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

MALEN v. MTD PRODUCTS (November 19, 2010)

Donald Malen bought a reconditioned riding lawnmower in 2001 from Home Depot. The mower was manufactured in 1998 by MTD Products. It was designed with two particular safety features that turned off the engine if the operator rose from his seat or shifted into reverse, respectively, without completely disengaging the mower blade. It also came with warning labels instructing the operator to disengage the blade before leaving his seat. Malen operated the mower for several years without a problem. In late 2004, the mower got hung up on a curb while Malen was mulching leaves. He tried "rocking" between forward and reverse but without success. He lifted his foot from the pedal that engages the blade and stepped off the mower. He did not turn off the engine. He slipped as he stepped to the ground and the blade struck and severely injured his foot as it went under the mower. He brought suit against Home Depot and MTD Products under strict products liability and negligence theories. The negligence theories were that: a) the mower was negligently manufactured because the safety devices were not operable and b) the mower was negligently designed because it did not have a fail-safe system that would have stopped the blade even without the safety device. Discovery established that: a) Malen thought he disengaged the blade when he lifted his foot off the pedal, b) the safety devices were present but not connected, c) when connected, the devices worked and stopped the blade within 2.6 seconds of the operator rising from his seat, and d) a fail-safe version of the safety feature was available at the time Malen purchased the reconditioned mower. Judge Norgle (N.D. Ill) granted summary judgment to the defendants, concluding that Malen understood and ignored the warning labels and was, therefore, the sole cause of his accident. Malen appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Evans and Williams reversed and remanded. Under both the strict liability and negligence theories of liability, causation is a necessary element. The Court concluded that a reasonable jury could find that the mower was defective and the proximate cause of Malen's injury. The Court first addressed the issues of unreasonably dangerous and negligent design, even though the district court found no need to. It concluded that a jury could find, on the record before it, that the mower was originally put into the stream of commerce without the safety switch. Such a finding would lead to the conclusion that the mower was unreasonably dangerous and that its manufacturer was negligent. Although Malen did not purchase the mower new, the Court concluded that a reconditioned product sold with a full warranty should be treated like a new one. The Court found no controlling Illinois decision on that point, but found support for its conclusion in other jurisdictions and from the Restatement. The Court found sufficient evidence to go to a jury on the negligent design theory as well. The evidence established that MTD incorporated the improved, fail-safe design in its products before Malen purchased his mower. Finally, the Court addressed proximate cause and identified several reasons why summary judgment based on proximate cause was improper. First, the Court concluded that Malen’s failure to heed the warnings was not relevant if the mower was defective for lack of a safety system. Second, if it was relevant, it would be a factor only in determining whether Malen’s conduct was foreseeable. The evidence in the record is that the safety device was developed because that kind of conduct was actually not only foreseeable but routine. Third, the Court concluded that Illinois would extend crashworthiness doctrine to mowers. That doctrine requires a manufacturer to reasonably design a product to minimize the effects of an accident. Malen's conduct here was foreseeable under the crashworthiness doctrine and does not establish proximate cause. Finally, under Illinois law, Malen is barred from recovery only if his negligence contributed more than 50% to the proximate cause of the injury. For all those reasons, the Court found summary judgment erroneous.

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MONTGOMERY v. AMERICAN AIRLINES (November 19, 2010)

Anthony Montgomery has been an American Airlines employee for over 20 years, all but five months of it as a Fleet Service Clerk. It is the events of those five months, however, that matter in this case. Late in 2006, Montgomery asked for and was granted a transfer to a mechanic's position. The collective bargaining agreement required and defined a six-month probationary period, toward the end of which Montgomery would have to pass a tool inspection and qualification test. Montgomery took his test in April of 2007. Two company supervisors and a union representative were present. Montgomery failed the test and was returned to his prior position. Nearly 3 months later, Montgomery complained to American that he was subjected to racial harassment and discrimination during his probationary period. In the initial meeting with a company representative, he never stated that he had complained to his supervisors at the time. The company conducted an investigation and concluded that it could not substantiate the allegations. The results of the investigation were that the test was administered fairly, that the few employees who became mechanics without passing the test fell into different categories, and that any tension in the workplace was not based on race. Montgomery filed suit. He alleged a hostile work environment in violation of § 1981 and Title VII and racial discrimination, also in violation of § 1981 and Title VII, for his return to the clerk position. Judge Der-Yeghiayan (N.D. Ill.) granted summary judgment to American. Montgomery appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Bauer and Kanne affirmed. The Court first addressed the hostile work environment claim, noting that the analysis under the two statutes is the same. The Court found triable issues of fact with respect to three of the four elements of the claim. In order to recover against an employer, however, Montgomery had to establish that American either participated in the harassment or was negligent in finding and correcting it. His only allegation of participation referred to a coworker and thus does not satisfy the participation prong. In order to satisfy the second prong, Montgomery had to establish either that he informed his supervisors of the harassment or that it was so obvious that it amounted to constructive notice. The record does not support either conclusion. The only person he reported his concerns to was his crew chief, a non-management coworker. America cannot be liable for the harassment without clear and direct reporting from the employee. Even if the harassment had been reported, the Court stated that American would have avoided liability because of its prompt and appropriate investigation. The Court turned to the discrimination claim, which Montgomery pursued under both the direct and indirect method of proof. Again, the analysis is the same under both statutes. Under the direct method, Montgomery asserted that non-African-Americans were not required to take the test. The Court rejected this as proof. Even if true, it did not allow the inference of discriminatory motive. Under the indirect method, Montgomery had to establish that similarly situated employees were treated more favorably. He alleged that three individuals became mechanics without passing the test. But the Court concluded that none of the three was similarly situated to Montgomery -- one became a mechanic before the test rule was enforced, one became a mechanic when a recalculation of his probationary time put him past the time limit for taking the test, and Montgomery presented no admissible evidence with respect to the third individual. The Court concluded that Montgomery cannot prevail on his claim that the test requirement was discriminatory. Montgomery also claimed that the test itself was discriminatory. On that claim, the Court concluded that Montgomery simply presented no evidence. Finally, although Montgomery failed to make out a prima facie case, the Court also addressed pretext. It found that American had a legitimate reason for its actions and that Montgomery provided no evidence otherwise.

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RAIN v. ROLLS-ROYCE CORP. (November 18, 2010)

Among many other things, Rolls-Royce manufactures helicopter engines. A network of authorized repair and overhaul facilities supports that product line. Paramount International, owned by David Rain, competes with Rolls-Royce in the business of selling helicopter engine parts to those facilities. In 2006, Paramount and Rolls-Royce agreed to a non-disparagement clause as part of a lawsuit settlement. It simply stated: "None of the Parties will disparage the other." Rain brought suit in 2007, alleging a breach of the non-disparagement clause. He alleged two independent breaches: a) Rolls-Royce filed a RICO claim against a third party in which it alleged that Paramount and Rain were co-conspirators, and b) Rolls-Royce personnel asked him to leave a customer appreciation event held for its authorized network members, even though he was a guest of one of those members. Judge Lawrence (S.D. Ind.) granted summary judgment to Rolls-Royce, concluding that an Indiana absolute litigation privilege immunized it on the first claim and that the company's conduct with respect to the second claim did not amount to disparagement. Rain and Paramount appeal.

In their opinion, Seventh Circuit Judges Bauer, Flaum, and Hamilton affirmed. The Court first addressed the claims relating to the RICO allegations. Indiana does have an absolute litigation privilege and construes it liberally. It protects all "relevant" statements in the proceedings. Here, the Court concluded that the statements were relevant, given the pleading requirements for a RICO claim. Indiana courts, however, have only applied the privilege in tort liability, not contract liability, cases. With no Indiana authority, the Court looked elsewhere and adopted the rule applied in several other jurisdictions -- that the privilege does apply to contract claims, at least where its use is consistent with the purpose of the privilege. Here, the application of the privilege is consistent with the fair administration of justice and open expression by participants in a judicial proceeding. The Court further concluded that certification of the question was not warranted and affirmed the district court's application of the privilege. With respect to the claim based upon the company's conduct at the customer reception, the Court agreed that an Indiana court would look to a common dictionary definition of disparage -- that is, to dishonor, to unjustly discredit, to detract from one's reputation. The tougher question was whether the term referred to one's commercial reputation only or, as plaintiffs argued, to one's personal reputation. Relying on decisions from other jurisdictions, the Restatement, and the circumstances in which the clause appeared (the settlement of a commercial dispute), the Court concluded that the term should be applied to one's commercial reputation only. Since there was no evidence that Paramount or Rain suffered an injury in that sense, the Court affirmed.

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CYRUS v. TOWN OF MUKWONAGO (November 10, 2010)

Twenty-nine-year-old Nicholas Cyrus lived with his parents in Mukwonago, Wisconsin. Cyrus suffered from bipolar disorder and had occasional delusional episodes. He was known by the local police in his small community for his unusual behavior but was not considered dangerous. On the evening of July 8, 2006, Cyrus left his parents' home wearing only his bathrobe following a dispute with his mother . He remained missing until early the next morning when a town resident reported to the police that an unknown man wearing only a bathrobe was trespassing on his property. Lt. Czarnecki responded to the call. Czarnecki suspected that the "unknown man" was Cyrus. He knew Cyrus and knew that he had been reported missing the night before. There are slight factual disputes regarding what happened next but, generally, Czarnecki unsuccessfully tried to get Cyrus' attention and cooperation. After Cyrus refused a request to talk and moved toward the house, Czarnecki used his Taser on him. Cyrus fell to the ground. He tried to get up but wobbled and fell. Czarnecki used his Taser again and Cyrus rolled down the driveway. By this time, a second officer had arrived at the scene. The two officers tried to handcuff Cyrus but he was lying on his hands. When the officers could not pry his hands loose, Czarnecki used his Taser several more times. The officers finally got him handcuffed but, when they rolled him over, they discovered he was not breathing. Cyrus died later that day. His parents brought a § 1983 Fourth Amendment excessive force claim against the officers and the municipality. The plaintiffs offered two experts -- one to testify regarding reasonable force and one (the Medical Examiner, who reformed the autopsy) on the cause of death. The Medical Examiner testified at her deposition that many factors contributed to Cyrus' death, including the stress of the struggle, his fear, his mental condition, his physical position, the pain, and the shock. She testified that she could not state that any particular factor was more significant than another. Judge Randa (E.D. Wis.) excluded the testimony of both experts relating to the cause of death, principally because the Medical Examiner could not isolate a primary cause of Cyrus' death. The court then granted summary judgment to the defendants, finding that there were no material disputes of fact and that the Taser use was not excessive force as a matter of law. Plaintiffs appeal.

In their opinion, Circuit Judges Bauer and Sykes and District Judge Simon reversed and remanded. The Court recognized that most of the material facts were undisputed (principally because the victim was dead). However, it rejected the district court's conclusion for two reasons. First, the Court identified several material facts that were in dispute. Czarnecki testified that he used his Taser only five or six times but the Taser's internal register recorded 12 trigger pulls. The parties also disagreed about whether Cyrus walked or ran toward the house. Second, excessive force claims require an analysis of all the circumstances surrounding the use of force. Facts that may not technically be in dispute may be susceptible of different interpretations, making summary judgment appropriate. For example, there were potentially different inferences that a jury could draw from the fact that Cyrus rolled down the driveway. Was it an attempt to escape or merely an involuntary reaction to the shock? Other factors the jury could consider also tended to support the unreasonableness of the force: Cyrus had not committed a serious offense, he did not violently resist the officers, he was not armed, and he suffered from a mental illness. Since a jury could reasonably conclude that Czarnecki's multiple Taser uses constituted unreasonable force, summary judgment was inappropriate. The Court also rejected defendants' alternative position that plaintiffs could not prove causation without the excluded expert testimony. The Court conceded that proof of causation will be more difficult without the Medical Examiner's testimony. However, it found that the record was not totally devoid of evidence upon which a jury could conclude that the force caused Cyrus's death. Expert testimony is not necessary if the facts relied on are such that lay persons can understand them and draw appropriate conclusions from them. Here, Cyrus stopped breathing shortly after receiving the shocks, there is no evidence of a prior injury or condition, the toxicology report showed the absence of drugs, and there is no evidence of an intervening cause. On this record, the Court concluded that a jury could find causation.

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NORMAN-NUNNERY v. MADISON AREA TECHNICAL COLLEGE (November 8, 2010)

Elvira Jimenez brought a race discrimination lawsuit in 2000 against Madison Area Technical College and three of its employees (Carol Bassett, Jackie Thomas, and William Stryker). Her lawyer was Willie Nunnery. The suit was dismissed as frivolous -- Nunnery was sanctioned and lost his law license for a period of time because of his involvement in the case. On two separate occasions in the following few years, Judy Norman-Nunnery applied for positions at the College. Norman-Nunnery is an African-American woman and is married to Willie Nunnery. In 2002, she made it through an initial screening but was not interviewed. In 2005, she was encouraged to apply for a different position by the College's minority recruiter and Eugene Fujimoto, its Diversity Coordinator. Carol Bassett screened the 77 applicants for minimum qualifications. Norman-Nunnery and 45 others advanced. At that point, a five-person selection committee chaired by Jackie Thomas developed a weighted scoring system with five criteria. Each committee member separately scored the remaining 46 candidates. The College selected the top 10 to interview. Norman-Nunnery was not in the top 10. In fact, only one minority candidate made the list. Under the College’s diversity policy, it added the next two highest-scoring minority candidates to the interview list. Norman-Nunnery was not one of those two, either. Fujimoto met with Basset, Thomas, and William Stryker to discuss why Norman-Nunnery did not make the cut. They told him that she did not score well on two of the five criteria. Although he advised Bassett, Thomas, and Stryker that her resume may not have accurately reflected her experience, they chose not to add her to the interview list. A white woman was hired for the job. Norman-Nunnery filed suit against the College as well as Bassett, Stryker, and Thomas. She alleged violations of Title VII, the 1st and 14th amendment, and § 1981 for discriminating against her on account of her race and her association with her husband. Judge Crabb (W.D. Wis.) granted summary judgment to the defendants on the ground that no rational jury could conclude that race or marital status was the motivation for the defendants' actions. Norman-Nunnery appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Rovner affirmed. The Court first addressed Norman-Nunnery's argument that she was entitled to a spoliation inference due to the unexplained loss of a number of documents relevant to her claim. It concluded that she was not. To be entitled to an inference that the missing documents would support her claim, she must show that the documents were intentionally destroyed in bad faith in order to hide adverse information. Here, the files were lost before any claim was made and there is no evidence that they were intentionally destroyed in order to cover up harmful evidence. The Court cited the fact that the office in which they were located had moved twice, that the filing system was haphazard, and that in fact most of the documents relevant to the claim were not lost. Without evidence of a bad-faith motive, Norman-Nunnery is not entitled to a favorable inference. On the merits, Norman-Nunnery proceeded under both the direct and indirect approaches. Her only claimed direct evidence, however, once the inference was rejected, is an unscientific study that concluded that the College's selection process favored internal candidates. Since most internal candidates were not minorities, the process therefore favored non-minorities. The Court stated that such a study cannot, by itself, meet the standard for a discrimination claim and rejected the claim under the direct method. In reviewing a case like this under the indirect method, the analysis of the prima facie case and the defendants' non-discriminatory reason response frequently overlap. Norman-Nunnery must show that she was qualified and that defendants rejected her in favor of someone of like qualifications. The defendants, on the other hand, assert as their non-discriminatory reason that Norman-Nunnery was not as qualified as those interviewed and as the individual who was hired. The undisputed facts in this case established that the defendants applied the same criteria to all applicants and made their decision based on the applicants' qualifications. Summary judgment on her race discrimination claim was appropriate. For much the same reason, the Court rejected her claim that she was discriminated against because of her husband. There was some evidence that at least some of the defendants knew who her husband was and continued to have negative feelings about him. There was no evidence, however, that the defendants made their hiring decisions because of him.

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THOMPSON v. MEMORIAL HOSPITAL OF CARBONDALE (November 3, 2010)

Archie Thompson was a paramedic with the Jackson County Ambulance Service (JCAS), which served the Southern Illinois Regional Emergency System. Memorial Hospital of Carbondale had medical control of the System. Thompson was the only African-American full-time paramedic in the entire System. In late 2003, Thompson handled a diabetic emergency call. He administered an intravenous solution and revived the patient. The patient declined further medical assistance and Thompson left. After he returned to his base, Tim Brumley (Thompson's supervisor) criticized him for not following the proper protocol of calling medical control before leaving the scene of a diabetic emergency. Thompson claimed not to know the protocol. It was not posted at the base or in his ambulance. Brumley also learned, on inquiry, that other paramedics were doing the same thing. Brumley reported his concerns to Paula Bierman, the System Coordinator. Bierman advised the Hospital's Medical Director that Thompson should be disciplined, citing both his “total disregard” for protocol and a then-recent failing test result. A few days later, Bierman prepared a disciplinary report removing Thompson from primary care medical duties and signed Doolittle's initials. Thompson was placed on paid probation for three months, during which time he was under constant supervision. While on probation, he began seeing a counselor. Shortly thereafter, he took a medical leave of absence and eventually decided not to return to work. Thompson filed suit against Memorial Hospital and the ambulance service, alleging race discrimination, hostile work environment, and constructive discharge. Judge Murphy (S.D. Ill.) granted summary judgment to the ambulance service on all claims and to Memorial Hospital on the hostile work environment and constructive discharge claims. A jury heard the race discrimination claim against the Hospital, found in Thompson's favor, and awarded $500,000. The Hospital appeals from the jury verdict -- Thompson cross-appeals from the hostile work environment and constructive discharge summary judgment rulings.

In their opinion, Judges Kanne, Evans, and Williams affirmed in all respects except with respect to the amount of damages. The Court dispensed with the cross-appeal in relatively short order. To be successful, a hostile work environment claim must contain evidence of severe and pervasive harassment -- so much so that it changes the conditions of employment. The test is even higher for a constructive discharge claim. The Court concluded that the evidence here did not reach that level. With respect to the Hospital's appeal, the Court noted that it raised several arguments that were improperly preserved below. First, the Hospital argues that Thompson was not its employee. But it admitted below that this was a factual question and it never presented the issue to the jury. Second, the Hospital argues that the jury should not have heard testimony of the racial comments Bierman made because she was not the decision maker. But the evidence is relevant if she exerted significant influence over the decision maker. Here, the district court made a threshold determination that there was enough evidence on that issue to go to the jury and the Hospital did not seek an instruction on the point. Third, the Hospital argued that the probation was not an adverse employment action. But, although probation is not always an adverse employment action, the district court ruled that whether it was here was a factual question. The Hospital did not argue the point the jury or ask for an instruction. Having decided not to press these issues before the jury, the Hospital cannot rely on them now. Finally, the Court did believe that the $500,000 award was excessive. There was testimony of Thompson's depression and anxiety that his therapist characterized as "severe." But the adverse employment action was only placement on probationary status with no change in compensation. After reviewing awards in similar cases, the Court landed on a remittitur to $250,000.

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THOROGOOD v. SEARS, ROEBUCK AND CO. (November 2, 2010)

For the third time in two years, the Seventh Circuit has an occasion to decide an appeal in this failed attempt at a class action. Steve Thorogood filed a class action on behalf of residents of 28 states and the District of Columbia. He alleged that Sears' advertising and representations regarding the stainless steel content of a dryer drum constituted a violation of consumer protection laws. The Court reversed the district court's class certification order (the opinion and intheiropinion). It concluded that there were no common issues of fact and that the case was a particularly poor case for class certification. On remand, Sears made a $20,000 offer of judgment on Thorogood's individual claim. Because that amount exceeded Thorogood's maximum recovery, the district court dismissed the case as moot. The Court affirmed, rejecting Thorogood's argument that he was entitled to substantial attorneys' fees (the opinion and intheiropinion). Undaunted, Thorogood's counsel continued his "quixotic . . . quest" and filed an almost identical class-action suit in California. The California district court ruled that the case was barred by collateral estoppel. After plaintiffs alleged additional facts in an amended complaint, however, the court reversed its ruling and allowed the case to proceed with discovery. Sears returned to the Illinois district court and sought to enjoin the continued prosecution of the California case. Judge Leinenweber (N.D. Ill.) denied the motion, concluding that the availability of a collateral estoppel defense was adequate relief. Sears appeals.

In their opinion, Judges Posner, Kanne, and Evans reversed and remanded. The Court first noted that the district court had jurisdiction notwithstanding the fact that the original case was no longer pending. Sears' motion was brought pursuant to the All Writs Act, which authorizes a federal court to issue commands that are necessary to effectuate prior decisions of the court. The Court turned its attention to the merits, which required it to determine whether the district court abused its discretion. Ordinarily, a collateral estoppel defense would amount to an adequate remedy at law and preclude injunctive relief under the All Writs Act. The Court concluded, however, that several factors in the case militated otherwise: the near frivolous nature of the complaint itself, its poor fit as a class action, the difficulty in structuring proper relief, counsel's stated intention to circumvent the district court's order, counsel's position that California consumer protection law is different when his earlier position in the Illinois case was that all class members were governed by the same law, the potential for abuse in class proceedings, the cost of pretrial discovery, and California counsel's "threat to turn the screws" if the case did not settle. The district court apparently did not take these considerations into account and may have believed that the mere availability of the collateral estoppel defense precluded relief. Although conceding that the California court's order deserved respect, the Court mentioned that the California court misunderstood the case and was not going to revisit certification until after discovery. In addition, its orders were not appealable. Sears is therefore without an adequate remedy at law and the district court abused its discretion in denying the injunction. The Court left the details of the injunction to the district court but made several comments nonetheless: the lawyers and all of the original class members should be subject to the injunction, the injunction should not prohibit individual claims, the additional named defendant in the California suit is entitled to no relief, no unnamed class member should be punished with contempt until served with a copy of the injunction, and the injunction should not prohibit class actions with materially different allegations. Finally, the Court noted that the Supreme Court recently granted certiorari in a case regarding a federal court's power to enjoin a state court proceeding. In consideration of that fact, the Court directed that the injunction should encompass state court proceedings but should specifically allow for a modification in consideration of the ultimate decision in the case. 

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TURLEY v. GAETZ (November 2, 2010)

Greg Turley is an inmate in an Illinois prison. He claims that prison employees are retaliating against him because he has brought past litigation regarding his prison conditions. He filed a § 1983 complaint against prison employees and sought to proceed in forma pauperis (IFP). Judge Murphy (S.D. Ill.) denied his request to proceed IFP. He concluded that Turley was ineligible for IFP status because he has had it least part of three prior lawsuits dismissed for failure to state a claim. Turley appeals.

In their opinion, Judges Ripple, Kanne, and Sykes reversed and remanded. The Court noted that the issue in the case was the proper interpretation of the Prison Litigation Reform Act (“PLRA”). One section of the PLRA (the “three strike” rule) attempts to restrict a prisoner's ability to proceed IFP if he has a history of frivolous litigation. Specifically, it states that a prisoner cannot proceed IFP if he has, on three or more occasions, brought “an action or appeal” that was dismissed as frivolous, malicious, or for a failure to state a claim. Turley's relevant litigation history comes from three complaints: 1) a district court dismissed one claim for failure to state a claim and allowed two claims to go to the jury -- the case settled after a jury verdict in Turley's favor, 2) a district court dismissed a claim against some defendants for failure to state a claim and later granted summary judgment in favor of the remaining defendants, and 3) a district court dismissed one claim against all defendants and a second claim against some defendants for failure to state a claim and granted summary judgment to the remaining defendants on account of Turley's failure to exhaust administrative remedies. In each of Turley's complaints, therefore, at least one claim was dismissed for failure to state a claim and at least one claim survived dismissal. The question for the Court was whether any of these dismissals constituted a "strike" under the PLRA. The Court started with the statutory language. It stated that the terms "action" and "claim" are well defined. An action refers to the allegations of the complaint while a claim is an individual request for relief. The natural reading of the statute and its use of “action,” not “claim,” is therefore that a prisoner gets a strike when an action is dismissed in its entirety for one of the three statutory reasons. The D.C., Fifth, Sixth, and Eighth Circuits have concluded likewise. Although comfortable in its holding, the Court felt it necessary to address the earlier opinions in George and Boriboune. They each stated that a prisoner could get a strike when any claim was dismissed. The Court decided that the cases did not control –- and did not need to be overruled -- since neither case was presented with or decided the action versus claim issue and the references in dicta were not essential to the outcome. As further support for its conclusion, the Court noted that the Eighth Circuit decision predated both cases and the D.C. and Sixth Circuit cases predated George. Neither Seventh Circuit panel indicated an intention to create a circuit split or circulated its opinion pursuant to Circuit Rule 40(e). Finally, the Court examined Turley's litigation history in light of its holding and concluded that Turley not only did not have three strikes -- he had none.

The Court originally released this opinion on October 14 and withdrew it a day later. Although the opinion does not overrule a prior decision of the Court, apparently the panel thought its treatment of George and Boriboune warranted circulation to the active members of the Court under Circuit Rule 40(e). No judge favored a rehearing en banc. 

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FEDNAV INTERNATIONAL v. CONTINENTAL INSURANCE CO. (November 1, 2010)

Three shipments of steel made their way across the Atlantic Ocean in 2001 and were delivered at Burns Harbor, Indiana. Each of the shipments was allegedly arrived damaged. Continental Insurance, the steel owner’s subrogee, brought suits against the carrier, Fednav, under the Carriage of Goods by Sea Act. The carrier agreement had a forum selection clause designating the federal district court with jurisdiction at the port of discharge (i.e., Burns Harbor) as the only available forum. Notwithstanding the forum selection clause, Continental filed the three suits in Illinois federal court. The court dismissed for improper venue. The Seventh Circuit affirmed. By that time, the statute of limitations had run and the cases were not refiled. Several years later, Fednav brought suit against Continental on a breach of contract theory. It alleged that Continentals’ breach of the forum selection clause allowed it to recover the costs and attorneys' fees it incurred in the earlier litigation. Judge Darrah (N.D. Ill.) dismissed the complaint as an impermissible attempt to recover attorneys' fees. Fednav appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Hamilton, and District Judge Springmann affirmed. The Court first discussed choice of law. As a diversity case, state law governs substantive issues -- federal law governs procedural issues. Fednav's claim of entitlement to fees is a substantive issue and is therefore governed by state law. Since neither party raised a conflict of law issue, the Court applied the law of Illinois as the law of the state in which it sat. Illinois law generally adheres to the American Rule, under which a litigant bears her own fees and costs unless otherwise provided for by a contract or statute. The Court stated that Fednav cited no such contractual or statutory provision. Therefore, Fednav is not entitled to recover those fees in a breach of contract case. The Court also addressed Fednav’s argument that federal common law permitted recovery of attorneys' fees. It rejected the argument, both because Fednav waived it and because federal common law also recognizes the American Rule.

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THE SMART MARKETING GROUP v. PUBLICATIONS INTERNATIONAL (October 28, 2010)

For years, Publications International operated ConsumerGuide.com, a website that provides free automobile price quotes. In turn, Publications transformed the price quote request into sales leads that they then sold to wholesalers, who turned around and sold them to local automobile dealers. In 2003, Publications decided to revise its business model and sell those sales leads directly to dealers. It turned to The Smart Marketing Group for help. They developed two programs – “Approved” and “Leads & Listings.” In Approved, dealers were designated as "approved" dealerships and obtained certain marketing advantages. Leads & Listings involved the actual delivery of specific sales leads to a dealer every month. Smart and Publications entered into a contract in October of 2003. Although the venture failed miserably, each party (not surprisingly) had a different story. According to Publications, Smart botched the Approved program from the beginning – and its failure put pressure to launch Leads & Listings sooner than it was ready. On the other hand, Smart claim that Approved was a big success and the reason some dealers and did not like it was because of Publication's failure to deliver the promised advantages of the program. Even after the October contract, Publications still had not finished the software necessary to deliver the sales leads. Publications decided to terminate its relationship with Smart. It purported to rely on a "termination for cause" provision in the contract. Smart filed suit for breach of contract. The case eventually went to trial. Because of certain pre-trial rulings, the only significant issue at trial was Smart's damages. Smart asked for $8.8 million. Its expert testified about each of the hundreds of dealer contracts and, making certain assumptions and estimations, projected the amount of lost profit. Although the court rendered him unqualified to testify as an expert, it did allow him to explain his calculations. Publication's experts testified that Smart's expert used unreasonable assumptions and estimations. The jury awarded lost profits of $5.6 million. Publications moved for judgment as a matter of law under Rule 50 (b) and, alternatively, for a new trial under Rule 59. Judge Gottschall (N.D. Ill.) denied the motions. Publications appeals.

In their opinion, Judges Wood, Evans, and Sykes vacated and remanded. Under Illinois law, the Court said, a plaintiff has the burden of proof in showing lost profits to a reasonable degree of certainty. This can sometimes be difficult even for established businesses, but at least they can rely on past profit history. New businesses have an even more formidable task. The Court concluded that the venture at issue was a new business even though Publications and Smart both had prior related experience. Neither, however, had experience in the web-based sales promotion venture they were attempting to create. The Court reviewed Smart’s evidence. It found the it "sorely lacking," "just guesses," "at best predictions," and "unreliable." Nevertheless, it concluded that the district court did not err in denying the Rule 50 (b) motion -- it found it conceivable that the entire record could support some damages for Smart. It did, however, find the verdict excessive under Rule 59 and remanded for a new trial on damages. Given the weaknesses in Smart's evidence, the Court concluded that the amount of the verdict was outside any reasonable range of just compensation. 

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