Employer Cannot Overcome Arbitration Presumption Arising From CBA's Broad Arbitration Clause
KARL SCHMIDT UNISIA, INC. v. INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE, AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (December 17, 2010)
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Karl Schmidt Unisia and the Union representing its workers negotiated a Collective Bargaining Agreement (CBA). It contains several provisions relevant to this case: a "Thirty and Out" provision providing enhanced retirement benefits to employees who reach a certain age and seniority, a provision stating that the retirement plan would remain in effect during the term of the CBA, and a four-step dispute resolution process ending in arbitration. In early 2007, the Company announced its intention to lay off employees at its Fort Wayne facility. The Union initiated the dispute resolution process because of its belief that the Company intended to deny "Thirty and Out" provisions to eligible employees. The Company and the Union exhausted the first three stages of the dispute resolution process. The Union proceeded to arbitration and added a grievance on behalf of two affected employees. The Company filed suit seeking a declaratory judgment that the grievances were not arbitrable. The Union counterclaimed to compel arbitration. Judge Van Bokkelen (N.D. Ind.) granted summary judgment to the Union and ordered arbitration. The Company appeals.
In their opinion, Seventh Circuit Judges Posner, Kanne, and Sykes affirmed. The Court first noted the care it would take in not addressing the merits and set forth some general principles regarding arbitration -- there is a federal policy favoring arbitration, a party cannot be compelled to arbitrate unless it has contractually agreed to do so, and a presumption of arbitrability arises from a broad arbitration clause. Here, the Court had little difficulty in finding the presumption. The CBA states that the dispute resolution process is the "sole and exclusive remedy" for a grievance and that the Union may grieve any alleged violation of the CBA. In order to overcome this presumption, the Court stated, the Company must come forward with either an express exclusion or the "most forceful evidence" of an intent to exclude the issue from arbitration. The Court first rejected the Company's express exclusion argument, concluding that it distorted the Union's claim. The Company offered several "most forceful evidence" arguments -- that the answer to the underlying dispute lies in the Pension Plan and not the CBA, that the provisions in dispute were never negotiated, and that the issue is governed by the Pension Plan's dispute resolution process. The Court concluded that none of these arguments were supported by the record or the case law.
Plaintiff Is Entitled Only To Reasonable Inferences On Summary Judgment
SALLENGER v. CITY OF SPRINGFIELD (December 17, 2010)
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In early 2002, Andrew Sallenger was living with his mother, his sister, and his sister's four children at his mother's house in Springfield, Illinois. Sallenger suffered from bipolar disorder and schizophrenia. In the middle of the night on April 30, Sallenger experienced a psychotic episode. He was screaming, breaking things, and running around the house naked. His sister called 911. She warned the police of his condition and his strength (6 feet tall, 262 pounds). Three officers responded and eventually, although not without great difficulty, were able to subdue him. They used a hobble, a device that limits movement by strapping one's lower legs to one's hands. A few minutes after the officers subdued Sallenger with a hobble, he stopped breathing. The officers removed the hobble and administered CPR, without success. Sallenger’s Estate brought several claims against the officers and the City, including a § 1983 claim alleging a Fourth Amendment violation for failing to adequately respond to Sallenger’s medical needs and a Monell claim against the City for failure to train in the use of the hobble. They also brought excessive force claims against the three officers. Those claims were tried to a jury and resolved in the officers' favor. Judge Scott (C.D. Ill.) granted summary judgment against the Estate on the medical needs and Monell claims. The Estate appeals.
In their opinion, Seventh Circuit Judges Posner, Rovner, and Sykes affirmed. The Court applied an objective reasonableness standard to the medical needs claim and considered four criteria: the need for medical attention, the severity of the need, the nature of the required treatment, and any police interests. The Estate's case rests on the timing of two police calls and the inferences that can be drawn from them. One call came in at 2:15 a.m. In that call, one of the officers reported that Sallenger was unconscious. The second call, which came in at 2:22 a.m., was from a police lieutenant reporting that he was at the scene. Combined with the fact that the lieutenant was present when efforts to resuscitate began, the Estate argues that it is entitled to an inference that the officers waited seven minutes after knowing Sallenger was unconscious before they tried to resuscitate him. The Court rejected this inference. All inferences must be drawn in the Estate’s favor on summary judgment, but those inferences must be reasonable. Here, the officers and Sallenger's sister all testified that resuscitation efforts began as soon as they knew that he was unconscious. The lieutenant also testified that his call did not necessarily take place immediately upon his arrival. In light of that testimony, and without more support, the inference requested by the Estate is unreasonable. The Court also agreed with the district court's summary judgment ruling on the Monell claim. A municipality cannot be liable unless there is an underlying constitutional violation by an employee. Here, a jury found that none of the officers was liable for a constitutional violation on the excessive force claim and the Court affirmed summary judgment for the officers on the medical needs claim. Therefore, there can be no municipal liability.
Expert Medical Testimony That Did Not Establish Causal Link Was Properly Stricken
MYERS v. ILLINOIS CENTRAL RAILROAD CO. (December 15, 2010)
Timothy Myers joined the Illinois Central Railroad (now part of CN Southern) right after his high school graduation. He worked for the Railroad for over 30 years in a number of jobs. All of his jobs were physically demanding and dangerous. Over his career. Myers injured an ankle, both knees, an elbow, and his back. He had surgeries on his back (twice) and on his left elbow and his right knee. He brought suit against the Railroad under the Federal Employers' Liability Act (FELA). He alleged that his physical problems were caused by the Railroad's failure to provide a safe workplace. Myers listed four experts -- three treating physicians and an ergonomist. Chief Judge McCuskey (C.D. Ill.) struck all four experts and granted summary judgment to the Railroad. Myers appeals.
In their opinion, Seventh Circuit Judges Manion, Sykes, and Hamilton affirmed. FELA is not a strict liability scheme -- negligence and causation are both required. Sometimes, expert testimony is unnecessary because a layperson can understand the causal link between particular conduct and an injury. Here, however, Myers does not allege a specific injury. He alleges gradual deterioration. The Court stated that the general rule in such cases is that expert testimony on causation is required. That general rule applies here. Although Myers proffered four experts, none of them can satisfy this requirement. The ergonomist can testify about the dangerous conditions in a rail yard but cannot link those conditions to any specific injury. The treating physicians were prepared to offer an opinion that the working conditions were the cause of Myers' injuries. However, the Court concluded that those opinions were general medical opinions that were not the product of any particular acceptable methodology. Indeed, the treating physicians simply made causation assumptions. The district court did not err in striking the experts, nor in granting summary judgment.
Union Cannot Take Advantage Of Status Quo Without Taking Necessary Steps To Resolve Representation Dispute
INTERNATIONAL BROTHERHOOD OF TEAMSTERS AIRLINE DIVISION v. FRONTIER AIRLINES (December 13, 2010)
Frontier Airlines' Denver mechanics were represented by the International Brotherhood of Teamsters. The National Mediation Board so certified. Republic Airways, whose mechanics were not represented by a union, acquired Frontier. When Republic announced that it was moving maintenance work from Denver to its Milwaukee facility, the Teamsters objected. They claimed that the Board's certification of it as the bargaining unit prevented Republic from altering their working conditions without negotiations. Republic disagreed. The Teamsters filed suit under the Railway Labor Act. Judge Adelman (E.D. Wis.) issued a preliminary injunction maintaining the status quo (i.e., preventing the transfer of the maintenance work) until the representation issue was decided. Frontier appeals.
In their opinion, Seventh Circuit Judges Posner, Kanne, and Williams vacated and remanded with instructions to issue a revised injunction. At issue here is whether the Teamsters represent the Frontier mechanics. Under the Act, the Frontier mechanics are a separate bargaining unit represented by the Teamsters if Republic operates its subsidiary airlines as individual transportation systems. If, on the other hand, Republic operates a single transportation system, all of its mechanics are members of the same bargaining unit. If that is the case, Frontier can represent none of them. The problem is that only the National Mediation Board can resolve this representation dispute and only a union can ask the Board for such a resolution. The Court noted that the Teamsters, with its injunction in hand, have no incentive to seek that resolution. The Court resolved the standoff by applying "age-old equitable principles." It vacated the injunction and remanded the case to the district court for the issuance of a new injunction to be conditioned on the Teamster's prompt application to the Board for a resolution of the representation issue.
Driver's Volatile Manner Of Expressing Safety Concern Crossed The Line
FORMELLA v. UNITED STATES DEPARTMENT OF LABOR (December 10, 2010)
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Don Formella has been driving a truck for more than four decades. In late 2005, he started driving for Schnidt Cartage, a small, local transportation company near Chicago. On a February morning in 2006, Formella arrived at work and discovered that he had been assigned to a different truck than he had been driving. Formella inspected the vehicle and discovered missing permits, non-operable lights, and mismatched tires. Formella was particularly concerned about the potential safety hazard of the mismatched tires. Formella complained to the company's vice president, Linda Marcus. Marcus' and Formella's versions of what happened next vary greatly. Formella claims it was a professional exchange, in which he indicated his belief that the truck was not in compliance with federal and state law -- after which Marcus fired him. Marcus, on the other hand claims that Formella was loud and volatile, that she listened to and made arrangements to correct each of his safety complaints -- and that she fired him only after he became more and more agitated and unstable. Other Schnidt employees confirmed several aspects of Marcus' account of the exchange. Formella filed a complaint with the Department of Labor, alleging that Schnidt fired him for in retaliation for his safety complaints, in violation of the Surface Transportation Assistance Act. After an evidentiary hearing, the ALJ found that Schnidt discharged Formella because of his volatile conduct, not in retaliation for his complaints. An administrative review board upheld the decision. Formella seeks review.
In their opinion, Seventh Circuit Judges Kanne, Rovner, and Williams denied review. The Surface Transportation Assistance Act prohibits an employer from taking any disciplinary action against a driver who refuses to drive a vehicle that does not comply with regulations. The statute was amended in 2007 to make it easier for a driver to sustain his burden. Prior to 2007, a driver had to show that his protected conduct was a but-for cause of the discipline. Since the amendment, a driver only has to show that his protected conduct was a contributing factor in the discipline. The employer then must demonstrate by clear and convincing evidence that it would have acted similarly even in the absence of the protected conduct. The ALJ considered the pre-amendment burden, since the amendment took effect after the conclusion of the hearing but before the decision. The Court rejected Formella's argument that it should consider his case under the amended statute. Because he asked neither the ALJ nor the review board to consider the amendments, Formella has forfeited that argument. On the merits, the Court accepted the ALJ's findings regarding Schmidt's reason for termination since they were supported by the record. The Court then noted that this case was, nevertheless, a close one. Employees are given some degree of latitude in expressing their safety complaints to their employers. Here, Formella assaulted no one, threatened no one, and prevented no one from doing his work. He did lose his temper and shout. Although it concluded that reasonable people could differ, the Court found that the review board was neither arbitrary nor illogical in concluding that Formella’s conduct exceeded that latitude.
Release Does Not Foreclose Later CERCLA Contribution Claim Relating To Additional Costs Incurred
ARROW GEAR CO. v. DOWNERS GROVE SANITARY DISTRICT (December 10, 2010)
A number of residents of Downers Grove, Illinois brought a class action in 2004 against Arrow Gear Company and others for damages. The suit alleged that Arrow and the others contaminated the local groundwater with industrial solvents. The parties settled the suit in 2006 for approximately $16 million. The defendants allocated the settlement amount amongst themselves in a series of agreements. As part of the settlement, each defendant released every other defendant from a future claim for contribution. Although the release was broad, it provided that it did not release any claims other than those specified and did not release claims that "may arise in other litigation or in other contexts." The court then dismissed the case with prejudice. A few years later, Arrow brought CERCLA contribution suits for costs it had incurred against those same defendants. Judge Darrah (N.D. Ill.) dismissed the suit as barred by res judicata. Arrow appeals.
In their opinion, Seventh Circuit Judges Posner, Kanne, and Sykes reversed. The Court first addressed its appellate jurisdiction, since the district court did not dismiss the suit against all defendants. Arrow took a voluntary dismissal without prejudice with respect to two of the defendants. A decision is not final, and appellate jurisdiction does not exist, if the plaintiff has the opportunity to refile against some defendants. That was the case here. However, as the Court has done before on more than one occasion, it provided Arrow's lawyer an opportunity at oral argument to convert the without prejudice dismissal to a with prejudice dismissal. Arrow's lawyer accepted the invitation and satisfied the Court of its appellate jurisdiction. The Court also briefly addressed the district court's jurisdiction. This is a case that involves enforcement of a settlement agreement -- and the general rule is that a district court does not have jurisdiction of such a claim without an independent basis for its jurisdiction. But here, Arrow's claim does have such an independent basis. The claim is based on CERCLA. The fact that the defendants interposed a settlement agreement as the basis for its res judicata defense does not strip the court of its federal question jurisdiction. On the merits, the Court seemed to have little difficulty concluding that res judicata did not bar the suit. The agreements between the defendants in the earlier class action was limited to the allocation of the $16 million in damages paid to the private plaintiffs. The current suit seeks contribution for an additional $5 million that Arrow has incurred as a result of an EPA investigation. The settlements in the earlier suit did not release Arrow's claims in the current one.
Signed Return Of Service Must Be Rebutted With Strong And Convincing Evidence
RELATIONAL, LLC v. HODGES (December 8, 2010)
Robert Hodges and his brother operated Laminate Kingdom, a flooring business in Florida. In 2005, Hodges personally guaranteed up to $750,000 of Laminate's indebtedness to Relational, an equipment financer. The contract allowed for service of process on Hodges at his primary residence address in Miami by registered or certified mail. Relational brought suit on the guarantee shortly after Laminate entered bankruptcy proceedings. When it tried to serve Hodges by mail, it discovered that he had sold his house and returned to the United Kingdom without any forwarding address. Relational used a private investigator to locate Hodges. It discovered a U.K. government database on which Hodges listed his residential address in Harborne, Birmingham. Process server Karen Johns delivered the complaint to the listed address and signed a return of service and affidavit stating that she served a man at that address who identified himself as Robert Hodges. Soon, Relational received correspondence from English solicitors claiming that the address was not that of Robert Hodges but of his grandmother and that none of his family members knew of Hodge’s whereabouts. On Relational’s motion, the court entered a default judgment for $750,000. Relational attempted to enforce the default judgment for almost a year in the U.K. It met with resistance and delays by Hodges. The day before a hearing was scheduled in the U.K. to enforce the judgment, Hodges filed a Rule 60(b)(4) motion in the U.S. court, claiming he was never served. The court held an evidentiary hearing. When the court refused to allow John's to testify telephonically, Relational obtained and offered a supplemental affidavit. The supplemental affidavit added to her original affidavit a physical description of the man she served, which matched Hodges. The supplemental affidavit was not, however, certified by an administrator of oaths. Hodges testified that he did not live at the address, that he was never served, and that he was in a local pub on the day in question. Judge Coar (N.D. lll.) denied Hodges’ motion to strike the supplemental affidavit and denied, as well, his motion to vacate. Hodges appeals.
In their opinion, Seventh Circuit Judges Wood, Evans, and Sykes affirmed. The only issue on appeal was the factual question of whether Relational proved service on Hodges. The Court noted that the supplemental affidavit, notwithstanding the substantial attention it received from both parties, was immaterial. A signed return of service is prima face proof of service and can only be rebutted with strong and convincing evidence. Johns' original affidavit identifies the person she served as well as the time and place of service. That is all that is required to shift the burden to Hodges to rebut the presumption. Here, the district court found that Hodges failed to do so -- relying principally on credibility determinations. The district court noted that Hodges' behavior was consistent with dodging his obligations. He left the country without a forwarding address, he listed an address with the U.K. government that he then claimed was not his residence, and he delayed the judgment enforcement proceedings for almost a year. The Court deferred to the district court’s credibility determinations. The court was well within its discretion to deny Hodges' motion.
Proof Of Pretext Requires Lie, Not Mere Error
VAN ANTWERP v. CITY OF PEORIA (December 6, 2010)
Gene Van Antwerp served as a Peoria patrol officer for 18 years. The Police Department announced two vacancies in the Crime Scene Unit, one immediate and one a few months later, in September 2006. Van Antwerp applied. The Department offered the immediate slot to Officer Tuttle. They offered the delayed slot to Van Antwerp. The decision-makers actually believed that Officer Wong was a better candidate but they selected Van Antwerp because Wong was a month shy of the required seniority. A few months later, the Department rescinded Van Antwerp's offer. It reposted the same job several months later and offered it to Wong, who now had the requisite seniority. Although the Department offered no explanation at the time, it later stated that the vacancy was delayed because the incumbent's promotion was delayed. Van Antwerp, who was 50 years old at the time of his application, brought suit against the City of Peoria, alleging that its conduct violated the Age Discrimination in Employment Act (ADEA). Judge McDade (C.D. Ill.) granted summary judgment to the City. Van Antwerp appeals.
In their opinion, Seventh Circuit Judges Posner, Kanne, and Williams affirmed. ADEA makes it illegal to discriminate against a person because of his age. However, in order to prevail on such a claim, the plaintiff must establish that age played a role in and actually motivated the decision. The Court analyzed Van Antwerp's claim under the direct method of proof -- and found it lacking. First, the Court concluded that he offered insufficient evidence of pretext. Even his strongest evidence would not allow an inference that the Department lied. It might allow an inference of error, but that is not enough to show pretext. The Court added that Van Antwerp's claim would fail even if he successfully established pretext. He had to show that the Department's made its decision because of his age. There is actually no evidence in the record that age was the reason the Department rescinded his transfer. The Court briefly considered Van Antwerp's claim under the indirect method. The claim fails under that method both because Van Antwerp waived it and because he was unable to show pretext.
ALJ Finding That Psychotic Individual Could Work At WalMart Is Not Supported By The Record
SPIVA v. ASTRUE (December 6, 2010)
David Spiva had a very unfortunate childhood. His father was shot to death, his mother beat him, he attempted suicide in his teens, he served time in prison, and he experienced urges to hurt himself and others. At the age of 28, he was working as a stock shelver at a WalMart store in Mississippi. He checked himself into a psychiatric clinic because he continued to have thoughts of harming himself and others. He was diagnosed as having a psychotic disorder, a mood disorder, and a personality disorder. He was released after several days with a prescription for antidepressant. Within months, he returned because "evil spirits" were after him. Again, he was released after several days with prescriptions for antipsychotic and antidepressant medications. The clinic psychiatrist believed that he could maintain steady employment if he continued to take the drugs and received treatment. Spiva never returned to his job. Instead, he moved to Milwaukee in 2006 and has since lived with various relatives. He was hospitalized again in 2006 and 2007, still complaining about evil spirits. He filed for Social Security benefits. Two state mental health professionals evaluated his condition. One concluded that he could probably perform routine tasks and interact with coworkers. The other thought that he could work but that he had difficulty concentrating and interacting with other people. Spiva was the only witness at his hearing. He testified that he was unable to work because of his "evil thoughts" and "doing bad." He also testified that he sometimes babysat for his daughter, helped out at a day-care facility, and had recently attended two parties hosted by a relative. The ALJ determined that Spiva suffered from schizophrenia, depression, and attention deficit disorder but concluded that he was not totally disabled because he could still perform his last job (at Wal-Mart). Judge Stadtmueller (E.D. Wis.) affirmed. Spiva appeals.
In their opinion, Seventh Circuit Judges Posner, Tinder, and Hamilton reversed and remanded. The Court was very critical of both the ALJ and the Justice Department's lawyers. With respect to the ALJ, the Court found the opinion totally lacking in an analysis of Spiva's ability to work at WalMart. The Court wondered how a "psychotic person busy trying to cope with evil spirits" could interact with the number of customers found in a typical WalMart store. Because the ALJ found that he could continue in his old job, she made no finding with respect to any other employment he was capable of and whether such employment was available in the area. The Court also criticized her vague references to Spiva's lack of credibility. That conclusion is simply unsupported by the record. Finally, the Court questioned the ALJ's understanding of mental illness, giving her remarks about Spiva's failure to take his medication. The Court stated that keeping mental patients on medication is one of the most serious treatment problems. In short, the ALJ's opinion was unsatisfactory. Next, with respect to the Justice Department lawyers, the Court believed they overstepped their role under Chenery. That doctrine requires the court to review the product of the authorized agency, not the Justice Department lawyers' later justification for such product. Here, the lawyers argued many points from the record that were not part of the ALJ's analysis or consideration. The harmless error doctrine will allow the affirmance of an agency decision if it is overwhelmingly supported by the record even if the agency failed to adequately state its opinion with appropriate record references. The doctrine does not, however, allow affirmance simply because the agency's lawyers have cited enough record evidence to lead to the conclusion that the agency might reached the same decision on remand. The best the Justice Department lawyers can do here is the latter.
ALJ's Reasons For Discounting Treating Physician's Opinion Were Inadequate
CAMPBELL v. ASTRUE (December 6, 2010)
Curtis Campbell applied for Social Security benefits in January of 2004, based principally on his mental impairments. The agency arranged for Campbell to be seen by Dr. Mason, who concluded that his problems were mostly related to his substance abuse. Another agency psychologist, Dr. Boyenga, reviewed Campbell's record and concluded that he was capable of performing simple and detailed tasks. Another mental health assessment was conducted in May of 2004. A therapist recommended evaluation, medication, and therapy and a psychiatrist diagnosed Campbell with major depression and substance abuse. In October, Campbell began a regular course of treatment with Dr. Powell. Powell saw Campbell almost 20 times over the following 15 months. Throughout that time, she assessed his Global Assessment of Functioning Scale score between 45-50, an indication of severe social impairment. Early on, she noted his excessive use of alcohol. She diagnosed Major Depressive Disorder with psychotic features. She also noted that he was not a malingerer. In mid-2005, Powell diagnosed Campbell with Bipolar Disorder, but continued to question the effect of his excessive alcohol use. Later in 2005, Campbell reported that he was no longer using alcohol. Powell’s treatment notes from that point on mention alcohol use only in the sense of her continued support of his abstinence. Her clinical assessment remained much the same. The agency conducted a hearing in January of 2006. The agency's medical expert testified that Campbell had a history of substance abuse, that he was currently using alcohol, and that he was capable of simple, repetitive work. The expert was unaware of Powell's Bipolar Disorder diagnosis. Campbell testified that he had not used alcohol for six or seven months. The ALJ found that Campbell was not disabled, siding more with the testifying expert and the other agency consultants then with Dr. Powell. Judge Darrah (N.D. Ill.) affirmed. Campbell appeals.
In their opinion, Seventh Circuit Judges Wood, Evans, and Tinder reversed and remanded. Normally, the treating doctor's opinion is entitled to controlling weight if it is adequately supported. The ALJ rejected the treating doctor's opinion for two reasons -- the absence of any significant abnormal findings in a December 2005 evaluation and Powell’s failure to determine the effect of alcohol on Campbell's symptoms. The Court found both reasons wanting. First, with respect to the December report, the Court determined that the ALJ focused on one aspect of the report and ignored other aspects of the same report as well as Powell's other reports. That, an ALJ may not do. With respect to the alcohol use, the Court noted that Powell's treatment notes suggested she had ruled out alcohol abuse. The fact that she began recommending "continued abstinence" in September and noted that his symptoms persisted makes it clear that she thought something other than alcohol abuse was the cause of his symptoms. The Court then stated that, even if the ALJ was correct in discounting the treating doctor's opinion, she is required to apply the Larson factors to determine the proper weight to give the opinion. Here, the ALJ did not address those factors -- several of which support Powell. Finally, the Court noted that the opinions the ALJ gave the greatest weight to were, on the one hand, opinions of doctors given prior to the 15 month course of treatment and, on the other hand, the opinion of the expert whose own testimony showed that he was unfamiliar with the medical records.
"Subtle Indicia Of Distaste" Does Not Satisfy Direct Case Proof Requirement
GRIGSBY v. LAHOOD (December 6, 2010)
Brian Grigsby worked with for the FAA at the Indianapolis Center from 1991 until 1997. He entered as part of a learning program while he finished his degree and continued as a developmental Air Traffic Controller. In that role, he was trained and certified as a radar associate and was in the middle of his radar controller training when he asked for a transfer. Although he never made a formal complaint, it appears that Grigsby requested a transfer to escape hostile comments from his coworkers directed at his then-recent discovery of and pride in his Native American heritage. The FAA granted his transfer request. From 1997 until 2005, Grigsby worked at and became fully certified at the Terre Haute, Indiana automated center. Unfortunately, the FAA privatized the Terre Haute Center in 2005 and eliminated Grigsby's job. Grigsby applied for each of several different vacancies at the Indianapolis Center. On several occasions, he met with the Assistant Air Traffic Manager at the center. He alleges that, at their last meeting, she "bristled" and abruptly ended their meeting when he mentioned that he was Native American. The FAA did not offer Grigsby any of the positions. Each of the successful candidates was a Certified Professional Controller and was familiar with the technology at the Indianapolis Center, which had changed drastically since Grigsby's transfer. Grigsby brought a claim against the FAA pursuant to Title VII of the Civil Rights Act, alleging Native American origin discrimination. Judge Young (S.D. Ind.) granted summary judgment to the FAA. Grigsby appeals.
In their opinion, Seventh Circuit Judges Posner, Kanne, and Wood affirmed. The Court addressed the claim under both the direct and indirect methods. It first rejected the claim under the indirect method because Grigsby's only evidence, direct or circumstantial, of discriminatory animus is the alleged reaction of the assistant manager to his statement regarding his heritage. Such "subtle indicia of distaste" falls short of establishing a case under the direct method of proof. With respect to his indirect proof case, the Court concluded that he could not prevail for several reasons. First, he was not qualified for the positions. Each position required a certified controller familiar with the Indianapolis Center operations -- Grigsby was neither. Next, even if he was qualified, he failed to show that the positions were filled by candidates with similar or less qualification.Each of the successful candidates was a Certified Professional Controller. Even if his qualifications were similar, which he alleges, each of the successful candidates was also operationally current at the Indianapolis Center. Again, Grigsby was neither. Finally, even if he met his prima facie case, he failed to show that the FAA's reason was pretext. The FAA has shown a legitimate reason for its decisions. Grigsby's allegations of pretext are not supported by the record. Grigsby also sought to proceed under a mixed-motive theory, as well. That theory of liability also requires proof of discrimination, direct or circumstantial. He has none and his mixed-motive theory fails as well.
Injury Resulting From Medical Treatment Is Not An "Accident" Under AD&D Policy
SELLERS v. ZURICH AMERICAN INSURANCE CO. (December 3, 2010)
On September 15, 2005, Time Warner Cable employee Anthony Sellers suffered a torn tendon in his knee while at work. His surgeon, Dr. Schultz, repaired the tear and inserted a metal wire in the knee to facilitate Sellers' recovery. The wire was originally scheduled to be removed after several months. Dr. Schultz decided to leave it in, however, because Sellers was experiencing no pain. He eventually removed the wire on November 16, 2006, after Sellers complained of swelling and x-rays showed that the wire had broken into three pieces. Tragically, Sellers died nine days later from acute pulmonary embolism. Anthony's widow Audrey Sellers made a benefits claim under Sellers' accidental death and dismemberment policy, a part of Time Warner's employee welfare benefit plan. The plan provided for accidental death benefits if an "injury" results in death within a year of the "accident." Zurich American Insurance Company, which issued the policy, denied benefits. Its position was that the death occurred more than one year after the accident. It rejected Sellers' position that the wire breakage was an "injury." Sellers brought suit under ERISA. The district court remanded for more expansive findings and rationale on whether the wire breakage was an injury. Zurich again denied the claim. Its rationale was that an accident is an "unexpected event" and that, as evidenced by the Schultz's notes, the wire breakage was expected. On the renewal of the cross-motions for summary judgment, Judge Adelman (E.D. Wis.) granted summary judgment to Zurich. Sellers appeals.
In their opinion, Seventh Circuit Judges Flaum, Manion, and Tinder affirmed. The Court first noted that it was applying an arbitrary and capricious standard of review, because Time Warner's benefit plan gives Zurich discretion to construe policy terms and Zurich based its decision on a construction of the plan's terms. On the merits, the Court found Zurich's construction of the plan arbitrary and capricious because it applied its definition of accident through the eyes of a doctor instead of a person of average intelligence and experience. Nevertheless, the Court affirmed the denial of benefits based upon its decision in Senkier. In that case, the court held that a death that is the result of complications of a standard medical treatment is the result of the underlying cause for the treatment. Here, the wire breakage was not an accident because it was an expected risk of the original surgery. Thus, the accident is the original tear and Sellers' death did not occur within a year.
Traffic Stop's Constitutional Reasonableness Does Not Depend On Officer's Subjective Motivation
JACKSON v. PARKER (December 3, 2010)
On a spring afternoon in 2006, Wayne Jackson was southbound on Chicago’s Lake Shore Drive ("Urban America's Most Beautiful Roadway") in his pickup truck. Unfortunately, his truck was licensed as a commercial vehicle and therefore prohibited on the Drive. Chicago police officer Joe Parker noticed the plates and also observed Jackson making two illegal lane changes. Parker stopped Jackson's car and then observed a windshield crack, another ordinance violation. He also administered field sobriety tests and a breathalyzer, which he claims Jackson failed. Jackson was released after approximately 12 hours at the police station. Although his arrest report lists DUI, the prosecutor later amended the charge to negligent driving. At trial, Jackson was found guilty of improper lane usage and failing to notify the state of an address change and was found not guilty of negligent driving and driving an unsafe vehicle charges. Jackson brought a § 1983 charge against Parker, claiming a Fourth Amendment false arrest violation. Jackson claimed that Parker falsified the DUI test results. He also presented evidence that Parker regularly reported such false information as part of a scheme to increase his compensation and that he was being internally investigated for his conduct. Judge Conlon (N.D. Ill.) granted summary judgment to Parker, concluding that the unlawful lane change provided sufficient probable cause for the arrest. In the face of that probable cause, Jackson could not prevail whether or not there was probable cause for a DUI arrest. Jackson appeals.
In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Posner and Tinder affirmed. The Court agreed with the district court and noted that Jackson implicitly agreed as well. Parker had reason to believe that Jackson was violating the law by even being on the roadway in a commercial vehicle. Even though he was never charged with that offense, and even if he had an illicit motivation, the arrest is reasonable. Apparently recognizing that his false arrest claim was not going to survive the appeal, Jackson's counsel reconstituted his argument as a unreasonable detention rather than a false arrest. Unfortunately for Jackson, arguments that are not presented to the district court are normally forfeited on appeal unless the interests of justice require otherwise. The Court concluded that this was not such a case.
The "Simon Cowell" Of The Circuits?
The "Stainless Steel Dryer That Wasn't" Saga Continues
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The Seventh Circuit Court of Appeals has issued three opinions in Thorogood v. Sears, Roebuck and Company, an action brought on behalf of a class allegedly harmed because Sears marketed a "stainless steel" clothes dryer that was not 100% stainless steel. It reversed the district court's certification order (opinion and intheiropinion), it affirmed the dismissal of the case as moot after Sears made an offer of judgment that exceeded the plaintiff's possible individual damages (opinion and intheiropinion), and it recently reversed and remanded to the district court for the entry of an injunction under the All Writs Act barring the continued prosecution of a mirror class action in California (opinion and intheiropinion). In its All Writs opinion, the panel made some fairly strong comments about potential for abuse in class actions, including a characterization of counsels' tactics as "close to settlement extortion." Class counsel took exception to several of the panel's remarks in its petition for rehearing and for rehearing en banc, at one point characterizing the panel as the "Simon Cowell of the Circuits.” The panel voted to deny the petition, and no judge requested a vote on rehearing en banc. But the "over the top" accusations in the petition prompted a six page response from the panel instead of the more typical one-liner. The panel stood quite firm on the merits, pointed out the many instances where class counsel actually ignored the points made in the opinion, and repeated and expanded upon the potentials for abuse inherent in class action litigation. The bottom line is that the Seventh Circuit believes the stainless steel dryer class action litigation is a classic example of class action abuse. Only time will tell if class counsel accepts the message.
Shipowner's Counterclaim Is An Unlawful "Device" Under The Jones Act
DEERING v. NATIONAL MAINTENANCE & REPAIR (December 2, 2010)
On March 11, 2009, the Mississippi River was at flood stage. Vincent Deering, a riverboat pilot for National Maintenance & Repair, was operating a towboat moving barges at a National facility. Deering had difficulty controlling the boat (because, he alleges, of a defective steering mechanism). Another boat offered assistance but ended up making matters worse. The towboat sank and Deering suffered serious injuries. Deering filed suit in state court under the Jones act and admiralty law. National filed a Limitation of Liability Act petition in federal court. Under that Act, a shipowner’s liability is limited to the ship’s value (here, according to National, a $30,000 salvage value). The federal court stayed the state action, Deering refiled his claims in federal court, and National filed a counterclaim for the value of the ship. Deering moved for dismissal of the counterclaim. Judge Herndon (S.D. Ill.) granted the motion on the grounds that counterclaims that are, by their very nature, setoffs to Jones Act claims, are not allowed. National appeals.
In their opinion, Seventh Circuit Court of Appeals Judges Posner, Kanne, and Williams affirmed. As it frequently does, the Court first addressed its jurisdiction. National relied on § 1292(a)(3), which allows interlocutory appeals from orders "determining the rights and liabilities of the parties." The principal purpose of this section is to allow appeals from liability determinations in admiralty cases before the usually separate and frequently costly relief proceedings. Although that is not the situation here, the Court noted that the appeal presented a case to those in which interlocutory appeals are allowed in non-admiralty cases: it involved a controlling question of law, the issue is separate from both the personal injury claim and the liability limitation petition, and none of the facts relevant to the underlying claims are relevant to the appeal. Also noting that other courts have allowed jurisdiction in these circumstances, the Court concluded that it did have jurisdiction to hear the appeal. The Court proceeded to the merits. The Federal Employers' Liability Act (FELA), which is incorporated by reference into the Jones Act, provides that "any . . . device whatsoever" that is intended to exempt a common carrier from liability is void. Here, the only purpose of the counterclaim is to act as a setoff to Deering's personal injury claim. Relying on the plain language of the statute, the state of the law at the time it was enacted, and public policy, the Court concluded that National's counterclaim was a void "device" under the Jones Act. The Court distinguished the Fifth Circuit's decision in Withhart, in which the court held that a counterclaim was not such a device. Withhart was a Jones Act case but relied principally on a prior FELA case. The Court noted several fundamental differences between the Jones Act and FELA that the Withhart case did not address that could have distinguished the case from the earlier precedent. It also questioned the correctness of both decisions. In the end, though, it merely distinguished Withhart. There was no limitation of liability issue in Withhart. The Court concluded that the "one-two punch" -- the combination of a property damage counterclaim and a limitation of liability petition that would wipe out a substantial injury claim -- was not allowed by the Act.
Seventh Circuit Upholds Pro-Rata Distribution Plan For Investors
SECURITIES AND EXCHANGE COMMISSION v. WEALTH MANAGEMENT LLC (December 1, 2010)
As of mid-2009, investment firm Wealth Management LLC of Appleton, Wisconsin managed over $130 million in almost 450 client accounts. Until 2003, most of that money was held in low risk investments appropriate for Wealth Management's clients. Wealth Management's approach changed drastically that year. It began investing its client's funds in illiquid and risky ventures through six unregistered investment pools it established. By 2009, over 75% of its managed money was in these risky investments. Investors in one of the investment pools were informed in early 2008 that redemptions would be limited to 2% per quarter. Later in 2008, two of Wealth Management's offers officers admitted receiving kickbacks, the SEC began an investigation, and the company suspended redemptions and begin to liquidate. The SEC brought an enforcement action in 2009. The court froze the firm's assets and appointed a receiver. The receiver conducted an accounting of the company's funds and proposed a distribution plan. The accounting concluded that only $6.3 million was available for distribution. The receiver proposed a pro rata distribution with any redemptions after May 2008 (i.e., after the SEC investigation became public) offset against an investor's total distribution. Judge Griesbach (E.D. Wis.) approved the proposal over objection. Two of the objectors, Dr. Edwin Wilson and the James and Sandra Verhoeven Revocable Trust, appeal.
In their opinion, Seventh Circuit Judges Ripple, Kanne, and Sykes affirmed. The Court first addressed its jurisdiction. The order below is not appealable as a final order. If it is appealable, it is under the collateral order doctrine -- a question of first impression in the Circuit, although the Fifth and Six Circuits have allowed an appeal from a receiver's distribution plan. The Court concurred with its sister circuits, concluding that the appeal satisfied the collateral order doctrine's requirements: the order conclusively determined a disputed question, it resolved an important issue separate from the merits, and it was effectively unreviewable after final judgment. Addressing another minor procedural issue, the Court held that the appellants satisfied Federal Rule of Appellate Procedure 3(c), even though the Verhoevens objected below as individuals and appealed as the Verhoeven Trust. On the merits of the appellant's' challenge to the distribution plan, the Court noted that the district court has broad discretion in ensuring that the plan is fair and reasonable. Here, the plan treated all investors equally, an approach routinely endorsed by courts as fair and reasonable. The Court considered the claims of investors who tried to redeem their equity that their interest was different but ultimately concluded that the claims were the same as those who did not try to redeem. The Court rejected the appellants' claim that they were entitled to be treated differently under either federal or state law. With respect to the offset date challenge, the Court noted that the district court had several options: offset all redemptions, offset no redemptions, offset some redemptions based on a cutoff date, or offset some redemptions based upon an individual analysis of each redemption request. The individual analysis approach may have resulted in a more accurate distribution, but it would have been expensive and time-consuming. Each of the other approaches would penalize a different subset of investors. The district court did not abuse its discretion in selecting the cutoff date approach or in selecting the cutoff date.
Public Records Request Is Not "Discovery" Under The Private Securities Litigation Reform Act
AMERICAN BANK v. CITY OF MENASHA (November 29, 2010)
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The City of Menasha, Wisconsin financed a power plant conversion by issuing bonds. Unfortunately, the project ended up over-budget and the city defaulted on the bonds. Several bondholders, including American Bank, filed a class action against the City. The suit alleged violations of federal securities law. A few weeks after filing suit, the Bank submitted a public records request to the City pursuant to state law. When Menasha refused to produce the requested records, the Bank obtained an order from a state court ordering compliance. Instead of complying, Menasha sought a stay from the district court in which the class action was pending. Judge Springmann (N.D. Ind.) granted the motion and issued a stay under the Private Securities Litigation Reform Act, as amended by the Securities Litigation Uniform Standards Act. The Act requires that discovery be stayed while a motion to dismiss is pending and authorizes a district court to stay state court discovery proceedings when necessary. The Bank appeals.
In their opinion, Seventh Circuit Judges Posner, Flaum, and Sykes reversed. The Court first addressed its jurisdiction. Although discovery orders are usually not appealable, there are exceptions – plus, this may not be a discovery order. The Court concluded that jurisdiction was inseparable from the merits. If the Bank is right on the merits, it is not a discovery order but an appealable injunction. If the City is right on the merits, it is a discovery order and unappealable unless it fits within an exception. The Court sided with the Bank. First of all, discovery is a well defined word in federal civil procedure and does not generally include the entirety of a party's investigation. Second, if the Act meant to use it in a different way, there must be a reason based on statute or policy. The policy behind the discovery stay is to prevent one party from using discovery to impose exorbitant costs on the other for the purpose of inducing a settlement. That concern does not exist here, since the cost of complying with the public records request can be charged to the Bank. Menasha concedes that it couldn't refuse a newspaper's request for the same records, nor could it have refused the Bank's request if it made the request a few weeks before filing the complaint rather than a few weeks after. The City not only does not convince the Court to adopt a broad definition of "discovery" in the Act -- it convinces the Court that their interpretation is futile, would create a “precedent of unmanageable scope,” and would hold the law “out to ridicule.”
Evidence Was Insufficient To Support Inference Of Causation Or Breach Of Duty
CLIFFORD v. CROP PRODUCTION SERVICES (November 29, 2010)
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John Clifford, III, had a contract with Monsanto to farm seed corn. One of the strains he planted in 2007 was a sensitive to two herbicides. When he noticed weeds in his corn and sought advice from Monsanto, however, he was told that there were no herbicide restrictions. Clifford went to Crop Production Services (“CPS”) for the proper treatment. CPS recommended a blend of the very two herbicides to which this particular strain was sensitive. CPS mixed a custom blend on several occasions and dispensed it into a tank that it had loaned Clifford for the season. Clifford applied the herbicide himself. Within a week, Clifford noticed corn damage. He eventually destroyed all the corn in one field and some of the corn in another. Pat Geneser, a Monsanto employee, inspected the fields and suspected that the damage was caused by glyphosphate, an ingredient in a different Monsanto herbicide. Laboratory tests confirmed trace amounts of glyphosphate in the corn. Clifford brought suit against CPS for negligence. CPS defended on four grounds: a) that the glyphosphate did not cause the harm, b) that if the glyphosphate did cause the harm, it did not come from CPS, c) that if CPS was the source of the glyphosphate and it did cause the harm, CPS did not breach a duty of care, and d) the claim was barred by the economic loss doctrine. Clifford did not disclose Geneser (or anyone else) as an expert witness within the time limitations, CPS moved for summary judgment on all four of its defenses, specifically relying on the absence of expert testimony for the first three. Magistrate Judge Bernthal (C.D. Ill.) concluded that Geneser's testimony was expert testimony and that it was inadmissible because of Clifford's failure to disclose. He granted summary judgment to CPS on the grounds that Clifford could not establish causation or breach of duty. Clifford appeals.
In their opinion, Seventh Circuit Judges Posner and Wood and District Judge Adelman affirmed. The Court first concluded that Clifford waived his arguments that Geneser was a lay witness and that, even if he was an expert, his failure to disclose him was harmless. Clifford never even responded to CPS's waiver argument in its briefs. Alternatively, the Court concluded that it would affirm the summary judgment ruling even if it considered Geneser’s testimony. To defeat summary judgment, Clifford had to present sufficient testimony in three areas: that glyphosphate caused the harm, that CPS was the source of the glyphosphate, and that the harm would have been prevented had CPS exercised reasonable care. Even if admitted, Geneser's testimony would not permit a reasonable trier of fact to infer that CPS was the source of the glyphosphate or that it breached a duty of care. In fact, Clifford offered no evidence on a standard of care or its breach. To the extent that Clifford was invoking the doctrine of res ipsa loquitor, the Court stated that it was not a proper case for that doctrine.
ALJ's Exclusion Of Claimant's Limitations In VE Hypotheticals Requires Remand
O'CONNOR-SPINNER v. ASTRUE (November 29, 2010)
Louquetta O’Connor-Spinner filed an application for Social Security benefits in early 2004. She cited a long history of severe mental and physical impairments and claimed to be unable to perform any work. The evidence indicated treatment for both the physical and mental ailments as early as 2002. Two state psychologists examined O'Connor-Spinner. They both diagnosed her with depression. One indicated that the depression would not prevent her from performing moderately complex tasks but noted a limitation on receiving and responding to instructions appropriately The Social Security Administration denied O'Connor-Spinner's claim. O'Connor-Spinner requested and received a hearing before an ALJ. At the hearing, the ALJ presented the Vocational Expert (“VE”) with increasingly restrictive hypotheticals. Even the most restrictive hypothetical, however, contained no limitations on concentration, persistence, and pace (which the ALJ's assessment of her residual functional capacity established) or on receiving and responding to instructions appropriately (as the one psychologist noted). The VE testified that O'Connor-Spinner could not perform her past jobs but identified several that she could perform. The ALJ therefore concluded that she was not disabled. Then-Judge Hamilton (S.D. Ind.) upheld the ALJ decision. O'Connor-Spinner appeals.
In their opinion, Seventh Circuit Judges Bauer, Ripple, and Kanne reversed and remanded. The Court first addressed the argument that the ALJ's finding of limitations on concentration, persistence, and pace required the ALJ to include those limitations in the hypotheticals. The general rule is that an ALJ must inform the VE all of the claimant's limitations. There is no per se rule that those limitations be included in a hypothetical. But here, where the ALJ focused on increasingly restrictive hypotheticals, where there is no evidence that the VE reviewed the medical history, and where the ALJ did not use other words to describe the same limitation, a remand is required. The Court also agreed that with the claimant that the ALJ should have been more clear with respect to the claimant’s limitation on receiving and responding to instructions. The ALJ neither mentioned nor included that limitation in a hypothetical. The Court noted that this shortcoming may not have, by itself, required a remand. Since the case was going to be remanded anyway, the Court encouraged the ALJ to clarify his position on this limitation in the record.
Court Upholds Asset Turnover Order
DEXIA CRÉDIT LOCAL v. ROGAN (November 24, 2010)
Peter Rogan was apparently engaged in a large Medicare and Medicaid fraud scheme in the 1990s through Edgewater Medical Center, a hospital he owned in Chicago. In a government False Claims Act case, a federal district court concluded that Edgewater submitted over $19 million in false claims. Dexia Crédit Local ("Dexia") also sued Rogan and his partners after it was forced to pay $55 million to Edgewater's bondholders under a letter of credit. Rogan defended that suit for years but eventually fled to Canada (but see). Dexia obtained a $124 million default judgment (see an earlier opinion and intheiropinion). Meanwhile, Rogan's entities had funneled millions of dollars to Florida and Belizean trusts he set up for each of his three children. Rogan's lawyer was the trustee of each of the trusts. Dexia started supplementary proceedings against the trusts by serving the trustee. During those proceedings, the district court dismissed two parties in the underlying litigation after it was discovered that their presence in the case destroyed diversity. After a bench trial, Judge Kennelly (N.D. Ill.) granted Dexia's motion to turn over the assets of the trusts. Alternatively, the court imposed a constructive trust on the trust's property. The Rogan children (the "Children") appeal.
In their opinion, Seventh Circuit Judges Kanne and Williams and District Judge Springmann affirmed. The Children raised numerous arguments on appeal, each of which was considered and rejected by the Court. First, the Court rejected the argument that diversity jurisdiction was lacking because LaSalle Bank, an Illinois corporation, assumed part of Dexia's risk. Dexia is a corporation formed under the laws of France. The Court rejected the notion that Dexia and La Salle operated together as some form of unincorporated association. Next, the Children argued that the were invalid because the underlying judgment was not final when those proceedings were commenced. It is true that the underlying judgment was not final when the supplementary proceedings were commenced, due to the bankruptcy status of one of the non-diverse parties. However, the non-diverse parties were dismissed retroactively. The Court concluded that the complaint in the supplementary proceedings should be read as if the non-diverse parties were never a part of the case. The district court therefore did not err in allowing the case to proceed. Third, the Children asserted that the district court had no authority to adjudicate their property rights. The Court disagreed with the premise of the argument. The district court was not adjudicating the Children's property rights. The supplementary proceedings alleged that the trusts contained assets of Rogan, the judgment debtor. The district court agreed -- it did not exceed its authority in so doing. Next, the Court rejected the Children's argument that they were entitled to a jury trial. The Court focused on the nature of the remedy. Because the relief sought and obtained was purely equitable, the Children were not entitled to a jury. Fifth, the Children argued that Illinois' five-year statute of limitations for constructive trusts applied, that the limitations period began to run when Dexia filed suit, and that Florida's 12-year statute of repose for fraud actions also barred the proceedings. The Court disagreed, holding that Illinois' seven-year statute for enforcement of judgments applied and that Florida law did not apply. Next, the Court agreed with the district court that issue preclusion prevented re-litigation of the factual finding by the district court in the False Claims Act case that Rogan's fraud began no later than 1993. Issue preclusion applies when the issue is the same, when it was actually litigated, when the finding was essential to the judgment, and when the party against whom it is to be applied was represented in the prior action. Although the Children were not parties to the prior proceeding, the Court concluded that the "adequately represented" exception applied since their interests coincided with their father's. Next, the court affirmed the district court's imposition of the constructive trust, notwithstanding a suggestion that legitimate funds could have been commingled. Once Dexia met its burden, it was up to the Children or the Trustee to provide evidence of any commingling. Finally, the Court rejected the Children's challenges to the form of the citation and Robert's challenge to personal jurisdiction.
Court Clarifies Lanham Act's "Exceptional Cases" Test For Fee Award
NIGHTINGALE HOME HEALTHCARE v. ANODYNE THERAPY (November 23, 2010)
Late last year, the Seventh Circuit affirmed summary judgment in favor of Anodyne Therapy and against Nightingale Home Healthcare (opinion and intheiropinion). The case involved Nightingale's purchase and later return of infrared lamps purchased from Anodyne. The Court affirmed on the grounds that Nightingale suffered no damages. After the affirmance, Judge Barker (S.D. Ind.) awarded $72,000 in attorneys' fees pursuant the Lanham Act’s allowance of such awards in "exceptional cases." Nightingale appeals.
In their opinion, Seventh Circuit Judges Posner, Kanne, and Rovner affirmed. The Court first described the surprisingly varied definitions courts apply to "exceptional cases." It found at least seven different interpretations in the different circuits, although it admitted that a closer analysis of the facts of individual cases would be required to determine if the different interpretations resulted in different outcomes. In the face of these different approaches, the Court looked to for the principle behind this exception to the general rule against awards of attorneys' fees. It concluded that the purpose of the exception was to prevent plaintiffs and defendants from using the Act for strategic purposes, especially when the other party was economically disadvantaged. The Court adopted an "abuse of process" test (i.e., the use of the legal system to accomplish a goal for which it was not designed) to reflect the concerns addressed by the Act. Applying that test in the procedural context of a fee motion, the Court concluded that an "exceptional case" is one in which a claim or defense was objectively unreasonable. Here, the Court had no difficulty finding that Nightingale met the test. The claim was not only without merit but was made for the specific purpose of getting a price concession from Anodyne. In addition to affirming the award below, the Court awarded fees for the appeal.
Unambiguous Insurance Contract Language Controls
KIMMEL v. WESTERN RESERVE LIFE ASSURANCE CO. (November 23, 2010)
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Richard Kimmell submitted an application for a $500,000 life insurance policy to Western Reserve Life Assurance Co. on November 13, 2006. He submitted a $385 premium with the application. The application provided that Western had 60 days to act on the application and, if it did not act, the application would be deemed declined. Kimmel received a conditional receipt from Western. The conditional receipt stated that the conditional coverage would terminate upon Western’s rejection, acceptance, offer of insurance on different terms, or the expiration of 60 days, whichever came first. The 60 day period expired without any action by Western. Kimmel died several weeks later. Western returned Kimmel’s premium and denied his widow June's claim. June Kimmel brought suit against Western. Magistrate Judge Cherry (N.D. Ind.) granted summary judgment to Western. June Kimmel appeals.
In their opinion, Seventh Circuit Judges Manion, Tinder, and Hamilton affirmed. A dispute centered on a life insurance policy is resolved like any other contract dispute. If the contract language is unambiguous, it controls. Here, the express, plain language of the conditional receipt provides conditional coverage for no more than 60 days, unless the company acts otherwise. Kimmel had no reasonable expectation of any broader coverage and the district court was correct in granting summary judgment on the coverage issue. The Court next addressed Kimmell's bad faith claim. Although Indiana law does impose a duty of good faith between an insurer and its insured, the Court did not believe that an Indiana court would impose such a duty between an insured and an applicant for insurance. The Court found Western's cavalier treatment of the application "inexplicable" and "a poor way to run an insurance company," but it concluded that it was not actionable under state law.
Seventh Circuit Rejects Rigid First-To-File Rule
RESEARCH AUTOMATION v. SCHRADER-BRIDGEPORT INTERNATIONAL (November 23, 2010)
Schrader-Bridgeport International (SRI) contracted with Research Automation to custom build a high-pressure cleaning machine. A dispute arose between the parties and each filed suit against the other -- Research in Illinois and SRI in Virginia. Research asked the Illinois federal court to enjoin SRI from proceeding in Virginia, and SRI asked the Illinois federal court to transfer its case to Virginia under § 1404(a). Judge Gottschall (N.D. Ill.) denied Research's request and granted SRI's. Research appeals.
In their opinion, Seventh Circuit Judges Manion, Sykes, and Hamilton affirmed. The Court briefly addressed its appellate jurisdiction because the transfer decision would generally not be appealable as an interlocutory order. However, since the denial of the injunction is appealable, the Court exercised pendant appellate jurisdiction over the “inextricably intertwined” transfer order. On the merits, the Court identified the relevant factors the district court should consider in exercising its discretion to transfer under § 1404 (a): the availability and access to witnesses and other resources, the location of the events, docket congestion, time to trial, each court's familiarity with the law, and the local community's interest in the matter. Here, the district court considered the appropriate factors and concluded that Virginia was the more appropriate forum. The court relied principally on Virginia's connection to the events -- where the contract was negotiated and where it was to be performed. The Court concluded that the district court did not abuse its discretion in its finding. The Court rejected Research's reliance on a rigid "first-to-file" rule. The Seventh Circuit does not adhere to such a rigid rule, particularly where the cases are mirror images. In fact, it is the suit that seeks coercive (here SRI), rather than declaratory, relief that is generally favored in that situation, regardless of who filed first. Although the Court conceded that the Eleventh and Federal Circuits apply a more rigid rule, most other circuits are in accord with the Seventh Circuit. The order of filing should simply be one factor considered as part of the § 1404 (a) analysis.
Key Employees Of Bound Entity Were Not So "Legally Identified" With Entity So As To Be Bound By Injunction
THE NATIONAL SPIRITUAL ASSEMBLY OF THE BAHÁ’ÍS OF THE UNITED STATES OF AMERICA UNDER THE HEREDITARY GUARDIANSHIP v. NATIONAL SPIRITUAL ASSEMBLY OF THE BAHÁ’ÍS OF THE UNITED STATES OF AMERICA (November 23, 2010)
The Bahá’í faith dates back to Persia and the mid-19th century. Its original group of followers in the United States formed the National Spiritual Assembly (the "Assembly") in 1909. In 1964, a group led by Charles Remey split off from the Assembly because of a disagreement over the line of succession. That group formed the National Spiritual Assembly Under the Hereditary Guardianship (the "Guardianship"). The Guardianship brought a lawsuit against the Assembly in the Northern District of Illinois. The suit sought possession of the Assembly's properties, including its magnificent house of worship in Wilmette, Illinois. The Assembly counterclaimed for trademark infringement and unfair competition. The district court held for the Assembly, finding that it was the highest authority for the Bahá’í Faith in the United States and was entitled to the exclusive use of its marks. In 1966 , the court entered an injunction prohibiting the use of the Assembly's marks by the Guardianship. The Guardianship dissolved shortly thereafter. Forty years later, the Assembly returned to court seeking contempt sanctions against the several individuals and organizations: a) Joel Marangella, who was Remey's assistant and actively involved in the Guardianship, but who later split off from Remey and organized several religious assemblies, including the Provisional National Bahá’í Council (the "Council") b) Franklin Schlatter, who was a founder, officer, and active member of the Guardianship, but who also later joined the Council, c) the Council, and d) two organizations created by Dr. Leland Jensen (Jensen served at one time as a Guardianship Board member but was no longer active in the organization at the time of the earlier litigation), one of which handles administrative matters and the other of which publishes books regarding the Bahá’í faith. After a thorough evidentiary hearing, Judge St. Eve (N.D. Ill.) concluded that the respondents were not in privity with the Guardianship and were thus not bound by the injunction. In so holding, she expressly rejected the Merriam decision from the First Circuit. The Assembly appeals.
In their opinion, Seventh Circuit Judges Bauer, Manion, and Sykes affirmed. The Court first commented briefly on the content of the original injunction. A few years after it was entered, the Supreme Court decided Presbyterian Church, in which it stated that a civil court could decide church property claims based on "neutral principles of law," but could not resolve underlying disputes over doctrine. The Court found certain aspects of the original injunction in tension with Presbyterian Church. Although the content of the injunction was not under review, the Court stated that it would proceed with some sensitivity to the constitutional issue. On the merits, the principal issue was whether the respondents, all non-parties to the original litigation, were nonetheless bound by the terms of the injunction. The general rule is that one is not bound by a judgment in litigation in which one is not a party. One exception is for a party's officers or agents. But that exception only applies when they act in their official capacities. Since the Guardianship dissolved decades ago, that exception cannot apply. Another exception applies to people acting in concert with a bound party. On the facts in this record, the exception also is not implicated. Finally, there is an exception for those in "privity" with a bound party. Although there is no hard and fast rule for what constitutes privity, the Court emphasized that the doctrine is bound by due process and it is restricted to those so closely tied with bound parties that it is reasonable to conclude that their interests were represented in the original litigation. The Court identified two categories of parties in privity -- successors in interest and those "legally identified" with a bound party. The two principal authorities on "legally identified" are Judge Hand's decision in Alemite and the First Circuit's decision in Merriam. The district court declined to follow Merriam because of a perceived tension with Alemite. The Court disagreed, concluding that the opinions could be reconciled. While Alemite's conclusion was that a salesman was not bound by an injunction issued against his corporation, the court recognized that a class of persons that are legally identified with the bound party could be bound. In Merriam, the court held that a key employee could be bound if there is a very close identity of interest combined with significant control in the organization and an involvement in the underlying litigation. Although the Court concluded that the district court erred in not following Merriam, it ultimately concluded that the court reached the right result. The Merriam inquiry includes factors such as a person’s position and degree of responsibility in a corporation, the person's participation in the original litigation, and the similarities between the activities of the bound party and the respondent. Here, with respect to Marangella, Schlatter, and the Council, the Court identified the significant dissimilarities between the activities of the Council and those of the Guardianship. Although Marangella and Schlatter participated in the Guardianship to varying degrees, they broke off and formed a new organization that was not a mere continuation of the old. In fact, the district court found a "robust doctrinal divide" between the organizations. They should not be considered "legally identified" with the Guardianship. Next, with respect to the Jensen organizations, the Court focused on Jensen's disassociation from any active governing role in the organization before the injunction was issued. Thus, Jensen does not even satisfy the “key employee” prong of the Merriam test. Finally, the Court rejected the argument that a trademark registration filing that claimed a path of successorship from Remey to the current president of Jensen’s organizations established legal successorship so as to bind those organizations. There was no evidence of any link between Remey and the organizations other than the filing.
Sales Representative Who Falsifies Call Reports Is Not Meeting His Employer's Legitimate Expectations
NAIK v. BOEHRINGER INGELHEIM PHARMACEUTICALS (November 22, 2010)
In early 2004, Boehringer Ingelheim Pharmaceuticals hired Prakash Naik, a 53-year-old India native, as a sales representative in its Schaumburg territory outside of Chicago. Naik’s job was to make sales calls on doctors and other medical professionals and promote BIP's products. Naik complained to the company that his manager, Brett Lundsten, made inappropriate comments regarding both his age and his national origin. In early 2005, a regional performance review disclosed that the Schaumburg territory was underperforming. Lundsten began investigating his employees’ sales call activities. He found several irregularities with respect to Naik's call activity, including recorded sales calls at times when the identified medical professional was apparently not available. He investigated further, directly contacting the professionals’ offices. His investigation resulted in a list of at least six occasions on which Naik recorded a sales call with a person who was not present. Lundsten, along with the regional manager and a regional human resources representative, confronted Naik. Naik claimed that he had no recollection of the calls. The company representatives provided him with the details of their investigation and gave him until the following day to provide additional information. When Naik was unable to provide any information to explain the apparent irregularities, BIP terminated his employment. The company replaced him with a 36-year-old non-Indian male. Company records also show that two other employees were fired for falsifying sales calls, two other employees voluntarily resigned after being accused of falsifying sales calls, and that no employee accused of falsifying sales calls was retained. Naik brought suit against the BIP, alleging age discrimination under the Age Discrimination in Employment Act and national origin discrimination under Title VII. Judge Andersen (N.D. Ill.) granted summary judgment to BIP. Naik appeals.
In their opinion, Seventh Circuit Judges Cudahy, Rovner, and Evans affirmed. Naik relies on the indirect, McDonnell Douglas formula for proving discriminatory intent. Two of the four elements of the tests are at issue here -- whether Naik was meeting his employer’s legitimate expectations and whether BIP treated similarly situated employees more favorably. The Court quickly disposed of the legitimate expectations element, concluding that the call record falsification without explanation was adequate evidence of a failure to meet legitimate expectations. The Court also agreed with the district court that Naik failed to establish that any similarly situated employee was treated differently. In fact, the record shows no disparity in the company’s treatment of employees who falsify sales call records. Although Naik fell far short of meeting his burden, the Court added that he also could not have established that BIP's nondiscriminatory reason was pretextual. The company's belief that he falsified his call reports was a legitimate, nondiscriminatory reason for terminating his employment.
Court Lacks Appellate Jurisdiction Over Immunity Denial If It Cannot Resolve the Question On Undisputed Facts
HILL v. COPPLESON (November 22, 2010)
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Eighteen-year-old Harold Hill was arrested in early 1992. While in custody, two detectives began questioning him about a sexual assault and murder that happened almost 2 years earlier. According to Hill, they questioned him for hours and abused him both physically and mentally. At some point, Assistant State's Attorney Rogers also began questioning Hill. Hill eventually confessed to the crime and implicated two other men. Those two men were arrested and also eventually confessed to the crime -- although one was never charged because, even though he gave a detailed confession, he was in jail at the time of the crime. In late 1994, Hill was convicted of the crime and sentenced to life in prison. Over 10 years later, Hill was exonerated through DNA testing and his conviction was vacated. Hill filed suit against the two detectives, Rogers, and the City of Chicago alleging that the defendants violated his Fifth Amendment rights by coercing the confession and that they engaged in a civil conspiracy in violation of § 1983. Judge St. Eve (N.D. Ill.) denied the individual defendants' motions for summary judgment, including Rogers' claim that he was entitled to both absolute prosecutorial immunity as well as qualified immunity. Rogers appeals.
In their opinion, Seventh Circuit Judges Ripple, Williams, and Tinder dismissed for want of jurisdiction. The Court has jurisdiction of an appeal from the denial of summary judgment on either absolute or qualified immunity grounds only if they can decide the questions presented based on undisputed facts. Here, there is a dispute in the record over the timing of Rogers' arrival at the police station. Rogers claims that he arrived only after Hill's confession -- Hill claims that he did not confess until after meeting with Rogers. Rogers' success on his absolute immunity claim depends on whether he was acting as a prosecutor or investigator. The answer to that question depends on whether probable cause existed prior to his arrival. Rogers' success on his qualified immunity claim depends on whether there is evidence that he was involved in the coerced confession. The probable cause and the coercion questions depend on the timing of Rogers' arrival at the police station and thus cannot be decided on a record of undisputed facts. Because the Court cannot resolve the question on undisputed facts, it lacks jurisdiction.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select