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

COSTELLO v. GRUNDEN (June 28, 2011)

Several senior Comdisco, Inc. employees participated in the company's shared investment plan (SIP) program. Under the program: a) participants purchased Comdisco stock, b) the purchase was funded exclusively by personal loans, c) the participants executed promissory notes in their personal capacities, d) Comdisco guaranteed the loans, e) the lender remitted the loan proceeds directly to Comdisco, f) Comdisco held the shares, g) there were several restrictions on the ability to sell the stock, and h) participants delivered a blank stock power to Comdisco. Although some SIP participants later sold their stock and made healthy profits, others were still holding the stock when Comdisco went into bankruptcy. As part of the settlement on the guarantee, the lender assigned its rights under the notes to the Comdisco Litigation Trustee. The Trustee brought suit against the participants and moved for summary judgment against two of them. Judge Gettleman (N.D. Ill.) granted the Trustee's motion for summary judgment, rejecting the defendants' defenses. The court then granted the Trustee's motion for summary judgment against the remaining defendants on the bases of his earlier ruling and his rejection of the additional defense. Defendants appeal. The Seventh Circuit issued an opinion on October 18, 2010. On June 16, 2011 the Court granted a petition for panel rehearing and vacated the October opinion and judgment.

In their opinion, Judges Kanne, Rovner, and Tinder vacated the summary judgments in favor of the Trustee and remanded for further proceedings. The defendants raised several arguments on appeal. First, the defendants argued that the district court erred in not allowing them to assert violations of Regulations G and U as affirmative defenses. The Court agreed. It concluded that a private right of action under either § 7(d) or § 29(b) is not a prerequisite to asserting a violation of Regulation G or U as an affirmative defense. It also concluded that the "zone of interests" prudential standing requirement does not apply when a party uses a violation of the statute or regulations defensively. Second, the defendants argued that the district court erred in concluding that Comdisco and the lender did not violate the regulations. Again, the Court agreed. With respect to Comdisco, the Court concluded that the Trustee did not raise it in his summary judgment papers. With respect to the lender, the Court identified genuine issues of fact with respect to the good faith non-reliance exception. Third, the defendants challenged the summary judgment ruling on the § 10(b) illegality defense. The Trustee originally only argued that the defendants could not prove falsity. In his reply brief, he then argued that defendants had to establish all elements of the defense. The Court concluded that the defendants did not have to present their evidence on the other elements of the defense and that the district court erred in granting summary based on lack of scienter. The Court also held that the district court erred in applying a heightened "strong inference" of scienter requirement. Fourth, the defendants argued that the notes are unenforceable due to violations of § 17(a) of the Securities Act. Because the Trustee defended the district court's ruling only on lack of scienter, the Court vacated the judgment for the same reasons it vacated with respect to the illegality defense. Fifth, the defendants challenged the district court's extension of its ruling with respect to the first two defendants to the other defendants. The district court's ruling with respect to the first two defendants was that the misrepresentations were expressions of legal opinion and therefore could not support a fraud claim. But the later defendants identified an exception to that general rule. The district court erred in that it never considered the argument. Finally, the defendants argued that the district court erred in granting summary judgment on their excuse-of-nonperformance defense. Based on its earlier rulings that summary judgment on the counts alleging statutory and regulatory violations was improper, the Court also concluded that summary judgment on the excuse-of-nonperformance defense was improper.

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HOLLAND v. CITY OF CHICAGO (June 23, 2011)

In 1997, Dana Holland was convicted of sexually assaulting Dionne Stanley. At Holland's trial, Stanley positively identified Holland. She also described how she met him at a bar the night before and the particulars of the assault. Five years later, a DNA test established Holland’s innocence. His conviction was vacated. He brought suit against the City of Chicago and two police officers for Brady violations and state law malicious prosecution. At her deposition, Stanley testified that she committed perjury in her trial testimony. She testified that she told the police officers on the scene three times that Holland was not her assaulter. She stated that she identified him at the scene only after the police pointed out all the evidence against him and told her she could go home if she identified him. She also testified that she told the Assistant State's Attorney shortly before trial that Holland did not do it. Judge Zagel (N.D. Ill.) granted summary judgment to the defendants.

In their opinion, Judges Flaum, Manion, and Evans affirmed. The Court first addressed the malicious prosecution claim. Among other things, a plaintiff must prove the absence of probable cause and the presence of malice in order to prevail on a malicious prosecution claim. In testing for probable cause, one must look at the time when the charges were filed, not the time of arrest. The Court recited the "ample" evidence of probable cause; including the facts that he was found with clothing matching that of the assailant, that his wallet was in the clothing, and that he had no alibi. The Court noted that probable cause existed even without Stanley’s identification. Although the presence of probable clause itself defeats Holland's case, the Court also noted that he had no proof of malice. The Court turned to the Brady argument. A police officer can be liable under Brady if he withholds exculpatory evidence and the evidence is material. The materiality test is that there must be a reasonable probability that the proceeding would have turned out differently had the evidence been disclosed. The evidence Holland takes issue with is the police officer's failure to disclose the "pressure" they put on Stanley to identify him. They Court identified several reasons to reject the Brady claim. First, Holland's attorney had the opportunity to cross-examine Stanley at trial. Second, the Court thought it unlikely, given Stanley's explanation that she did not identify him because she was afraid and the significant physical evidence, that the outcome would have been different. Third, Stanley was a particularly strong eyewitness at trial because of her lengthy, and initially friendly, encounter with Holland.

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THOMPSON v. RETIREMENT PLAN FOR EMPLOYEES OF S.C. JOHNSON & SON, INC. (June 22, 2011)

S. C. Johnson & Son changed its ERISA plan from a defined benefit plan to a cash balance plan in 1988. In the amended plan, each participant's account received interest credit at the greater of 4% or 75% of the Plan's rate of return. The Plan also allowed participants to take a lump-sum early withdrawal. But the plan penalized early withdrawers by including a provision that equated the future interest rate credits with the discount rate reduction. Thus, those that opted for the lump-sum received only their then-current account balance. A number of former participants in the Plan who received lump-sum distributions filed suit against the Plan in November of 2007. Although the Plan conceded the provision violated ERISA, it moved for summary judgment on the grounds that the claims were time-barred. Judge Stadtmueller (E.D. Wis.) concluded that Wisconsin's six-year contract statute of limitations applied and that each plaintiff's claim accrued when he received his distribution. Any plaintiff who took his distribution prior to November of 2001, therefore, was time-barred. With respect to the calculation of future interest credit, the court concluded that the Plan was entitled to some deference in choosing an appropriate calculation and adopted a modified version of the Plan’s proposed calculation. Plaintiffs appealed. The Plan cross-appealed.

In their opinion, Judges Cudahy, Kanne, and Tinder affirmed in part, reversed in part, and remanded. With respect to the statute of limitations, the Court noted the general rule that an ERISA claim for benefits accrues "upon a clear and equivocal repudiation of rights" known to the beneficiary. Although it considered it a very close question, the Court rejected the Plan's argument that the claims accrued when the Summary Plan Description and other materials were circulated in 1988 and 1989. Although those documents did disclose the illegal provision at issue, the Court concluded that they did not amount to an unequivocal repudiation. The ERISA right itself is fairly obscure, the information appeared in numerous publications received by Plan participants over the course of months, most of the information about the provision itself was not clear, and the clearest statements were found in the informal documents rather than the more formal Summary Plan Description. The Court did agree with the district court that the receipt of the distributions themselves did equal an unequivocal repudiation. The district court was correct. The Court turned to the method of calculation. It disagreed with the district court’s deference to the Plan. Plan administrators are normally given deference, particularly if the Plan itself gives them discretion. But that deference is given in situations where the Plan administrator is interpreting the Plan. Here, the Plan administrator is not interpreting the plan -- the Plan is illegal. Instead, the Court instructed the district court to exercise its usual role in calculating plaintiffs' recovery. The Court remanded for that purpose.

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ABM SECURITY SERVICES v. DAVIS (June 16, 2011)

ABM Security Services’ employees filed a class action against the company in Illinois state court. The complaint alleged that ABM violated the Illinois Minimum Wage Law by not compensating its employees for time worked before and after their shifts. ABM filed a notice of removal in which it calculated the amount in controversy to be in excess of $10 million. It reached that amount by multiplying minutes per day of alleged unpaid time by number of employees by average wage. It then added the 2% statutory penalty. It also noted that that number could increase by $1.5 million if overtime calculations were used. Judge Shadur N.D. Ill.) asked ABM to recalculate the number, excluding employees who opted into a California class-action. ABM filed an amended notice with calculations of approximately $5.2 million (straight time) and $7.8 million (overtime). The court asked for still additional information and instructed ABM to exclude vacation and sick days. ABM's new number was approximately $5.2 million. The court again disagreed, particularly with the penalty calculation. It did its own calculation and came up with a number approximately $5,000 short of the $5 million amount in controversy requirement. Additionally, the court concluded that class counsel could not have done $5,000 worth of legal work to make up that deficit. He remanded the case to state court. ABM petitions for permission to appeal.

In their opinion, Judges Bauer, Kanne, and Sykes granted the petition, reversed, and remanded. The Court stated the standard -- once the removing party offers a plausible explanation for reaching the $5 million threshold, the case should remain in federal court unless that recovery amount is legally impossible. Here, the Court found that ABM's calculations were reasonable and also found its interpretation of the statutory penalty reasonable. The district court did not establish that the recovery was legally impossible. It should not have remanded. Alternatively, the Court also criticized the district court's conclusion that attorneys’ fees incurred by plaintiffs up to the time of removal could not bridge the $5,000 gap.

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SAMUEL C. JOHNSON 1988 TRUST v. BAYFIELD COUNTY (June 17, 2011)

In the middle of the 19th century, the federal government wanted to encourage railroading. It created a checkerboard-like pattern of identical square sections on federal land. It assigned the squares alternating odd and even numbers. It gave the odd-numbered sections to the railroads in fee simple. It sold the even-numbered sections. The railroads would be able to sell part of the land they owned but did not need in order to finance their operations and the acquisition of rights in the land they did not own. The Samuel C. Johnson 1988 Trust is the current owner of property in northern Wisconsin that was part of this checkerboard. It owns property in an even-numbered section that its predecessor purchased from the federal government in fee simple in the late-19th century. It also owns property in an odd-numbered section that it purchased from a railroad. Bayfield County thinks it has rights in the now-abandoned railroad right-of-way on the Trust's properties and wants to build a snowmobile trail. The Trust brought suit to quiet title. Judge Crabb (W.D. Wis.) granted summary judgment to the County. The Trust appeals.

In their opinion, Judges Posner, Wood, and Tinder reversed. The Court first addressed its jurisdiction, since the suit seems to arise under state law and there is not complete diversity. Both the plaintiff and defendant rely on federal law for their claimed property rights. Whether viewed from the plaintiff’s perspective or, since it is a type of declaratory judgment case, from the presumed suit by the defendant, the case arises under federal law. On the merits, the Court addressed each section separately. With respect to the even-numbered section, the railroad obtained its right-of-way by condemnation. The Court rejected the County's assertion that it was obtained by statute. Once the railroad abandoned the right-of-way, the Trust became the holder of the full rights to the property. With respect to the odd-numbered section, there was no right-of-way because the railroad owned the property in fee simple. When it conveyed the property to the Trust, it conveyed all rights in the property. This County has no right to build a trail.

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BANK OF AMERICA v. VELUCHAMY (June 16, 2011)

Pethinaidu and Parameswari Veluchamy owed Bank of America $39 million. When they defaulted, the Bank brought suit and obtained a judgment. The Bank began post-judgment proceedings to locate assets to satisfy the judgment. The Veluchamys were not very cooperative during those proceedings. They were slow in providing some information and refused to provide other information, asserting a Fifth Amendment privilege. Meanwhile, mostly through other sources, the Bank learned that the Veluchamys had transferred almost $20 million out of U.S. banks and into Indian banks. The Bank sought an emergency order requiring the Veluchamys to produce the transferred funds and to surrender their passports until they did so. Judge Shadur (N.D. Ill.) granted the Bank's request and ordered the Veluchamys to relinquish their passports. The Veluchamys appeal.

In their opinion, Judges Posner, Kanne, and Tinder affirmed. The Court first addressed its jurisdiction since the order obviously was not a final judgment. The Court concluded that it met the requirements for the collateral order exception -- it conclusively determined a question, the question is separate from the merits, and the decision would be unreviewable after a final judgment. A district court's powers in a post-judgment proceeding are governed by state law. Illinois law provides a number of tools, including the power to compel a party to produce funds under its control. The Court concluded that the power to compel a party to produce funds implied a power over the party itself. The Court emphasized that the such power is minimal and should be exercised only when necessary. Here, the Veluchamys had transferred most of their funds out of the country, they seemed to have significant assets in India and elsewhere, and they were reluctant to provide information about their assets. The Court concluded that this was the rare case where an order to surrender passports was warranted.

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PHILOS TECHNOLOGIES v. PHILOS & D, INC. (June 15, 2011)

In late 2008, Philos Technologies brought suit for conversion against a South Korean company and two South Korean individuals. All the defendants were served but none appeared. Instead, the two individuals sent an informal letter to the court. In it, they claimed to have no relationship with Philos, that their relationship was with a Korean company, and requested dismissal of the lawsuit. The district court eventually entered a default judgment in Philos's favor for almost $3 million. Eleven months later, defendants moved to vacate the default judgment under Rule 60(b)(4) on the ground that the court lacked personal jurisdiction over the defendants. Judge Hibbler (N.D. Ill.) denied the motion, apparently as untimely, without reaching the merits of the jurisdiction question. Defendants appeal.

In their opinion, Judges Cudahy, Manion, and Hamilton reversed and remanded. The Court first addressed its standard of review. Although a Rule 60(b)(4) motion is usually reviewed with a somewhat deferential abuse of discretion standard, it is a per se abuse of discretion to deny such a motion if the underlying judgment is void. The Court turned to the timeliness issue. It noted the two options a defendant has to challenge personal jurisdiction. On the one hand, a defendant can appear and object and, if unsuccessful, take a direct appeal. On the other hand, a defendant can risk a default judgment and later challenge that judgment under Rule 60. That collateral challenge can be taken at any time. One thing a defendant may not do, however, is take advantage of both strategies. A defendant may not, for example, appear, challenge jurisdiction, abandon the challenge, and then reassert the challenge under Rule 60. Thus, the critical issue is whether the defendants' informal letter constituted an appearance. The answer is easy with respect to the Corporation because a Corporation cannot appear pro se. The Court also concluded that the individual defendants did not appear, applying the less stringent pro se filing standard. An appearance generally requires an indication that the defendant is going to defend the suit. Here, to the contrary, the Court found that defendants' letter was their explanation why they were not going to defend the suit. On the merits of the jurisdictional issue, the Court remanded to the district court for its consideration.

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AMERICAN BOTTOM CONSERVANCY v. U.S. ARMY CORPS OF ENGINEERS (June 14, 2011)

Waste Management of Illinois, Inc. operates a landfill near Madison, Illinois. The landfill is just southwest of the Horseshoe Lake State Park. Waste Management wants to build a second landfill even closer to the park. In order to do so, it wants to destroy approximately 18 acres of wetlands. Waste Management has applied to the Illinois Environmental Protection Agency for a permit to build the landfill. That application is pending. Waste Management also applied to the Army Corps of Engineers for a permit to destroy the wetlands. That permit was granted on the condition that Waste Management create twice as many wetlands as they destroy. American Bottom Conservancy, an environmental group, brought suit challenging the permit. Judge Murphy (S.D. Ill.) dismissed the suit on the grounds that the Conservancy failed to establish standing. The Conservancy appeals.

In their opinion, Circuit Judges Posner and Manion and District Judge Lefkow reversed. The only issue before the Court was standing. To establish standing, a plaintiff must establish that granting the relief sought will avert or mitigate injury to him caused by the defendants. The Conservancy filed affidavits from several of its members who enjoy watching the birds and wildlife in the park, particularly at the southern end near the wetlands. They assert that Waste Management's wetland destruction will adversely affect the wildlife population and, therefore, their enjoyment of the park. The Court concluded that plaintiff’s member’s reduced enjoyment was an injury caused or to be caused by Waste Management. The Court also found that the injury was not implausible. The habitat reduction will likely negatively affect the wildlife population and the replacement wetlands will not be able to support a new wildlife population for some time. If the permit is voided, the wetlands and the wildlife population will be preserved. That is enough to confer standing on the Conservancy. The Court rejected Waste Management's alternative argument to find in its favor on the merits. It an appellee wants a judgment affirmed on an alternative ground, it need not file a cross-appeal. If, however, an appellee wants a judgment changed (here, from a dismissal without prejudice to a dismissal with prejudice), it must file a cross-appeal. Waste Management did not.

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CHICAGO TEACHERS UNION v. BOARD OF EDUCATION (June 13, 2011)

The Chicago Board of Education laid off almost 1300 teachers in the summer of 2010. The Board recalled many of them before the end of that summer, having received additional federal funds. Vacancies continued to open through attrition. The Chicago Teachers Union brought suit against the Board seeking special hiring consideration for the tenured teachers who were laid off and not recalled. Judge Coar (N.D. Ill.) granted an injunction. A divided panel of the Seventh Circuit affirmed (opinion and intheiropionion). The Board petitioned for rehearing.

In their opinion, Circuit Judges Manion and Williams and District Judge Clevert granted the petition, vacated the earlier opinion, and certified three questions to the Illinois Supreme Court. In its earlier opinion, the majority interpreted Illinois law to give tenured teachers a protected a right to continued employment and, thus, an opportunity to be considered for vacancies as they arise. But no Illinois court has addressed the question of whether tenured teachers have any right to be recalled after a good faith economic layoff. On reconsideration, the panel decided to let the Illinois Supreme Court provide guidance on Illinois law. It certified three questions regarding the rights of tenured teachers after a good faith economic layoff.

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WACKETT v. CITY OF BEAVER DAM (June 13, 2011)

Daniel Wackett worked for the Department of Public Works in Beaver Dam, Wisconsin from 1972 until his retirement in 2009. In 2003, he was responsible for evaluating three bids for a front-end loader needed by the City. At a Board of Public Works meeting, he and his supervisor, the Director of Public Works, both recommended the John Deere front-end loader. The Board voted to recommend to the City Council the more expensive Caterpillar front-end loader. Wackett spoke out against the decision. He even claimed that the Board was improperly influenced. He persuaded a local businessman to write a letter criticizing the recommendation. The local newspaper printed the letter. After numerous citizen complaints, the Board changed its recommendation and the City purchased the John Deere front-end loader. After that incident, the Board refused to promote Wackett. Twice, they appointed someone else Director. From 2004 to 2009, Smith actually served as Acting Director but the Board refused to appoint him to the position. Wackett brought suit pursuant to § 1983. He alleged that the City and Board retaliated against him on account of his speech. Judge Griesbach (E.D. Wis.) granted summary judgment to the defendants. Wackett appeals

In their opinion, Chief Judge Easterbrook and Judges Manion and Williams affirmed. There are three prongs to a First Amendment retaliation claim: a) constitutionally protected speech, b) but-for causation, and c) a deprivation. With respect to the first prong, the Supreme Court in Garcetti held that a public employee's statements in his official capacity are not protected speech. Here, most of Wackett's speech was made in his official capacity and is not protected. To the extent he engaged in protected speech in conversations with the businessman and other citizens, he presented no evidence that the defendants were aware of that speech. With respect to that speech, therefore, he cannot establish causation.

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ELLIS v. CCA OF TENNESSEE (June 9, 2011)

Harriett Ellis, Patricia Forrest, Shavon Jones, and Delores McNeil were all employed as nurses at the Marion County Jail II. They are all also African-American. CCA of Tennessee operates the jail pursuant to a contract with the Marion County Sheriff and employs its entire medical staff. Plaintiffs allege several instances of racial discrimination at the jail: a) a shift change directive that required nurses to rotate among shifts rather than work the same shift, as the plaintiff nurses had been doing, b) the health services administrator's possession of a management book excerpt that compared workplace problems to monkeys, c) a reference to monkeys over the intercom system, d) a coworker who wore clothing with a picture of the Confederate flag, and e) a doctor stating to one of the nurses that the first name of an inmate named Cole must be "black as." The plaintiffs all resigned in late 2006 or early 2007. They all claim they were constructively discharged because they complained about improper or unsafe work practices. They filed suit under Title VII and § 1981, alleging race discrimination and hostile work environment. They also alleged state law retaliatory discharge. Judge Barker (S.D. Ind.) granted summary judgment to the defendants. She also concluded that plaintiff Forrest's claims were precluded by res judicata. Plaintiffs appeal.

In their opinion, Circuit Judges Flaum and Williams and District Judge Herndon affirmed. The Court first addressed the hostile work environment claim. Such a claim must show that the environment was both objectively and subjectively offensive. Here, although the Court assumed that the plaintiffs found the management book offensive, they concluded that no reasonable person would find it so. The monkey in the book is clearly a metaphor for management problems, not people. There is also not enough in the record regarding the monkey comments on the intercom to establish a hostile work environment. Although the court found the Confederate flag and the doctor’s statement offensive, the limited number of incidents does not support a hostile work environment claim. The Court turned to the race discrimination claim. A race discrimination claim requires a material, adverse employment action. The Court rejected each of plaintiffs' three suggestions: a) the shift-change policy does not qualify because it did not include any particular hardship, b) plaintiff Ellis' three-day suspension does not qualify because she was unable to show that CCA's explanation was pretext, and c) they cannot show a constructive discharge since it requires more than hostile work environment. The Court then addressed the Indiana statutory whistleblower claim. In order for an employee to get the protection of the statute, she must report a violation of federal or state law, an ordinance violation, or the misuse of public resources. The reports at issue primarily addressed CCA safety practices. Since the plaintiffs have not identified any violation or misuse, they cannot prevail under the statute. The Court did find the district court's ruling on res judicata erroneous. One of the plaintiffs made similar allegations in an earlier lawsuit. The district court concluded that she should have amended her complaint in that suit to include incidents between its filing and the summary judgment motion. The court was wrong. Res judicata does not bar a second lawsuit based on facts that arose after the first complaint was filed.

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SHAWANO GUN & LOAN v. HUGHES (June 7, 2011)

Timothy Backes operates the Shawano Gun & Loan sporting goods store in northern Wisconsin. He has had a federal firearms license since 1998. Under the Gun Control Act of 1968, Backes has to make sure that the ATF Form 4473 is completed with each firearm transaction. The ATF conducted compliance inspections in 1999, 2004, in 2007. The store was cited for nine violations in 1999, six violations in 2004, and seven violations in 2007. Many of the 2007 violations were repeats of earlier violations. The ATF served Shawano with a Notice of Revocation in late 2007. After an evidentiary hearing, a hearing officer concluded that the ATF established five willful violations. The ATF revoked Shawano's license. Shawano filed suit seeking judicial review. Judge Griesbach (E.D. Wis.) granted summary judgment to the government. Although he did not hold an evidentiary hearing, he did accept affidavits from Backes, Backes's counsel, and several other individuals. Shawano appeals.

In their opinion, Circuit Judges Tinder and Hamilton and District Judge Murphy affirmed. The Court first found no error in the district court's decision not to hold an evidentiary hearing. The district court exercised its discretion to accept evidence beyond the administrative record but, because there were no credibility issues, proceeded by affidavit. He did not abuse his discretion in doing so. On the merits, the Court rejected Shawano's contention that the government had to prove an intentional act. A willful violation under the Gun Control Act does not require an intentional act or evil motive -- it only requires purposeful disregard or indifference. Finally, the Court rejected the argument that the small number of violations compared to the store’s total transactions could not support a finding of willful. First, the statute does not contain a de minimis exception. Second, Backes was given many opportunities to correct his business processes and failed to do so.

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HO v. TAFLOVE (June 6, 2011)

In 1998, Professor Seng-Tiong Ho was an engineering professor at Northwestern University. It was then that he first formulated his "4-level 2-electron atomic model.” He was working with graduate student Chang at the time. Several years later, Chang started working for Professor Allen Taflove, another engineering professor at the University. Graduate student Huang began working with Ho and his Model. Some Model research results were mentioned in a 2001 paper and later included in Huang's master’s thesis. In 2003 and 2004, Taflove and Chang wrote a paper and an article describing the Model and its applications. Ho and Huang brought an action against Taflove and Chang alleging violations of the Copyright Act. They also included in their complaint allegations of conversion, fraud, and misappropriation of trade secrets. Judge Bucklo (N.D. Ill.) granted summary judgment to the defendants on all counts. Ho and Huang appeal.

In their opinion, Circuit Judges Ripple and Hamilton and District Judge Murphy affirmed. The Court first addressed the copyright infringement claim. At issue in the case is the Copyright Act exception for ideas. The Court found that the Model was an idea. The whole purpose of the Model was to replicate reality. The plaintiffs did not create something, they merely discovered something. The Court conceded that a description of a scientific idea may be protected under copyright principles, but noted the plaintiffs failed to adequately support that argument. The Court turned to the state law claims and first considered preemption. The Copyright Act preempts state claims if the work at issue is in a tangible form and if the right at issue is "equivalent" to a § 106 right. The 106 rights are "reproduction, adaptation, publication, performance, and display." Preemption applies even if the material is not protected by copyright. The Court found the tangible form element satisfied and addressed the § 106 element with respect to each cause of action. It found the conversion count preempted because it was based on the alleged publication, a § 106 right. It found the fraud count preempted as well. Although fraud claims are frequently not preempted because they contain elements different from infringement, the fraud alleged here is that the works were published without attribution. Publication is a § 106 right. The Court found the trade secret misappropriation claim not preempted because the claim contained elements of secrecy and confidentiality that are not contained in the Copyright Act. The plaintiffs could not prevail on that claim, however, because they did not maintain the secrecy of the Model. Plaintiffs intentionally released the information in the conference paper and Huang’s thesis. They can no longer succeed on a trade secret claim.

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VANCE v. BALL STATE UNIVERSITY (June 3, 2011)

Ball State University's Dining Services department has employed Maetta Vance for over 20 years. She was a substitute server from 1989-91, a part-time catering assistant from 1991-2007, and now is a full-time catering assistant. She filed a lawsuit against the University in 2006 alleging Title VII claims of hostile work environment and retaliation. She included several specific allegations of hostile work environment, including: a) co-worker Davis hit her, b) supervisor Kimes made her feel unwelcome, c) co-worker Davis threatened her, d) co-worker McVicker used a racial epithet, e) co-worker McVicker called her a "porch monkey," and f) supervisor Adkins made faces at her. The University responded each time she filed a complaint. It disciplined McVicker for using the epithet. On other occasions, it found no basis for discipline. Her retaliation allegations related to diminished work duties and denial of overtime, and a reassignment to menial tasks in connection with her promotion. Judge Barker (S.D. Ind.) granted summary judgment to the University. Vance appeals.

In their opinion, Judges Bauer, Wood, and Sykes affirmed. The Court first addressed Vance's hostile work environment claim. The elements of that claim are that the work environment is objectively and subjectively offensive, that the conduct was based on race, that it was either severe or pervasive, and that there was employer liability. With respect to employer liability, a plaintiff must either show that the harassment came from supervisors or that the employer was negligent in discovering or fixing the situation. The Court rejected supervisor liability. First, Davis was not her supervisor. Although other circuits have expanded the supervisor term to include persons with authority to direct daily activity, the Seventh Circuit has limited the term to those who have the authority to directly affect the terms and conditions of employment. Second, Adkins was her supervisor but did nothing more than make ugly faces at her. Third, Kimes was her supervisor and may have engaged in sufficient harassment to create employer liability but there was no evidence that his harassment was based on Vance's race. In the absence of supervisor harassment, the Court turned to co-worker harassment. It concluded that Vance could not establish that the University failed to take reasonable steps to discover and correct the harassment. Every time she made a complaint, the University investigated and responded appropriately. The Court turned to the retaliation claim. Ironically, Vance's retaliation claim is based on her promotion. She admitted that she received more pay and benefits but alleged that her responsibilities were diminished. The Court concluded that the promotion was not a materially adverse employment action. Although she may have enjoyed it less, she sought it out knowing that the responsibilities would be different from her prior position. The only other employee occupying the position had similar responsibilities. Finally, the Court rejected her claim that the University retaliated against her by giving her fewer overtime hours. Although she did work fewer overtime hours than her co-worker, the two were not similarly situated. Her co-worker worked more regular hours, was available more often, and took fewer sick days and leaves of absence.

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NATIONAL RIFLE ASSOCIATION OF AMERICA v. CITY OF CHICAGO (June 2, 2011)

The District of Columbia, the City of Chicago, and the Village of Oak Park all had similar handgun ban ordinances in 2008. That was the year that the Supreme Court decided, in Heller, that the District of Columbia ban violated the Second Amendment. Chicago and Oak Park retained their bans, relying on the fact that the District of Columbia is a federal enclave. The bans were challenged. The Supreme Court reversed the Seventh Circuit and concluded that the Second Amendment applied to states and municipalities and struck down the bans. It entered its judgment on June 28, 2010. Within weeks, both Chicago and Oak Park repealed their ordinances. The Seventh Circuit directed the district court to dismiss the cases as moot. The plaintiffs requested attorneys’ fees. Judge Shadur (N.D. Ill.) rejected the request on Buckhannon and Zessar grounds -- that being a catalyst for change is not enough, a party must have a judicial order changing the legal status to sustain a fee award. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Posner reversed and remanded. In Buckhannon, defendants voluntarily changed the law before the district court rendered its decision. In Zessar, defendants voluntarily changed the law after the district court's decision but before its judgment. In both cases, fees were disallowed because there was no judicial order changing the parties’ legal status. But here, the plaintiffs do have a judicial order. They have a judgment of the Supreme Court that altered the party's legal relationship. The fact that the district court would have entered an injunction had the case not become moot does not alter that fact. The plaintiffs are entitled to reasonable attorney's fees.

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MATTHEWS v. WISCONSIN ENERGY CORP. (June 1, 2011)

After almost 20 years at Wisconsin Energy Corporation, Bernadine Matthews left the company in 1999. In 2003, Matthews and WEC settled a lawsuit that she had brought regarding reference requests. As part of a settlement, WEC agreed to respond to any reference requests in accordance with its policy existing at the time of the request and agreed not to say that she had been fired. In 2005, Matthews filed suit alleging that WEC breached the agreement twice in 2004. At about the same time that she filed suit, Matthews hired a consultant, Howard Schwartz, to help her find a job through a federal program for disabled persons. She gave Schwartz permission to contact third parties, including her former employers, to gather personal information. Schwartz sent a letter to WEC requesting work history confirmation and job performance comments. He advised WEC that he was assisting Matthews in her job search and that she had authorized the release of the information. One of WEC's attorneys responded. She told Schwartz that she would only provide basic work history, not performance comments. She also told him that Matthews had sued the company regarding their responses to reference requests. The district court granted WEC's motion for summary judgment and awarded attorneys’ fees. The Seventh Circuit affirmed for the most part, but reinstated the breach of contract claim based on the conversation Schwartz had with WEC's lawyer. That count was tried to a jury. The jury found for WEC and Judge Stadtmueller (E.D. Wis.) again awarded fees. Matthews appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans affirmed. The Court first addressed Matthews' position that the district court erred in allowing WEC to argue that she waived the provisions when she allowed Schwartz to gather personal information. It rejected both her arguments: a) WEC was not required to plead the affirmative defense of waiver because Matthews did not include the facts giving rise to the defense in her complaint (in fact, the conversation had not yet occurred), and b) the settlement agreement's writing requirement applies only to joint waivers that would affect the meaning of the contract, not to a party’s unilateral right to waive a contract term. Second, with respect to the breach and damages instruction, the Court reviewed the substantive jury instructions as a whole and found no error. Third, the Court concluded that the evidence was sufficient to support an instruction that the jury could find that Schwartz was acting as Matthews agent. Matthews submitted the instruction in a joint pretrial report, she put into evidence a stipulation that presumed agency, and she granted Schwartz broad authority to gather information on her behalf. Although the Court concluded that the evidence was not enough to establish agency as a matter of law, it was enough for the jury to find agency. Finally, the Court affirmed the district court’s award of almost $600,000 in attorneys fees. Since the fee shifting provision was in a contract and not a statute, the Court applied a "commercially reasonable" standard. Given that WEC paid the fees before the jury verdict and that Matthews' final settlement demand was $500,000, the fees are commercially reasonable. The Court declined to reduce the amount of fees on the ground that WEC did not prevail in every single respect or on the ground that the award created a financial hardship for Matthews.

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LEWIS v. SCHOOL DISTRICT #70 (June 1, 2011)

After School District #70 fired Debra Lewis, she brought suit. She alleged, among other things, violations of the Family and Medical Leave Act. Although her employer prevailed in the district court, the Seventh Circuit reversed the FMLA and breach of contract counts. On April 25, 2009, on remand, the parties orally agreed to a settlement in the presence of a magistrate judge. Within weeks, however, Lewis learned that the school superintendent had been accused and was under investigation for child molestation. Lewis refused to sign the settlement agreement. Judge Stiehl (S.D. Ill.) granted defendants' motion to enforce the oral settlement and, when Lewis continued to refuse to sign the agreement, he dismissed the case with prejudice. Lewis appeals.

In their opinion, Circuit Judges Bauer and Williams and District Judge McCuskey affirmed. Illinois enforces oral settlement agreements if there is an offer, acceptance, and a meeting of the minds on its terms. Given the record in open court before the magistrate judge, the Court had no difficulty in finding each element. Lewis also argued that the agreement should be set aside because of the defendants' "fraud." The Court agreed that a contract could be set aside when there is evidence of fraud in the inducement but found the materiality element lacking here. Although the Court conceded that knowledge of the investigation could have given Lewis more bargaining power and possibly a more valuable settlement, it would have been unrelated to the defendants' conduct in terminating her employment. The Court turned to the sanction imposed by the district court. Although it believed the result "unfortunate" and noted that Lewis turned a substantial recovery into nothing, the Court found no abuse of discretion. The district court ordered Lewis to sign the settlement agreement several times and it warned her that not doing so could result in dismissal and sanctions. Only after eight months had passed did he dismiss the case.

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JOHNSON v. CYPRESS HILL (June 1, 2011)

In 1993, hip-hop group Cypress Hill released its "Black Sunday" album. One of its tracks includes an excerpt of a song written years earlier by Syl Johnson, an African-American blues and soul singer. The history of the song -- "Is It Because I'm Black" -- is as follows: a) Johnson wrote the song in 1968, b) Twinight Records released a recorded version in 1969, c) Johnson recorded the song in 1972 but never released it in the United States, d) Johnson received a copyright registration in 1997 for a sound recording compilation that he thought included the song but did not, and e) a copyright was registered in 2003 on the words and music. Johnson filed suit against Cypress Hill in 2003, alleging copyright infringement based on the 1997 sound recording compilation copyright. In 2006, the owner of Twinight Records filed a declaration that the 1997 copyright did not include the song. In 2007, a Cypress Hill member testified that he used the 1969 version. Cypress Hill moved for summary judgment on the grounds that pre-1969 sound recordings are not protected under the Copyright Act and that the 1997 copyright did not include the song. Johnson moved to amend his complaint, dropping his original claims and substituting claims for common-law misappropriation and infringement of the 2003 composition copyright. Judge Norgle (N.D. Ill.) denied the motion to amend and granted summary judgment to Cypress Hill. The court also awarded attorneys' fees and costs on the ground that the complaint was baseless. Shortly thereafter, Johnson reasserted his misappropriation claim in a new case in state court (Johnson II). Cypress Hill removed the case to federal court and moved to dismiss on res judicata grounds. The court dismissed. Johnson appeals both orders.

In their opinion, Judges Manion, Evans, and Hamilton affirmed. The Court first concluded that the district court did not abuse its discretion in denying the motion to amend. Johnson knew that his claims were deficient for months, if not years, before he sought to amend his complaint. The case was four years old, discovery was long closed, and a summary judgment motion was on file. Allowing such a radical change of direction at that stage in the case would have been prejudicial to Cypress Hill. With respect to the fee award, the Court concluded that Johnson could not overcome the strong Copyright Act presumption to award fees to a prevailing party. Finally, the court affirmed the dismissal of Johnson II on res judicata grounds. Although the latter case involved a different legal theory, the facts in both cases are identical. That is enough to satisfy the identity of cause of action requirement.

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JACKMAN FINANCIAL CORP. V. HUMANA INSURANCE CO. (May 31, 2011)

Kunta Torrence participated in his employer's benefits plan that included a $15,000 life insurance policy issued by Humana Insurance. Torrence named his brother as beneficiary. The policy included a "facility-of-payment" clause. That clause covered the situation in which the named beneficiary is not alive at the time of the insured's death. It gave Humana the option to pay the proceeds of the policy to the insured's spouse, children, parents, siblings, or estate. Sadly, Torrence and his brother were both killed in the same car accident. Their mother, Nancy Kelly, borrowed $10,000 from Jackman Financial in order to pay for the funerals. She assigned a portion of the life insurance proceeds to Jackman to secure the loan. Two days later, she was appointed administrator of her son's estate. She completed a beneficiary form for Humana identifying herself as the beneficiary. At Humana's request, Kelley also completed an affidavit identifying Torrence's family members. Humana later advised Kelly that it had decided to turn over the proceeds to Torrence’s minor children. Jackman filed suit for denial of benefits under ERISA. Judge Norgle (N.D. Ill.) granted summary judgment to Humana. Jackman appeals.

In their opinion, Judges Rovner, Williams, and Hamilton affirmed. A facility-of-payment clause gives an insurer broad discretion in distributing the policy proceeds. Humana has an absolute right to choose from the list of possible recipients. Even though Humana knew that Kelly had already assigned much of the proceeds to Jackman, it was under no obligation to turn over the proceeds to Kelly or the estate. The Court then considered Humana's request for fees. Under ERISA, a prevailing party has a modest but rebuttable presumption in favor of fees. The Court applied the "substantially justified" test in denying fees to Humana. It considered that the case was filed in good faith, that neither Kelly nor Jackman new of the facility-of-payment clause at the time of the assignment, and that Jackman gave notice of its claim long before Humana paid out the proceeds. The Court did warn that it might decide differently if future litigants continue to challenge facility-of-payment clauses.

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GIRL SCOUTS OF MANITOU COUNCIL v. GIRL SCOUTS OF THE UNITED STATES OF AMERICA (May 31, 2011)

The Girl Scouts of the United States of America is the national Girl Scouts organization. It charters local councils, authorizing them to use the "Girl Scout" mark and sell Girl Scout cookies. One of those councils is the Manitou Counsel in eastern Wisconsin. Several years ago, the national organization decided to reduce the number of local councils. Manitou was one of the councils that would disappear under the reorganization. Manitou brought suit under the Wisconsin Fair Dealership Law. It obtained a preliminary injunction stopping the restructuring. However, on the merits, Judge Stadtmueller (E.D. Wis.) granted summary judgment to the national organization, concluding that applying the Wisconsin law to the national organization would violate their First Amendment freedom of expression rights. Manitou appeals.

In their opinion, Judges Posner, Kanne, and Tinder affirmed in part, reversed in part, and remanded. The Court rejected the First Amendment argument. Although the national organization's activities do include protected expression, that does not mean they are exempt from state laws that have a remote, at worst, impact on that expression. The national organization claims that its First of Amendment protection comes from its attempts to reorganize its structure to become more racially and ethnically diverse. The Court noted that there was actually no evidence in the record connecting diversity with the reorganization. Without that connection, the argument fails. The Court turned to the alternative argument, rejected by the district court, that the national organization's activities do not violate the Wisconsin Fair Dealership Law. The Court first refused to recognize a statutory exemption for non-profits. Next, the Court concluded that the statute required "good cause" to eliminate the council entirely, even though the national organization had the right to alter territory boundaries. They Court wrestled with a definition of "good cause" but ultimately found no need to resolve it. It concluded that: a) the national organization abandoned its argument that business reasons provided the good cause, and b) it found its argument that its expressive activity provided good cause unsupported by the record. The Court also affirmed the dismissal of the common law claims and ordered the reinstatement of the injunction.

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VERKUILEN v. MEDIABANK (May 27, 2011)

MediaBank provides complex software programs to advertising agencies. The software integrates a number of different functions and is custom-designed to meet the varying needs of its purchasers. MediaBank employs Penny Verkuilen as an account manager. In that position, she acted as a liaison between the company’s software engineers and its customers. She had to make sure she understood the customers' needs, communicated those needs to the engineers, and trained the customers on the finished product. Verkuilen brought suit against MediaBank under the Fair Labor Standards Act, alleging that she was denied overtime. Judge Grady (N.D. Ill.) granted summary judgment against her on the ground that she fit within the administrative exception to the overtime requirement. Verkuilen appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Posner affirmed. The Court started with the "pretty vague" Department of Labor regulation describing the administrative exception. It provides that the employee’s "primary duty" must include the exercise of discretion and independent judgment and must include non-manual work directly related to general business operations of the employer or its customers. The Court concluded that Verkuilen’s primary duty was directly related to the business operations of her employer and its customers. She was directly responsible for understanding each customer's needs, translating those needs into specifications that could be understood by the software engineers, and assisting the customers in implementing the solution. In fact, the Court believed that Verkuilen was a "picture-perfect example" of someone to whom the overtime requirement should not apply.

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MERCATUS GROUP, LLC v. LAKE FOREST HOSPITAL (May 26, 2011)

Mercatus Group and Evanston Northwestern Healthcare planned to build a medical center in Lake Bluff, Illinois. A short distance away stood Lake Forest Hospital. Threatened by the competition the new medical center would create, the Hospital attempted to stop the project. Its strategy took several forms. First, it lobbied Lake Bluff officials to deny necessary approvals. Second, it encouraged Hospital employees and community members to do the same through a public relations campaign. Third, it disparaged Mercatus to its partner. Fourth, it offered incentives to two practice groups that intended to leave the Hospital, in order to get them to stay. The Hospital's campaign was quite successful. Mercatus never opened the medical center. Instead, it brought suit under the Sherman Act, alleging that the Hospital had monopolized or attempted to monopolize the market for physician services. Judge Manning (N.D. Ill.) dismissed some of the case for failure to state a claim and granted summary judgment to the Hospital on the rest. She concluded that the Hospital’s lobbying activity was protected by the First Amendment and that the other conduct did not violate the antitrust laws. Mercatus appeals.

In their opinion, Judges Bauer, Manion, and Hamilton affirmed. Mercatus concedes that the Noerr-Pennington doctrine would immunize the Hospital’s lobbying efforts if they were truthful, but asserts that they fall within the fraud exception and are not immunized. But the Noerr-Pennington fraud exception only applies to adjudicative proceedings. So the Court proceeded to consider whether the Village Board proceedings were legislative or adjudicative. Before considering the number of factors that bear on that question, the Court noted that it had to tread lightly because the fraud exception was an exception to a doctrine created on constitutional grounds. Ultimately the Court concluded that the Board acted legislatively, not adjudicatively. The Board: a) generally makes policy, b) is ill-equipped to conduct adjudicative proceedings, c) conducts its business informally, d) allows ex parte lobbying activity, e) does not follow rules of evidence or hear testimony under oath, and f) operates with significant discretion. Summary judgment on the claim based on the Hospital’s activities before the Village Board was proper. The Court reached the same result for much the same reason with respect to the public relations campaign. The Hospital’s conduct was protected by the Noerr-Pennington doctrine. With respect to the Hospital’s allegedly false communications with other businesses, the Court concluded that they were not related to the lobbying efforts and not immunized. However, the Court also found an absence of any coercive conduct. Even if the statements were false, they are not actionable under the antitrust law. Finally, with respect to the Hospital’s successful efforts to retain physician groups that had originally decided to leave, the Court found no evidence in the record of any anticompetitive conduct. The Hospital is not required to sit back and allow these groups to leave. They simply did what the Mercatus group did to get them to leave – it offered them incentives.

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SAWYER v. ATLAS HEATING AND SHEET-METAL WORKS (May 26, 2011)

On May 18, 2009, Park Bank filed a state-court class action against Atlas Heating and Sheet-Metal Works. It alleged that Atlas' December 9, 2005 unsolicited facsimile violated the Telephone Consumer Protection Act. In March of 2010, after the Act's four-year statute of limitations had run, Park Bank voluntarily dismissed its claim. Isaac Sawyer, another facsimile recipient, was unsuccessful in his attempts to intervene in the suit. Sawyer filed his own class action on March 19. Atlas removed the case to federal court and moved to dismiss on statute of limitations grounds or to at least limit the action to an individual one. Judge Adelman (E.D. Wis.) denied the motion on the ground that the limitations period was tolled while the Park Bank suit was pending. Atlas appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Sykes affirmed. The Court noted that the Supreme Court, in American Pipe, held that the filing of a class action tolls the statute of limitations as to all persons who would have been class members. Atlas contends that American Pipe does not control because: a) the first suit was voluntarily dismissed, b) the first suit was filed in state court, and c) the first class was never certified. The Court rejected each of these attempts to distinguish American Pipe. The statute of limitations was tolled and Sawyer's complaint is timely. The Court next addressed whether Sawyer was limited to an individual complaint instead of a class action. The district court had identified a conflict among the circuits on that question. The Court found no conflict. The cases Atlas identified presented not questions related to tolling, but questions related to the preclusive effect of a Rule 23 decision in the earlier case. If, for example, the court in the first case denies certification on numerosity grounds, that ruling would be binding on the later-filed action and preclude class certification. On the other hand, a denial because the class representative was inadequate would not bind other class members from pursuing certification. Here, Park Bank dismissed its complaint before the first court even ruled on certification. Sawyer is free to pursue class certification in his case.

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MOORE v. VITAL PRODUCTS (May 25, 2011)

Raymond Moore delivered and installed medical equipment for Vital Products. He claims that other Vital employees, including his supervisor, exposed him to sexual paraphernalia and pictures and made unwelcome sexual remarks. Vital suspended Moore for poor performance in January of 2005. On February 16, shortly after his return from the suspension, Moore injured his back. He has not worked at Vital since. Vital sent a COBRA notice to Moore on February 21. The contents of the letter suggested that Moore was no longer employed at Vital. Moore filed an EEOC charge on December 7, 2005. The charge included allegations of hostile work environment based on race and gender but did not include allegations of unlawful discharge. Moore brought suit pursuant to Title VII, alleging a hostile work environment, discriminatory discharge, and retaliatory discharge. He also alleged retaliatory discharge under the Illinois Workers' Compensation Act. Magistrate Judge Schenkier (N.D. Ill.) granted summary judgment to Vital but denied its request for sanctions. Moore appeals -- Vital cross-appeals the denial of sanctions and seeks sanctions on appeal.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Wood affirmed in part, reversed in part, and remanded. The Court first affirmed the dismissal of the hostile work environment claim. Since Moore filed his EEOC charge on December 7, he must present evidence of a hostile work environment within the 300-day window, or after February 10. He failed to present any evidence of hostile work environment between February 10 and February 16, his last day on the job. The Court next affirmed the dismissal of his Title VII discriminatory discharge claim. A Title VII plaintiff can only bring claims that were included in his EEOC charge, or at least reasonably related to the contents of the charge. Moore did not include in his EEOC charge any allegations relating to his discharge. In fact, he stated in his charge that he was on medical leave, not discharged. The Court reversed, however, summary judgment on the Illinois Workers' Compensation Act claim. It is not clear whether Moore: a) is an employee on leave, b) abandoned his job in February 2005, or c) was discharged. The Court found genuine issues of fact with respect to Moore's status and, if he was discharged, whether the discharge was motivated by his intention to file a workers' compensation claim. Finally, the Court affirmed the district court's sanctions ruling and declined to impose its own.

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ROCHE DIAGNOSTICS CORP. v. MEDICAL AUTOMATION SYSTEMS (May 24, 2011)

Medical Automation Systems contracted with Roche Diagnostics to provide software for its glucose monitors and other products. The initial term of the contract was 2006-2010. Under the contract, Roche had the right to use the software for two years after the contract's expiration and had a right of first refusal to purchase MAS if MAS agreed to sell its stock to one of Roche's competitors "during the term of this Agreement." MAS notified Roche that it would not extend the agreement beyond 2010. Roche also discovered that MAS was in negotiations to sell its stock to a Roche competitor. Roche attempted to exercise its right of first refusal but MAS declined, relying on the fact that the transaction would not close until 2011, beyond the term of the Agreement. Although the contract required the parties to arbitrate any dispute regarding the right of first refusal, it allowed either party to seek an injunction pending arbitration. Roche did exactly that. Judge Barker (S.D. Ind.) found that allowing the sale would cause Roche irreparable harm by threatening both its ability to use the software for two additional years and its actual right of first refusal because of the difficulty in unwinding the transaction. She also found, however, that enjoining the sale would cause irreparable injury to MAS. She therefore issued an injunction allowing the sale’s completion but protecting Roche's ability to use the software for two more years. Roche appeals.

In their opinion, Chief Judge Easterbrook and Judges Wood and Williams affirmed, as modified. On Roche's request for an injunction pending appeal, the Court issued an order allowing the completion of the sale and protecting Roche's two-year use but added several conditions to ensure that MAS was maintained separately after the sale. Although appellate review of an order of this type is deferential, the Court identified an error in the district court. In balancing the harm, the court included on MAS's side of the ledger the injury caused by the delay in resolving the merits -- whether Roche has a valid right of first refusal. But the Court noted that the delay and resulting uncertainty is a function of the party's arbitration agreement. Allowing the sale would not avoid any uncertainty. Without that uncertainty on the MAS side of the ledger, the balance of harm favors Roche. The Court therefore affirmed the district court's injunction by including the hold-separate conditions, which will protect Roche in the event it prevails on the merits.

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MENDEZ v. PERLA DENTAL (May 24, 2011)

Nereida Mendez was a Perla Dental employee. She alleges that she was subjected to severe verbal and physical sexual harassment and even physical abuse. She complained at several levels -- but it only made it worse. She eventually filed a police report concerning the physical abuse. Perla terminated her employment. Mendez brought suit, alleging Title VII claims for gender discrimination, hostile work environment, and retaliation. She also brought state law claims for assault and battery, intentional infliction of emotional distress, and retaliatory discharge. A jury found for Mendez and awarded compensatory and punitive damages. Perla appeals.

In their opinion, Judges Manion, Rovner, and Sykes affirmed. The only issue on appeal is whether the district court had subject matter jurisdiction. Perla argues that the Illinois Human Rights Commission had exclusive jurisdiction of the claim. The Court agreed that the Commission has exclusive jurisdiction of retaliation claims that are based on complaints of sexual harassment. The question is whether Mendez' retaliatory discharge claim was intertwined with her sexual harassment complaints. The answer to that question is found by examining whether the legal duty Perla allegedly violated arises from the Illinois Human Rights Act. Here, Mendez' claim is that she was fired for filing a police report. Defendants agree that such a claim is recognized by Illinois common law, without reference to the Act, but claim that Mendez abandoned that claim during the litigation. The Court rejected Perla’s argument. First of all, there is no factual basis for it. The evidence at trial included reference to the police report. The fact that a jury instruction might not have been complete does not support abandonment. Second, even if Mendez did abandon the claim, subject matter jurisdiction exists because it is decided at the time of the filing of the complaint.

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WALTON v. BAYER CORPORATION (May 23, 2011)

Cathy Walton alleges that she suffered serious injuries as a result of taking a prescription drug manufactured by a Bayer Corporation affiliate and sold at a pharmacy operated by Niemann Foods. She brought suit against Bayer and Niemann in Illinois state court, alleging that the two defendants failed to warn of the drug's serious side effects. Although Niemann is an Illinois citizen, Bayer removed the case to federal court on the grounds that Niemann was improperly joined. Chief Judge Herndon (S.D. Ill.) denied Walton's request to remand and dismissed Niemann, with prejudice. Walton abandoned prosecution of the suit after that order. The court later dismissed the suit with prejudice when Walton refused to comply with a discovery order. Walton appeals.

In their opinion, Judges Cudahy, Posner, and Manion affirmed. The Court first confirmed its own appellate jurisdiction, notwithstanding Bayer's argument that Walton should not be allowed to turn a non-appealable interlocutory order into an appealable order by abandoning the case. The Court distinguished the cases Bayer cited and concluded that there was nothing wrong with her tactic. She should be allowed to risk her claim's success on being right about jurisdiction. The Court next turned to the question of the district court's jurisdiction. It rejected Walton’s first argument that the complaint did not meet jurisdictional amount. Her alleged injuries are quite serious and suggest that she is seeking at least the jurisdictional amount -- and she has not exercised her absolute ability to defeat removal by committing to accept no more than the jurisdictional amount. The Court also rejected her argument that a minor procedural defect precluded federal jurisdiction. The Court turned to her principal argument -- lack of complete diversity. Walton argued both that Niemann was a proper defendant and that, if it was not, fraudulent joinder's "common defense" exception applied. With respect to the first of those arguments, the Court looked to the "learned intermediary" doctrine, under which one's prescribing physician is principally responsible for warning a patient of a drug's side effects and a manufacturer is excused from any obligation to warn. Under Illinois law, a pharmacy like Niemann is only obligated to warn a customer of risks that are known to it but possibly unknown to the prescribing physician (for example, potential interactions with other prescriptions dispensed by the pharmacy). Since Walton did not allege that Niemann had such knowledge, Niemann had no obligation to warn and was properly dismissed. With respect to Walton's second argument, the Court turned to the common defense exception to fraudulent joinder. Under that doctrine, if a plaintiff makes identical claims against both the diverse and non-diverse defendants, a fraudulent joinder argument is really an attack on the merits of the entire case. That attack must be resolved in the state court. If, therefore, Bayer and Niemann both have the same learned intermediary defense, it must be resolved in state court. That is not the case, however. Walton alleges that Bayer concealed the drug's side effects, even from physicians. The two defendants therefore do not share a common defense, the exception to fraudulent joinder does not apply, and the district court properly dismissed Niemann. As an aside, the Court noted that a Walton victory based on the common defense exception in the appellate court would have resulted in a remand, only for Walton to lose in state court. The doctrine of judicial estoppel would not allow Walton to argue in the appellate court that her claims against Bayer and Niemann were identical and then argue in state court that her claim against Bayer was different.

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DIGITECH COMPUTER v. TRANS-CARE, INC. (May 20, 2011)

When Trans-Care, a medical transportation company, decided to update its software, it approached Digitech. Digitech's first proposal contained a “satisfaction guarantee” – a provision that allowed Trans-Care to walk away from the contract in the first 90 days without paying any licensing fees. Several months later, after much negotiation, Digitech submitted a final agreement, which Trans-Care signed. The final agreement did not include the guarantee, although Trans-Care return the signed agreement with its own purchase order that purported to incorporate earlier proposals and promises. The final agreement also provided that: a) monthly licensing payments began 90 days after installation, b) Digitech could suspend services if payments became 60 days delinquent, c) Digitech could recover attorney's fees incurred in collecting unpaid balances, and d) both parties had to provide notice and an opportunity to cure prior to termination. Digitech completed the software installation on January 1, 2007. Trans-Care experienced substantial problems with the software and gave notice on March 1 that it invoking the 90-day guarantee. Digitech refused to honor the notice and eventually locked the system on April 3 for Trans-Care's payment delinquency. Digitech brought suit for breach of contract -- Trans-Care counterclaimed for fraud. Magistrate Judge Hussmann (S.D. Ind.) granted summary judgment to Digitech on the fraud claim and, at trial, found for Digitech also on its breach of contract claim. The court awarded damages based in part on its view that the contract had 33 months remaining. It also awarded Digitech its attorneys' fees for prosecuting the breach of contract case, but not for defending the counterclaim. Both sides appeal.

In their opinion, Judges Wood, Williams, and Tinder affirmed in part and vacated and remanded in part. The Court first affirmed the dismissal of Trans-Care's claim that Digitech committed fraud when it refused to honor the 90-day provision. The Court focused on the negotiation history. It pointed out that the provision existed in early draft proposals but dropped out during negotiations. The fact that it did not even appear in the final agreement was enough for the Court to conclude there was no fraud. The Court turned to Digitech's breach of contract claim. It concluded that Trans-Care breached the contract when it attempted to walk away from the deal without providing notice and an opportunity to cure. The Court rejected the notion that Trans-Care’s purchase order brought the guarantee back into the contract. The Court did part ways with the magistrate judge on damages, however. The magistrate judge calculated damages based on the remaining contractual term. But the Court noted that Digitech chose to terminate the contract on April 3. Since Trans-Care's licensing fee obligation did not begin until the 90-day period expired on March 31, Digitech is only entitled to licensing fees for the three days in April. With respect to attorneys' fees, the Court agreed that Digitech was not entitled to its fees for defending against the counterclaim since those fees were not incurred in connection with collecting an unpaid balance. Finally, the Court noted that the amount of fees awarded on the breach of contract claim should be reassessed in light of its significant reduction in damages.

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UNITED STATES OF AMERICA v. BUCHMAN (May 16, 2011)

Christopher Buchman borrowed money from the Department of Agriculture's Farm Service Agency. He secured the loans with mortgages on three pieces of property. When he defaulted, the United States filed suit to foreclose. His attempts to negotiate a resolution were unsuccessful and a default judgment was entered. A year later, the property was sold at public auction. Judge Griesbach (E.D. Wis.) confirmed the sale and entered a deficiency judgment against Buchman, rejecting his arguments that the sale price was inadequate and that he wanted an opportunity to redeem the property. Buchman appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Bauer, and District Judge Young affirmed. The Court first rejected the government's argument that the completed property transfer made the appeal moot. Although the Court did hold that it would not upset the completed sale, it noted that it could vacate the deficiency judgment or order the government to give up some of the proceeds of the sale. On the merits, the Court agreed with the district court that Buchman forfeited his claim that the court erred in not providing him an opportunity to redeem. He allowed a default judgment to be entered and, even then, waited more than a year to complain. With respect to the inadequate price argument, the Court applied the Wisconsin rule that a sale should be confirmed unless the price "shocks the conscience." Buchman’s only evidence was an appraisal. A competitive sale is better evidence of value than an appraisal. Also, Buchman never identified anyone who is or was willing to pay a higher price. The Court found no error in the sale confirmation.

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DENIL v. DEBOER, INC. (May 13, 2011)

Ronald DeBoer started a trucking business and managed it for 40 years. Then he decided to retire and sell the business. He entered into an arrangement with Peter Denil and Gerald Nardella, pursuant to which Denil and Nardella were to take over the business and prepare it for sale. DeBoer entered into employment agreements with Denil and Nardella, effective in October 2008. DeBoer had the right to fire either of them with or without cause, but had to pay a penalty if it was without cause. The parties also entered into a stock purchase agreement, pursuant to which Denil and Nardella agreed to purchase a certain amount of the company's stock. Their obligation to buy the stock was expressly conditioned on the execution of a buy-sell agreement, which the parties agreed to use their best efforts to conclude. Failure to conclude the stock purchase was defined in the employment agreement as "cause" for discharge. The parties were unable to conclude negotiations on the buy-sell agreement, Denil and Nardella never purchased the company stock, and DeBoer fired them. He treated it as a firing for cause on the ground that they failed to purchase the stock by the closing date set forth in the agreement. Denil and Nardella brought suit for reinstatement and damages. DeBoer brought a counterclaim for damages it incurred when it issued, and then reversed, a dividend in anticipation of the stock sale proceeds. Judge Crabb (W.D. Wis.) rejected all claims. Both sides appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans affirmed. The Court first addressed the best efforts clause. It rejected plaintiffs' argument that it amounted to an agreement to agree, which DeBoer violated. Wisconsin law does not honor such agreements. Since the contract did not define the term and neither party presented any evidence of intent, the Court treated it as a commitment to engage in good-faith bargaining -- and concluded that neither side violated it. Since the stock purchase agreement conditioned the obligation on the successful negotiation of the buy-sell agreement, the purchase obligation never arose. But the Court pointed out that the employment agreement did not contain the same condition-precedent language that the stock purchase agreement did. It simply stated that the failure to purchase the stock by the closing date was cause for termination. Denil and Nardella could have purchased the stock and kept their jobs (or at least avoided termination for cause) even though they were not obligated to do so under the stock purchase agreement. The Court also affirmed that the rejection of DeBoer's counterclaim. Denil and Nardella did nothing more than they were entitled to under their contracts. The fact that DeBoer incurred costs in issuing a dividend in anticipation of the stock purchase does not create any liability on their part.

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LEWIS v. CHICAGO (May 13, 2011)

In 1995, applicants for Chicago's Fire Department took a written examination. The City divided the applicants into three categories, based on their test scores. Applicants scoring 64 or less were rated not qualified. Applicants scoring 89 or more were rated highly qualified. The middle group was rated qualified but told in January of 1996 that they were not likely to be hired. The City hired applicants on 11 different occasions between May 1996 and November 2001. Each time, it chose at random from the well-qualified pool. An applicant in the qualified pool filed a charge of discrimination in March of 1997. The charge claimed that the 89 cut-off had a disparate impact on African-Americans. Several applicants later filed a class-action. Judge Gottschall (N.D. Ill.) concluded that the charge was timely, notwithstanding the fact that it was filed more than 300 days after qualified applicants were told that they were not likely to be hired. She also rejected the City's business necessity defense and awarded relief to the class. On appeal, the Seventh Circuit reversed, concluding that the charge was not timely. The Supreme Court reversed the Seventh Circuit, concluding that the 300-day clock starts anew in disparate impact litigation whenever the employer makes a hiring decision based on the challenged test. The Supreme Court's decision made the charge timely with respect to each hiring event except the first. The Supreme Court remanded for consideration of: a) whether the City preserved an argument that the charge was untimely with respect to the first hiring event, and b) whether the City preserved an argument that the plaintiffs failed to prove disparate impact arising from any particular use of the test.

In their opinion, Chief Judge Easterbrook and Judges Power and Posner affirmed the original district court opinion as modified to eliminate any relief based on the first hiring event. The Court first concluded that the City preserved both arguments identified by the Supreme Court. Since the City preserved its argument that the charge was untimely with respect to the first hiring event, and since the Supreme Court concluded that it was untimely, the Court reversed the District Court with respect to any relief arising from that event. Although the Court concluded that the City preserved its argument that the plaintiffs failed to prove any particular disparate impact, the Court rejected the argument on its merits. First, the City had conceded that the 89 cut-off had a disparate impact. Because each hiring event was a random selection from the well-qualified pool, each event resulted in the same disparate impact as the list as a whole. The Court rejected the City's argument that since it could treat the original creation of the pool as legal (because of the delayed charge), then each use of the pool was legal. In a disparate impact case, which does not require evidence of discriminatory intent during the charging period, the use of the test can be unlawful even if the original creation of the highly qualified pool was not.

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CARTER v. AMC (May 13, 2011)

Jackson Square Properties owns the Riverstone Apartments in Bolingbrook Illinois. AMC, LLC managed the building on its behalf. AMC brought suit in state court to evict tenant Geaneice Carter. Although AMC prevailed at the trial court level, the appellate court reversed on the ground that AMC failed to give proper notice. One judge on the panel also concluded that AMC violated the Fair Debt Collection Practices Act. Carter brought suit in federal court seeking damages for AMC's violation of the Act. Judge Gettleman (N.D. Ill.) dismissed the complaint on the ground that AMC was not a "debt collector" under the Act because it collected money owed to itself. Carter appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes affirmed. The Court rejected Carter's position that AMC's violation of the Act was established in state court. Not only is the opinion of one judge on a three-judge panel not enough to resolve an issue, but even the one judge who expressed an opinion acknowledged that the resolution of that issue was not necessary for the court's decision. Collateral estoppel applies only when an issue is necessarily decided. The Court then pointed out an incorrect factual assumption made by both the state court and the district court. Both assumed that AMC was the lessor. In fact, it is clear that Jackson Square Properties is the lessor and AMC is its agent. AMC can therefore not escape liability under the Act as the lessor. But AMC can also escape liability if it is attempting to collect a debt it "obtained" from another and the debt was not in default when AMC obtained it. The Court noted that several courts of appeals have concluded that a mortgage loan servicer "obtains" the bank's debt. Although no court of appeals has considered the lessor situation, many district courts have and have concluded that a lease servicer "obtains" the debt when the lease is signed. The FTC staff has also concluded, albeit not in a regulation or advisory opinion, that a lease servicer "obtains" the debt when it becomes the agent. The agent is not a debt collector under the Act unless the rent was in arrears at that time. The Court therefore concluded that AMC obtained the debt when it acquired the authority to collect the rent. Since Carter was not in arrears at that time, AMC is not a debt collector under the Act.

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