonable jury’s finding that Bubba was shot the third and fourth time as he was “crying, sitting down, moving slowly, or headed to the backyard.” The officers argue for qualified immunity based on a totally different set of facts. Their appeal must be dismissed.

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NEGRETE v. NATIONAL RAILROAD PASSENGER CORP. (AMTRAK) (October 27, 2008)

Jorge Negrete was a track repair worker for Amtrak.  He injured his back on the job. He sued Amtrak, alleging a permanent disability. During discovery, Negrete: a) withheld the names of doctors who did not support his claim, b) provided false information during his deposition regarding his income, c) was “less than forthcoming” at his deposition regarding who performed maintenance at his apartments, and d) missed twenty-one discovery deadlines (in one case by over a year). The district court dismissed the case for these abuses. Negrete appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Sykes affirmed. The Court observed that dismissal is a drastic penalty for discovery abuses. In the case, however, the “appalling” conduct of Negrete supported the dismissal. He lied about the principal issues in the case – how severe were his injuries and whether he could work. The Court not only affirmed the dismissal, it referred its opinion to the United States Attorney’s Office.

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