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

MARSHALL v. H&R BLOCK TAX SERVICES, INC. (April 30, 2009)

Suit was filed in state court against a defendant class of companies. The defendant class consisted of H&R Block Tax Services, Inc. ("TSI") and its affiliates or franchisees. The suit, brought on behalf of a plaintiff class, alleged violations of the Illinois Consumer Fraud Act. The state court certified the defendant class and originally three plaintiff classes, including people in all 50 states and the District of Columbia. On TSI's motion, the court decertified the defendant class but refused to decertify the plaintiff class, although it did narrow it to residents of only 13 states. TSI removed the case pursuant to the Class Action Fairness Act (CAFA), on the theory that the decertification of the defendant class occurred after CAFA’s effective date and increased TSI’s potential liability. The district court remanded the case to state court. TSI requested leave to appeal, which the Court granted.

In their opinion, Chief Judge Easterbrook and Judges Posner and Tinder reversed. A case that was filed before the effective date of CAFA may still become removable if a court's ruling after its effective date increases a defendant's potential liability and does not "relate back" to the original claim. The Court first explored whether the decertification increased TSI's potential liability. On the pleadings, the Court concluded that TSI's potential liability may well have increased. Before decertification, it was not liable for the unlawful acts of all class members simply because it was a corporate affiliate, or because it was a class representative. Similarly, although the original complaint alleged joint and several liability, the complaint included three other defendants. The Court could not determine whether the plaintiffs sought to hold TSI liable for all the affiliates. The Court concluded that the plaintiffs may well be attempting to hold TSI liable for the acts of all the affiliates after decertification, which would appear to increase TSI's liability. With respect to whether the change "relates back" to the original complaint, the Court looked to whether the original complaint provided sufficient notice of the scope of the claim such that the defendant should not be surprised by the increased scope. Relying on its own conclusion that TSI's original liability was significantly less than it was facing after the ruling, the Court concluded that it did not relate back.

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WESTFIELD INSURANCE COMPANY V. SHEEHAN CONSTRUCTION COMPANY (APRIL 29, 2009)

Several home owners in the same subdivision began to notice water damage in their new homes. Litigation ensued against the general contractor, Sheehan Construction Co. Although the problem was traced to one of Sheehan's subcontractors, Sheehan settled the litigation for nearly $3 million. Sheehan is ensured by Westfield Insurance Co. under a general liability policy. Sheehan brought an action against Westfield for indemnity. The district court granted judgment to Westfield. Sheehan appeals.

In their opinion, Chief Judge Easterbrook and Judges Wood and Williams affirmed. Westfield's policy excluded damage to "your work” if it was included in the "products-completed operations hazard." "Your work" is defined in the policy to include work performed by Sheehan or on its behalf. Although the Court recognized that the standard form policy was changed in 1986 to exclude a subcontractor’s work from the "your work" exclusion, it noted that Sheehan's policy did not contain the newer language. With respect to the "products-completed operations hazard" requirement, the Court also looked to the policy definition and concluded that the term was designed so that it covered accidents that occurred during construction but did not cover poor workmanship in a completed house. The Court concluded that the "your work" exclusion directly addressed the homeowners’ harm at issue and resulted in non-coverage.

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MADDEN v. ROLLS ROYCE CORP. (April 29, 2009)

Rick Madden, a member of the U.S. Air Force Reserve, was hired as a temporary employee at Rolls-Royce Corporation. He represented, falsely, that he was a graduate of Purdue's engineering program. He did not impress his supervisor with his skills. At the end of the temporary period for which she had been hired, Rolls-Royce let him go. He then applied for a job with Data Systems and Solutions (DS&S), without success. Madden brought suit against Rolls-Royce and DS&S, alleging that both violated the Uniformed Services Employment and Reemployment Rights Act (USERRA) by discriminating against him on the basis of his military service. The district court granted summary judgment to the defendants. Madden appeals.

In their opinion, Judges Bauer, Posner and Rovner affirmed. Even if a plaintiff under USERRA establishes that his military service was a motivating factor in his discharge or failure to be hired, the defendant is given the opportunity, and the burden, to show that its actions would have been taken even in the absence of military obligations. Here, the defendants’ evidence is compelling and barely contested. Madden’s performance at Rolls-Royce was unsatisfactory. The company was not going to retain him when it had to lay off someone and his co-worker was a better performer. With respect to DS&S, the Court concluded that the company surely would have checked his record and his resume before offering him a job. His poor performance at Rolls-Royce and his resume fraud would justify its refusal to hire.

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IN RE: TEKNEK, LLC (April 29, 2009)

Systems Division, Inc. ("SDI") sought and obtained a judgment for patent infringement against Teknek LLC (“Teknek”) and Teknek Electronics “(Electronics”). During the pendency of the patent infringement suit, the shareholders of Teknek and Electronics created Teknek Holdings ("Holdings") and transferred the assets of Teknek and Electronics into Holdings. Following the judgment, SDI added Holdings and the shareholders as defendants under an alter ego theory. Meanwhile, Teknek filed for bankruptcy. SDI filed a notice of its claim in the bankruptcy court. The bankruptcy trustee filed an adversary proceeding against the alter egos, alleging fraudulent transfers and breach of fiduciary duty. The complaint also sought relief against the shareholders personally for Teknek's obligation to SDI. The bankruptcy court enjoined SDI from attempting to collect its judgment outside of bankruptcy. The district court vacated the injunction. The shareholders paid SDI in full on the judgment. The trustee appeals.

In their opinion, Judges Bauer, Cudahy and Williams affirmed. The Court recognized that both claims were valid but only one could be satisfied – should the trustee or SDI be permitted to pursue the judgment. The Court discussed the law regarding a trustee’s rights to bring actions and the distinction between general claims that can be brought by a trustee and personal claims that can be brought by individual creditors. In the end, however, the Court concluded that those principles apply when the parties seek to recover for an injury inflicted on the debtor. Here, SDI is not seeking to recover from the alter egos for their misconduct directed toward Teknek, the debtor. SDI is seeking recourse for the injury suffered by Electronics. Electronics’ injury is separate from Teknek’s. The Court compared the situation to one in which a creditor brings an action against an insurer or guarantor, which can proceed outside the bankruptcy process. The Court agreed that the injunction was properly vacated by the district court.

While the appeal was pending, both SDI and the trustee sought relief of various sorts from the bankruptcy court, in violation of the rule that lower courts lose their jurisdiction while a matter is on appeal. The Court imposed sanctions on both.

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LUCTERHAND v. GRANITE MICROSYSTEMS, INC. (April 28, 2009)

Mark Lucterhand was the Director of Global Operations for Granite Microsystems, Inc. (GMI). In late 2004, he fell and seriously injured his leg while at work. Daniel Armbrust, GMI's president, witnessed the accident but nevertheless forced Lucterhand to attend a scheduled business meeting. When finally allowed to do so, Lucterhand went to the hospital, had surgery and spent several days recovering. Armbrust fired Lucterhand a few days after he returned to work. Lucterhand sued GMI and Armbrust for intentionally terminating his employment in retaliation for exercising his FMLA rights. He also brought state law claims for false imprisonment and intentional infliction of emotional distress. Federal Insurance Company and Vigilant Insurance Company insured GMI under a variety of policies.. GMI tendered the lawsuit. The insurance companies refused the tender, intervened in the lawsuit, and sought and received a declaratory judgment that there was no coverage. GMI appeals.

In their opinion, Judges Ripple, Sykes and Tinder affirmed. Wisconsin law, which governs the suit, requires an insurer to defend an insured if the allegations of the complaint raise the possibility of coverage. The Court examined the allegations of the complaint to make that determination. The complaint contained allegations of intentional conduct -- that GMI intentionally terminated Lucterhand and that it intentionally inflicted emotional distress and falsely imprisoned him. Insurance policies generally do not cover losses that are the result of intentional conduct. Here, the policies cover losses incurred only as the result of an “accident." The Court recognized the debate between courts that hold that an act is an "accident" if the resulting damage is unintentional and courts that hold that an unintended consequence is irrelevant if the act itself was intentional. In fact, the Wisconsin Supreme Court issued two opinions recently on the issue. Although the decisions produced many different opinions and left some unresolved issues, the Court concluded that they provided enough guidance to resolve the case. The complaint alleges both the intent to act and an intent to harm. As such, the losses are not accidental and, under Wisconsin law, the insurance companies have no obligation to defend.

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SWANSON v. BANK OF AMERICA (April 24, 2009)

The Court denied rehearing in a case originally decided on March 19 and reported here. The Ninth Circuit released an opinion at odds with the Court's on March 16 (and therefore not considered or discussed in the March 19 opinion), Nevertheless, the Court stuck with its analysis and remarked that the Ninth Circuit panel was at odds with an earlier, nonprecedential opinion of the same court.

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WINSLEY v. COOK COUNTY (April 22, 2009)

Marsalette Winsley, an African-American woman, worked for the Cook County Department of Public Health. In December 2003, she was a Family Case Manager, which required her to drive to her clients' homes. In early 2004, she was injured in a car accident. After a leave of absence, she was approved to return to work part-time, conditioned on minimal driving. For more than three years, the County attempted to accommodate her limitations, assigning and reassigning her to different tasks at different locations. Winsley took several more leaves of absence during that time. Her supervisors evaluated her poorly during those years for her problems with attendance and timeliness. Eventually, in May of 2007, Winsley's supervisor asked for improvement in her timeliness and absenteeism rates. Winsley quit her job without notice and never returned. She filed an action alleging that the County violated the Americans with Disabilities Act ("ADA") and Title VII and engaged in retaliation. The district court granted summary judgment to the County on all counts. Winsley appeals.

In their opinion, Judges Bauer, Ripple and Wood affirmed. The Court stated that the ADA requires that the claimant have a disability - defined as "a physical or mental impairment that substantially limits one or more major life activities." Although the statute does not contain a definition of "major life activity," an EEOC regulation does. The Court noted that driving, Winsley’s only potential impairment, is neither on the list nor does it share much in common with the items on the list (e.g., walking, seeing, hearing, breathing, etc.). The Court therefore concluded that driving did not qualify as a major life activity. The Court recognized that Winsley's inability to drive could impair a different major life activity (e.g., working), but concluded that she did not meet her burden of establishing a genuine issue of material fact on that claim. Therefore, her ADA claim failed. With respect to her Title VII claim, the Court concluded that she failed to meet her burden for several reasons: a) her only direct proof were her own bare assertions, b) she was unable to identify a similarly situated employee, and c) she was unable to rebut the County’s evidence that she was not meeting its legitimate expectations. Finally, with respect to her retaliation claim, the Court concluded that her evidence fell far short of the "hostile and abusive working environment" standard.

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IN RE: RADCLIFFE (April 23, 2009)

Barry Radcliffe owned Glass Service, Inc. The company made pension contributions as part of a labor agreement. When the company became delinquent, Radcliffe provided his personal guarantee. When he failed to perform on his guarantee, the pension fund sued and obtained a default judgment. Radcliffe requested his own pension benefits from the fund and, shortly thereafter, declared bankruptcy. The fund refused to turn over his benefits. Instead, they said they would apply the money to the default judgment. Radcliffe filed an adversary action in the bankruptcy court. The court ordered the fund to pay damages, interest, punitive damages and attorney's fees. The district court affirmed. The pension fund appeals.

In their opinion, Judges Kanne, Rovner and Evans affirmed. The first issue the Court addressed was whether the fund violated the automatic stay. The automatic stay takes effect immediately upon the filing of the bankruptcy petition and prevents creditors from taking any action to collect on a debt. The Court agreed with the district court that the fund’s refusal to pay the benefits violated the automatic stay. The Court also agreed that the fund’s conduct was intentional, taken with full knowledge of the existence of the bankruptcy proceeding, a requirement for punitive damages. The next issue was whether the court should have lifted the stay. One of ERISA's goals is to safeguard pension benefits. One way in which it does that is to prevent benefits from being assigned or alienated. As such, Radcliffe's pension benefits never became part of the bankruptcy estate. The Court found no abuse of discretion in the lower court’s refusal to lift the stay.

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CONSTRUCTION AND DESIGN CO. v. UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES (April 21, 2009)

Construction and Design Co. (CDC), a small construction company with three employees, is organized as a Subchapter S Corporation. As such, its income is taxed directly to its shareholders. CDC petitioned to obtain a visa to add a Ukrainian carpenter to its staff. The Department of Homeland Security denied the petition, ruling that CDC could not afford the proposed $50,000 salary for the carpenter. The district court affirmed. CDC and the alien appeal.

In their opinion, Judges Posner, Flaum and Wood affirmed. In order to obtain a visa, an employer must demonstrate to the Department of Labor that no U.S. citizen is qualified to do the work and must satisfy the Department of Homeland Security that it can afford the proposed salary of the alien. The Court pointed out that tax returns, relied on by the government, are not reliable indicators of a company's ability to afford another employee, particularly with respect to a Subchapter S company. Tax considerations can frequently influence the way income is treated. Nevertheless, the employer has the burden of proof with respect to its ability to pay. Here, the company's gross receipts in the year in question were only $400,000, the alien was already working for CDC in a temporary capacity for $23,000 less than his proposed permanent salary, there was no evidence of new business or a new contract with which to pay the new salary, and there was very little cushion in the company’s expenses. Although the Court hypothesized several scenarios under which the hiring might make economic sense, the employer never established an evidentiary record that met its burden.

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INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL 150 v. WARD (April 16, 2009)

Local 150 represents over 22,000 union members in Illinois, Indiana and Iowa. Joseph Ward was its treasurer 1986 until 2007. In 1994, the president of the local asked Ward to purchase property adjacent to the local’s headquarters. Instead of purchasing the property for the union, however, Ward participated in the purchase of the property by an investment group. The group sold the parcel several years later at a substantial profit. Local 150 filed a complaint against Ward, alleging violations of § 501 of the Labor-Management and Reporting Disclosure Act of 1959 (the “Act”) and breaches of fiduciary duty. The district court dismissed the complaint, concluding that § 501 does not allow a labor union to bring a private cause of action. Local 150 appeals.

In their opinion, Judges Kanne, Williams and Sykes reversed and remanded. The Court started with the language of the Act. Section 501(a) imposes fiduciary duties, including a duty of loyalty, on a union’s officers and agents. Section 501(b) creates a federal cause of action for individual union members. Damages recovered under § 501 (b) inure to the benefit of the union itself. Before a union member may sue, she must make a demand that the union take appropriate action and then must receive the court’s permission, on a showing of good cause, to proceed. The Act is silent on a union’s ability to bring an action. On that threshold question, the Court first found no express cause of action under a plain reading of the Act. With respect to whether the Act contains an implied cause of action, the Court noted a split of authority between the Ninth in Eleventh Circuits. Relying on the Supreme Court’s holding in Alexander, the Court concluded that its task was to determine whether Congress intended to create both a private Right and a private remedy. The Court's analysis of the text and structure of § 501 led it to conclude that Congress did intend to create both a federal right and a federal remedy for a union.

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IN RE: KUEHN (April 16, 2009)

Stephanie Kuehn completed all the coursework necessary for a master's degree at Cardinal Stritch University. She did not, however complete her obligation with respect to tuition. When the university awarded her a degree, she still owed $6,000 in tuition. When she requested a transcript in order to qualify for a salary increase, the university refused. Kuehn filed for bankruptcy. The university continued to refuse to provide her a transcript, both while the bankruptcy case was pending and even after the discharge order. The bankruptcy court ordered the university to provide a transcript and pay damages and attorneys fees. The district court affirmed. The university appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Wood affirmed. The Court recited the Bankruptcy Code provisions that prohibit a creditor from taking "any act to collect" a claim during the bankruptcy proceeding or after a claim has been discharged. The Court determined that whether the university was acting to collect a debt depended on whether Kuehn had a right, or property interest, in obtaining a transcript. Since the Wisconsin Supreme Court has never addressed the issue, The Court was forced to predict what the court would do. The Court concluded that the Wisconsin Supreme Court would hold that students are joint owners of the data reflecting their grades. Relying on the Wisconsin Supreme Court’s reasoning in Hirsch as well as established university custom, the Court concluded that a right in one’s grades would be meaningless without a right to a transcript. The university’s refusal to provide the transcript was therefore an act to collect a debt and violated the automatic stay and the discharge injunction.  

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BROOKS-NGWENYA v. INDIANAPOLIS PUBLIC SCHOOLS (April 15, 2009)

While a classroom assistant in the Indianapolis Public School system ("IPS"), Angela Brooks-Ngwenya developed a program she called Transitioning Into Responsible Students (“TIRS”). When IPS did not offer Brooks-Ngwenya a permanent job, she brought suit for race discrimination. She and IPS settled the suit in 2004. She later brought a second suit, alleging that IPS infringed her copyright in TIRS, to which she added a claim for employment discrimination. The district court granted summary judgment to IPS. Brooks-Ngwenya appeals.

In their opinion, Judges Posner, Williams and Tinder affirmed. The Court first addressed the issue of copyright registration. The district court granted summary judgment to IPS because the Copyright Office had rejected Brooks-Ngwenya's application for trademark registration. Federal law requires a rejected applicant to notify the Register of Copyrights when suing for infringement. Brooks-Ngwenya presented no evidence that she had given such notice. The Court concluded that the notice requirement was, although not jurisdictional, a prerequisite to suit. Given that the Register was aware of the suit, the Court concluded that no purpose would be served by insisting on notification and proceeded to the merits. The Court held that Brooks-Ngwenya’s copyright claim must fail because she could not show that IPS used any of her words or materials, only possibly her idea. As for the discrimination claim, the Court had no difficulty in affirming the district court. The party’s earlier dismissal barred the claim. 

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IN RE: INGERSOLL, INC. (April 15, 2009)

Winthrop Ingersoll founded the Ingersoll Cutting Tool Company (ICTC) in the late 1800s. It remained a family- owned leader in its industry through the year 2000. In 2001, Iscar, Ltd. acquired ICTC. The then-owners and descendents of Winthrop Ingersoll, the Gaylords, alleged that they never intended to sell but were duped into it by outside directors. They contacted attorney Marshall Miller to assist them in blocking the sale. He agreed to do so and enlisted the help of David Margules. The Gaylords reached an agreement to pay Miller and Margules $100,000 for the representation. The litigation proceeded apace. Miller soon asked for an retainer increase to $250,000. The litigation was unsuccessful, the sale was consummated and the Gaylords paid the $250,000. Then things got interesting: a) the attorneys sent invoices totaling $390,000, b) Miller and the Gaylord's submitted their fee dispute to arbitration, c) the arbitrator apparently ruled that the Gaylords did not owe any more to Miller and didn't decide whether they owed anything to Margules, d) the D. C. Superior Court ordered the Gaylords to pay an additional $83,000 to Miller (which they did), and e) Margules brought an action in Delaware to recover the $60,000 he claimed he was owed, which was denied. In the meantime ICTC's parent, Ingersoll International Inc., petitioned for bankruptcy. Although the Gaylords were not debtors in that case, the bankruptcy court confirmed a liquidation plan that released the Gaylords from claims "arising from" or "relating to" their original case to enjoin the sale of the company. The Gaylords sought relief in the bankruptcy court from another claim filed in the D. C. Superior Court by Miller. Although recognizing that the Gaylords were not debtors and that Miller was not a creditor, the bankruptcy court held that the release was valid because it was key to the ultimate negotiation and success of the plan. The district court, after a remand for clarification, affirmed the bankruptcy court. Miller appeals.

In their opinion, Judges Bauer, Evans and Williams affirmed. First, the Court agreed with the lower court that the release was broad enough to cover Miller's claim. Since the claim related to a breach of the arbitration award, which arose out of a fee dispute in the identified litigation, the Court concluded that it was clearly covered. As for the validity of the release, the Court noted that releases of non-debtors should rarely be approved. Here, however, the release was narrowly tailored, only covered claims relating to two cases, and was, according to the bankruptcy court, essential to the success of the plan. Although the Court approved the use and validity of the release in this case, it warned that releases like it will usually not pass muster.

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UNITED STATES OF AMERICA v. FLETCHER (April 10 , 2009)

Cap Gemini purchased a consulting business from Ernst & Young in 2000. The Ernst & Young partners received shares in the new business in exchange for their partnership shares. The partners preferred to treat the receipt of shares as income in 2000. The company wanted to put some restrictions on the shares to ensure that the partners would remain with the new organization. They all agreed on a methodology that they thought would serve both purposes. The shares were all transferred and fully taxable in 2000 but were restricted for almost five years. One of the partners, Cynthia Fletcher, received shares with a market value of approximately $2.5 million. She reported this as ordinary income in 2000. Fletcher left the organization and collected the shares remaining in her account. Because the market price of the stock plummeted after the acquisition, it turns out that the partners would have been better off not taking the income in the first year. Fletcher filed an amended tax return for 2000 and took the position that her only income in 2000 was the $650,000 that was actually distributed from her account. Although the Internal Revenue Service processed the refund, the United States filed suit to recover. The district court granted summary judgment to the United States and ordered Fletcher to refund the refund. Fletcher appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Tinder affirmed. The Court first made it clear that Fletcher was not attempting to change the form of the transaction. Instead, she argued that the actual terms of the original transaction had tax consequences that are different than originally reported. The Court disagreed with the substance of her argument, however. Although the stock was restricted, the partners bore the economic risk and were the beneficial owners as of 2000. Even though the partners did not have cash in hand, the economic value of the stock was within their control. Therefore, the income was constructively received in the year 2000 and properly reported as such originally.

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CITY OF JOLIET, ILLINOIS v. NEW WEST, L.P. (April 9, 2009)

The City of Joliet filed eminent domain proceedings to acquire the Evergreen Terrace Apartments. New West, the owner of the apartment complex, filed an action under 42 U.S.C. § 1983. New West sought an injunction and damages, alleging that federal law preempted Joliet's attempts to condemn the property. The district court originally put the condemnation on hold and dismissed the § 1983 action. On the first appeal, the Court reversed and directed the district court to resolve the condemnation proceedings. On remand, HUD intervened and contended that the condemnation was precluded by two different federal statutes. The district court rejected HUD’s argument and certified the case for interlocutory appeal. New West and HUD appeal.

In their opinion, Chief Judge Easterbrook and Judges Williams and Sykes affirmed. The court reviewed the three federal statutes in play. Section 8 of the Housing Act of 1937 provides federal rent subsidies. Section 221 of the National Housing Act creates a federal government mortgage insurance program. Finally, the Multifamily Assisted Housing Reform and Affordability Act of 1997 provides a mechanism for HUD to renegotiate mortgages under section 221. Owners who renegotiate under the 1997 Act must promise to maintain availability for low income tenants for 30 years. Evergreen Terrace participated in all three programs. The Court held in the first appeal that Section 8 does not preempt any eminent domain proceeding. HUD argues that a condemnation would interfere with the purposes of Section 221 and the 1997 Act, both of which are designed to preserve low income housing stock. The Court noted that the Supreme Court recently warned against using preemption inferred from a clash of goals and objectives. Only if an agency has issued a preemptive regulation with the force of law should that power be used expansively. The Court noted that no such HUD regulation exists with respect to eminent domain powers. In fact, the Court did not even agree that the clash of goals even existed. All three federal statutes are voluntary. Even when used, private owners can withdraw from the programs at any time. Without such a regulation, the Court concluded that the eminent domain should go forward.

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ILLINOIS INVESTMENT TRUST NO. 92-7163 v. AMERICAN GRADING CO. (April 8, 2009)

Resource Technology Corp. ("RTC") collected methane gas at landfills and converted the gas into energy. In 1995, RTC entered into a ten-year lease at the McCook landfill. RTC was to install and operate a methane collection and conversion system in exchange for royalties. Although the actual royalties were computed on the sale of electrical energy, the lease required RTC to pay a $100,000 royalty advance at the beginning of each year. RTC entered bankruptcy in 1999. The bankruptcy proceeded for several years. When the 2006 royalty advance payment became due, the trustee did not pay it. A few weeks later the owner of the landfill requested that the trustee refrain from entering the premises. In March of 2006, the trustee entered into a settlement agreement with some of RTC's creditors. Illinois Investment sought an order under the agreement compelling the estate to assume the McCook lease. The lessor objected, asserting that the ten-year lease term had expired. The court ruled that the lease had been extended for a five-year term. The lessor then sent a notice of termination of the lease. The bankruptcy court determined that the lessor validly terminated the lease as a result of RTC's failure to make the royalty payment. Illinois Investment appeals.

In their opinion, Judges Manion, Wood and Williams affirmed. The Court ruled that the failure to pay the advance royalty was a material breach and allowed the lessor to terminate the lease. Even if no royalties were generated during the year, as Illinois Investment argued, the Court concluded that the advance royalty was still required, as security for RTC's performance under the lease.

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COLE v. STATE OF ILLINOIS (April 7, 2009)

Dynetta Cole was a receptionist for the State of Illinois. Her first year on the job was marked with many complaints about her performance, attendance and personality. After she was injured in a car accident, she took FMLA medical leave. She returned to work on a part-time basis after several weeks. Her performance and attendance issues continued. Cole’s supervisors ultimately presented her with an "employee improvement plan." The plan identified her attitude, her attendance and her performance as targeted areas for improvement. The plan required her to communicate more frequently about her schedule, become more aware of her tone and plan her daily schedule more efficiently. Her supervisors told Cole that she would be fired if she did not sign the plan. Cole refused to sign the plan -- Cole was fired. Cole brought suit against the State and her supervisors alleging retaliation for exercising her FMLA rights. The district court granted summary judgment to the defendants. Cole appeals.

In their opinion, Judges Manion, Evans and Tinder affirmed. The FMLA, stated the Court, makes it unlawful to terminate an employee for using FMLA leave. Cole chose the direct method of proof which required either an admission of discrimination or a "convincing mosaic" of circumstantial evidence that would allow the jury to infer discrimination. The Court agreed with the district court that Cole presented no evidence to suggest that her termination was anything more than her supervisors’ response to her refusal to sign the plan. Although her termination followed shortly after her leave, the Court noted that proximity in time by itself is rarely enough to create a material fact dispute. The court also rejected Cole's argument that the improvement plan itself constituted an adverse employment action. An adverse employment action must be one that would dissuade a reasonable employee from exercising her rights under the FMLA. Here, the improvement plan was merely her employer’s reasonable approach to improve her attitude and performance.

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SMART v. LOCAL 702 INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (April 7, 2009)

Ronald Smart’s non-union electrical company was awarded a contract to perform electrical work at a sports complex. He claims that Local 702 threatened the owner of the sports complex and coerced him to replace Smart’s company with union electricians. Smart brought an action against the local under the Illinois Antitrust Act. He also brought state law unwarranted prosecution and malpractice claims against the union’s lawyers (claims arising from earlier legal actions against Smart by the union). The district court dismissed the antitrust claim, concluding that it was preempted by the National Labor Relations Act. It also dismissed the state law claims, holding that the malpractice claim could not be brought against a lawyer who had never represented Smart and that the unwarranted prosecution claim required that he prevailed in the underlying litigation (he did not). Smart appeals

In their opinion, Judges Ripple, Kanne and Tinder affirmed in part, reversed in part and remanded. The Court first addressed its jurisdiction. The Court observed that there was an apparent lack of diversity and lack of a federal question in the complaint. Although the union raised a federal preemption defense, federal preemption does not normally provide a basis for asserting jurisdiction. One exception to that rule is the "complete preemption" doctrine. When an area is completely preempted by federal law and Congress substitutes a federal cause of action, a claim purportedly based on state law is considered a federal claim. Here, the Court first concluded that Smart's state antitrust claim was preempted by federal law. Next, it noted that Congress provided a cause of action in 29 U.S.C. § 187 with respect to injuries resulting from a secondary boycott. The Court found "ample evidence" that Congress intended to convert state common-law antitrust complaints into federal claims. The Court therefore concluded that § 187 completely preempted Smart’s state law antitrust claim and provided an exclusive federal remedy. The Court remanded that part of the case to the district court for further proceedings. The Court agreed with the lower court's analysis of the state law unwarranted prosecution and malpractice claims.

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NAUTILUS INSURANCE CO. v. 1452-4 N. MILWAUKEE AVENUE, LLC (April 7, 2009)

1452-4 N. Milwaukee Avenue, LLC ("1452") was the owner of the property at that address in Chicago. 1452 had a comprehensive general liability insurance policy issued by Nautilus Insurance Co. ("Nautilus"). The policy contained an exclusion for property damage arising out of operations performed by contractors or subcontractors. When 1452 was sued by the owner and insurer of the property next door for damages allegedly caused by its contractor’s negligent excavation, 1452 tendered the action to Nautilus. Nautilus brought an action seeking a declaratory judgment that it had no duty to defend or indemnify 1452 in the underlying lawsuit, relying on the exclusion. The court rejected Nautilus' argument and entered a declaration that Nautilus had a duty to defend. Nautilus appeals.

In their opinion, Judges Ripple, Sykes and Tinder reversed and remanded. The Court identified the issue as whether the damages alleged in the underlying complaint fall or potentially fall within the policy’s coverage. The Court noted that the lower court did not apply the contractor exclusion because of an allegation in the complaint that 1452 itself was directly liable because it failed to provide statutorily required notice of excavation to the neighbor. The Court disagreed with the lower court’s analysis. The Court emphasized that the notice claim sought recovery for the same loss as the other claims. Relying on Illinois jurisprudence, the Court concluded that, because the property damage alleged in the complaint falls within the policy exclusion, the alternative theory of relief does not trigger coverage.

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LEWIS v. CITGO PETROLEUM CORP. (April 6, 2009)

Michael Lewis and Tammy Livingston, employees of Philip Services Corporation, were performing maintenance work at a CITGO refinery when they were allegedly exposed to a hazardous gas. Emergency personnel responded, they went to the hospital, they received a full medical examination, they were released, and they returned to work the next day. Several years later, Lewis and Livingston asserted common-law negligence claims against CITGO. Livingston also asserted a negligent infliction of emotional distress claim. Their claims were supported by two physicians -- -- Dr. Jordan Fink, a doctor of internal medicine, and Dr. Norman Kohn, a psychiatrist and neurologist. The court granted summary judgment to CITGO, holding that the plaintiffs had failed to satisfy their burden of demonstrating the reliability of the expert testimony. Lewis and Livingston appeal.

In their opinion, Judges Ripple, Kanne and Tinder affirmed. The Court first addressed the question of whether Livingston was a "bystander" or a "direct victim" for purposes of the emotional distress claim under Illinois law. Concluding that she was a "direct victim," the Court noted that the plaintiffs' burden on both the common-law negligence and negligent infliction claims were to demonstrate a duty on the part of defendant and a breach that proximately caused the injury. The Court turned to causation and the lower court’s exclusion of the expert testimony. The Court approved the lower court’s application of Rule 702 and Daubert. It is the burden of the proponent, said the Court, to establish both the qualifications and the methodology of its experts. CITGO challenged Dr. Fink on both qualifications and methodology -- it challenged Dr. Kohn only on methodology. Although the Court recited some of the problems relating to the experts, it ultimately relied on the fact that plaintiffs failed to advance any substantive arguments in support of their experts’ qualifications. The Court concluded that the lower court was well within its discretion to exclude the evidence. Without this testimony, neither Lewis nor Livingston could provide evidence of causation with respect to the common law negligence claims. With respect to Livingston's claim for negligent infliction of emotional distress, however, one of CITGO's own experts did testify that Livingston experienced "relatively mild" anxiety as a result of the exposure. The Court agreed with the lower court’s conclusion that the injury did not reach the threshold of severity to be compensable and was properly dismissed.

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HAMPTON v. FORD MOTOR COMPANY (April 6, 2009)

Collette Hampton worked the night shift Ford's Chicago assembly plant. In the summer of 2004, she allegedly experienced sexual harassment and discrimination on her job. She filed a charge of discrimination in late 2005. While awaiting a resolution of her charge, she learned that Ford was offering a buyout package to eligible employees. The program was system wide, with the goal of reducing Ford's hourly workforce. The buyout came with a lump sum payment of $100,000 in exchange for a waiver of "all rights or claims" against Ford and a promise "not to institute any proceedings of any kind" against Ford. Hampton, knowing that she was scheduled to be laid off in 2006 anyway, applied for the package. She received a written description of the program, was invited to an informational meeting, and was instructed to consult with the company or her union if she had any questions. Hampton received and cashed Ford's check and left Ford's employ. Meanwhile, however, after she applied for the program and signed the release but before she received the check, she brought an action against Ford, alleging sexual discrimination and harassment in violation of Title VII. The district court granted summary judgment to Ford, holding that Hampton had released her Title VII claims as a matter of law. Hampton appeals.

In their opinion, Judges Kanne, Evans and sites affirmed. The Court first addressed Hampton’s argument that she never intended to waive her Title VII claims. The Court found no ambiguity in the waiver language. Relying on the principle, that an unambiguous contract must be enforced as written, the Court concluded that both the waiver language and the covenant language covered and barred her Title VII claims. Next, the Court addressed Hampton’s argument that her waiver was not knowing and voluntary. The Court agreed that the release of a federal right must be knowing and voluntary but concluded that Hampton failed to present enough evidence in support of her assertion. The Court relied on Hampton’s education, the clarity of the document, the time she had to consider it, her concurrent representation by counsel and the explanations provided or offered in concluding that her waiver was knowing and voluntary.

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UNITED STATES v. BENSON (April 6, 2009)

William Benson claims to believe that the 16th Amendment to the United States Constitution was never properly ratified and that, as a result, the federal income tax system is unconstitutional. Benson has written a book on the subject and promotes and sells a package of materials that he claims will allow citizens to refuse to file federal income tax returns and still avoid liability as a result. The United States brought an action against Benson in federal court pursuant to 26 U.S.C. § 6700. The United States sought an injunction preventing Benson from promoting and selling his tax avoidance materials and also sought a list of Benson's customers. The district court enjoined Benson from promoting and selling his package of materials but declined to order him to produce a list of his customers. Benson and the United States appeal.

In their opinion, Judges Bauer, Ripple and Evans affirmed in part, reversed in part and remanded. The Court affirmed the lower court's grant of injunctive relief. The Court first concluded that Benson's activities fit within the broad definition of a § 6700 "plan." Second, the Court concluded that Benson knew or should have known that many of the statements included in the materials were false. Finally, the Court concluded that the statements were material because they could have a substantial impact on a person's decision to purchase his package of materials. Next, the Court concluded that the United States met the injunctive relief threshold contained in the statute. Considering the totality of the circumstances, the court relied on the facts that Benson's violation was not isolated and that he was not likely to stop without the injunction. With respect to Benson's First Amendment claim, the Court concluded that the language of the injunction was specific enough to prohibit only false or deceptive commercial speech -- -- speech not protected by the First Amendment. Benson is still free to encourage political action, communicate a political message, and otherwise share his views about the 16th Amendment or the federal tax system. The Court reversed the lower court with respect to its decision on the customer list. A district court has the authority to issue orders that may be necessary for the enforcement of the tax laws. The Court noted that such an order would not harm Benson but would serve the public interest by allowing the government to both warn Benson's customers of the falsity of his claims and also to enforce the income tax laws of the United States.

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BOWENS v. QUINN (April 2, 2009)

The Illinois Constitution allows the governor of the state to grant reprieves, commutations and pardons "on such terms as he thinks proper." An Illinois statute provides the procedural framework for the exercise of the governor's power. Twelve people who had filed petitions for clemency brought an action against the governor, alleging a violation of their due process rights under the 14th Amendment because of the governor's failure to act on their petitions within a reasonable time. While a motion to dismiss was pending, the governor acted on the petitions of nine of the plaintiffs, granting one and denying eight. The lower court denied the governor's motion to dismiss. The governor brought this interlocutory appeal.

In their opinion, Judges Posner, Kanne and Wood reversed. The Court first addressed the issue of mootness with regard to the plaintiffs whose petitions had been processed. With respect to those plaintiffs whose petitions were denied, the Court determined that the claims were not moot on the grounds that they met the "capable of repetition, yet evading review" standard of Roe v. Wade. The claim of the plaintiff whose application was granted was, on the other hand, moot. On the merits, the Court concluded that there was no ground for the denial of due process claim. The 14th Amendment does not create a property or liberty interest in obtaining a pardon. The fact that the plaintiffs are not claiming an entitlement to a pardon, but merely an entitlement to a reasonably prompt decision, does not change the result.

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