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

ORLANDO RESIDENCE v. GP CREDIT (January 22, 2009)

Twenty-two years and $3 million in legal fees and this dispute continues. Samuel Hardige and Kenneth Nelson settled a dispute in the early 1980s. Hardige gave some property to Nashville Residence Corporation (“NRC”), a company belonging to Nelson, in exchange for a promissory note secured by the property and payable to Orlando Residence, Ltd. (“OR”). NRC failed to pay the note when due. OR sued NRC on the note and obtained a judgment. But NRC had already conveyed the property to Nashville Lodging Company (“NLC”), which in turn conveyed it to Metric Partners. In 1992, OR sued Nelson and several companies controlled by him, including NRC, in Tennessee state court. Fourteen years, three trials, three appeals, and two remands later, OR had final judgments against Nelson and his companies. Meanwhile, OR purchased the subject property at a judicial sale for $100,000 – which amount was deducted from his judgment. On another track, GP Credit bought NLC’s personal property at a foreclosure sale. The personal property included a lawsuit against Metric Partners. Although OR tried to reach the proceeds of that lawsuit, GP Credit prevailed in an action to clear its title (which was affirmed by the Seventh Circuit). After GP Credit cleared its title, OR obtained a default judgment against GP Credit on the theory that it was the alter ego of Nelson.

OR brought a suit in Tennessee state court to collect on its judgment. It named Nelson and his wife, a pension plan, NLC, and GP Credit. GP Credit counterclaimed for restitution, intentional interference, slander of title, and unjust enrichment. The case was removed and transferred to Wisconsin federal court. Susan Nelson brought a separate suit in the same court to quiet title to her property. The district court rejected all claims in both suits. Susan Nelson and all parties to the transferred suit appeal.

In their opinion, Judges Posner, Kanne and Rovner affirmed in part, reversed in part and remanded. The Court first addressed OR’s appeal. The district court had dismissed OR’s claim against GP Credit because it thought it conflicted with the Court’s earlier ruling on GP Credit’s appeal. The Court disagreed. The basis of OR’s earlier attempts to get the proceeds of the lawsuit was its claim against NLC. The current claim is a direct claim against GP Credit, as alter ego, to collect the judgment against Nelson. The Court saw no conflict with the earlier ruling. The Court next addressed GP Credit’s counterclaims. Its first is for the value of the property sold at the judicial sale. GP Credit claims it is worth more than the $100,000 it brought. The Court held that the Tennessee appellate court’s approval of the sale is res judicata. It specifically rejected GP Credit’s claim that the decision could be attacked collaterally because the lower court in Tennessee never had subject-matter jurisdiction. If a court authorized to decide the kind of case in which the issue arises decides a jurisdictional issue in a full and fair hearing, it is entitled to collateral estoppel effect. GP Credit’s second counterclaim arises out of Metric Partners’ offer to settle the very lawsuit to which GP Credit successfully cleared its title. Metric Partners conditioned an offer to settle on OR dissolving its receivership. When OR refused, the case settled for much less. The Court found GP Credit’s claim for the difference frivolous. OR had no obligation to dissolve the receivership solely for the benefit of GP Credit. The Court also rejected GP Credit’s slander of title and restitution claims for the same reasons it rejected the first two counterclaims. Finally, on Susan Nelson’s appeal of her action to quiet title, the Court noted that OR had filed an earlier suit in state court in an effort to reach Mrs. Nelson’s property. When two in rem suits regarding the same res are pending in different courts, the court of the later-filed suit should dismiss.

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ESTATE OF SUSKOVICH v. ANTHEM HEALTH PLANS (January 22, 2009)

Anthony Suskovich was a computer programmer and analyst. From 1996 until his unfortunate and sudden death in 2006, he provided services to WellPoint. WellPoint retained Suskovich on many projects with limited duration, although frequently one project rolled over into another. He billed WellPoint on an invoice, was paid by the hour, and his income was reported on a 1099. WellPoint adopted a preferred vendor program around 2000 under which it could only avail itself of Suskovich’s services if they were provided by a preferred vendor. Suskovich began a relationship with Trasys. Suskovich would send an invoice to WellPoint, which in turn would refer them to Trasys for payment to Suskovich. Suskovich’s income was still reported on a 1099. In 2001, Suskovich signed an “independent contractor” agreement. Suskovich worked on many different projects, sometimes on more than one at once. He usually worked at WellPoint’s offices with a computer supplied by WellPoint. In 2005, WellPoint informed Suskovich that they would not be using him anymore and asked him to train a replacement. Later, Suskovich and WellPoint had discussions about the possibility of Suskovich becoming an employee of WellPoint but nothing ever came of them. Before his death, the IRS began an investigation of Suskovich for not filing tax returns. The investigation led to his filing of returns for several years in which he listed himself as self-employed. He still had remaining tax liability when he died. His estate brought an action against WellPoint and Trasys, seeking a declaratory judgment that Suskovich was an employee of WellPoint and Trasys and for compensation under the Fair Labor Standards Act (“FLSA”), benefits under ERISA, and tax indemnity. The district court granted summary judgment for the defendants, holding that Suskovich was an independent contractor. The Estate appeals.

In their opinion, Judges Cudahy, Flaum and Sykes affirmed. First, the Court held that the district court did not give improper weight to the “independent contractor” agreement. The Court held that the court below properly followed the law of the Circuit that parties can define their relationship as long as the other factors do not lead to the opposite conclusion. The district court gave primary weight to the contract but did consider and weigh other factors. Next, the Court held that the district court properly resolved the ambiguity in the contract by considering the language of the contract as well as extrinsic evidence. The Court proceeded to the meat of the appeal – whether Suskovich was an independent contractor or an employee. The Court decided to approach the question under the 10-factor Restatement test, even though the asserted claims have different tests. ERISA claims use a 12-factor common law test. FLSA claims use a broader 6-factor test. The Supreme Court has held that the ERISA test is similar to the Restatement test and the Estate relied on the Restatement test. The Court evaluated and weighed the ten factors: a) extent of control, b) whether the worker is engaged in a distinct occupation, c) whether the type of work is generally done without supervision, d) skill required, e) who supplies the tools and workplace, f) length of employment, g) whether the payment is by time or job, h) whether the work is the regular business of the employer, i) the parties’ belief, and j) whether the principal is in business. The Court concluded that only two factors weighed at all in Suskovich’s favor: who supplied the tools and whether the work was the regular part of the business. The former is a relatively unimportant factor and the latter only favors Suskovich as against Trasys. All of the other factors weighed against Suskovich. The district court was correct in awarding summary judgment to WellPoint and Trasys.

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GIANT SCREEN SPORTS v. CANADIAN IMPERIAL BANK OF COMMERCE (January 20, 2009)

Giant Screen Sports (“GSS”) entered into an agreement with Sky High whereby GSS would distribute three Sky High films. GSS agreed to pay Sky High $3 million dollars over three years, after distribution. Sky High financed the production of one of the films through Canadian Imperial Bank of Commerce (“CIBC”). Although Sky High assigned its rights to the $3 million to CIBC, CIBC also required Sky High to obtain insurance from Export Development Canada (“EDC”) in the event of GSS’ default. EDC insisted on modifications to the distribution agreement between GSS and Sky High, including an accelerated payment schedule and a guarantee of Sky High’s obligation. In late 2002, Sky High provided contract documents to CIBC evidencing the changes and purportedly signed by GSS. GSS maintains that it did not sign and had no knowledge of the new agreements. In 2004, CIBC attempted to trigger the protections in the agreements. GSS notified CIBC that the signature was not that of the GSS officer. When presented by CIBC with the group of agreements, all purportedly bearing a GSS signature, GSS advised CIBC that it would cooperate with its investigation of forgery but only through legal process. CIBC did not tell CIBC that the signatures were forged but stated that CIBC “would not like” the answers to the questions of legitimacy. CIBC then filed an insurance claim with EDC, alleging a loss as a result of GSS’ failure to make the first payment under the agreements. In response to inquiries from EDC, CIBC stated that: a) GSS was in default, b) CIBC was unaware of any disputes that would impede payment, and c) CIBC knew of no reason why GSS did not pay. GSS brought an action against Sky High and CIBC. Against CIBC, GSS alleged that CIBC’s statements to EDC concerning GSS were defamatory per se. The district court granted summary judgment to CIBC on the ground that the statements were susceptible of an innocent construction. GSS appeals.

In their opinion, Judges Bauer, Cudahy (dissenting) and Wood reversed and remanded. The Court outlined Illinois law of defamation. To prevail on a defamation claim, a plaintiff must prove a false statement, an unprivileged publication to a third party, and damages. Illinois recognizes defamation per se, in which damages are presumed because of the obvious harm caused by the statements. Two kinds of statements constituting defamation per se are relevant to the case: those imputing an inability to discharge one’s duties and those that impute lack of ability in his or her business. Even statements meeting these criteria may be not actionable if they are reasonably capable of an innocent interpretation or are statements of opinion. The Court applied Illinois law to the three statements at issue: that GSS’ failure to pay resulted in a loss to CIBC, that GSS was still in default, and that CIBC was unaware of any dispute between GSS and Sky High that would affect GSS’ desire to pay. The Court believed that the district court’s conclusion put an undue strain on the statements’ meaning. The Court concluded that the statements, taken as a whole and in the context in which they were made, conveyed an untrue imputation that GSS was dishonest. The Court also concluded that the statements contained verifiable factual assertions and were not statements of opinion. Although GSS concedes that CIBC has a qualified privilege, the Court agreed with GSS that there existed genuine issues of fact as to whether CIBC abused the privilege – by failing to properly investigate the truth.

Judge Cudahy dissented. He believed that the majority gave only lip service to the innocent construction rule. He saw the statements of CIBC to be rather ordinary statements made during the course of a business dispute. Illinois precedent, in his view, holds that the mere statement of one’s failure to perform is not defamation per se. He would have affirmed the district court.

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WISCONSIN v. THE STOCKBRIDGE-MUNEE COMMUNITY (January 20, 2009)

The Mohican ancestors of the Stockbridge-Munee Indians (“Tribe”) moved from western Massachusetts to New York and, eventually, to Wisconsin early in the 1800s. Additional pressure to move yet again produced two factions within the Tribe – those that wanted to move farther west and those that wanted to eliminate the tribal structure, remain in Wisconsin, and become full U.S. citizens (more history here). A treaty was eventually entered into in 1856. The Tribe gave up the land it had in return for the creation of a reservation consisting of the Bartelme and Red Springs townships, also in Wisconsin. Problems with the land – it was heavily forested and hard to farm but the Tribe was not allowed to sell the timber – and continued internal conflicts led to further Congressional intervention. Pursuant to acts passed in 1871, 1893 and 1906, much of the land was sold, proceeds were divided among tribal members, some members were ousted from the Tribe, and some were later reinstated. Finally, tribal members agreed to accept land or cash in lieu in full settlement of their rights, including those arising under the 1856 treaty. Years later, the Department of the Interior helped the Tribe reacquire some, but not all, of the original two townships. Why does all of this matter? Because the Tribe is now allowed to operate gaming activities within the boundaries of its reservation. The Tribe bought the Pine Hills golf club in 1993 and operates slot machines there. Wisconsin thinks Pine Hills is not within the current boundaries of the reservation. It sued to enjoin the gambling and for a declaration setting forth the boundaries of the reservation. The district court granted summary judgment to Wisconsin. The Tribe appeals.

In their opinion, Judges Posner, Ripple and Evans affirmed. The Court made the “unremarkable” observation that a reservation, once established, must remain intact unless and until Congress explicitly alters it. An intent by Congress to do so cannot be inferred lightly. A court should first look at the language of a statute. In the absence of a clear intent, a court can look at the circumstances surrounding the act, and even subsequent events. The Court addressed the 1871 act and found, based on the language of the Act and surrounding circumstances, that Congress meant to reduce the size of the reservation. The Court noted that Congress was addressing the internal conflict in the Tribe. It expected many members of the Tribe to accept a share of the proceeds of the sale of the property and sever ties with the Tribe. A smaller Tribe needed less land. The Court also pointed out that the 1871 Act was consistently interpreted afterward as having reduced the size of the reservation. The Court next addressed the 1906 Act. It, too, lacked an explicit statement of Congressional intent. Again, the Court considered the circumstances. It concluded that all parties – Congress, the Department of Interior, the Tribe – all expected the 1871 Act to complete the allotment of land to the Tribe and extinguish the 1856 reservation in its entirety. One key fact, in the Court’s opinion, was that the land was allotted in fee simple, a requirement for the abolition of the reservation. Again, the Court noted that subsequent events supported the conclusion that the reservation had been eliminated by the Act. By 1910, all the original reservation property had been sold or was held by members of the Tribe in fee simple. The Court concluded that the current extent of the reservation is only that which has been reacquired with the assistance of the Department of the Interior – and it does not include the Pine Hills property.

Judge Ripple concurred, only to emphasize the point that the Court did not in any way depart from the general rule that Congress must be explicit in any attempt to alter or disestablish a reservation.

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CAMP v. TNT LOGISTICS CORPORATION (January 14, 2009)

Lola Camp was a truck driver in the employ of Transport Leasing Company (“TLC”). TLC in turn provided her services to DeKeyser Express (“DeKeyser”), a transport company. One of DeKeyser’s customers was TNT Logistics Corporation (“TNT”). TNT provided transportation logistics services to shippers. In January 2003, TNT directed DeKeyser to pick up a shipment of automobile parts from Trelleborg YSH, Inc. (“Trelleborg”) for delivery to a Mitsubishi automobile plant. DeKeyser assigned the job to Camp. When Camp arrived and surveyed the shipment, consisting of three pallets of parts, she concluded that the only way to fit them onto the truck was to stack one of the pallets on top of one of the others. She was concerned that such a load might not be safe. She advised Trelleborg, DeKeyser and TNT of her concern. TNT personnel advised DeKeyser and Camp that it understood the risk. TNT advised Camp to go ahead with the shipment. TNT released Trelleborg and Camp of any liability for cargo damage. When Camp arrived at her destination, she opened the truck door. The pallet started to fall – she injured herself while trying to prevent the fall. Camp brought an action against TNT and Trelleborg for negligence. The court granted summary judgment to TNT and Trelleborg. Camp appeals.

In their opinion, Judges Ripple, Manion and Sykes affirmed. The Court started with the elements of a negligence claim in Illinois – duty, breach of the duty, and an injury proximately caused by the breach. The Court found it necessary to discuss only the duty requirement. It understood Camp’s claim to be one for common-law negligence based on two alternate theories of duty – statutory and common-law. Camp alleged that the statutory duty claim arose from TNT’s and Trelleborg’s violation of the Federal Motor Carrier Safety Regulations (“FMCSR”). The Court disagreed. It noted that the regulations applied only to “motor carriers.” It held that TNT was not a motor carrier (Camp conceded that Trelleborg was not.) The Court distinguished between a “motor carrier,” defined as a “person engaged in the transportation of goods,” and a “broker,” defined as one who “provid[es] . . . or arrang[es]” for transportation by motor carriers. Even though “transportation” includes “services related to” the movement of property, the Court determined that TNT’s activities were that of a broker and did not rise to the level of providing services relating to the transportation. Also with respect to the statutory duty claim, the Court held that Camp could not recover from TNT or Trelleborg for aiding and abetting the violation of FMCSR. Camp herself violated the FMCSR. Illinois law does not allow a plaintiff to recover from a defendant for adding or abetting the plaintiff’s own tortious conduct.

With respect to the common-law duty claim, the Court identified the factors under Illinois law that courts consider to determine the existence of a duty: a) reasonable foreseeability of an injury, b) likelihood of an injury, c) magnitude of the burden of protecting against the injury and d) the consequences of placing this burden on the defendant. The Court concluded that neither TNT nor Trelleborg owed a duty of care to Camp -- Camp was aware of the risk, a reasonable person would have avoided the danger, TNT and Trelleborg knew of no particular reason why Camp would be compelled to act otherwise, Camp was in a better position to avoid the injury, it would be a burden to impose the obligation to avoid the injury on TNT or Trelleborg, and placing the burden on TNT and Trelleborg would result in significant resources devoted to preventing the injury. Having found no duty, Camp cannot establish negligence.

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BILTHOUSE v. UNITED STATES (January 15, 2009)

Alan and Patricia Bilthouse bought $500,000 worth of stock in S&E Contractors (“S&E”), a heavy construction contractor in Florida. S&E’s principal business was public works projects, for which it needed to be bonded. S&E came upon hard times beginning in early 1994. It suffered severe losses from cost overruns on a large project, eventually defaulting on the bonds in 1995. Without bonding, S&E had to discontinue its public works projects. It did file a lawsuit in late 1995 to recover its losses from the project. The lawsuit was settled in 1997 with S&E receiving no money. The confluence of the IRS regulations and the Bilthouse personal situation made the S&E losses much more valuable to them if their loss occurred in 1997 rather than 1995. The Bilthouses sought a refund from the IRS from their 1997 tax payment, asserting that their interest in S&E became worthless in 1997 and their shares were, therefore, “disposed of” in that year. The IRS denied their claim. The Bilthouses sued in district court. The court granted summary judgment to the United States. The Bilthouses appeal.

In their opinion, Judges Ripple, Kanne and Williams affirmed. The principal question before the Court was whether the stock became worthless in 1995 or 1997. The parties agreed that, for loss computation purposes, the stock is considered “disposed of” the year it became worthless. The Court noted that “worthless” is not defined by the IRS but is a fact question, taking into account both the liquidating value and the potential for value. It is the Bilthouse’s burden, however, to establish the facts supporting the worthlessness in 1997. The Bilthouses rely on two facts: a) the lawsuit was expected to result in an award in excess of $15 million and b) S&E continued its construction activity on small, private projects through 1997. The Court rejected first basis. Although the plaintiffs presented evidence of the subjective belief of many that the lawsuit would succeed, the Court stated that the proper inquiry requires objective evidence of the reasonableness of those beliefs. The Bilthouses presented no such evidence – nor did they present evidence of the basis for the calculation of damages in the event of success. The Court viewed the continued projects as a closer question. Continued operations of a company can establish the potential for value. The plaintiffs again, however, were unable to demonstrate a sufficient evidentiary basis for their claim. The record was silent on the amount of private work S&E was engaged in, its future prospects, and whether the private projects would have eventually been sufficient to revive the company. The Court concluded that the Bilthouses failed to carry their burden.

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INEOS POLYMERS v. BASF CATALYSTS (January 13, 2009)

In 1992, Amoco Chemical Company (“Amoco”) and Catalyst Resources, Inc. (“CRI”) entered into a long-term supply agreement for polypropylene catalyst. CRI agreed to build a facility for production of the catalyst – Amoco agreed to fund it over time with its purchase commitments. The contract was quite long and detailed. Article 17 was a Right of First Refusal – it provided that neither CRI nor its parent could dispose of CRI or the plant without first giving Amoco a right to purchase. Article 17 did not apply to a disposition to another company wholly owned by CRI’s parent. Article 19 dealt with assignments. It provided that neither party could assign the agreement without the consent of the other. Article 19 permitted an assignment, without consent, by Amoco to any company owned 50% or more by its parent and by CRI to any company owned 100% by its parent. Both companies underwent significant changes over the following fifteen years. Among the many changes on the Amoco side was its sale by its then parent in 2005 to INEOS US Intermediate Holding Company. The company was renamed INEOS Polymers (“INEOS”). Meanwhile, on the CRI side, the assets were sold in 1993 to Mallinckrodt and sold again in 1998 to Engelhard. On both occasions, Amoco waived its Article 17 right of first refusal. In 2006, BASF acquired Engelhard and renamed it BASF Catalysts (“BASF”). INEOS advised BASF and Engelhard that the transaction triggered its Article 17 right of first refusal. BASF disagreed. INEOS brought an action, alleging breach of contract and tortious interference. The district court dismissed the complaint. It held that the sale of Amoco to INEOS was an assignment to a party not owned 50% or more by Amoco’s parent and thus triggered Article 19. INEOS was, therefore, an impermissible assignee of the contract and could not sue to enforce it. INEOS appeals.

In their opinion, Judges Ripple, Evans and Sykes reversed and remanded. In order to affirm the dismissal, the Court began, it must conclude that the plain and unambiguous meaning of Article 19 is that each party was required to get the other party’s consent to any change in control. That it could not do. First, the general rule is that a change in ownership has no effect on a corporation’s contractual obligations and does not constitute an assignment of those obligations. Second, there is nothing in the contract, contrary to BASF’s argument, that contractually modified the general rule. In fact, quite the contrary: a) Article 19 does not even mention change in ownership, b) Article 17, which does explicitly address changes in ownership, would be rendered moot if Article 19 applied to a change in ownership, and c) the contract treats successors and assigns separately – treating every successor as an assign would be inconsistent. The Court could not conclude that the clear and unambiguous terms of the contract led only to the conclusion reached by the district court. The Court noted also that the course of performance of the parties was inconsistent with the district court’s conclusion. Every prior change in ownership was treated by the parties under Article 17, not Article 19. The dismissal of the complaint was error.

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JACKSON v. CITY OF CHICAGO (January 13, 2009)

George Jackson was a carpenter in the Public Works Department in the City of Chicago from 1987 until 2003, when he was promoted to foreman. In 2004, the City announced the availability of two jobs as general foreman of general trades – one each in the Departments of Transportation and General Services. Jackson applied for both jobs. He was offered neither. The City promoted Michael Blake to the Department of Transportation job. Blake had more experience as a carpenter, had more experience estimating the material and manpower needs of a project, and significantly outscored Jackson on a written test of communication skills. The City promoted Kevin O’Gorman to the Department of General Services job. O’Gorman received the highest combined score for the interview and work sample. Jackson did not even submit a work sample. Jackson brought an action against the City. He alleged race and age discrimination under Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act. The court granted summary judgment to the City. Jackson appeals the Title VII race discrimination judgment.

In their opinion, Judges Kanne, Evans and Sykes affirmed. The Court noted that Jackson was proceeding under the indirect method of proof. The first requirement of that indirect method is to establish a prima facie case of discrimination. The Court recited the elements of the prima facie case: a) he is a member of a protected class, b) he is qualified for the position, c) he was rejected, and d) the position was given to a person not in the protected class who was less or similarly qualified. Thus, if a job is given to a better qualified individual, the plaintiff’s case must fail. The Court concluded that both promotions were awarded to better qualified individuals. Jackson argued that his qualifications suffered in comparison to the others because the City had discriminated against him in the past by denying him training opportunities. The Court rejected Jackson’s approach. First, Jackson never filed an EEOC charge involving training opportunity discrimination, a prerequisite to a Title VII action. Second, to the extent Jackson argued that the discrimination in training opportunities was not an independent claim but merely support for his primary claim, the Supreme Court’s recent decision in Ledbetter v. Goodyear disposes of that theory. The 2004 acts were not discriminatory. Under Ledbetter, a new violation does not occur at the time of later non-discriminatory acts, even if they have adverse effects resulting from past discrimination.

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ARMSTRONG v. LASALLE NATIONAL BANK (January 13, 2009)

A number of lawsuits were initiated in several different federal district courts by participants in Amsted Industries, Inc.’s (“Amsted”) Employee Stock Ownership Plan (“ESOP”). The complaints allege violations of ERISA, breach of contract, breach of fiduciary duty and conversion. The Judicial Panel on Multidistrict Litigation (“Panel”) consolidated the cases for pretrial proceedings in the Northern District of Illinois. That court ordered the cases consolidated into two groups – retiree claims and non-retiree claims. The non-retirees added LaSalle Bank as a defendant. All the claims eventually were resolved except the non-retiree claims against LaSalle. The non-retiree plaintiffs and LaSalle participated in pretrial proceedings, including the setting of a trial date. A few weeks before the pretrial order was due, the plaintiffs moved to remand their claims. LaSalle objected. The court granted the remand, reluctantly and with some consternation. It also certified two questions under 28 U.S.C. § 1292(b): a) whether filing an amended complaint agreeing to jurisdiction and venue and adding a defendant that can only be sued in the transferee court constitutes consent to trial in the transferee court, and b) whether waiver of a right to remand under § 1407 requires evidence of a “deliberate relinquishment of a known right.” LaSalle appeals.

In their opinion, Judges Ripple, Rovner and Tinder affirmed. The Court began with the statute. Section 1407(a) provides that cases transferred and consolidated by the Panel “shall be remanded” to the transferor court after pretrial proceedings, unless otherwise terminated. The Court mentioned the Supreme Court’s emphasis on the plain meaning of the statute in Lexecon vs. Milberg Weiss, in which the Supreme Court struck down the practice of district courts transferring a case to itself. The analysis did not stop with Lexecon, however. The Court recognized that § 1407(a) is a venue statute. Since a party can consent to venue and waive its right to remand, the Court addressed waiver. The Court found no authority on the proper standard to apply in a § 1407(a) waiver context. It found its jurisprudence on the waiver of a right to arbitrate instructive. In Halim v. Great Gatsby’s Auction Gallery, the Court held that the standard to determine waiver of the right to arbitration is whether, under all the circumstances, the party alleged to have waived has acted inconsistently with that right. The focus should be on the party’s actions as a whole, not any one action. The Court suggested that the standard for a § 1407(a) waiver should be higher than for a right to arbitrate, noting the statutory source of the remand right as well as the mandatory language. The Court did not actually decide the issue since it concluded that LaSalle could not even get over the “acted inconsistently” hurdle. On the merits of the waiver, the Court stated that only two actions of the plaintiffs were cited as supporting a waiver – its statement in the consolidated complaint that venue was proper in the transferor court and its participation in pretrial proceedings in which trial dates were set. Neither, in the Court’s view, amounted to a waiver. With respect to the venue statement, the Court noted that the consolidated complaint was filed at the request of the court and that venue, in fact, was proper in that court. Nothing about the statement was inconsistent with a desire for a remand. With respect to the plaintiffs’ participation in pretrial proceedings in which trial dates were set, the Court admitted that much aggravation could have been avoided had the plaintiffs made their intentions more clear. However, the conduct was not inconsistent with a desire for a remand.

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WHITE EAGLE COOPERATIVE v. CONNER (January 12, 2009)

Congress enacted the Agricultural Marketing Agreement Act of 1937 (“AMAA”) to regulate the milk producing industry. The AMAA establishes a minimum uniform price for milk in a particular region without regard to its end use. The Department of Agriculture (“USDA”) promulgates milk marketing orders in the different regions. The marketing orders identify the plants and handlers that are regulated. They also determine whether a particular supply of milk is included in the calculation of the blended price for the milk and whether a particular supply receives that price. A diversion limit is the maximum amount of milk a handler can divert to a plant not participating in the program and still be entitled to the blended price. In early 2005, the USDA began a rulemaking addressed at reducing the diversion limit standards. White Eagle Cooperative, a cooperative of milk producers, opposed the amendment. The USDA conducted a hearing in March and issued a interim rule on an emergency basis in July. The interim rule did reduce the diversion limits and became effective in October. A similar final rule was issued in 2006. White Eagle filed a complaint in federal district court. White Eagle alleged that the USDA: a) violated due process by allowing employees of the program administrator to participate in the rulemaking process, b) violated the Regulatory Flexibility Act (“RFA”) by failing to do the proper analysis and support its certification, c) violated the Administrative Procedure Act (“APA”) by failing to support its emergency rule, d) improperly delegated rulemaking authority, e) violated the AMAA by considering end use in its rulemaking, and f) violated the APA by making a decision without adequate record support. The district court granted summary judgment to the USDA. White Eagle appeals.

In their opinion, Judges Ripple, Kanne and Williams affirmed. The Court first addressed the due process argument. White Eagle argued that employees of the organization administering the milk marketing order were biased in favor of the producers because the producers could vote to eliminate the order and, it follows, their jobs. The Court found that White Eagle waived its argument. White Eagle knew as early as February 2005 that these employees were involved in the multi-day hearings and promulgation of the interim rule and yet did nothing. The APA required White Eagle to raise its concerns of bias in a timely manner. The Court next addressed White Eagle’s argument that the USDA failed to address the impact of the regulation on small businesses, as required by the RFA. The Court, noting that it had not yet addressed RFA standing, reviewed the jurisprudence developed in the D.C. Circuit. The Court followed that body of law and concluded that a small entity must be directly regulated by the program to have standing. Since the AMAA regulates handlers, not producers, the Court concluded White Eagle has no standing under the RFA.

The Court addressed two procedural arguments and two substantive arguments on the merits. With respect to the USDA’s support for its emergency rulemaking, the Court did criticize the agency for its lack of specific findings but found its identification of the problem “marginally sufficient” support for the rule. The Court also found no improper delegation of the Secretary’s authority. The Court rejected White Eagle’s substantive arguments: a) it found no support for White Eagle’s claim that the USDA could not consider the end-use of the product in promulgating a regulation, and b) it concluded that the USDA did not “dismiss” White Eagle’s arguments – it simply found them unpersuasive.

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LLOYD v. SWIFTY TRANSPORTATION (January 9, 2009)

Gerald Lloyd is a truck driver. Unfortunately, Lloyd lost much of his left leg in a motorcycle accident. Fortunately, he adapted fairly well to a prosthetic leg. He does experience some difficulties with the lining and develops occasional infections. He was able to get a limb waiver from the State of Indiana to return to his career as a truck driver. Swifty Transportation (“Swifty”) hired Lloyd as a night-shift driver in June 2008. Swifty delivers gasoline in its fleet of twelve trucks. Each truck has one lead driver on the day shift and two night-shift drivers. The lead drivers are generally paid more and have some additional responsibilities. In 2001, Swifty filled a lead-driver position without interviewing Lloyd, even though Lloyd had expressed his interest in the job. Lloyd filed an EEOC charge, alleging that Swifty denied him the job because of his disability. Swifty and Lloyd resolved the charge. Lloyd agreed not to bring suit. Swifty agreed to notify and interview Lloyd for any open lead-driver position. On three later occasions, Swifty filled open lead-driver positions with other applicants. In June 2003, they interviewed Lloyd but hired a more experienced driver. Lloyd filed a second EEOC complaint. In January 2004, Swifty again filed a lead driver position with a more experienced driver, this time without interviewing Lloyd. Lloyd was disciplined for the first time in January 2005 – for loading gasoline from the wrong supplier. Lloyd filed his third EEOC complaint. Subsequent to his last EEOC complaint, Lloyd was disciplined twice more. In May 2005, Lloyd resigned. He filed a complaint, alleging that Swifty a) failed to promote him, disciplined him, and paid him less than others, all on account of his disability and in retaliation for his EEOC charges and taking FMLA leave, b) created a hostile work environment, and c) breached the settlement agreement by not interviewing him for every job opening. The court granted summary judgment to Swifty.

In their opinion, Judges Cudahy, Ripple and Rovner affirmed. The Court concurred with the district court’s holding that Lloyd’s claims regarding the 2001 and 2003 openings were time-barred and that his FMLA claims were barred because Lloyd did not establish that Swifty had more than fifty employees. With respect to the ADA promotion claims, the Court noted that Lloyd proceeded under the “indirect” method of proof. That requires proof that a) he is disabled, b) he was meeting Swifty’s legitimate expectations, c) he suffered adverse employment action, and d) similarly situated employees without a disability were treated more favorably. The Court concluded that Lloyd never even established that he was a “qualified individual” under the ADA – i.e., that he was actually qualified to be a lead driver. Swifty established that a lead driver needed mechanical knowledge and a positive attitude. The uncontradicted testimony was that Lloyd had a negative attitude. With respect to the claims arising from Swifty’s discipline of Lloyd, the Court stated that the written reprimand was not an adverse employment action, the suspension came after and was unrelated to his final EEOC charge, and Lloyd had no personal knowledge that similarly situated drivers were not disciplined. The Court also affirmed the grant of summary judgment on Lloyd’s lower pay, hostile work environment, and breach of contract claims.

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KATZ v. GERARDI (January 5, 2009)

Jack Katz brought this action on behalf of a class of persons who contributed real property to a real estate investment trust (“REIT”). In exchange, they received an interest in the REIT. The REIT merged into a new entity in 2007. The interest-holders were offered either cash or an interest in the new entity. Katz took the cash but filed suit in state court, alleging that the offer violated the terms of their original agreement with the REIT. He based the action on the Securities Act of 1933 ( “’33 Act”). Defendants removed the suit to federal court under the Class Action Fairness Act of 2005 (“CAFA”). The district court concluded that removal was not allowed by the ’33 Act. The defendants petition for appeal.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes granted the petition and vacated and remanded the decision of the district court. The Court first addressed whether Katz’ action was even one under the ’33 Act. The ’33 Act applies only to purchasers of securities – Katz and the class members are sellers of securities. The Court was inclined to believe that Katz was styling his claim as one under the ’33 Act in order to prevent removal. The district court had acknowledged the same issue. It decided that the weakness of the pleading went to the merits, not to whether it was removable. The Court recognized the difficulty in distinguishing between a claim designed to defeat federal jurisdiction and one, though ultimately unsuccessful, is properly pleaded. Ultimately, the Court decided to accept the pleading as one under the ’33 Act and address the conflict between the laws.

The ’33 Act provides that actions brought under the statute in state court are not removable except in particular circumstances. CAFA allows for removal of class actions if certain criteria are met – which admittedly are met here. The Court noted the canons of construction that apply when statutes are in conflict – an older statute yields to a newer and a less specific yields to a more specific. But the Court concluded that it did not have to apply those canons. The statutes, in fact, are not incompatible. The very language of CAFA provides the answer. The broad removal authority granted by CAFA is modified by the almost identical lists of exceptions in §1332(d)(9) and §1453(d). The Court concluded that class actions brought under the ‘33 Act are removable unless one of the §1453(d) exceptions applies. Katz relied on one of the exceptions – claims that relate to rights and duties relating to any security. The Court noted an inconsistency between Katz’ attempts to fit his claim into the exception while still relying on the ‘33 Act. Nevertheless, the Court decided the best course was to remand to determine whether the claim fit within the exception.

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STARK TRADING v. FALCONBRIDGE LIMITED (January 5, 2009)

Brascan Asset Management (“Brascan”) owned 41% of the common stock of Noranda, Inc. (“Noranda”). Noranda owned, in turn, 59% of Falconbridge, Inc. (“Falconbridge”). Noranda and Falconbridge were both large Canadian mining companies. In March 2005, Noranda offered the minority shareholders in Falconbridge 1.77 shares of Noranda stock for each share of Falconbridge. The offer was conditioned on being accepted by holders of more than half of Falconbridge’s shares. The plaintiffs (two hedge funds) bought Falconbridge shares in the months leading up to the tender-offer expiration date in May. The plaintiffs believed that Falconbridge was grossly undervalued. Before the expiration of the tender-offer, the plaintiffs learned of many problems in the transaction. They expressed their concerns to the Canadian regulators. They exposed a conflict of interest at the investment bank that did the valuation of Falconbridge and in the internal Falconbridge committee that considered the valuation. They also warned that Noranda overstated the value of its own shares. The plaintiffs tendered their shares and the tender-offer succeeded. A few months later, Noranda and Falconbridge merged. Shortly thereafter, another mining company offered to buy the merged company for a price substantially above the tender-offer price. The plaintiffs brought this action against both the merged company and Brascan. The suit was based on the SEC’s Rule 10b-5 and section 11 of the Securities Exchange Act. The district court dismissed the suit for failure to state a claim. Plaintiffs appeal.

In their opinion, Judges Posner, Kanne and Tinder affirmed. The Court first addressed the Rule 10b-5 fraud claims. A claim of fraud cannot be maintained without proof that the plaintiffs relied on the misleading misrepresentations or omissions of the defendant. The Court concluded that plaintiffs were not deceived. They knew Falconbridge was undervalued, they knew the offer was too low, and they knew that Noranda engaged in fraud. They did not try, however, to influence other minority shareholders or even to publicly disclose the information. What they had wanted was a higher offer. Not getting it and worried about the lack of minority shareholder protection under Canadian law, they tendered their shares. Other investors may have been deceived but the plaintiffs actually saw through the fraud. The Court agreed that they could not maintain a 10b-5 action. With respect to the §11 claim, the Court noted that it does not require reliance. A person may bring an action under §11 if the registration statement of the security contains an untrue statement or material omission. The plaintiffs fare no better under §11, however, than they did under 10b-5. The measure of damages is the difference between the purchase price paid by the plaintiff and the share price when it was sold or at the time of the suit, if still owned. Here, the value of the plaintiffs’ investment was higher at the time of the suit than when they purchased the shares.

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