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

IN RE: GOLDBLATT'S BARGAIN STORES (March 18, 2009)

Before its bankruptcy, Goldblatt's operated six stores in the Chicago area. In January 2003, Great American Group agreed to buy the inventory at two of the stores at a deep discount. Shortly thereafter, Great American agreed to do the same with the inventory at the other four stores. Both sales were contingent on the independent appraisal of the inventories. Both sales were approved by LaSalle Bank, Goldblatt's principal creditor. Before the sales, Great American learned that inventory purchased for $450,000 had been moved from the four stores to the two stores. Great American did not advise the Bank of that fact. The independent appraisal of the first sale confirmed that the inventory was worth at least as much as it had been represented. The appraisal of the inventory from the four other stores, however, indicated that the inventory was worth at least $2 million less than Goldblatt's had estimated. The results of the second appraisal entitled Great American to a refund of approximately $1 million from Goldblatt's. LaSalle Bank, although required by contract to pay, refused to do so. The bankruptcy court, after a trial, concluded that Great American was legally obligated to disclose the movement of the inventory to LaSalle. The court concluded, however, that LaSalle would not have acted any differently had it known and that LaSalle had not shown that it incurred any loss from the movement. On appeal, the district court reversed. The district court agreed that Great American owed a duty of disclosure to LaSalle. However, it held that the fraud excused LaSalle Bank from any obligation to perform. Great American appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder reversed. The Court agreed that a victim of fraud is typically entitled to rescission. Here, however, LaSalle does not seek rescission. It simply wants to be excused from having to pay the deficiency based on the overestimation of the second inventory. Before LaSalle is entitled to a remedy, it must establish reliance and injury. The Court agreed with the bankruptcy judge that LaSalle had not proven neither reliance nor loss.

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CAROLINA CASUALTY v. ESTATE OF KARPOV (March 17, 2009)

Stanislaw Gill was driving his tractor-trailer on the Indiana Toll Road when he rear-ended a stopped car. More collisions followed. Eventually, four persons died and many others were injured. Carolina Casualty insured Gill and his employer. The policy provided a limit of $1 million of coverage for any one accident. Carolina Casualty filed an interpleader action, naming Gill, his employer, and everyone who had filed a claim arising out of the accident. Carolina Casualty deposited $1 million with court and sought a declaration that $1 million was the limit of its liability. The court granted summary judgment to Carolina Casualty. Margarita Karpov appeals individually and as administratrix of the estate of Dimitry Karpov.

In their opinion, Judges Cudahy, Manion and Williams affirmed. The sole issue on appeal was whether the Motor Carrier Act (“MCA”) and the endorsement issued by Carolina Casualty verifying compliance with the MCA establish coverage limits of $750,000 per person. The Court agreed that the MCA, in § 31139(b), establishes a $750,000 minimum level of financial responsibility. Appellants cite § 13906 for the proposition that the $750,000 level was a per-person, rather than a per-accident, threshold. Section 13906 provides: “The security must be sufficient to pay not more than the amount of the security, for each final judgment against the registrant for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of motor vehicles, . . . .” Appellants rely on the “for each final judgment” language to argue that the limit was per person. The Court found little authority on the subject. Two district courts have relied on the “not more than” language to hold that § 13906 creates a limit of coverage from a single accident. One of the decisions was affirmed, albeit in an unpublished opinion. The Court agreed with the rationale of the district courts and held that the MCA did not create a per-person limit. The Court also rejected appellants’ argument that the policy endorsement itself created a per-person limit, on several grounds: a) the endorsement merely verifies compliance with the MCA, which does not adopt a per-person limit, b) the endorsement specifically refers to the per-accident limits in the policy itself, and c) the language of the endorsement is provided in a government regulation and states the limits “for each accident.” Finally, the Court found nothing in legislative history or public policy that supported a different conclusion.

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CRACCO v. VITRAN EXPRESS, INC. (March 17, 2009)

Kevin Cracco was a truck terminal manager at Vitran Express. In late 2006, he was hospitalized with a serious health condition and went on FMLA leave. Cracco's duties were performed by other employees during his absence. The replacement employees discovered a host of problem’s during Cracco’s absence: damaged freight, safety lapses and general disorganization. Vitran's further investigation also discovered falsified freight records. The company terminated Cracco's employment upon his return from leave. Cracco filed suit, alleging that the company violated his FMLA rights. The district court entered a default order when Vitran failed to respond. The court later vacated the default and granted summary judgment to Vitran. Cracco appeals.

In their opinion, Judges Ripple, Manion and Sykes affirmed. The Court first affirmed the district court's order vacating the default. It found Vitran’s statement in its motion that Cracco was fired for cause sufficient to meet the liberal meritorious defense requirement of Rule 55. The Court also rejected Cracco's argument that the district court improperly deemed admitted a paragraph of Vitran’s Rule 56.1 statement of material facts. The paragraph contained multiple statements relating to the problems discovered at the terminal during Cracco’s leave. The Court conceded that the lower court could have required Vitran to unbundle the allegations. It concluded that the court did not abuse its discretion in requiring Cracco to respond to the paragraph, however. The Court then addressed the summary judgment ruling. With respect to the direct method of proof, Cracco attempted to establish a causal connection between his protected activities and his termination. He relied on the fact that he was terminated immediately upon his return from leave. The Court rejected the argument, concluding that the discovery of the performance problems during his leave negated any inference of causal connection. The Court concluded that Cracco was unable to establish two prongs of the indirect method of proof test: a) that he met his employer’s expectations and b) that he was treated less favorably than a similarly situated employee. Finally, because Cracco presented no evidence that he would have retained his job had he not taken FMLA leave, his interference claim failed as well.

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HARP v. CHARTER COMMUNICATIONS, INC. (March 16, 2009)

Mary Harp was a supervisor in the audit department at Charter Communications, Inc. ("Charter"). She was responsible for ensuring that Charter’s outside contractors performed the services for which they were retained. In early 2004, she concluded that one of Charter’s outside contractors sought payment for services it did not perform. Harp was unhappy with the way Charter treated the situation. She complained to the company that her direct supervisor violated the company's ethics code by authorizing full payment to the contractor. Shortly thereafter, the entire audit department was eliminated as part of a reduction in force. Harp brought an action against Charter under the Sarbanes-Oxley Act, alleging that her termination was in retaliation for her whistle-blowing. The district court granted summary judgment to Charter. Harp appeals.

In their opinion, Judges Ripple and Rovner affirmed (Tinder dissenting). In order to prevail, the Court noted that Harp had to prove a) that she engaged in protected activity, b) that Charter knew she was engaged in protected activity, c) that she suffered an unfavorable personnel action, and d) that the protected activity was a contributing factor in the personnel action. In order to meet the “protected activity” element, Harp must have actually believed that her supervisor’s conduct was unlawful and her belief must have been reasonable. The Court concluded that Harp's allegation that her supervisor authorized full payment to a contractor for services not performed had no subjective or objective basis for belief. The Court noted that Harp relied on conversations with a coworker in coming to her conclusion and that her own conduct was inconsistent with the belief. Thus, Harp was unable to establish even the first element of the test. The Court added that her claim would fail even if she met that element. The fact that the entire department was eliminated as part of a reduction in force would prevent her from establishing that her complaint was a contributing factor in her termination.

Judge Tinder dissented. Judge Tinder agreed with the legal test laid out in the majority opinion but disagreed with the majority's analysis and application of the facts to the law. He believed that Harp had a subjective belief that the company was a victim of fraud at the time she submitted her complaint and that her complaint could be reconciled with her deposition testimony. He also thought the circumstances behind the reduction in force were questionable enough to allow Harp to proceed with her complaint. For example, Charter argued that the reduction in force was necessary to save $800,000 a month -- yet the salaries of the entire department amounted to less than $200,000 per month. Also, Harp's severance form indicated that she would not be eligible for rehire -- a fact Judge Tinder thought atypical of a reduction in force. Finally, Charter began rehiring for the audit department within two months of the reduction. Judge Tinder thought that Harp had presented enough evidence to allow her claim to go to the jury.

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CAPITOL INDEMNITY CORP. v. ELSTON SELF SERVICE WHOLESALE GROCERS, INC. (March 12, 2009)

Elston Self-Service Wholesale Grocers, Inc. ("Elston") is a wholesale cigarette distributor. Lorillard Tobacco Co. ("Lorillard") filed a complaint against Elston, alleging that it sold counterfeit cigarettes bearing a Lorillard trademark. Elston was insured by Capitol Indemnity Corp. When Elston claimed coverage, Capitol Indemnity disclaimed any duty to indemnify or defend. Capitol Indemnity sought a declaratory judgment that it had no such duty. The district court ruled that Capitol Indemnity had an obligation to defend Elston in the Lorillard litigation. Capitol Indemnity appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Manion affirmed. The Court addressed the policy provisions. At issue was an exclusion to the policy's coverage of "advertising injury." The policy excluded from coverage any injury arising out of the publication of “material” whose first publication took place before the policy period. Capitol Indemnity argued that Elston's years of lawful sales of Lorillard cigarettes before the beginning of the policy term constituted a prior publication. The counterfeit packaging was nearly identical to the Lorillard packaging. The Court rejected Capitol Indemnity’s position. It interpreted the term "material" in the policy exclusion to refer to the same wrongful material alleged in the complaint. Because there was no allegation of counterfeit sales prior to the policy term, there was no prior publication. Under Illinois law, Capitol Indemnity is required to defend Elston if the underlying complaint potentially falls within the scope of coverage. Having found that the prior publication exclusion does not apply, the Court affirmed the district court’s finding of a duty to defend.

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MALONE v. RELIASTAR LIFE INSURANCE CO. (March 12, 2009)

Gordon Beeler disappeared in January of 1998, leaving behind a wife of 30 years, four children, a business partner and $2.6 million in life insurance policies. A trust was the beneficiary of the policies. The insurance companies denied benefits in 2003, and again in 2005, citing evidence that Beeler may have been alive. The beneficiaries brought suit against the insurance companies, seeking death benefits and punitive damages. The district court granted summary judgment to the insurance companies on the punitive damages claim. The breach of contract claim was tried to a jury. The trustee presented evidence that Beeler had been missing since the date of his disappearance, that the family had conducted numerous investigations into his disappearance, and that he had not been in communication with his family or friends since the day of his disappearance. The insurance companies presented evidence of a troubled family situation, a strained marriage, and witnesses who claimed to have seen Beeler after the date of his disappearance. The jury returned a verdict in favor of the defendants. The district court denied the trustee’s Motion for a New Trial. The trustee appeals.

In their opinion, Judges Kanne, Williams and Sykes affirmed in part, vacated in part and remanded for a new trial. On the punitive damages issue, the Court concluded that there was a good-faith dispute over coverage. Under Indiana law, a good-faith coverage dispute precludes punitive damages. The Court affirmed the district court. With respect to the death benefits claims, however, the Court found that the district court had erred. In Indiana, a claimant may prove an insured’s death in two different ways. It can present evidence, direct or circumstantial, that the insured is, in fact, dead. Alternatively, it can seek a common law presumption of death by showing that the individual has been "inexplicably absent" for seven years, that the individual has not communicated with close family and friends and that the individual cannot be found despite diligent search. That presumption can be rebutted by proof of facts inconsistent with the presumption. The Court found two errors in the district court's approach to the trial. First, the district court erred in instructing the jury that "inexplicably absent" meant that Beeler’s absence was "unexplained by circumstances other than those suggesting death." The Court concluded that the presumption arises when the plaintiff proves a seven-year absence, a lack of communication, and an inability after diligent search to find the person. Any evidence offered to explain the disappearance is relevant only to rebutting the presumption. Second, the Court found error in the special verdict form. The jury was asked three questions: whether the plaintiff raised the presumption of death, whether the defendants rebutted the presumption of death, and whether plaintiff proved that Beeler was, in fact, dead. The special verdict form instructed the jury to conclude its deliberations if it answered no to the first question. The jury did answer no to the first question, it did conclude its deliberations, and it never considered whether plaintiff proved that Beeler was, in fact, that. The Court conceded that either of the two errors, standing alone, might not have required a reversal. Considered together, however, they amounted to reversible error.

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CLEAR CHANNEL OUTDOOR, INC. v. INTERNATIONAL UNIONS OF PAINTERS AND ALLIED TRADES (March 12, 2009)

Clear Channel Outdoor ("CCO ") owns and maintains hundreds of billboards in and around Milwaukee. Patrick Rogney was a CCO crew chief. In April of 2003, Rogney was working with a crew on a billboard in Milwaukee. They were on a platform about 18 feet off the ground. At some point, he disconnected his safety harness from the cable. A company official, conducting a field inspection, observed Rogney at work without the connected harness. After observing for about eight minutes, he notified the operations manager by phone. CCO suspended Rogney that afternoon, and later discharged him. The union filed a grievance, alleging that the termination was without good cause. Pursuant to the collective bargaining agreement, the parties submitted the matter to an arbitrator. After an evidentiary hearing, the arbitrator determined that Rogney's discharge was without just cause and that an appropriate penalty was a six-month suspension without pay. The arbitrator interpreted "just cause" to require CCO to not only consider whether an offense allowing termination was committed but also to consider whether termination was warranted under the circumstances. CCO brought an action to vacate the arbitrator's award. The district court confirmed the arbitrator's decision. CCO appeals.

In their opinion, Judges Rovner, Wood and Williams affirmed. The Court emphasized its limited role in reviewing a labor arbitrator's decision -- only to determine whether the arbitrator exceeded the powers delegated to him. Here, the Court looked to whether the arbitrator's decision had a plausible foundation in the terms of the collective bargaining agreement. The Court noted that it did not necessarily agree with the arbitrator's construction of the contract. In fact, the collective bargaining agreement gave CCO discretion to fire an employee for a violation of the very safety rule that Rogney violated. Nevertheless, the Court concluded that the arbitrator "without question" interpreted the agreement. Since his decision drew its essence from the agreement, the Court let it stand and affirmed the district court.

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CLANCY v. OFFICE OF FOREIGN ASSETS CONTROL (March 11, 2009)

Ryan Clancy, an American citizen, traveled to Iraq in January 2003. Clancy's purpose was to protest the United States’ involvement in Iraq by acting as a “human shield.” Upon his return to the United States, Clancy admitted to a customs official the reason for his trip. The Office of Foreign Assets Control ("OFAC") issued a Pre-penalty Notice ("PPN"), charging Clancy with providing services to Iraq by shielding facilities from possible military action. OFAC relied on regulations, promulgated post-September 11, restricting trade and transactions with Iraq. OFAC advised Clancy that he could be assessed a penalty of up to $250,000. It offered him the opportunity to make a written response. Clancy submitted a response in which he challenged the validity of the regulations. He did not dispute the factual basis of the charges. OFAC assessed a final civil penalty of $8,000. Clancy filed suit. The district court granted summary judgment against Clancy on all of his claims. Clancy appeals.

In their opinion, Judges Bauer, Kanne and Williams affirmed. The Court first addressed Clancy's procedural due process argument. The relevant inquiry, it said, is whether the procedures afforded presented an unreasonable risk of an erroneous deprivation of a protected interest. The Court concluded that the procedures afforded to Clancy -- the pre-penalty notice, a statement of the underlying facts, an opportunity to respond -- were constitutionally sufficient. The Court then addressed Clancy's challenge to the validity of the regulations. It rejected each of Clancy's arguments. It concluded: a) that the regulations were a proper exercise of OFAC's authority, b) that the travel restrictions were justified by national foreign-policy considerations, c) that Clancy's travel was not "inherently expressive" so as to invoke rights under the First Amendment, and d) that Clancy's actions in Iraq attempted to confer a benefit on the country and therefore met the definition of "services" as that term is used in the regulation.

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VOUGHT v. THE STATE OF WISCONSIN TEAMSTERS JOINT COUNCIL NO. 39 (March 10, 2009)

Daniel Vought and Daniel Alexander were business agents for their local union. James Newell was its Secretary – Treasurer. In mid-2003, Newell fired Robert Russell from his position as a union business agent for allegedly misrepresenting the nature of the union’s health plan. The termination was reversed by the union’s Executive Board. Charges and countercharges were exchanged between Newell and Vought on the one hand and three of the union’s other board members . The matter was submitted to the Joint Council. The Council decided against Newell and removed him as a union officer and suspended him from union membership or employment. His replacement fired Vought the next day. After Alexander showed his support for Vought in later disciplinary proceedings, union leadership showed its displeasure by making his job more unpleasant. He soon resigned. Alexander and Vought brought an action under the Labor Management Reporting and Disclosure Act (“LMRDA”), alleging that they were forced out of their jobs in retaliation for identifying union impropriety. The District Court dismissed Vought’s claim on the merits and Alexander's on the ground that he failed to exhaust union remedies. Vought and Alexander appeal.

In their opinion, Judges Manion, Evans and Tinder affirmed. The Court first indicated its agreement with the lower court’s conclusion on exhaustion. It agreed with Alexander that exhaustion is not required when it would have been futile. Nevertheless, it concluded that the lower court did not abuse its discretion in deciding that a union hearing would not have been an empty formality for Alexander. With respect to the LMRDA claim, the Court cited Supreme Court and Seventh Circuit precedent supporting the proposition that the act does not restrict the freedom of a union leader to choose a staff with compatible views. The union leaders in the cited cases were all elected, and the union leader who terminated Vought was not. The Court did not view that distinction as one that would support a different conclusion.

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POLLITT v. HEALTH CARE SERVICE CORPORATION (March 10, 2009)

Juli Pollitt was a federal employee with health care insurance administered by Health Care Service Corporation ("HCSC"). In 2007, HCSC stopped paying all claims submitted by Pollitt on behalf of her son and began trying to recoup payments it had already made to service providers on his behalf. Pollitt filed suit in state court, alleging that HCSC took the action it did when the Department of Labor failed to pay the proper premium. HCSC removed the case to federal court, where it was dismissed as preempted by the Federal Employees Health Benefits Act. Pollitt appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Evans vacated and remanded. The Court first concluded that the lower court erred in allowing §1441 removal. Preemption is a defense to a state law claim but a federal defense does not support removal. "Complete preemption" would support removal but not as a defense -- rather, as a conclusion that any claim in the area arises under federal law. The Court noted, however, that the Supreme Court held that federal law does not completely occupy the health-insurance coverage field for federal workers. Section 1441 is not the only basis for removal, however. The Court referred to §1442(a)(1), which provides that a person "acting under" a federal officer can remove a suit that depends on the fact that the defendant followed the directions of that officer. The Court noted the parties’ disagreement over whether HCSC was simply following instructions from the Department of Labor. The Court remanded to the district court with instructions to resolve these jurisdictional facts. If HCSC was merely following the direction of the Department of Labor, the case belongs in district court but must then be dismissed. HCSC is the improper defendant in the suit related to the agency’s coverage decisions. On the other hand, if HCSC was acting on its own, there is no basis for removal and the case should be remanded to state court.

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 When was the last time you used "hugger-mugger" in a sentence? Do you even know what it means? I did not until last week's Thursday New York Times crossword puzzle. In the puzzle, "hugger-mugger" was used as a clue (at 12 Down) for "sly." In an opinion released yesterday morning, Chief Judge Easterbrook, in writing for a panel that reversed a criminal conviction, wrote (on page 11): "If Indonesia had not so recently been subject to an arms embargo, then hugger-mugger alone might permit a jury to infer knowledge that a license was required." It appears Chief Judge Easterbrook is invoking a definition different from sly - probably more in the nature of "confusion." Maybe its just a coincidence, particularly given the very different meaning, but he did also write, in 1996: "[A] newspaper deprived of access to the New York Times crosswords puzzles can find others, even if the Times has the best known one." Paddock Publications v. The Chicago Tribune, 103 F. 3d 42 (7th Cir. 1996). Anyway, it is a fun word and I am glad it made its way into an opinion.

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MUHA v. ENCORE RECEIVABLE MANAGEMENT, INC. (March 10, 2009)

Charlotte Muha, representing a class of credit card debtors, brought an action under the Fair Debt Collection Practices Act ("FDCPA") against Encore Receivable Management, Inc. The complaint alleged that Encore violated the FDCPA by stating, in a debt collection letter, that "your original agreement with the above mentioned creditor has been revoked." Plaintiffs allege that that statement is false. The plaintiffs also claim that the statement is misleading and confusing and sought to introduce a survey to support that allegation. The lower court excluded the survey and granted summary judgment to Encore. Plaintiffs appeal.

In their opinion, Judges Posner, Kanne and Tinder affirmed in part, reversed in part and remanded. The Court first upheld the lower court's exclusion of the survey. It concluded that the survey was improper both because the questions and answers were leading and because there was no control group that was shown the letter without the language in question. Notwithstanding the exclusion of the survey (and notwithstanding the admission at oral argument that plaintiffs could not prove damages without the survey), the Court held that plaintiffs could be entitled to statutory damages. The plaintiffs have the burden of proving that the statement was misleading. Although a survey may be the best evidence of that, is not the only potential evidence. The recipients of the letter itself may testify, allowing the judge to infer that the letter is misleading within the meaning of the FDCPA. The Court then addressed the merits of the falsity argument. The issue, it stated, was not the falsity of the statement. The Court concluded that the statement obviously meant that the credit card privileges of the recipient have been revoked. Nevertheless, the plaintiffs are entitled to attempt to prove that the statement is misleading. The Court found that the statement was confusing and noted that confusing language can have an intimidating effect on an unsophisticated consumer. It did not think the evidence was so clear on that point so as to entitle the plaintiff to summary judgment, however. It reversed and remanded for further proceedings. 

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UNITED AIR LINES, INC. v. AIR LINE PILOTS ASSOCIATION (March 9, 2009)

United Air Lines, Inc. ("United") and the Air Line Pilots Association ("ALPA"), the collective bargaining representative for the pilots, have a long and contentious history of labor negotiations. The events of September 11, 2001 put additional pressure on that relationship. Their current collective bargaining agreement was negotiated in 2003 and amended in 2004 and 2005. In late 2006, ALPA attempted to reopen contract negotiations. According to United, ALPA took a number of coordinated measures in an attempt to pressure United. United sued ALPA in July of 2008 under Section 2, First of the Railway Labor Act (“RLA”). Shortly thereafter, ALPA agreed to direct its members not to engage in the disruptive activities. The district court, after an evidentiary hearing, granted United's request for a preliminary injunction. ALPA appeals.

In their opinion, Judges Rovner, Wood and Sykes affirmed. The Court addressed the four main issues on appeal: a) that the claim was barred by the six-month statute of limitations, b) that ALPA had made reasonable efforts under the RLA, c) that United failed to satisfy the requirements of Section 6 of the Norris-LaGuardia Act ("NLGA"), and d) that United failed to satisfy the requirements of Section 7 of the NLGA. With respect to the statute of limitations, the Court noted that the RLA borrows the six-month statute of limitations from the National Labor Relations Act. Although the court agreed that the conduct of ALPA began long before the suit was filed, it concluded that the action was not time-barred. ALPA engaged in unlawful action both before and during the six-month period and their actions created new injuries within the six-month period. The Court found no merit in ALPA'S argument that it made reasonable efforts to halt its members’ unlawful conduct. It relied on the district court's thorough findings of fact and accorded them substantial deference. With respect to the Section 6 requirement -- that United is required to prove that ALPA participated in or ratified the unlawful conduct -- the Court again relied heavily on the thorough findings of fact by the district court. It concluded that United’s statistical evidence, in combination with ALPA's coded communications, were sufficient to meet its burden. Finally, the Court rejected ALPA’s argument that the injunction was not necessary to prevent a violation of Section 2, First of the RLA. The Court conceded the general prohibition in the NLGA barring injunctions against labor unions, but noted an exception when there is a specific violation of a provision of the RLA. Even though ALPA had entered into an agreement to voluntarily cease its wrongful conduct, the district court found that it's conduct was inconsistent with its agreement. The Court concluded that the lower court was within its discretion to find that an injunction was the only way to ensure compliance with the RLA.

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With all the talk about Judge Sotomayor and her place on the political/legal spectrum, the vast majority of news and commentary focuses on her written opinions and her speeches. What about the opinions of the court in which she was a member of the panel but not the author of the opinion? Of course the opinions of her colleagues reveal nothing about her writing ability or style or her depth of reasoning or even her sense of humor --- but don't they say a lot about her point of view? In fact, do they say any less about her point of view  than an opinion authored by the judge herself?

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LEGER v. TRIBUNE COMPANY LONG TERM DISABILITY BENEFIT PLAN (March 9, 2009)

Lisa Leger suffered from osteoarthritis for years. Prior to 1990, she underwent three different arthroscopic procedures but was able to hold a job and engage in a rehabilitative exercise program. However, in 1990, she stopped working for WGN-TV and went on short-term disability. She began receiving long-term disability benefits in December 1990. She continued to receive benefits through 2005. During that time, she continued to have pain and problems with her knees and underwent multiple additional surgeries. The plan administrator reviewed her benefits in 2005 and requested updated information. Her treating physician advised that she was essentially unable to walk. The plan administrator's medical review concluded that she had significant osteoarthritis but that she was not precluded from sedentary work. A vocational rehabilitation consultant identified several employment positions for which she was qualified. The plan administrator therefore terminated her benefits in October of 2005. Leger appealed and provided additional medical information. The plan administrator arranged for another review of the file. That review highlighted some inconsistencies in her records. For example, the records indicated that she could not sit for more than 30 minutes at a time but she nevertheless was wheelchair bound. The plan administrator upheld the decision to terminate her benefits. Leger brought an action pursuant to ERISA’s section 1132 (a)(1)(b) to reinstate her benefits. The lower court granted summary judgment to the plan, stating that it advanced a reasonable explanation for its decision to terminate the benefits. Leger appeals.

In their opinion, Judges Bauer, Ripple and Evans reversed and remanded. The Court first rejected Leger's position, first brought out on appeal, that the arbitrary and capricious standard was the inappropriate standard of review. It added, however, that the claims determination still must comply with ERISA and that the claimant must be afforded a full and fair review. The Court also rejected Leger's arguments that the fifteen year history of payments or the plan's reliance on a medical file review only created a presumption that the termination decision was arbitrary and capricious. Instead, in determining whether a decision is arbitrary and capricious, the Court said it would look to the specific reasons for the denial, whether the claimant was afforded a full and fair review, and whether there is an absence of reasoning in support of the determination. Here, the Court was concerned that the determination failed to mention Leger's voluminous medical record spanning almost 20 years and 17 surgeries. The Court was also concerned about the treatment of the functional capacity evaluation. The plan ignored the FCE evidence that Leger's complaints of pain were real. The Court indicated that the plan was required to do more than just dismiss the complaints. As such, there was an absence of reasoning in the record and the determination was arbitrary and capricious. The Court recognized that it had the option of either remanding the case for further proceedings or reinstating the benefits. Here, because the plan failed to consider the lengthy medical history and to provide adequate reasoning for its treatment of the FCE, the Court was unable to say definitively that the determination was unreasonable. It therefore remanded the case for further proceedings.
 

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GREENE v. POTTER (March 5, 2009)

Mary Alice Greene worked for the post office. She worked five days a week and was allowed to volunteer for overtime on her days off. Each quarter, the post office generated a list of employees who wanted overtime. The assignments were supposed to rotate according to seniority, but the post office was not required to schedule an employee for more than one overtime shift a week. Greene’s off days were Sunday and one weekday. She always requested overtime on both of her off days, although she preferred Sunday overtime. During a two-year period, Greene was offered 22 overtime shifts, only five of which were Sundays. Greene brought an action against the post office for gender discrimination. She claimed that her supervisor favored his male friends to the detriment of the female employees in scheduling the more desirable Sunday overtime. During Greene's case-in-chief, the court granted the post office's motion for judgment as a matter of law. Greene appeals.

In their opinion, Judges Bauer, Ripple and Evans affirmed. The Court first addressed Greene's argument that the entry of judgment in the middle of her case-in-chief was improper. The Court noted that FRCP 50 allows a court to grant a motion for judgment as a matter of law once "a party has been fully heard." The Court recognized that the common practice may be to wait until a party has concluded its case-in-chief. Nevertheless, it concluded that it is proper to enter judgment prior to the close of the plaintiff's case if it has become apparent that the plaintiff cannot prove her case. Here, on the merits, Greene relied on the indirect method of proving illegal discrimination. The Court assumed, for purposes of the appeal, that Greene could have satisfied the elements of the indirect method. It proceeded to address whether Greene presented a genuine issue regarding the post office’s reason for its actions. In order to prevail, Greene had to show that the post office reasons were a pretext for gender discrimination. Greene presented evidence that her supervisor did not schedule overtime according to the post office's policies. The evidence in fact demonstrated that the supervisor manipulated the system to benefit a few of his friends. Greene’s evidence showed conclusively that there was a nondiscriminatory reason for her supervisor's decisions. Since her own evidence that was submitted and that she planned to submit actually defeated her claim, the court acted properly in entering judgment as a matter of law during her case-in-chief.
 

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SOLIS V. CURRENT DEVELOPMENT CORP. (March 5, 2009)

George Klein is the president and sole shareholder of Current Development Corporation (CDC). CDC sponsored two employee benefit plans. The Department of Labor objected to the way Klein ran the plans and filed suit in District Court. In a settlement by consent order, Klein agreed to terminate both plans and distribute their assets -- a vacant parcel of land and almost $900,000 in cash. Klein allowed the plan participants to choose to take their shares in cash or in an ownership interest in the property. Almost everyone selected the cash option. Klein and his wife, themselves plan participants, were left with a 97% interest in the land. While Klein was winding up the plans, unbeknownst to the participants, he was negotiating the sale of the property. He used a property value of $1.7 million in calculating the participants' shares, even though he had already rejected a $2.3 million purchase offer. The Department of Labor found out about these negotiations and returned to court. The court concluded that Klein had breached his duty of loyalty to the participants and removed him as trustee. The court also appointed an independent fiduciary, who soon sold the property for $2.6 million. The independent fiduciary concluded, after a review of CDC's books and records, that Klein owed the plan another $170,000. The court ordered Klein to repay the money, with prejudgment interest. The independent fiduciary then calculated the final asset distribution figures, which the court adopted. Klein appeals.

In their opinion, Judges Bauer, Rovner and Evans dismissed in part and affirmed in part. The Court first addressed the jurisdictional issue. Klein filed two notices of appeal -- one after the court's denial of his motion to reconsider the order of prejudgment interest, and one after the court’s final payment determination. The Court noted that the consent decree itself was a final order. All orders after that were post-judgment orders. The Court compared a post-judgment proceeding to a freestanding lawsuit. In determining its scope of appeal, an appellate court will look for the nature of the proceeding and a final determination of the issues. Here, the Department of Labor began the proceedings when it filed its motion seeking Klein's removal as trustee and disgorgement of his gains. Thus, the proceeding was not final until both those issues were decided. The Court concluded that the post-judgment proceedings were final upon the court's determination of the distribution amounts. Since Klein filed a timely notice of appeal from that decision, the Court concluded that it had appellate jurisdiction of the matters presented during the proceedings. The Court dismissed Klein’s first appeal. The Court then addressed the standard of proof. Klein attempted to characterize the proceeding as one for civil contempt – with an accompanying clear and convincing standard of proof. The Court rejected that conclusion, holding that the proceeding was merely one for violation of the consent order. On the merits, the Court had little difficulty dismissing Klein's arguments: a) he waived his right to evidentiary hearing, b.) he should have disclosed the ongoing negotiations for the sale of the property to the plan's participants, c.) the court authorized the investigation into his operation of the plan, and d) the lower court's order for Klein to return money he took from the plan's assets in violation of ERISA and the final determination order were not clearly erroneous.

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MONDRY V. AMERICAN FAMILY MUTUAL INSURANCE COMPANY (March 5, 2009)

Sharon Mondry was an employee of American Family Mutual Insurance Company ("American Family") and participated in its health insurance plan. When her son needed speech therapy, she contacted the company to ascertain the extent of her benefits. After being referred to the Summary Plan Description ("SPD"), she enrolled her son in speech therapy in January 2003. In June 2003, CIGNA, the claims administrator, denied coverage. The letter indicated that the denial was based on CIGNA’s “Benefit Resource Tools guidelines” (“BRT”). The language used in the denial letter and the BRT was not consistent with the SPD, The SPD indicated that speech therapy is typically covered if performed by a certified therapist. Mondry began an effort that lasted over a year to get the documentation that was used by CIGNA to deny the coverage. For months, CIGNA and American Family either ignored or denied her requests. Mondry’s appeal of the denial was upheld in July of 2003. The letter upholding the denial again referenced a document that Mondry had never seen -- the Clinical Resource Tool (“CRT”). Mondry added the CRT to her document request. Her requests continued to go unanswered or denied. In September 2003, Mondry left her employment with American Family and elected not to continue her health coverage. She did continue her efforts to receive a complete set of plan documents and to reverse the denial of coverage. Mondry finally obtained copies of the CRT in July of 2004 in the BRT in October 2004. It became clear that the criteria contained in the CRT and the BRT were different from the criteria contained in the SPD. CIGNA reversed its position and authorized coverage of the speech therapy. Ten months later, CIGNA reimbursed Mondry for most of her out-of-pocket therapy expenses. Mondry filed suit against American Family and CIGNA pursuant to ERISA. She alleged that American Family and CIGNA failed to produce documents as required by the statute and that they both breached fiduciary duties owed to her. The district court dismissed the claims against CIGNA and entered summary judgment for American Family. Mondry appeals.

In their opinion, Judges Flaum, Kanne and Rovner affirmed in part and reversed in part. The court first addressed the failure to produce documents. ERISA requires a plan administrator to produce to a plan participant the Summary Plan Description and other documents, including "other instruments under which the plan is established or operated." The court affirmed the district court's dismissal of CIGNA with respect to this count because CIGNA is not the plan administrator. As the claims administrator, it is not subject to the requirement. The Court reversed, however, with respect to American Family. It held that American Family was required to produce the claims administration agreement as well as the BRT in the CRT. The Court had little problem in requiring the production of the claims administration agreement. Since it established the respective authorities and obligations of a plan administrator and claims administrator, it was a document on which the plan was operated. The Court found the BRT and the CRT closer questions. The Court stated that the catchall language should be narrowly construed to reach only documents that formally govern the establishment or operation of the plan. Since CIGNA treated the documents as authoritative sources -- in fact, the bases for their decision to deny the claim -- they are more than simply private guidelines. The Court emphasized the narrowness of its holding, only to apply to documents that are treated by the claims administrator as the equivalent of plan language. Finally, the Court held that the fact that American Family was not in possession of the documents was not relevant to its liability. If American Family did not have the right to obtain the documents from CIGNA, they certainly should have bargained for that right. The Court remanded to the district court for determination of the appropriate penalty.

The Court went on to address Mondry's claim that both American Family and CIGNA violated their fiduciary duties. Before addressing the existence of a fiduciary duty, the Court considered whether Mondry qualified for one of the statute’s limited range of remedies. The section of the statute upon which Mondry relies authorizes only equitable relief. The Court concluded that her claims for unreimbursed expenses and the expense she incurred as a result of her decision not to participate in COBRA were not authorized remedies. The Court did, however, concluded that Mondry had a viable claim for the time-value of the money she spent on the speech therapy. The Court noted that this was a restitutionary remedy -- sometimes considered a legal remedy and sometimes an equitable one. Restitution is equitable when it is sought as a result of a breach of fiduciary duty. Here, American Family had the interest-free use of the money and restitution by Mondry negate its gain. Having found relief to which Mondry may be entitled, the Court proceeded to address the fiduciary duty issue. ERISA imposes a duty of loyalty like that of a trustee and it creates a duty of care in executing that duty. The Court looked to a Fourth Circuit decision that concluded that a fiduciary breaches its fiduciary obligation when it fails to make the disclosures required by the statute. The Court concluded that there was sufficient evidence from which a fact-finder could determine that American Family breached its fiduciary duty to Mondry. With respect to CIGNA, however, the Court found so no such duty. CIGNA did not have the same obligation to produce documents, nor did profit from a refusal to do so. The Court affirmed the lower court's dismissal of all counts as against CIGNA and reversed with respect to both counts as against American Family. It remanded the claim for penalties for a determination of the appropriate amount and reversed the summary judgment on the fiduciary duty count and remanded for further proceedings.

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