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

We see it and hear it all the time. Conversation and communication have become much more casual in the world-wide social network. The same tendencies have been creeping into more formal business and legal settings for years. I thought that one of the last bastions of formality to cede to this trend would be the courts – especially the appellate courts. The briefs and arguments, although not necessarily stiff and humorless, are typically serious and respectful and pretty formal.

An oral argument in the Seventh Circuit typically begins with a “May it please the Court” or a “Good morning, your Honors.” The members of the panel are referred to throughout most arguments in one of a few ways: a) by name (e.g., Chief Judge Easterbrook, Judge Wood), b) by formal title (e.g., Chief Judge, Judge), or sometimes by informal title (e.g., sir, ma’am). They are rarely referred to as “you guys.” I was quite surprised to hear an attorney in a recent argument begin the substance of his remarks with “I’d like to talk to you guys . . . .” He did, in case you are wondering, start off with “May it please the Court.”

Any thoughts? Are we hanging on to remnants of formality that serve no purpose – or even get in the way of progress and justice? Does the formality of the courtroom merely reflect the formality of the law and the respect for the significant private and public rights that are decided every day? Is it a “generational” thing? The Gen Xers, and later the Gen Yers, will someday dominate the courts – will they maintain the decorum? Should they?
 

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IDRIS v. CITY OF CHICAGO (January 5, 2009)

The City of Chicago (the City”) has installed cameras at intersections since 2003. They are used to identify drivers who fail to obey red lights. The ordinance makes the owner (or, in the case of a leased vehicle, the lessee) of the vehicle liable for the fine – regardless of who was driving at the time. A group of car owners brought suit. Each had been fined for a traffic violation. In each case, however, someone other than the car’s owner was driving the car at the time of the violation. The plaintiffs allege that the ordinance violates due process and equal protection. The court granted summary judgment for the City. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Rovner affirmed. The Court quickly disposed of plaintiffs’ substantive due process argument. It noted the absence of a fundamental liberty interest – a prerequisite for substantive due process. The Court then considered the enforcement system under the rational-basis doctrine. Again, it seemed to have little difficulty in finding the ordinance rational. The owner-liable system reduces the cost of enforcing the law and improves compliance with the law. The facts that it raises revenue and adopts a system different from the state system do not make it irrational. The distinction between owners and lessors is not discriminatory – it is, in fact, the rational approach. Finally, the Court rejected the plaintiffs’ procedural due process arguments. Defenses and objections must be made at a hearing and reviewed in state court before they can be the subject of a federal court proceeding.

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DENG v. SEARS (January 5, 2009)

Yuming Deng was a software developer at Sears Roebuck and Co. (“Sears”). He compiled data that Sears used in making credit decisions. Unfortunately, Deng took serious issue with a 2001 performance review and erupted. Deng stopped coming to work, claiming a disability. He continued to show up at Sears occasionally, sometimes causing a disruption. On his last visit, he deleted from Sears computers much data and the software models Sears used in analyzing the data. After an internal investigation concluded that Deng destroyed the data in retaliation for the performance review, Sears reported his conduct to the local police. The police concluded that Deng had violated Illinois law and sought him out for his version of the story. Deng, however, had left the state. Charges against him were filed in his absence. A year and a half later, Deng was arrested and brought back to Illinois. When a witness did not appear at his preliminary hearing and the judge refused a request for a continuance, the prosecutor filed a nolle prosequi. Deng then brought this action for malicious prosecution against Sears. The court granted summary judgment to Sears, holding that the nolle prosequi was not a “favorable” outcome for Deng. Deng appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans affirmed. The relevant elements of the tort of malicious prosecution in Illinois are a) a favorable outcome in the criminal case, b) an absence of probable cause, and c) malice. The Court took note of the problems presented by the first element – favorable outcome – which was relied on by the district court. The Illinois Supreme Court has held that a nolle prosequi is not a favorable outcome if the case is abandoned for reasons not related to the innocence of the accused. But whether the failure of a witness to appear is a favorable outcome is an open question in Illinois. The Court questioned the merits of Illinois’ approach. Here, for example, the prosecutor was forced to attend and testify at a deposition - which the Court viewed as an intrusion on the prosecutorial function. Nevertheless, the Court respected Illinois’ right to its choice. The Court solved its dilemma by sidestepping the favorable outcome element of the tort and focusing on the absence of probable cause. Although Deng tried to explain away his conduct, the Court had no difficulty in finding probable cause.

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HOLMES v. POTTER (December 31, 2008)

Robert Holmes was an employee of the United States Postal Service (“USPS”) in Minnesota from 1970 until 1992. He sued the USPS under Title VII of the Civil Rights Act of 1964 (“Title VII”). The case settled in 1994. Shortly thereafter, he returned to the employ of USPS in Indiana. In 2003, Holmes filed a complaint with the EEOC that the USPS failed to accommodate a disability, in violation of the Rehabilitation Act. In mid-2004, Holmes and USPS resolved their dispute at an EEOC mediation. The settlement agreement a) placed Holmes on twenty hours per week administrative leave/twenty hours per week leave-without-pay status through October 2004 and retroactive to January 2003, b) specified his salary, and c) required him to retire or resign in October 2004. Holmes filed this suit to enforce the settlement agreement, complaining that several actions taken by USPS after the settlement violated its terms. The district court granted summary judgment to USPS. Holmes appeals.

In their opinion, Judges Bauer, Williams and Sykes affirmed. Addressing their jurisdiction, the Court noted that a suit to enforce a settlement agreement requires an independent basis for federal jurisdiction. Because this is a suit to enforce a pre-determination settlement enforceable under Title VII, jurisdiction lies. The Court also stated that it would apply Indiana law, not federal law. The settlement of a federal claim is enforced like any other contract under state law. The Court recited some of the Indiana rules of contract construction: a) the goal is to give effect to the parties’ intent, b) extrinsic evidence is not allowed to create an ambiguity, and c) extrinsic evidence is not admissible to vary or add to the terms of an unambiguous contract. Holmes complains that USPS breached the settlement agreement by recalculating his retirement benefit, by improperly calculating the amount of his leave, and by deducting health insurance premiums. In large part, Holmes relied on statements allegedly made to him by the mediator before settlement. The Court concluded that the agreement was unambiguous, that USPS had complied with its requirements, and that none of the conduct Holmes complained of was even addressed in the agreement. There was, therefore, no breach. If Holmes was correct in any of his complaints, the Court advised, his remedy was not in a breach of contract suit.

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MIRFASIHI v. FLEET MORTGAGE (December 30, 2008)

This suit was originally brought years ago on behalf of 1.6 million people whose mortgages were owned by Fleet Mortgage Corporation (“Fleet”). The allegations of the class action complaint are that Fleet shared personal information from the class members’ mortgage files with telemarketers, in violation of the Fair Credit Reporting Act (“FCRA”) and various state laws. The class was divided into a very large class of persons whose information was shared but who purchased nothing as a result (the “non-purchasers”) and a small (~190,000) class of people who did make purchases (the “purchasers”). The court certified the class and approved a settlement in 2002. The settlement provided nothing to the non-purchasers. The Seventh Circuit reversed and remanded, at the request of two intervening objectors. On remand, the court again approved a settlement. Again, the non-purchasers received no direct benefit. The court concluded that their claims were of no value. Fleet was required, in addition to the payment to the purchasers, to make a payment of at least $243,000 to organizations concerned with consumer privacy issues. The Seventh Circuit again reversed on the grounds that the court’s valuation of the non-purchasers’ claims was inadequate. On remand, the court conducted a more thorough survey of the state consumer protection laws and, once again, concluded that the non-purchasers’ claims had no value. The court awarded class counsel $750,000 and objectors’ counsel $18,750 in fees. The objectors appeal.

In their opinion, Judges Bauer, Posner and Williams affirmed. The Court first noted that no member of the non-purchasers class suffered actual harm. Although nineteen states and the District of Columbia allow individual (not class) actions with statutory penalties ranging from $25-$10,000, the parties failed to identify one person who would bring such an action. Although the Court noted that the state law limitations on class actions may not be binding in federal court, it held that the objectors waived any right to raise that issue. The Court also held that the objectors forfeited any claim that FCRA provided a statutory penalty remedy for the non-purchasers, adding, however, that such a claim would be frivolous. Concluding that the non-purchasers’ claims were indeed worthless, the Court approved the $243,000 settlement.

The Court used objectors’ counsel’s request for additional fees to again express its frustration with the inherent conflicts in class actions. (For another recent expression of Judge Posner's frustration, see his opinion in Thorogood here and my summary here.) One of those conflicts resulted in objectors’ counsel exaggerating the value of the non-purchasers’ claims in order to be entitled to an award of fees. Here, objectors’ counsel asked that the $750,00 awarded to class counsel instead be awarded to him. The Court conceded that objectors do frequently assist the class action settlement process, but an award of fees must be balanced by their degree of success. Here, the objectors extended the litigation by years. They improved to some degree the value of the purchasers’ settlement but did not do much to improve the settlement for the non-purchasers. They did not participate constructively in the litigation – in fact, they conducted themselves irresponsibly. The Court approved as “barely justified” the fee awarded below.

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DOSS v. CLEARWATER TITLE (December 24, 2008)

Doss refinanced his home. First Franklin Financial Corporation (“Franklin”) loaned him $135,000 on the condition that he obtain title insurance. He did so. At closing, the itemization of costs indicated that he paid $500 for the title insurance. In fact, he paid almost $1500. Doss filed suit against Franklin and others, alleging violations of the Truth in Lending Act (“TILA”) and the Illinois Consumer Fraud and Deceptive Practices Act. The court entered a default judgment against Franklin, which Franklin moved to set aside. Other defendants moved to dismiss for failure to state a claim, alleging that Doss sold his home before filing suit. Although Doss disputed this fact in the district court, the court nevertheless granted the motion and dismissed the TILA count. The court then exercised its discretion to dismiss the state law claims as well. It also struck “as moot” all pending motions, including Franklin’s motion to set aside the default. Doss appeals.

In their opinion, Judges Manion, Wood and Tinder reversed and remanded. The Court first rejected defendants’ argument that the district court lacked jurisdiction because of Doss’ sale of the property. TILA does provide that the right of rescission expires upon the sale of the property. That provision is not jurisdictional, however. It is simply a precondition to substantive relief. The Court also addressed its own jurisdiction, given that the district court dismissed without prejudice. Although a dismissal without prejudice is usually not appealable, the Court held that the case fit within an exception. The Court will entertain an appeal where it is clear that the court below was finished with the case and where TILA’s three year period of repose would have prevented Doss from refiling the case.

On the merits, the Court held that the district court erred in relying on the deed, a matter outside the pleading, in granting a Rule 12(b)(6) motion. Instead, the court should have converted the motion to a Rule 56 motion for summary judgment and given Doss a chance to respond. Furthermore, the deed was not a subject for judicial notice since its very validity was in dispute. The Court added that a) Franklin’s motion was not moot but since it did not cross-appeal, the default judgment is final, and b) the state law claims should be reinstated.

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HANSEN v. BOARD OF TRUSTEES (December 23, 2008)

Hamilton Southeastern High School (“HSHS”) hired Dmitri Alano as a teacher and assistant band director in 1988. Prior to his hiring, the Hamilton Southeastern School Corporation (“HSSC”) conducted its normal pre-hire process, which included an application and questionnaire, interviews, reference checks, and license and background checks. Alano began a sexual relationship with a student in 2000. The student concealed the relationship from her family and friends. A couple of years after the relationship ended, the student revealed the relationship to her therapist. Her parents and the police were informed. HSHS suspended Alano; he ultimately resigned. The student’s parents (the Hansens) brought federal claims under Title IX and 42 U.S.C. § 1983 and several state law claims against Alano and HSSC. The court granted summary judgment on two of the seven counts with respect to Alano. The court granted summary judgment on all seven counts with respect to HSSC and entered a Rule 54 (b) final judgment. The Hansens appeal the dismissal of the Title IX claim and the state law claims.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Tinder affirmed. The Court first addressed the Title IX claim. In order for the Hansens to establish a Title IX claim against HSSC for Alano’s conduct, it must prove that an official with authority to adopt corrective measures either had actual knowledge of the teacher’s misconduct or was deliberately indifferent. The Court concluded that the evidence did not establish that any HSSC official had such knowledge. The Court next rejected the Hansens’ claim that the district court should have declined to exercise jurisdiction over the state law claims once it had dismissed the federal claims. The Court found that the district court properly exercised jurisdiction in the first place – the claims are all based on a common set of facts. The court’s discretion under 28 U.S.C. § 1367(c) was never triggered since it maintained jurisdiction over the federal claim against Alano. Even if it had, the lower court considered a balance of the proper factors (judicial economy, convenience, fairness, comity).

The Court considered the state law claims in two categories: direct claims against HSSC for its own negligence and respondeat superior claims under which HSSC could be responsible for Alano’s conduct. On the former, the Court noted that Indiana does recognize a cause of action for the negligent hiring, supervision or retention of an employee. Although the Court noted the confusion over whether Indiana applies an “actual knowledge” or a “knew or should have known” standard, it did not matter. Hansen failed to satisfy even the lesser standard. On the respondeat superior claims, the Court stated that HSSC would be responsible for the tortious acts of Alano if they were committed within the scope of his employment. Indiana courts have held that an employee’s sexual misconduct is within the scope of his employment only when the employment itself involves extensive physical contact. Alano’s duties did not involve any physical contact. The respondeat superior claims must fail as well. Finally, the Court held that Indiana does not recognize a non-delegable duty for the safekeeping of its students.

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ILLINOIS BELL v. GLOBAL NAPS ILLINOIS (December 22, 2008)

Illinois Bell (“Bell”) alleged that Global NAPs Illinois (“GNI”) violated Bell’s federal tariffs, its state tariffs, and the interconnection agreement between them. Bell named as defendants GNI, its parent Ferrous Miner Holdings (“FMH”), and four other affiliated companies. The district court found it did not have personal jurisdiction over FMH and that Bell’s evidence of a “piercing the corporate veil” theory was not sufficient to confer that jurisdiction. The court dismissed FMH and entered a Rule 54(b) final judgment. Bell appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans reversed and remanded. The Court first addressed a threshold jurisdictional issue. Bell asserted that federal jurisdiction existed under federal question jurisdiction – as a suit to enforce a federal tariff – and under diversity jurisdiction – as a suit between an Illinois corporation and non-Illinois parties. Although either would be sufficient to maintain the action, the Court addressed both. It noted that jurisdiction of the state law claims would be mandatory under diversity jurisdiction but merely discretionary under federal question jurisdiction. The Court quickly resolved the issue of diversity. GNI claimed that its principal place of business was Illinois because it was the only state where it was licensed to do business and had interconnection facilities. It is the location of the “nerve center” that constitutes a company’s principal place of business, said the Court. GNI admitted it had no office or employees in Illinois. Its principal place of business was Massachusetts – complete diversity existed. The Court then rejected GNI’s argument that the integration clause of the interconnection agreement foreclosed federal question jurisdiction. Although supposing that a broader integration clause could convert a federal tariff claim into a state contract claim, the Court found the integration clause between Bell and GNI too narrow to do so. In any event, its conversion into a contract claim would not affect jurisdiction. Under the well-pleaded complaint rule, the suit to enforce a federal tariff would arise under federal law.

The Court engaged in a lengthy discussion regarding the merits of a “primary jurisdiction” referral to the Illinois Commerce Commission. The Court believed that the interpretation of the interconnection agreement should be conducted there, while the federal court stayed its proceedings. However, the Court determined that referral to be premature. The Court felt obligated to first address the piercing the corporate veil issue. The Court determined that the district court misunderstood the parties’ positions. The district court addressed whether FMH’s “veil” could be pierced – but Bell wanted to pierce the veil of GNI to get to FMH. FMH argued that Bell had to prove fraud. The Court held otherwise. Delaware law permits piercing the veil upon proof of fraud or that the corporation was a mere facade. FMH did not deny that GNI had no assets. The Court concluded that Bell had produced enough evidence to bring FMH within the personal jurisdiction of the court – so that the court could determine whether to pierce its veil.

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IN RE LIMITNONE (December 19, 2008)

LimitNone, a software development company, was pitching an e-mail application to Google. Before a March 2007 meeting, the parties signed confidentiality agreements that included a forum-selection clause naming a California county as the exclusive venue for disputes. Both agreements limited modifications to writings signed by both parties. LimitNone claims that a Google employee later “accepted” an agreement that provided for exclusive jurisdiction in Illinois by clicking on the “Accept” button for the LimitNone License Agreement. After Google developed its own application, LimitNone brought an action in Illinois state court. It alleged violations of the Illinois Trade Secrets Act (“ITSA”) and the Illinois Consumer Fraud and Deceptive Practices Act. Google removed to federal court, asserting that the ITSA was preempted by the federal Copyright Act. LimitNone sought a remand. On Google’s motion, the district court transferred the case to the Northern District of California under § 1406(a), holding that the California forum-selection clause applied and venue was improper in Illinois. LimitNone petitions for a writ of mandamus.

In their opinion, Judges Bauer, Coffey and Sykes denied the petition. The Court first addressed whether mandamus was the proper vehicle for relief. The Court noted that the Supreme Court has approved mandamus for challenging transfers under § 1404 but has suggested that it is inappropriate for transfers under § 1406. But the Court concluded that the district court erroneously applied § 1406. Section 1406 applies only when venue is improper. Here, notwithstanding the forum-selection clause, venue was proper in the district court. The Court treated the transfer as based on § 1404 and found mandamus to be the proper vehicle for review.

On the merits, however, the Court rejected LimitNone’s arguments that the lower court erred in a) transferring the case before ruling on subject matter jurisdiction, and b) making factual determinations regarding the transfer argument before ruling on subject matter jurisdiction. The Court conceded that the Supreme Court requires a determination of subject-matter jurisdiction before a ruling on the merits. The Supreme Court does not, however, mandate a particular sequence in determining jurisdictional issues. The transfer was not a decision on the merits. The district court was within its discretion in ruling on the venue issue before the subject-matter jurisdiction issue. Furthermore, the court was well within its power to resolve factual disputes that were necessary to the adjudication of the venue issue. The Court noted that district courts are frequently required to resolve disputed factual issues before ruling on preliminary issues such as personal jurisdiction, diversity of citizenship or amount in controversy, for example. The fact that LimitNone may be barred from relitigating that issue does not change the result.

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AARON v. MAHL (December 18, 2008)

Jim Aaron and Susan Scott (f/k/a/ Mahl) were cohabiting lovers in the 1990s until Aaron left Scott. At about the same time that Aaron left, Scott was sued by her former law firm for embezzlement. The firm obtained a judgment of more than a million dollars against Scott that they then assigned to Aaron. Aaron has been attempting to collect the judgment for years, following Scott from California to Indiana to South Carolina. Aaron found some assets in Indiana in a Merrill Lynch account. A state court ordered Merrill Lynch not to transfer or dispose of the assets. Aaron nevertheless obtained a writ of execution, with which Merrill Lynch refused to comply. Scott moved to quash the writ. Aaron filed suit in district court to enforce the writ and require Merrill Lynch to turn over the funds. Merrill Lynch counterclaimed and also filed for interpleader against Aaron and Scott. At Scott’s request, the court stayed the suit pending the state court’s consideration of her motion to quash the writ. The state court quashed the writ, an order upheld on appeal. The district court lifted the stay and granted Merrill Lynch summary judgment on its interpleader claims, entered final judgment pursuant to FRCP 54(b), and awarded attorney’s fees from the interpleader stake. Scott appeals from both the grant of interpleader and the award of attorney fees.

In their opinion, Judges Bauer, Wood and Tinder affirmed. Interpleader, said the Court, is used when a stakeholder is exposed to double liability or must litigate conflicting claims. The stakeholder must have a “real and reasonable” fear. Scott raise two arguments in support of her assertion that Merrill Lynch’s fear was not real: 1) that res judicata bars Aaron’s claims because of the state court rulings, and 2) that Aaron’s federal complaint was frivolous. The Court found Scott’s position incredible, noting that Merrill Lynch had been embroiled for five years in what was at its core a dispute between Aaron and Scott over Scott’s assets. Merrill Lynch had been sued or threatened with suit by both of them. The Court concluded that: 1) Scott was simply wrong in her interpretation of the res judicata effects of the state court judgments, and 2) the fact that Scott proceeded under a different legal theory after the stay was lifted than before did not make the claim frivolous. Merrill Lynch had a real and reasonable fear of competing claims and was properly granted interpleader.

On the issue of attorney fees, the Court rejected Scott’s argument that the fees should not have been awarded out of the stake while she was appealing the very order granting interpleader. Its decision on that issue rendered her argument moot. As for her claim that fees should have been charged against Aaron, the Court stated that the trial court had discretion to order that attorney’s fees be paid to a disinterested stakeholder out of the stake itself.

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BIELANSKI v. COUNTY OF KANE (December 18, 2008)

Kane County set up a Child Advocacy Center (“Center”) to coordinate the investigation and prosecution of child sexual abuse. The Child Advocacy Advisory Board (“Board”) is responsible for drafting the policies and procedures for those investigations and prosecutions. Kathryn Berg and David Byrne were a child protection investigator and police officer, respectively, assigned to the Center. [The facts that follow, given the posture of the appeal from a motion to dismiss, are taken from the complaint.] In mid-2001, Berg and Byrne interviewed a six-year old boy and his parents. The boy claimed he had been sexually abused by “Lorri.” Berg and Byrne failed to follow accepted techniques used in child victim interviews. They did not use techniques to identify the perpetrator and did not even ask the boy to describe her. Within days, Lorri Bielanski, a fifteen-year-old neighbor of the boy, was notified that credible evidence existed that she had sexually assaulted the boy. Sometime shortly after Berg and Byrne’s interview of the boy, they learned that: a) he was taking medication for Attention Deficit Hyperactivity Disorder, b) he was in special education classes, c) he was known, on two occasions, to have undressed with others and tried to get others to undress, d) his parents confronted him about the undressing incidents and punished him, and e) his parents suggested to him that he may have been sexually abused. Berg and Byrne did not disclose this information to the prosecutors or Bielanski. The county filed a Petition for Adjudication of Wardship, alleging the commission of two sexual assault felonies. As a result, Bielanski was forced to attend court hearings and an interview with a probation officer and was not allowed to travel out of the state without court permission. Bielanski was eventually acquitted of all charges and was successful in getting her record expunged. She filed a complaint against the County, the Center, the Board, Berg, and Byrne. Based on § 1983, she alleged: a) that the defendants violated her Fourth Amendment rights by compelling her to attend the court hearings and restricting her movement, and b) that Byrne and Berg violated her rights to a fair trial and due process by withholding the information they had about the boy. The district court granted defendants’ motion to dismiss. Bielanski appeals.

In their opinion, Judges Posner, Kanne and Rovner affirmed. The Court began with Bielanski’s Fourth Amendment claim. In order to make out such a claim, the plaintiff must allege a seizure and that it was unreasonable. Since Bielanski was not seized in the normal sense of an arrest, the Court reviewed Justice Ginsburg’s “continuing seizure” concurrence in Albright and other circuits’ approaches in similar situations. In Albright, Justice Ginsburg supported a Fourth Amendment analysis whereby a defendant who was arrested, released, and then summoned back to court based on the misleading testimony of a police officer could state a claim for unlawful seizure. No other Justice has adopted the analysis. The Court concluded that a summons, even when combined with travel restrictions and a forced probation officer interview, is an insufficient restraint on freedom to constitute a seizure. The Court then addressed the fair trial claim. The elements of that claim are that: a) the evidence is favorable to the accused, b) that it was suppressed by the government, and c) that it was material. The Court noted that materiality was the only element in dispute and that the Supreme Court had not addressed a case in which evidence was withheld and the defendant was later acquitted. Several other circuits have concluded that a Brady claim cannot survive an acquittal or dismissal of charges. The Court concluded that Bielanski had no Brady claim since earlier disclosure of the evidence would not have resulted in a dismissal of the charges.

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Experienced appellate practitioners need not read further.

I encourage less experienced practitioners to listen to the January 12th oral argument in Perry. The defendant raised a jurisdictional issue based upon its belief that plaintiff was not timely in its notice of appeal. The parties took opposite positions on whether an order “terminating the case” or an order granting summary judgment entered two days earlier was the judgment appealed from.

The Court, however, found neither position persuasive. The panel, particularly Chief Judge Easterbrook, believed there was no proper judgment in the record. They expressed frustration that district courts (and the lawyers before them) are not following the FRCP 58 entry-of-judgment requirements . Regardless how the Court eventually disposes of the issue, practitioners are advised to follow the advice of the Court and ensure that a proper judgment is entered. As Chief Judge Easterbrook put it, a proper Rule 58 judgment requires a separate document and must state the relief granted and be signed by the judge.

Assuming there was no proper judgment entered in the case, the plaintiff does not have to worry about the timing issue. FRAP 4(a)(7)(A)(ii) provides that the judgment is considered entered 150 days from the entry of the order. Even if none of this affects the validity of an appeal (see FRAP 4(a)(7)(B)), any party before the Court would rather not waste the time at argument addressing the issue and incur the frustration of the panel.  

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ROSS-TOUSEY v. NEARY (December 17, 2008)

Marvin Ross-Tousey and his wife Deborah (the “debtors”) filed a Chapter 7 bankruptcy petition. Because their household income was above the median income level, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) subjected their petition to a means test. The means test is used to distinguish those debtors who can repay a portion of their debts from those who cannot. A debtor who has enough disposable income to pay at least $166.67 per month to his creditors is expected to file under Chapter 13. A Chapter 7 filing is presumptively abusive in that circumstance. The debtors claimed a vehicle ownership expense allowance of over $800, although they had no debt or lease payments. With that deduction, they had no disposable income and met the means test. The United States Trustee (“UST”) moved to dismiss their petition for abuse. The UST first asserted abuse based on a totality of the circumstances. The UST later amended the motion to include presumptive abuse on the grounds that they should not have taken the vehicle ownership allowance. The bankruptcy court denied the motion. The district court reversed, holding that a debtor cannot claim a vehicle ownership allowance for vehicles he owns outright. The district court remanded for proceedings to determine whether the debtors could rebut the presumption. The debtors appealed. The UST moved to dismiss for absence of finality because the bankruptcy court had not ruled on whether the presumption could be rebutted. The debtors conceded that they could not rebut the presumption.

In their opinion, Judges Flaum, Rovner and Williams reversed and remanded. The Court first considered two jurisdictional issues: whether there was a “final order” to review and whether the time period for the UST’s amendment of the motion to dismiss was jurisdictional. On the first issue, the Court found that both the bankruptcy court’s order and the district court’s order were final. In the case of the bankruptcy order, the only remaining act was to distribute the debtors’ assets. In the district court’s reversal and remand, the only obligation of the bankruptcy court was to either dismiss the petition or convert it to a Chapter 13 proceeding, at the option of the debtors. The presence of these continued ministerial acts did not divest the Court of jurisdiction. On the timing issue, the Court stated that the statute set a deadline for filing a motion to dismiss. The UST’s original motion met the deadline but the amendment to add the presumptive abuse ground did not. The Court appreciated that the Supreme Court’s decision in Bowles seems to say that filing deadlines found in statutes are jurisdictional, while those found elsewhere are not. Nevertheless, relying on the Supreme Court’s later decision in John R. Sand & Gravel and the fact that much case law would be overturned by such a reading of Bowles, the Court found a different path. In John R. Sand & Gravel, the Supreme Court distinguished between statutes of limitations designed to protect defendants from stale claims from those that that sought to achieve a “system-related goal,” with only the latter classified as jurisdictional. Since the bankruptcy deadline existed principally to protect a debtor from delay and not to achieve some broader system goal, the Court held that it was not jurisdictional and any objection was waived by the debtors.

The Court proceeded to the merits. The means test in the BAPCPA includes, in the definition of monthly expenses, “applicable" monthly expenses specified by the National and Local Standards found in the Internal Revenue Manual (“IRM") and “actual" monthly expenses for other defined expenses. The vehicle ownership allowance at issue is one of two transportation components found in the Local Standards. The Court noted that the issue it faced has been litigated frequently but never decided by a circuit court. Two approaches have emerged, depending on the treatment of the word “applicable” in the statute. The IRM approach treats “applicable” as meaning “relevant” and concludes that a debtor with no lease or debt payment on a vehicle has no “relevant” cost of ownership. The Plain Language approach, on the other hand, treats “applicable” as that number “applied” by the Local Standards for the debtors’ region and number of vehicles. The Court was persuaded by the Plain Language approach. It decided that, to give effect to all the words of the statute, “applicable” could not mean the same as “actual.” Since it could not refer to the debtors’ actual expense, it must refer to the deductions listed in the Local Standards. The Court found additional support for its holding in: a) the inconsistency in the statute’s disallowance of debt as an expense and the IRM approach’s conditioning the transportation allowance on debt, b) Congress’ specific language throughout other sections of the means test to describe allowable deductions, c) an absence of any indication that Congress intended the IRM methodology to be used in the means test, d) the avoidance of an unfair result if the allowance is limited to debtors with car payments, and e) the recognition that allowing the deduction only avoids a presumption of abuse – abuse can be shown independently.  

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GIRL SCOUTS OF MANITOU COUNCIL v. GIRL SCOUTS OF THE UNITED STATES OF AMERICA (December 15, 2008)

Juliette Low founded the Girl Scouts of the United States of America (“GSUSA”) in 1912. GSUSA is run by a national council and its board of directors. In its almost 100 years of existence, GSUSA has developed a large network of local girl scout councils. GSUSA first chartered Girl Scouts of Manitou (“Manitou”) as a council in 1950. As of 2005, there were over 300 local councils. Each council has a charter issued by GSUSA that defines the relationship between the two and grants the council the right to maintain scouting throughout its jurisdiction. In 2005, GSUSA announced a plan to consolidate councils. It planned to reduce the number of councils to just over one hundred. Each council would be larger and, GSUSA hoped, more efficient. The plan would have required Manitou to merge 60% of its territory with six other nearby councils and cede 40% of its territory to two other councils. Manitou decided not to go along. It filed suit in February 2008 against GSUSA. It alleged breach of contract, tortious interference and a violation of the Wisconsin Fair Dealership Law. It sought to permanently enjoin GSUSA from altering its territory. The district court denied Manitou’s request for a preliminary injunction without a hearing. The court held that Manitou had failed to demonstrate that it would suffer irreparable harm in the absence of the injunction. Manitou appeals.

In their opinion, Judges Posner, Kanne and Tinder reversed and entered the requested order enjoining GSUSA. The Court led off with the familiar two-phase test for a preliminary injunction. A movant must demonstrate: a) irreparable harm, b) inadequate legal remedy, and c) a likelihood of success. The movant who succeeds in that first phase enters a second phase in which the court balances the injury to the plaintiff, its likelihood of success, the possible injury to the defendant if the injunction issues, and the public interest. The court uses a balancing test in which the greater the plaintiff’s likelihood of success, the less the balance of harm needs to be in its favor. Applying that test, the Court first addressed irreparable harm, the only of the first-phase factors addressed by the district court. The Court disagreed with the court below. It found that Manitou’s loss of jurisdiction would severely affect its ability to generate revenue and harm its goodwill. That harm would not be rectified if a final judgment were entered in its favor and the loss of jurisdiction reversed. The Court also disagreed with the court below on the application of the Wisconsin Fair Dealership Law, under which a “dealer” in Manitou’s circumstances enjoys a statutory presumption of irreparable harm. The Court found that Manitou fit within the statutory definition of “dealer” in the act.

Having found that Manitou established irreparable harm and also noting that the record contained sufficient information to address the rest of the two-phase analysis without remand, the Court proceeded to do so. The Court found that the timing of and difficulty in calculating a damages award established that Manitou’s legal remedies were inadequate. On the likelihood of success factor, the Court noted that it only had to find a “better than negligible” chance of success to satisfy this prong. The Court evaluated only the Wisconsin Fair Dealership Law claim and found that Manitou satisfied that minimal standard.

In addressing the balancing portion of the test, the Court found a “drastic imbalance” in favor of Manitou. The Court noted that the national GSUSA program to consolidate regions was not even scheduled to be completed for a year. Any delay in the Wisconsin part of that plan would not lead to any harm to GSUSA. In addition, any harm to GSUSA could be rectified later. The Court did not feel the need to conduct a deeper analysis of Manitou’s likelihood to succeed given the imbalance of the harm.

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520 SOUTH MICHIGAN AVENUE ASSOC. v. SHANNON (December 15, 2008)

520 South Michigan Avenue Assoc. does business as The Congress Plaza Hotel & Convention Center (“Congress Hotel”) in Chicago, Illinois. It employs approximately 130 room attendants (the employees who clean guest rooms). Unite Here Local 1 union (“Unite Here”) represents these employees. Congress Hotel and Unite Here had a collective bargaining agreement (“CBA”) that expired in 2002. Congress Hotel has agreed to abide by the expired CBA while the parties negotiate a new one. During the negotiations, the Illinois legislature passed the Hotel Room Attendant Amendment (the “Attendant Amendment”) to the One Day Rest in Seven Act. In relevant part, the Attendant Amendment: a) mandates two 15-minute break periods and a 30-minute meal period each day, b) provides a penalty of three times an employee’s wages for a daily violation, c) creates a rebuttable presumption that any adverse employer action after an employee’s exercise of rights under the section constitutes retaliation, and d) provides for an award of attorney’s fees and costs to a prevailing party in an enforcement action. The Attendant Amendment applies only to employees in Cook County, Illinois. Congress Hotel filed suit for a permanent injunction prohibiting enforcement of the Attendant Amendment. It argued that the Attendant Amendment was preempted by the National Labor Relations Act (“NLRA”). The district court granted the motions of the Illinois Department of Labor and Unite Here to dismiss the case. Congress Hotel appeals.

In their opinion, Judges Manion, Kanne and Tinder reversed and remanded. The Court noted that preemption can be either express or implied. Since the NLRA contains no express preemption provision, the question is whether the state statute conflicts with federal law or frustrates a federal scheme, or whether Congress intended to occupy the field. The Court identified two different NLRA preemption doctrines from Supreme Court cases. The Court stated that Congress, in approaching collective bargaining and unions, took a multi-pronged approach. It prohibited some conduct; it protected some conduct; and it specifically left some conduct to the forces of the free market. Garmon preemption seeks to prevent conflict between local regulation and the NLRA’s scheme of regulation. In contrast, Machinists preemption seeks to prevent local regulation of conduct that Congress intended not to be regulated. The Court first addressed Machinists preemption. Three propositions have been established by the Supreme Court in its post-Machinists cases of Metropolitan Life and Fort Halifax: a) the NLRA is more concerned with an equitable bargaining process than its substantive terms, b) the NLRA does not preempt a state law that regulates a mandatory subject of bargaining, and c) the NLRA does not preempt a state law that establishes a minimum labor standard that does not intrude upon the bargaining process. The Court went on to address the defendants’ argument that the Attendant Amendment is simply a minimum labor standard. The Court decided that it is not because: a) it is not a statute of general application (it applied to only one job in one industry in one county), b) it did not provide a low-threshold (i.e., minimum) standard but rather established a term of employment that would be hard to bargain for, and c) it included provisions creating a cause of action, shifting the burden of proof and creating a presumption of retaliation that interfered with and overrode the dispute resolution mechanisms already in place. Since the Court thus found the statute preempted by the Machinists doctrine, it did not reach the Garmon doctrine or consider the Congress Hotel’s equal protection or due process arguments.

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KETELBOETER v. ASTRUE (December 15, 2008)

Brian Ketelboeter was a truck driver. He claims that he was injured in 1995, although he continued working until 2003. During those eight years, he complained of several additional injuries and increasing pain. Many physicians examined Ketelboeter over those years. Most tests showed no physical problems, at least none consistent with the degree of pain Ketelboeter claimed to experience. Dr. Dickson began treating Ketelboeter in 2002. Dickson treated his pain with muscle relaxants and therapy. Dickson reported that Ketelboeter’s pain was not consistent with the objective physical findings. Ketelboeter stopped working in June of 2003 and applied for disability in September. A hearing was held in April of 2005. The record contained the medical conclusions of Dickson and a state medical expert who reviewed Ketelboeter’s records. A vocational expert opined that, although Ketelboeter could no longer perform his truck driving job, he could perform other jobs. The vocational expert relied on the testimony of the medical expert in reaching his conclusion. He admitted that Dickson’s testimony would support an opinion that Ketelboeter would not be able to perform any job. The ALJ denied Ketelboeter’s claim. The ALJ granted Ketelboeter a second hearing based on additional testimony from Dickson. Again, a state-agency expert testified. He testified that there was little objective evidence of Ketelboeter’s pain. The vocational expert identified several additional jobs that Ketelboeter could perform. Again, the ALJ denied Ketelboeter’s claim. The ALJ placed more weight on the testimony of non-treating experts than Ketelboeter’s treating physician. He did so because of the lack of objective evidence of pain and Dickson’s own conclusions that Ketelboeter’s reports of pain were not supported by physical findings. Ketelboeter appeals.

In their opinion, Judges Coffey, Ripple and Manion affirmed. The Court noted that a treating physician’s opinion is given controlling weight when it is well-supported by clinical and diagnostic techniques and consistent with substantial evidence in the record. The Court found substantial evidence in support of the district court’s decision to give greater weight to the state expert. There was very little objective evidence in the record supporting Ketelboeter’s claimed severity of pain and injury. Dickson’s conclusions were supported almost exclusively by Ketelboeter’s own statements. Even Dickson testified that Ketelboeter’s pain was out of proportion to any physical evidence. The district court did not err in accepting the consulting physician’s opinion over that of the treating physician.

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HASAN v. FOLEY & LARDNER (December 15, 2008)

Zafar Hasan is a Muslim of Indian descent. In 2000, he joined the law firm of Foley & Lardner (“Foley”) as an associate. (The following are facts construed in a light most favorable to Hasan.) During his first year at the firm, he received mostly positive reviews and maintained high billable hours. The events of September 11, 2001 changed Hasan’s standing in the firm. Hasan’s billable hours dropped considerably and he received much less positive reviews. At a meeting in October of 2002, Foley decided to fire Hasan. The firm notified Hasan in December that he was being terminated. He filed suit in 2004, alleging that Foley violated Title VII of the Civil Rights Act. The district court granted Foley’s motion for summary judgment. Hasan appeals.

In their opinion, Judges Coffey, Ripple and Manion reversed and remanded. The Court noted that Hasan proceeded under the “direct method” of proving discrimination. Under the direct method, a plaintiff must present evidence, direct or circumstantial, that points to a discriminatory reason for the action of the employer. Courts accept three types of circumstantial evidence in a direct method case. Hasan relies on two types: a) suspicious timing, ambiguous statements, or comments directed at others in the same group, and b) evidence that the employer’s stated reasons for its conduct is not worthy of belief. Hasan’s evidence included: a partner’s anti-Muslim comments, suspicious timing in Hasan’s downturn in billable hours, the financial health of the firm, Foley’s treatment of other Muslim associates, and a changing justification for Foley’s conduct once it located Hasan’s performance reviews. The Court disagreed with the district court’s treatment of some of the evidence. It concluded, for example, that: a) evidence of an anti-Muslim comment by a partner who was not Hasan’s supervisor was valid nonetheless because the partner attended the meeting at which Foley decided to terminate Hasan (and, in fact, may have instigated the decision), b) evidence of an anti-Muslim remark made a year before the decision to terminate may nonetheless be valid circumstantial evidence when it was made at about the time when Foley began to assign work elsewhere, which in turn became a stated reason for his termination, and c) evidence regarding Foley’s treatment of other Muslims is not per se irrelevant but may be relevant depending on how closely tied it is to Hasan’s circumstances. The Court rejected Foley’s argument that Hasan failed to produce evidence of its treatment of similarly situated employees. The direct method of proof does not require such evidence. Finally, the Court noted that Foley initially claimed that it fired Hasan for poor performance but changed its stance when early, positive performance reviews were discovered and produced. They then claimed that Hasan was fired because the firm did not have enough work to keep all associates busy. The Court held that a reasonable jury could have believed both reasons to be pretext. The Court held that the totality of the evidence and possible inferences precluded summary judgment for Foley and remanded to the district court.

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