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

G.G. v. GRINDLE (November 23, 2011)

Nine female South Berwyn School District 100 students brought suit against their school principal, Karen Grindle, for failing to prevent the students' sexual abuse by their band teacher. Details of the abuse were presented at trial. Each student's story was different. One student, G.G., testified about two incidents of sexual contact when she was 10 years old. One involved the touching of her breast, the other the touching of her thigh. Other students testified of more prolonged and egregious conduct. G.G.'s counselor testified that the experience was very traumatic, that G.G. was diagnosed with post-dramatic stress disorder as a result of the abuse, and that the events caused severe emotional damage. A jury found in plaintiffs' favor and awarded compensatory damages ranging from $100,000-$750,000 per plaintiff. They awarded G.G. $250,000. The jury also awarded a collective $100,000 in punitive damages. After the jury award, all plaintiffs except G.G. settled. Grindle filed a motion for remittitur, arguing that the evidence did not support the verdict. She also asked that the punitive damages be stricken. Judge Hibbler (N.D. Ill.) denied the motion. Grindle appeals.

In their opinion, Seventh Circuit Judges Flaum, Kanne, and Wood affirmed. The Court first addressed the compensatory damage award. The Court applied a three-part test -- whether the verdict is monstrously excessive, whether there is a rational connection between the evidence and the verdict, and whether the amount of the verdict is comparable to other cases. Since neither party submitted circuit cases for comparison and since the monstrously excessive prong of the test is more properly considered within the rational connection prong, the Court focused on that prong. It rejected Grindle's contention that the two "innocuous" events testified to by G.G. did not support the verdict. First, it is not the number or nature of the events but, rather, the impact on the plaintiff that should be considered. G.G. was the youngest victim and suffered severe emotional harm. Second, the fact that the jury distinguished between each of the students and awarded damages amounts along a fairly large spectrum demonstrates their careful consideration of the individual evidence. Third, the Court rejected Grindle's contention that other factors (her drug use, sexual experimentation, attempted suicide) led to G.G.'s troubles. The Court noted the substantial evidence tying G.G.'s troubles back to the abuse. Finally, the Court did note that the damage award was at the lower end of the spectrum for the nine students. The verdict was reasonable in light of the evidence. The Court next considered the punitive damage award and whether it was excessive. It rejected Grindle's argument that the award was excessive because she was not directly involved in the abuse and jury must have been focusing on the abuse. There is evidence in the record that she knew or should have known of the abuse and did nothing. That is enough for a punitive damages award.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

E360 INSIGHT, INC. v. THE SPAMHAUS PROJECT (September 2, 2011)

The Spamhaus Project is a U.K. company that wants to rid the world of unwanted e-mail. To further this end, it provides lists of spam distributors to Internet service providers. The Internet service providers can, in turn, prevent spam from reaching its addressees. After the Project added Illinois company e360 to its list, however, it got sued. E360 brought suit in state court for tortious interference with contract, tortious interference with prospective economic advantage, and defamation. Although the Project removed the case and initially participated in the litigation, it later informed the district court that it would no longer defend the case. The district court entered a default judgment and awarded over $11 million in damages, based on the affidavit of e360's operator David Linhardt. The Project changed its mind and moved to set aside the judgment under Rule 60(b)(4). The district court denied the motion and the Seventh Circuit affirmed. But the appellate court also vacated the damages award, concluding that the Linhardt affidavit was an insufficient basis on which to calculate damages. On remand, Judge Kocoras (N.D. Ill.) awarded $27,000 on the tortious interference with contract claim and one dollar nominal damages on each of the other two claims. The Project appeals -- e360 cross-appeals.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Hamilton vacated and remanded with instructions. Before addressing the merits, the court resolved some evidentiary and sanctions issues. It: a) affirmed the district court's sanctions for e360’s gross discovery abuses, b) affirmed the district court's denial of e360's motion to compel discovery that the Court found irrelevant or, at least, the absence of which created no prejudice, c) affirmed the district court's striking of e360's damages spreadsheet that was submitted well after the discovery cutoff, and d) affirmed the district court's exclusion of most of e360's primary damages witness on lack of credibility grounds. The Court turned to the principal issue on appeal -- the amount of damages. Since it had affirmed the district court's exclusion of much of e360’s evidence, the Court affirmed the two nominal damage awards. The $27,000 tortious interference with contract damages award rested on evidence that e360 lost three customers that accounted for $27,000 a month in revenue. The district court concluded that the company would have continued to do business with these three customers for one month in the absence of the Project's conduct. But the Court noted that gross revenue is not a proper measure of damages. Since there was no evidence in the record regarding what portion of that revenue was actually profit, the Court reduced the award on that count to nominal damages of one dollar as well. The Court remanded with instructions to enter judgment for three dollars.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

DURAN v. TOWN OF CICERO (August 9, 2011)

Alejandro and Maria Duran threw a party at their Cicero, Illinois home to celebrate their daughter’s baptism. Close to 100 people attended. The Cicero police received two telephone complaints from neighbors. Shortly after the Cicero police responded to the second complaint, the party guests and the police exchanged heated words. Once the police actually entered the property, ostensibly to make an arrest, the verbal melee became a physical one. Seventy-eight guests claim they were physically injured and several police officers required medical treatment. The police made seven arrests but there were no convictions. The 78 injured guests brought suit against 17 police officers and the Town of Cicero pursuant to § 1983 and Illinois law. They also asserted a spoliation of evidence claim based on the police's confiscation of two video cameras, one that was returned but that did not contain any footage of the physical confrontation and one that was not returned that did contain footage of the confrontation. Before trial, Cicero stipulated to his liability under § 1983 and to its vicarious liability on the state law claims. The jury returned verdicts in favor of 23 plaintiffs, on which the court entered judgment. The court then tried to spoliation case. It excluded from that case the issue of the returned video camera, rejecting plaintiffs' theory that preventing the creation of evidence amounts to spoliation. Cicero filed a Rule 59 motion to amend the judgments pursuant because they appeared to list separate awards against both the individual defendants and Cicero for the same injuries. Judge Grady (N.D. Ill.) denied the motion. Cicero appeals the denial of the Rule 59 motion. The plaintiffs cross-appeal.

In their opinion, Seventh Circuit Judges Ripple, Manion, and Sykes vacated and remanded in part and affirmed in part. The Court first addressed Cicero's appeal. It noted the fundamental principle that a plaintiff is only entitled to one recovery for his injuries. Here, Cicero had stipulated to its liability and that issue should not have been submitted to the jury. It was -- and they were obviously confused. In addition, instructions and special verdict forms asked damages to be assessed by defendant or by claim and not for a particular injury to a particular plaintiff. A Rule 59(e) motion is a proper way to correct a manifest error of law such as this. The Court concluded that it was reasonably clear what the jury was trying to do and remanded for an amended judgment to eliminate any possibility of double recovery. The plaintiffs raise three issues on appeal: the exclusion of the videotape, the exclusion of misconduct complaints against one defendant, and the exclusion of a civil rights conviction against another defendant. First, the Court agreed with the district court that the evidence regarding the returned video camera was properly excluded. Spoliation occurs only when one fails to preserve existing evidence. Here, plaintiffs argue that the videographer would have continued recording the physical melee, creating valuable evidence for trial. That does not amount to actionable spoliation in Illinois. Second, the Court concluded that the district court did not abuse its discretion in excluding four misconduct complaints accusing one of the defendants of verbally abusing minorities. The Court noted the substantial leeway a district court has in ruling on an issue like this that requires a balancing of the evidence’s probative value with its prejudicial effect. Third, the plaintiffs sought to introduce a criminal conviction on a civil rights charge against another officer. They argued admissibility under either Rule 609(a)(1) or 609(a)(2). The Court concluded that plaintiffs forfeited their (a)(1) argument because they did not renew it at trial after the court's conditional pretrial ruling excluding it. With respect to (a)(2), the Court concluded that, although there was some evidence of an attempted cover-up, the crime with which the officer was charged and convicted did not involve dishonesty.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

DYNEGY MARKETING AND TRADE v. MULTIUT CORP. (August 4, 2011)

For years, Multuit purchased natural gas wholesale from Dynegy Marketing and Trade. Nachshon Draiman personally guaranteed Multuit's obligation. In 1997, Dynegy expressed interest in acquiring Multuit. Under a confidentiality agreement, it conducted its due diligence. Dynegy ultimately chose not to acquire Multuit but instead entered into a joint venture with one of Multuit's competitors. The relationship soured but Multuit continued to purchase from Dynegy. Multuit was unable to pay its current invoices, however and owed Dynegy in excess of $1.5 million by the end of 2000. On several occasions, Multuit attempted to reach agreement on a long-term price guarantee with Dynegy unsuccessfully. Dynegy ultimately stopped providing gas to Multuit in December 2002 and filed suit. Multuit responded with a host of counterclaims. Shortly after the complaint was filed, the FERC issued a report in which it identified efforts to manipulate price indices in the Western United States energy markets. Dynegy was implicated but the report was limited to the Western United States. In discovery, Multuit attempted to obtain information from Dynegy regarding its price index reporting and calculation. The magistrate judge did not allow it. Dynegy moved for summary judgment on some of its claims and all of Multuit's counterclaims. In response, Multuit submitted an excerpt from the FERC report and a lengthy declaration containing, for the first time, its damage estimates. Judge Nordberg (N.D. Ill.) excluded the declaration and granted Dynegy's motion. After denying Multuit's motion for reconsideration, the court entered judgment pursuant to Rule 54(b). The Seventh Circuit remanded for a prejudgment interest calculation. On remand, Multuit again moved for reconsideration and supplemented the record with additional affidavits. The court denied the motion and entered judgment for Dynegy. Multuit appeals.

In their opinion, Seventh Circuit Judges Kanne and Tinder and District Judge Herndon affirmed. Multuit was chastised by the panel for its "kitchen sink" approach (it presented nine issues) on appeal. The Court considered and rejected each: a) the district court did not err in excluding the declaration when it was the first time Multuit disclosed its damages theory, b) Dynegy's vague statements about "best price" did not amount to an enforceable oral contract, c) there can be no enforceable long-term price agreement when the record presents no evidence of either the price term or duration, d) Dynegy's mistake in failing to invoice Multuit for interest for a period of time did not amount to an implied agreement to forego interest, e) Dynegy offered sufficient proof of its own damages by presenting an expert who testified regarding the invoices and interest calculations, f) the record does not support a conclusion that any alleged price manipulation in the Western United States affected Dynegy's price and therefore its damages, g) Multuit cannot recover on its breach of contract counterclaim when it presented no evidence of damages, h) Multuit cannot recover on its Robinson-Patman Act counterclaim when it presented no evidence of damages, and i) Multuit waived its challenge to the denial of the motion for reconsideration by not addressing the grounds upon which the district court denied it.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MORISCH v. UNITED STATES OF AMERICA (July 29, 2011)

Gerald Morisch visited the emergency room at the VA Medical Center in Marion, Illinois, complaining of jaw and neck pain. He was referred to a dentist. A few days later, he had an appointment with his primary care physician at the Medical Center. He was referred to an ENT specialist. The specialist noticed a small mass of his neck. She performed a biopsy and ordered a CT scan. The radiologist that perform a CT scan recommended an ultrasound follow-up -- but no one told Morisch. About a month later, Morisch suffered a stroke. He brought a medical malpractice claim against the United States under the Federal Tort Claims Act. Morisch and his wife both testified that she called the St. Louis VA Hospital, where Morisch had the CT scan, on two occasions and reported stroke symptoms. Judge Murphy (S.D. Ill.) entered judgment in the government's favor after a four-day bench trial, concluding that he failed to establish a violation of the standard of care or any proximately caused injury. Morisch appeals.

In their opinion, Seventh Circuit Judges Williams and Tinder and District Judge Gottschall dismissed. The Court first noted that the transcript of the government expert’s testimony from the four-day trial is the only part of the trial record included in the appellate record. The Court concluded that it could not sufficiently review the record. Morisch thus forfeited his appeal. Notwithstanding that conclusion, the Court went on to conclude that the district court did not err in its finding. In order to prevail on his tort claim, Morisch had to establish the proper standard of care, a failure to comply with that standard, and a proximately caused injury. Proximate cause requires expert testimony. Here, the expert testimony was that, without the evidence of the phone call, the doctors had no reason to follow-up with Morisch after his examination. The district court did not err in concluding that the telephone call testimony should be disregarded. It was unsupported by phone records and inconsistent with other testimony and logic. Morisch’s stroke was therefore not the foreseeable result of any conduct on the part of the VA Hospital. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

FRIZZELL v. SZABO (July 27, 2011)

Thomas Frizzell was on his way to work one November afternoon in Springfield, Illinois when Sangamon County Sheriff’s Deputy Carl Szabo noticed (he asserts) that Frizzell was not wearing a seatbelt. Szabo followed Frizzell for several minutes, until Frizzell arrived in the parking lot of his place of employment. Their accounts of what happened next differ substantially. Deputy Szabo testified that Frizzell ignored his instructions to return to his car, ran toward the door of the building, and attempted to enter the building. Frizzell asserts that he was in a hurry because he was late for work, that he did not originally realize that Szabo was talking to him, and that he wanted to clock in before talking so as not to be late. In any event, Szabo used his taser on Frizzell. When Frizzell continued to ignore orders to stay down, Szabo tased him several more times. Finally, Szabo used pepper spray and physically subdued Frizzell. Frizzell lost his job and claims that he felt weak and tired for several weeks following the incident. He did not, however, seek medical treatment. Frizzell brought suit against Szabo pursuant to §§ 1983 and 1988 for excessive force and false arrest. Szabo brought a counterclaim for battery, seeking $75,000. After trial, Judge Scott (C.D. Ill.) refused to give a nominal damages instruction. She changed her mind and gave such an instruction, however, after the jury sent back a note asking if they had to award damages if they found in plaintiff's favor. The jury found against Frizzell on the false arrest claim, found against Szabo on the counterclaim, and found in Frizzell's favor on the excessive force claim but awarded nominal damages. Chief Judge McCuskey (C.D. Ill.) denied a motion to alter the award and also denied attorney's fees. Frizzell appeals.

In their opinion, Seventh Circuit Judges Kanne and Evans and District Judge Clevert affirmed. The Court noted that a nominal damages instruction can be appropriate where: a) an officer uses both justifiable and excessive force but any injury relates to the justifiable force, b) where a jury might conclude that the evidence of injury is not credible, or c) where the degree of the injury itself does not support greater damages. The Court found two of those situations in this case. First, the jury could have concluded that the use of the taser was justifiable but the pepper spray afterwards was not -- but that Frizzell's injuries related only to the use of the taser. Second, Frizzell produced very little evidence of injury related to the pepper spray. The district court did not err in giving the instruction or in denying the motion to alter the judgment. The Court turned to the motion for attorney's fees. On that issue, the district court properly considered the difference between the amount plaintiffs sought and the actual award, the significance of the legal issue at stake, and the litigation's public purpose. The Court agreed that those factors weighed against any award of fees. First, although Frizzell never requested a specific award at trial, he did refer to Szabo's $75,000 counterclaim request as a starting point. The difference between $1.00 and anything near $75,000 is significant. Second, Szabo did not prevail on his false arrest claim and prevailed without measurable damages on his excessive force claim. He cannot claim that he prevailed on any significant legal issue. Finally, there was no public purpose served by the litigation. It was simply a private injury.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PEABODY v. DAVIS (April 12, 2011)

Jonathan Peabody joined the Rock Island Corporation, a closely held operation, in 1998. He first invested in the company’s pension plan in 1999 when he rolled over a $167,000 IRA into the Plan. Almost all of the rolled over funds were used to purchase Rock Island stock. There was no market for, and therefore no easy way to value, the stock. The Plan's trustee issued valuation statements periodically. At different times between 2000 and 2004, it was assigned values of $757, $500, $625 and $550 per share. Peabody left Rock Island in 2004. At the time he had 835 Rock Island shares. Peabody and Rock Island entered into a loan agreement pursuant to which Rock Island agreed to purchase the stock and to pay $350 per share in one year. However, when the loan became due, Rock Island was unable to pay. It went out of business in 2005. Peabody brought suit against the company, the Plan trustees, and two insurance companies that had issued policies protecting Rock Island against employee dishonesty. Judge Coar (N.D. Ill.) held a bench trial and ruled that: a) Peabody had waived any fiduciary duty claim with respect to the initial rollover or the defendants' failure to diversify his account, b) the Plan and the trustee's violated their fiduciary duties by maintaining the Rock Island investment and by failing to distribute the benefit, c) one trustee breached his fiduciary duty by offering the loan, d) ERISA prohibited the loan transaction, e) Rock Island itself was not liable, and f) Peabody did not have standing to assert a claim against the insurance company defendants. The court awarded damages based on a $500 per-share valuation in reliance on the fact that the Plan purchased shares for Peabody's account at that price in 2001. Peabody and the defendants appealed.

In their opinion, Judges Cudahy, Flaum, and Kanne affirmed in part and reversed and remanded in part. The Court first noted it was dealing with three separate claims: a) a § 502(a)(2) claim against the fiduciaries on behalf of the Plan, b) a § 502(a)(1)(b) claim for benefits, and c) a § 502(a)(3) equitable claim against the insurance companies. The Court first concluded that the trustees breached their fiduciary duties under § 502(a)(2). A new SEC rule had substantial negative implications for the company's profit margins and its stock steeply declined over a five-year period. The trustee's knew of the changed rule, knew it was prominent, and knew of its significant impact on Rock Island’s business model. The company did not require employees to invest in Rock Island stock. In fact, Peabody apparently had a greater percentage of company stock than any other employee. A prudent investor would have divested earlier. The Court also concluded that Peabody's initial consent to the stock purchase did not affect the trustee's continuing fiduciary duty over the course of the investment. The Court rejected Peabody's alternative theory of liability arising from the loan for stock transfer. Although the Court agreed that the transaction violated ERISA, it concluded that Peabody suffered no damages from the transaction. As the Court pointed out, it was simply the trade "of worthless stock for a worthless loan." The district court erred, however, in computing damages when it applied the $500 per-share figure to all of the stock. The Court remanded for a damages recalculation, advising the district court to start with Peabody's original investment , consider using average values over the length of the investment, and assume that 25% to 33% of the stock could have been left in the account without violating a duty of prudence. The Court also affirmed the district court's rejection of Peabody's § 502(a)(1)(B) benefits claim on the grounds that it would result in no additional relief. Finally, the Court agreed with the district court’s rejection of the § 502(a)(3) claim against the insurance companies. That section allows for "other appropriate equitable relief." The Supreme Court has limited the section to "typical" equitable relief. Peabody's request for money damages from the insurance policies is not typical equitable relief.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MARCUS & MILLICHAP INVESTMENT SERVICES OF CHICAGO v. SEKULOVSKI (March 23, 2011)

Marcus & Millichap Real Estate Investment Services (M&M) is a national commercial real estate brokerage firm with subsidiaries operating in several states. The subsidiaries operate independently, as distinct entities, and enter into their own contracts with their salespersons as independent contractors. The subsidiaries are required to incorporate M&M's independent contractor policies into these agreements. Tony Sekulovski worked as a salesperson with M&M’s Ohio subsidiary from 1999 until 2005, when he moved to Chicago and began working with the company's Illinois subsidiary. Contrary to the policy, Sekulovski never entered into a written independent contractor agreement. Salespeople were not paid a salary but were compensated with commissions. Generally, a salesperson and the subsidiary divide project commissions evenly. A salesperson can enjoy up to a 70/30 split, however, as he reaches certain annual sales thresholds. In addition, if more than one salesperson is involved in a deal, they split the salesperson's side of the commission based on an allocation reflecting the contribution each made to the deal. In 2006, Sekulovski and another agent, Mark Luttner, collaborated on many deals. Throughout most of the year, they shared the salespersons' commission equally. Once Sekulovski reached his commissions target, however, they began submitting allocations that attributed a much higher portion of the commission to Sekulovski. M&M claims that he did so in order to increase the salespersons' share of the total commission and that he kicked back an appropriate allocation to Luttner. Smith left M&M Chicago in June 2007. Before he did so, he directed two commissions be paid to him rather than the company. He also later retained commissions for deals that began while he was in Chicago but did not close until later. The company sued Sekulovski for breach of contract, unjust enrichment, conversion, fraud, and tortious interference. Sekulovski counterclaimed for breach of contract, unjust enrichment, unlawful withholding of wages, and tortious interference. At trial, Luttner testified that he and Sekulovski artificially inflated Sekulovski’s allocation in order to maximize the salespersons' commissions. Judge Leinenweber (N.D. Ill.) granted judgment as a matter of law to M&M on Sekulovski’s statutory wage claim and a jury found for M&M and against Sekulovski on all other claims. Sekulovski appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Kanne affirmed. As a preliminary matter, the Court concluded that the parties had an implied contract and that the terms of M&M’s independent contractor policy governed. The Court then addressed Sekulovski’s arguments on appeal, which it placed in four categories: evidentiary rulings, jury instructions, the Illinois Wage Payment and Collections Act, and post-trial motions. The evidentiary objections went principally to the district court's limitation on Sekulovski’s ability to cross-examine Luttner on bias. Although the Court conceded that witness bias is generally admissible for impeachment purposes, it concluded that the district court did not abuse its discretion. The district court found some of it to be of little value, some that would cause confusion, and some that was inadmissible hearsay. The Court added that the jury heard plenty of evidence of Luttner's hostility toward Sekulovski. The only jury instruction objection that Sekulovski preserved was his argument that M&M’s damages should have been calculated based on its loss rather than Sekulovski’s overpayments, arguing that part of the overpayments would have rightfully gone to Luttner. The Court concluded that the appropriate measure of damages was the amount of commissions that Sekulovski received that he would not otherwise have received but for his fraud. With respect to the Wage Payment Act, the Court questioned the district court's finding of fact that Sekulovski was an independent contractor rather than an employee. Notwithstanding its lack of confidence in the district court's rationale, the Court affirmed the dismissal on the basis of the jury's finding that Sekulovski was not due the commissions he claimed were due him under the Act. Finally, the Court found that the district court did not abuse its discretion in denying Sekulovski's post trial motions.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CATALAN v. GMAC MORTGAGE CORP. (January 10, 2011)

Saul Catalan and Mia Morris bought a home in Matteson, Illinois in mid-2003. RBC Mortgage Company financed the purchase. Their first payment of $1,598 was due on August 1. Unfortunately, RBC's system showed a payment due on July 1, thus triggering an almost 2 year nightmare. By the time they made their first on-time payment, the RBC system consider them late. By the time they made their second on-time payment, RBC consider them in default and increased their monthly payment amount. Within months, RBC was returning their monthly checks uncashed. RBC filed for foreclosure in February of 2004 but transferred the mortgage toGMAC Mortgage in September. But nobody told the plaintiffs -- so they sent their September payment to RBC. In September, GMAC sent the plaintiffs an inaccurate account statement that showed them behind almost $8,000. GMAC also demanded proof of insurance coverage and then returned the September check (which it had received from RBC). The plaintiffs wrote a letter in October to the Department of Housing and Urban Development detailing the problems with RBC and GMAC and asking several questions about the servicing of their account. HUD sent the letter on to GMAC. Plaintiffs also wrote to GMAC directly on October 7 and October 15. Those letters sought information about the transfer of the loan and other information about the account. GMAC responded to the October 7 letter with information about the account. Then GMAC sent a letter telling them they were in default to the tune of almost $10,000. GMAC also responded to the letter it received from HUD. In November, the plaintiff sent over $11,000 to GMAC. They described the problems they had with RBC's servicing of the loan. They also made some demands regarding GMAC's future handling of their account. GMAC began foreclosure proceedings in November and began notifying the credit bureaus of the delinquency. Plaintiffs wrote several times in December, demanding that GMAC credit their $11,000 payment to the account. Instead of crediting the account, GMAC returned the check. In December, GMAC dismissed the foreclosure proceedings, returned the plaintiffs' December payment, and advised the plaintiffs that they were preparing for new foreclosure proceedings. Finally, in January of 2005, with HUD's help, the plaintiffs sent a check for almost $16,000 and GMAC brought their account current and stopped reporting it as delinquent. The plaintiff brought suit under the Real Estate Settlement Procedures Act (RESPA). They also brought state law claims for negligence and breach of contract. Judge Lindberg (N.D. Ill.) granted summary judgment to defendants. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook, Circuit Judge Hamilton, and District Judge Springmann affirmed in part and reversed in part. RESPA is a consumer protection statute dealing with the servicing of real estate loans, among other things. It requires lenders to notify borrowers when a loan is transferred and to respond promptly to written requests for information. It does include a "safe harbor" for a lender that discovers an error and, within 60 days and before suit is filed or a written notice from the borrower is received, it corrects the error and notifies the borrower. The Court first considered the safe harbor provision since the district court relied on it to find for the defendants. The Court disagreed with the district court. The safe harbor provision clearly requires notification to the borrower of the error. The record shows no such notice and GMAC does not even contend that one exists. Without the safe harbor, the Court proceeded to consider whether GMAC violated RESPA's requirement that they respond to requests for information. That requirement is only triggered by a "qualified written request," which is defined as written correspondence that either requests information or states a belief that an account is in error. The plaintiffs identified five letters that they claim met this test. The Court first rejected the GMAC's argument that the letters did not qualify because they did not contain sufficient reasons for plaintiffs belief that the account was an error. Then the Court addressed each of the five letters in turn. First, it found the October 6 letter to HUD to be a "qualified written request." It contained much detail and it requested specific information. The fact that it was not sent directly to GMAC does not change the result. The statute allows for a request to come from an agent of the borrower. Next, the Court concluded that three letters were not "qualified written request." Letters that simply enclosed payments, stated expectations, or requested processing of a check -- but did not request information or state a belief that the account was in error – did not trigger the response requirement. Finally, the Court found the December 17 letter, which disputed GMAC's attempt to collect and which requested specific information, was a "qualified written request." The Court remanded to the district court to consider whether GMAC satisfied its RESPA obligations with respect to the two letters that triggered a duty. The Court also instructed the district court to consider, on remand, the claims that GMAC violated RESPA by failing to notify the plaintiffs of the loan transfer. The Court also reversed and remanded with respect to the breach of contract claim. That claim is that GMAC breached the agreement when they refused to accept the September and November payments. The district court held that plaintiffs' intentional nonpayment in October was a breach. The Court identified several issues of material fact that precluded summary judgment. For example, was GMAC's delay in applying the payments reasonable or unreasonable and was plaintiffs' failure to pay justified by the earlier conduct of RBC and GMAC. The Court affirmed the dismissal of the negligence claim. The Illinois economic loss doctrine precludes tort recovery for economic losses caused by a breach of contract. Finally, the Court rejected the GMAC argument that summary judgment was appropriate even on the RESPA and breach of contract claims because the plaintiffs lacked evidence of damages. The Court agreed that actual damages are essential for both the RESPA and breach of contract claim. Taking the evidence in the light most favorable to the plaintiffs, the Court found sufficient disputed issues of fact with respect to damages arising out of the credit application denials and the plaintiffs' emotional distress to preclude summary judgment.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

COGSWELL v. CITIFINANCIAL MORTGAGE CO. (October 5, 2010)

In January 2001, the Patrick Group (PG) purchased a mortgage (and the underlying note) from CitiFinancial Mortgage Co. However, CitiFinancial could not locate the original note or mortgage. It gave PG a copy of the mortgage but could not locate even a copy of the note. PG ran into complications when it substituted for CitiFinancial in the pending foreclosure proceeding. A title search disclosed a gap in the recorded ownership of the mortgage. Because PG could not produce even a copy of the note, the court directed a verdict against PG. The appellate court affirmed. PG then brought suit for breach of contract against CitiFinancial. Judge Norgle (N.D. Ill.) granted summary judgment to CitiFinancial, concluding that the agreement did not require transfer of the note and that, even if it did, CitiFinancial’s failure to transfer was not the cause of PG's damages. PG appeals.

In their opinion, Judges Flaum, Ripple, and Sykes reversed and remanded. The Court first addressed whether the contract required the physical transfer of the note. The Court took issue with the district court's treatment of this as a question of law, as if it were a question regarding the existence of a contract. Here, there is no doubt that a contract exists. The only question concerns its terms -- and that is a question of fact. Relying on PG's offer letter, the contract itself, and an uncontested affidavit, the Court concluded that the contract was ambiguous. Although the district court's reading of the contract was plausible, it is not the only reasonable reading. The district court improperly resolved this factual dispute on summary judgment. It must go to a trier of fact. The Court turned to causation. Again, the Court disagreed with the district court and its holding that the failure to transfer was not the cause of damages because PG could have enforced its rights on alternative paths. The Court stated that Illinois applies a special rule to breach of contract cases when the alleged harm is a result of an adverse judicial outcome. In those cases, causation is a question of law and depends on an analysis of what a reasonable court would have done had the defendant not breached the contract. Here, the Court concluded that a reasonable Illinois court would have allowed PG to proceed with the foreclosure if it had a copy of the note. Thus, CitiFinancial's breach caused PG's damages. The Court also rejected CitiFinancial’s alternative paths argument, although it first re-categorized the arguments as "failed to mitigate," rather than failed to prove causation. It held that, under Illinois foreclosure law, a reasonable court would have ruled against PG on both the lost-note affidavit and the personal judgment theories.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

WICKENS v. SHELL OIL CO. (August 31, 2010)

Daniel and Pamela Wickens owned a small parcel of land in central Indiana that had previously been the site of a Shell gasoline station. During preparations for the sale of the parcel, they discovered that the soils were contaminated. Their attorney, Mark Shere, began negotiations with Shell -- under the Indiana Underground Storage Tank Act (the “Act”), a person who takes steps to remedy soil contamination caused by an underground storage tank may be reimbursed by the owner and may recover his attorneys' fees if he brings a successful suit. When a neighbor's property (also the site of a former gasoline station -- but not owned by Shell) was also found to be contaminated, the parties fought over the source and responsibility for the contamination. The Wickenses brought suit in early 2005. The district court denied Shell's summary judgment motion, concluding that it probably bore full responsibility for the contamination. Although the Wickenses continued to control the investigation and rack up remediation costs and attorneys' fees, the parties could not seem to reach a settlement. The court adopted a three month freeze on the parties' liability for each other's fees and costs in early 2007 in an attempt to foster a resolution. She also instructed the parties to select and retain an independent consultant to investigate the properties. Notwithstanding the court's order, the parties continued to incur substantial fees and costs during and after the freeze. The parties finally reached an agreement -- Shell purchased the property, made a payment for property damages, and agreed that the Wickenses were entitled to their costs and fees. They left the calculation up to the court. Judge Barker (S.D. Ind.) awarded all of the Wickenses' costs and fees up to the point of her freeze order, after which she disallowed all costs (with the exception of some corrective action costs pursuant to a state work plan) and fees. On post-judgment motions, the court a) deducted the amount of fees billed as attorney services by Shere’s wife, a non-attorney, and b) admonished Shere for concealing the fact that his fees were largely paid by an insurance company throughout the litigation but granted Shell no relief. Shell appeals. Shere (after being allowed to appear as a real party in interest) cross-appeals.

In their opinion, Circuit Judges Bauer and Wood and District Judge Kennelly affirmed in part and reversed and remanded in part. The only issues on appeal relates to the award of expert costs and attorneys' fees. The Court first concluded that the lower court correctly applied a statutory purpose test for calculating a fee award under the Act. Second, the Court ruled that the lower court did not abuse its discretion in concluding that the statutory purpose was satisfied as of January 2007. The Court rejected Shell's suggestions that an earlier date was appropriate and the Wickenses's suggestions that a later date was required. Next, the Court upheld (with a small clerical error reversed and remanded) the deduction for fees incurred by Shere’s wife. There was nothing wrong with the her time entries. They could have been billed as non-attorney time -- but were improperly billed as attorney time. Finally, the Court concluded that the district court did not clearly err in its award of expert costs after January 2007. On Shere’s cross-appeal, the Court a) found no abuse of discretion in denying prejudgment interest, b) concluded that Shell suffered no prejudice from Shere’s insurance concealment and found no error in the court's denial of relief, and c) refused to consider Shere’s complaint that the district court was unduly critical of his litigation conduct.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MARION COUNTY CORONER'S OFFICE v. EEOC (July 27, 2010)

Kenneth Ackles, an African-American male, was elected Marion County, Indiana coroner in November 2004. Two deputy coroners -- white male John Linehan and African-American female Alfarena Ballew -- sought the position of chief deputy coroner. The chief deputy coroner is responsible for the day-to-day management of the office. Ackles chose Linehan because he was currently serving in that position on an interim basis. Very early on, Ackles made it clear to Linehan that he wanted to increase the number of African-American employees (particularly deputies) in the office. The relationship between Ackles and Linehan did not go well: Ackles complained that Linehan received a salary increase without his knowledge, Ackles and Linehan disagreed over disciplining Ballew, Ackles instructed Linehan not to report Ballew's tardiness, Ackles told Linehan not to file a police report concerning a missing $3000, and Ackles instructed Linehan not to discipline the janitor who allegedly took the $3000. Finally Linehan filed a hostile work environment complaint with the human resources department. On that very day (November 14), Ackles told Linehan that he was going to make a change in the chief deputy position but that Linehan was to continue performing his duties. Some of those duties were later reassigned but Linehan continued to receive the same salary. A few weeks later (December 2), Linehan received a letter terminating his employment. Although the letter provided no reason for the termination of employment, Ackles testified later that he had "lost confidence and trust" in Linehan. Ackles named Ballew the new permanent chief deputy coroner. Shortly thereafter, Ackles and Ballew canceled an outsourcing contract for autopsies and hired directly several of the company's employees. They hired only African-Americans -- none of the white employees were offered positions. Linehan filed an EEO charge against the coroner's office. He alleged race, sex, and age discrimination as well as retaliation for protected activity. His charge was processed administratively at the EEOC pursuant to the Government Employee Rights Act (GERA). The ALJ found that Ackle's testimony was incredible (among other things), that his reason for terminating Linehan's employment was pretextual, and that Linehan was demoted and fired on account of his race and in retaliation for his complaint. The ALJ awarded front and back pay, attorney's fees, and compensatory damages in the amount of $200,000. The EEOC affirmed. The Coroner's Office petitions for review.

In their opinion, Judges Manion, Evans, and Sykes granted in part, denied in part, vacated in part, and reversed and remanded. The Court noted, under GERA, that it should uphold the decision of the EEOC if it is supported by substantial evidence. Here, the heart of the case is the pretext analysis. Although the Court admitted that this analysis looks only to whether the employer’s explanation was "honestly believed," it nevertheless found a wealth of evidence that the "lost confidence and trust" rationale was pretextual. It cited the testimony concerning the discipline of Ballew, the janitor theft, and Linehan’s raise in support of its conclusion. Next, it considered the issue of the EEOC’s jurisdiction. GERA applies only to policymaking employees chosen by an elected official. The coroner’s office argued that Linehan was not a policymaking employee when he was fired because of the November 14 demotion. The Court rejected the argument. Linehan was certainly stripped of some duties before he was fired but he was never formally demoted, he continued to receive his salary, and the December 2 letter advised that he was being terminated from the position of “Chief Deputy Coroner.” Finally, the Court addressed the $200,000 award of compensatory damages. The Court concluded that the award bore no rational relation to the very scant evidence of Linehan’s suffering and was excessive compared to similar cases. It offered a remittitur of $20,000 or a new hearing on damages.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PICKETT v. SHERIDAN HEALTH CARE CENTER (June 25, 2010)

Danielle Pickett was employed as a housekeeper at the Sheridan Health Care Center in Zion, Illinois. In 2005 and 2006, she was the victim of several incidences of inappropriate remarks and touching by nursing home residents. Although the Center responded to her complaints, the promised response never quite succeeded. In a June 2006 meeting with several Center staff members, the Center agreed to reassign Pickett from cleaning residents' rooms, although, according to Pickett, the Center's VP of Operations suggested that Pickett invited the inappropriate conduct. The next morning, Pickett had a very emotional conversation with the Center's Administrator. According to Pickett, the Administrator said some things that indicated that her job may be in jeopardy. The meeting ended with Pickett still upset and in tears. Instead of resuming her assigned tasks, she left the Center. She called the Administrator the next day to ask if she still was employed. He consulted with the VP of Operations and advised Pickett that she no longer had a job. Beginning about a month later, after Picket filed an EEOC claim, the Center offered on several occasions to reinstate Pickett. She refused several such offers but eventually returned to the Center in January of 2007. She brought suit against the Center for sexual harassment and for retaliatory firing under Title VII. Judge Pallmeyer (N.D. Ill) granted summary judgment to the Center on the harassment claim. The retaliation claim went to trial. The jury found for Pickett and awarded $15,000 in compensatory and $50,000 in punitive damages. The court awarded back pay and injunctive relief. The Center appeals.

In their opinion, Judges Flaum, Kanne, and Evans affirmed. The Court first rejected the Center's argument that Pickett could not prevail on the retaliation claim because she could not prevail on the harassment claim. In order to prevail on retaliation, a plaintiff need only show statutorily protected conduct, adverse action, and a causal link. The Court found that there was sufficient evidence of each of those elements in the record -- the jury was entitled to find in Pickett's favor. Each of the Center's other arguments was also rejected: a) counsel’s "send some message" language in closing argument was not improper, b) the compensatory damage award was not excessive and did not require corroborating evidence from a third party, and c) the court did not abuse its discretion in allowing the punitive award to stand in light of the evidence that supported a conclusion that the Center knew it might be retaliating when it terminated Pickett's employment.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

HANSON v. DANE COUNTY (June 15, 2010)

The 911 line was dead when the Dane County dispatcher picked it up. The dispatcher called the number back but there was no answer. The police were alerted. When the police arrived at the home of David and Karen Hanson, Karen asked them to leave. She advised the police that she had called 911 but could not remember why -- she also said that she and David had been arguing but that she could not remember why. The officers continued their investigation. They questioned David and Karen separately and also questioned the couple's 15 and 13-year-old daughters. David ultimately admitted that Karen had called 911 after he "bumped" her during a heated argument. The police arrested David and charged him with domestic battery. The charges were dropped when Karen refused to cooperate. David Hanson filed suit pursuant to § 1983 alleging violations of the Fourth, Fifth, and Fourteenth Amendments. Judge Crabb (W.D. Wis.) granted summary judgment to the defendants. Hanson appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Manion affirmed. The Court first rejected Hanson's argument that the police entry was without probable cause in violation of the Fourth Amendment. The Court concluded that an unanswered 911 callback itself provides probable cause. The Court also rejected the argument that the officers violated the Fourth Amendment by remaining on the premises after Karen asked them to leave. Her demeanor and her obviously false statements that she could not remember why she called or why she and David were fighting support the reasonableness of the officers' actions. The officers also acted reasonably in questioning the children given David and Karen's lack of cooperation. In addition, any substantive due process rights would belong to the children, who are not parties directly or indirectly. Finally, the Court rejected David's claim that his separate questioning amounted to a custodial interrogation and that the officers "violated" Miranda by not delivering its warnings. Although the district court had resolved the issue on qualified immunity grounds by concluding that a reasonable officer would not have found the interrogation "custodial," the Court found that analysis unnecessary. The Miranda doctrine governs the use in court of incriminatory statements. It does not prohibit a compelled statement nor does it allow a claim of damages for the failure to provide the warning.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

PELLA CORP. v. SALTZMAN (May 20, 2010)

Pella Corp. is in the business of manufacturing and selling home windows. It has sold in excess of 6 million "ProLine" casement windows. When a wood rotting problem arose, Pella set up a customer service program to compensate affected purchasers. A group of those purchasers brought a class action. The suit alleges that Pella committed consumer fraud when it failed to disclose the alleged design defect and the problems it was causing. Judge Zagel (N.D. Ill.) certified seven classes: a) a nationwide Rule 23(b)(2) class of persons who own structures containing the casement windows that have not been replaced, and b) six statewide Rule 23(b)(3) classes of persons whose windows have already been replaced because of the defect. The court refused to certify causation, damages, and statute of limitations issues. Pella petitioned for leave to appeal.

In their opinion, Judges Posner, Williams, and Tinder granted the petition and affirmed. The Court agreed that consumer fraud actions frequently present problems when treated as class actions. That does not, however, equal a general rule that they can never be so treated. Here, the principal issue is whether there is a single design defect in the window that leads to wood rot. The Court concluded that the district court was well within its discretion in deciding that the issue is best resolved in a class context. The problems inherent in treating consumer fraud cases in a class context are not present in this case. The issues are not complex, the central questions are all the same, and the class members must prove causation and damages on an individual basis.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

DIRECTV v. BARCZEWSKI (May 13, 2010)

David Barczewski and Jonathan Wisler purchased electronic equipment that was actually marketed for its ability to intercept DirecTV signals. They both also participated in discussion groups whose purpose was to exchange advice about intercepting and decrypting those signals. When DirecTV sued them, a jury found that Wisler had intercepted signals without authorization for 435 days and that Barczewski had distributed four unauthorized decryption devices. The court imposed a statutory penalty of $44,000 against Barczewski and $43,500 against Wisler. Barczewski and Wisler appeal.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Sykes affirmed in part and vacated and remanded in part. The Court first summarily rejected defendants' contentions that DirecTV did not have a private right of action under 18 U.S.C. § 2520 or 47 U.S.C. § 605. It noted that every court of appeals that had considered the questions agreed. It also quickly disposed of their argument that an exception in the statute for an "aeronautical communication system" applied because a DirecTV witness at trial stated that DirecTV was such a system. Whatever the witness meant, the Court interpreted the statute and concluded that DirecTV is not the kind of system referred to in the exception. Finally, the Court addressed the issue of the penalty. Although it affirmed the calculation of Barczewski’s penalty, it vacated the award of the penalty against Wisler. The statute provides that a court "may” assess the greater of a) the sum of the plaintiff's damages and the violator's profits, or b) the greater of $100 per day of violation or $10,000. In 1990, the Court held, in Rodgers v. Wood, that the imposition of the highest penalty under that calculation was mandatory. Part of the Rodgers rationale was that Congress changed the statute and replaced “shall” with “may” without any explanation for a change from mandatory to discretionary. Rodgers was also the first Court of Appeals decision interpreting that section. Since Rodgers, each of the four other circuits that have addressed the question has disagreed – and concluded that the language is permissive. Upon a careful review of the statutory language, the rationale of Rodgers, the analyses from the other circuits, and the policy considerations, the Court overruled Rodgers' holding that the maximum penalty was mandatory. It vacated the award and remanded to the district court.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

THOMAS v. COOK COUNTY SHERIFF'S DEPARTMENT (May 3, 2010)

In their opinion of December 1, 2009, Judges Flaum, Wood, and Williams affirmed in part and reversed and remanded in part a $4.45 million jury verdict awarded to the mother of a young man who died while in custody of the Cook County Jail (refer to the panel opinion and to my post). Cook County and the individual defendants petitioned for rehearing and rehearing en banc. With respect to the petition of the individual defendants, the panel unanimously voted to deny rehearing and no judge in regular active service requested a vote on the petition en banc. With respect to the petition of the County, however, three judges voted to grant the rehearing en banc with respect to the issue of damages. In consideration of the petition and the votes to grant the rehearing, the panel amended its opinion.

In their amended opinion, Judges Flaum, Wood, and Williams refined their analysis of the damages issue and provided some general prophylactic guidance regarding verdict forms. The panel reaffirmed its original decision upholding the verdict, notwithstanding the confusion apparent in the instructions and the verdict form.

Judge Sykes, joined by Judges Posner and Tinder, dissented from the denial of the County's petition for rehearing en banc. The principal claims in the case sought compensation for a single injury -- Norman Smith's suffering and death while in the custody of the Cook County Jail. Because liability is joint and several, the jury should not have been asked to assess damages by claim or by defendant. The dissent criticizes the panel for approving the district court's discretion to choose between the "ceiling" and the "cumulative" approaches to the confusion verdict. In the dissent's view, neither approach is supported by the Circuit's precedent. Finally, Judge Sykes is critical of the panel's reliance on the general proposition and presumption that jurors follow their instructions. Given the "bewildering hodgepodge" of instructions and the backwards verdict form, the Court cannot have any confidence that the jury acted properly. Judge Sykes would have granted the petition to address the treatment of the damage award.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

FOX v. HAYES (April 7, 2010)

Kevin and Melissa Fox and their children, six-year-old Tyler and three-year-old Riley, lived in a small town in Will County, Illinois, about 60 miles from Chicago. On June 6, 2004, Tyler woke his father up at about 8:00 a.m. and told him Riley was missing -- Melissa had spent the night in Chicago. Riley's lifeless body was found in a nearby forest preserve several hours later. Although the parties’ versions of the investigation vary wildly, the jury could have found the following. Will County detectives, including Scott Swearengen, conducted the investigation. At some point, Swearengen began to suspect Kevin. On October 26, the Foxes were asked to come to the station to talk about the case. Although they thought they were about to receive new information about the murder, they were mistaken. They were immediately separated. Melissa was locked in a waiting area and told that an officer would be with her shortly. Instead, she was left alone for almost 4 hours. Meanwhile, Kevin was taken to an interrogation room where Swearengen accused him of killing Riley. The officers falsely told Kevin that they had fiber evidence implicating him and a surveillance tape showing him driving his SUV during the night. Kevin took a polygraph examination, which the officers told him that he failed. When Melissa offered her love and support to Kevin, Detective Hayes started screaming. He screamed at his fellow officers to remove Melissa from the room, he screamed at Kevin that he was a "f***ing murderer," and he screamed at Melissa. Continuing to use a lot of profanity, he screamed at Melissa that Kevin was a liar and a murderer, that he never loved her, that he killed her daughter, and that she had to "get over it." After that episode, the detectives continued the interrogation of Kevin. Hayes told Kevin that if he did not confess, he would make sure that Kevin was raped every day he was in prison. At one point, Swearengen told Kevin that the state's attorney would give him a deal if he admitted that he accidentally killed his daughter. He told him he would be out on bond the very next day and wood only have to serve 3-5 years in prison. Kevin decided to go along with the story and "confessed." He immediately renounced the confession the next morning when he was allowed to meet with a lawyer. Months later, his defense team had the DNA evidence tested. The test results showed conclusively that the DNA found on Riley's body did not come from Kevin. Kevin was released the next day, after 243 days in jail. Kevin and Melissa brought suit under both § 1983 and Illinois law against several Will County detectives. Kevin's allegations included due process violations, false arrest, malicious prosecution, intentional infliction of emotional distress (IIED), and punitive damages. Melissa's claims include loss of consortium, IIED, and punitive damages. After a six-week trial, a jury awarded Kevin $9.3 million and Melissa $6.2 million. The trial judge struck some of the punitive damage award and dismissed the case against a detective whose estate had settled. The end result was an award of $12.2 million. The detectives appeal.

In their opinion, Judges Flaum, Evans, and Williams affirmed in part and reversed in vacated in part. The central issue on appeal is defendants' argument that they had probable cause to arrest Kevin and are therefore entitled to qualified immunity on all the counts except the IIED claim. In order to resolve that issue, the Court had to identify the earliest time that the jury could have found Kevin to be under arrest and then assess whether a reasonable jury could have found that the defendants lacked probable cause to arrest Kevin at that time. On the first question, the Court had little difficulty identifying a time early in the interrogation when Kevin tried to leave the room and was told to sit down. The fact that he did not specifically ask to leave is only one factor in the analysis. Here the other factors --whether he knew he was a suspect of a crime, whether his movement was limited, whether the officers were engaged in a course of conduct, and whether he was in a private location -- all support a conclusion that he was under arrest. With respect to the second issue, the Court examined the long list of facts that the defendants argued supported probable cause. After it eliminated from the list facts that were disputed, irrelevant, or mischaracterized, the Court concluded that a reasonable jury could have concluded that they fell short of probable cause. On the merits of the defendants' argument that the substantive due process claim could not stand, the Court agreed with the defendants. It is well settled that a substantive due process claim cannot prevail where state law provides an adequate post-deprivation remedy. The state law false arrest and malicious prosecution claims do exactly that here -- the jury verdict on the due process claim must be set aside. The Court next upheld the verdict on Melissa's IIED claim. Although it agreed that the evidence of Melissa's distress was weak, it concluded that Hayes' abuse of authority in a particularly emotional environment was enough to uphold the claim. Finally, the Court addressed certain damage awards. Although it upheld a $2.7 million award for Melissa's loss of consortium because it found a rational connection between the award and the evidence, it concluded that the $1 million award on the IIED claim was excessive because there it lacked such a connection. The Court also concluded that the $1.6 million false arrest award to Kevin was not supported by the evidence since the false arrest award only covered the period of time between his arrest and the first issuance of process (36 hours). Instead of a new trial, however, the Court ordered a remittitur to $150,000 on Melissa's IIED claim and $16,000 on Kevin's false arrest claim.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

ADVERTISING SPECIALTY INSTITUTE v. HALL-ERICKSON, INC. (April 7, 2010)

Advertising Specialty Institute (ASI) is in the promotional products business. It facilitates transactions between the buyers and sellers of corporate promotional materials. It has an affiliate, ASI Show, which puts on numerous trade shows throughout the year. Hall-Erickson and National Premium Show (NPS) put on The Motivation Show annually at McCormick Place in Chicago. In 2001, The Motivation Show and ASI entered into an agreement to co-sponsor a promotional product event at The Motivation Show. In the agreement, The Motivation Show gave ASI the right of first refusal regarding any other opportunity within the promotional products industry and also agreed that it would not extend the same opportunity to any other association or conference, specifically including by name ASI's close competitor, Promotional Products Association International (PPAI). Notwithstanding this agreement, The Motivation Show agreed to co-locate a show with PPAI. The district court determined that The Motivation Show breached its contract with ASI but, finding that ASI failed to offer sufficient proof of damages, awarded only nominal damages. ASI appeals the damages determination -- defendants cross-appeal the liability determination.

In their opinion, Judges Cudahy, Wood, and Tinder affirmed. The Court concluded that the right of first refusal was clear and unambiguous in the contract and that The Motivation Show violated that provision and breached the contract when it put on the show with PPAI. The Court also affirmed with respect to the damages issue, although it did express its view that the damages case was not as weak as described by the district court. Under Pennsylvania law, damages are not recoverable beyond that which is established with reasonable certainty by the evidence. The Court found portions of the evidence did provide some basis for the claim of damages. However, giving deference to the findings of the District Court, the Court also noted several gaps in the evidence. For example, ASI never introduced evidence of specific companies that either attended the joint show at issue or would have attended an ASI show, it did not introduce evidence of PPAI's own revenue or profits from the show, and it did not produce evidence of what PPAI would have done had it not shared the show with The Motivation Show. Given the ambiguities and gaps in the evidence, the Court found no clear error.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

NIGHTINGALE HOME HEALTHCARE v. ANODYNE THERAPY (December 21, 2009)

Anodyne Therapy manufactures and sells infrared lamps designed to improve circulation. The FDA approved it for that purpose. But Anodyne allegedly marketed the lamps as a treatment for peripheral neuropathy, which the FDA never approved. Nightingale purchased several of the lamps. The FDA sent Anodyne a warning letter about their marketing claims. Several months later, Nightingale stopped using the lamps, returned them to Anodyne with a demand for a refund, but then replaced them with almost identical devices. Nightingale brought a fraud case in state court. Anodyne removed the case to federal court on diversity jurisdiction grounds. Nightingale then added a federal Lanham Act claim. The court granted summary judgment to Anodyne on the Lanham Act claim, and later granted summary judgment to Anodyne on the fraud claim. The court relied on a contractual disclaimer of warranties as well as Nightingale’s failure to establish proof of damages. Nightingale appeals.

In their opinion, Judges Posner, Kanne and Rovner affirmed. On the merits, the Court disagreed with the warranty holding. It concluded that the only contractual limitation of liability related to a breach of warranty claim – not, as here, a fraud claim. The Court agreed with the district court, however, on the damages holding. Nightingale replaced the lamps with a virtually identical product. Both products served the same purpose, performed comparably and carried similar FDA approvals. The replacement of the lamps did not result in any damage to Nightingale.

The lack of any damage not only doomed the case on the merits – it showed that the jurisdictional threshold for diversity jurisdiction was not met. Ordinarily, the Court concluded, the lack of a good faith basis for meeting the threshold would result in a case being dismissed for lack of jurisdiction, even at a late stage of the case. Here, however, the fact that Nightingale added a federal claim after removal brought the case within the court’s federal question jurisdiction. The state claims were covered by supplemental jurisdiction. Even though the federal claim was later dismissed, the court had discretion to retain the state claims.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MILAM v. DOMINICK'S FINER FOODS (December 7, 2009)

Ahmad Milam is one of several African-American produce clerks at a Chicago Dominick's grocery store. Each week, Dominick's posts the produce clerks’ schedule of hours for the upcoming week. A more-senior produce clerk is allowed to "claim" the hours of a less-senior clerk. Milam and five other African-American produce clerks filed suit against Dominick's, claiming that it was guilty of race discrimination when it classified two more junior white women as produce clerks but did not include them on the schedule. The court granted summary judgment to Dominick's on the ground that plaintiffs had no evidence of damages. Plaintiffs appeal.

In their opinion, Judges Posner, Kanne and Rovner affirmed. The Court was quite critical of the district court's handling of the case. It noted that one of the women at issue was actually never a produce clerk. Although she had been offered and accepted a promotion to produce clerk, she changed her mind and never was scheduled to work as one. Dominick's presented evidence years ago that the failure to list the second woman on the produce clerk schedule was an innocent mistake. Plaintiffs never challenged the evidence as pretextual. The court should have granted summary judgment to Dominick's. With respect to the eventual order of the district court, the Court agreed that the plaintiffs presented insufficient evidence of either actual or probabilistic injury. The Court conceded that the plaintiffs' probabilistic injury theory was a proper damages theory. It requires, however, evidence of the expected benefit – which was never presented. In the end, the Court termed the case frivolous.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

THOMAS v. COOK COUNTY SHERIFF'S DEPARTMENT (December 1, 2009)

Norman Smith was arrested by the Chicago police on April 23, 2004. He was delivered to the Cook County Jail on April 24, where he was scheduled to remain until his trial date. An intake medical examination showed elevated blood pressure but no other medical problems. Smith showed symptoms of something more serious, however, from that first day. He was dizzy and vomiting. His symptoms became more serious over the next several days. Despite repeated requests by Smith and by other detainees on his behalf for medical assistance, he received none. On April 30, his cellmate discovered Smith convulsing on the floor. The cellmate reported it immediately to the officer on duty. There was a significant delay before Smith received any treatment. He died that morning of pneumococcal meningitis. His mother, Marlita Thomas, brought a § 1983 case against a number of individual correctional officers, the Cook County Sheriff and Cook County. A jury awarded Thomas $4,450,000 against the County, the Sheriff and three correctional officers. The jury then allocated the damages amongst the defendants. The court denied the defendants' motions for judgment as a matter of law or for a new trial. The defendants appeal.

In their opinion, Judges Flaum, Wood and Williams affirmed in part and reversed and remanded in part. The Court first addressed the verdict against the individual officers. In order to prevail, the Court stated that a plaintiff must demonstrate that a medical condition is objectively serious, that the defendant has subjective knowledge of the health risk and the defendant disregarded the risk. The Court concluded that there was sufficient evidence in the record to allow a jury to conclude that the individual officers knew about Smith's health risk and ignored it. Thus, the verdict is affirmed. The Court next addressed the verdict against the County. The County can be liable only if the unconstitutional act is the result of an official policy or a widespread practice or custom or is caused by an official with policy-making authority. The Court refused to adopt a bright-line test on how widespread a policy need be, but noted that it must be more than a random event. The Court concluded that there was sufficient evidence of a widespread policy: a failure to review medical requests, a failure to collect medical requests, keeping request forms in a locked box, etc. Thus, the verdict against the County was affirmed. The Court next addressed the verdict against the Sheriff. The basis for imposing liability under Monell against the Sheriff was his policy of severely understaffing the jail. In order to sustain the verdict, there must be a causal link between the policy and the unconstitutional act. Here, the individual officers were found liable based on their deliberate indifference to Smith's medical needs. The Court found no relationship between the officers' conduct and the understaffing. The Court concluded that the understaffing theory was too remote to support the verdict. Thus, the Court reversed for entry of judgment in the Sheriff's favor. After rejecting several evidentiary arguments of the defendants, the Court addressed the verdict. On the verdict form, the jury entered $150,000 against the officers, $3 million against the County, and $1 million against the Sheriff. This allocation was improper, in that the defendants were jointly and severally liable for one indivisible injury. It raised the question of whether the total damages is the sum of all of the damage awards, or the highest single assessment. The Court presumed that the jury followed instructions to not award duplicate damages and concluded that adding the damage awards would be proper. Under that analysis, the award against the Sheriff ($1 million) remains as part of the verdict against the County and individual officers, notwithstanding the reversal of the verdict against the Sheriff. Finally, the Court rejected the defendants' argument that the award was excessive.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

GABBANELLI ACCORDIONS & IMPORTS, L. L. C. v. DITTA GABBANELLI UBALDO DI ELIO GABBANELLI (July 30, 2009)

Gabbenelli Accordions & Imports ("American Gabbenelli") used to be the American distributor for a predecessor of defendant Ditta Gabbenelli Ubaldo Di Elio Gabbenelli ("Italian Gabbenelli"). Disputes arose between the two companies in the 1990s. In 1999, the two companies entered into an agreement under which American Gabbenelli retained the exclusive right to use the Gabbenelli mark in North America and Italian Gabbenelli retained the exclusive right to use it in Italy. The parties further agreed that future disputes would be resolved by arbitration. Notwithstanding the arbitration agreement, Italian Gabbenelli sued American Gabbenelli in an Italian court and American Gabbenelli filed this suit in the United States. American Gabbenelli charged Italian Gabbenelli with trademark infringement. The district court first rejected Italian Gabbenelli's contention that the arbitration agreement deprived the court of jurisdiction. Nevertheless, the court stayed proceedings pending the outcome of the Italian litigation. When no decision was rendered within a few years, the court lifted the stay. American Gabbenelli served Italian Gabbenelli with requests for admissions in May of 2005. Italian Gabbenelli finally appeared through counsel in October of 2005 but did not respond to the requests for admissions. Italian Gabbenelli filed an opposition to American Gabbenelli's motion for summary judgment in June of 2007, and also asked for leave to deny the requests for admissions, which had since been deemed admitted. The court denied that request and granted American Gabbenelli's motion for summary judgment. Italian Gabbenelli appeals.

In their opinion, Judges Posner, Flaum and Wood affirmed in part, reversed in part and remanded. The Court rejected Italian Gabbenelli's appeal on liability. First, it agreed with the district court that the arbitration agreement did not deprive the court of jurisdiction. Second, it concluded that the Italian judgment (since rendered) was irrelevant because it was rendered after the district court judgment. Third, the Court concluded that the district court was within its rights in not allowing Italian Gabbenelli to reopen the requests for admissions after ignoring them for several years. The Court did reverse, however, with respect to damages. The district court awarded damages for lost profits plus statutory damages of $500 for each infringing accordion. The Lanham Act allows statutory damages only for violations on which compensatory damages are not awarded. The district court's award of lost profits and statutory damages with respect to the same accordions was improper. The Court also criticized the district court for awarding statutory damages on each individual item sold. The Act allows statutory damages on each "type of goods," not on individual goods. The Court remanded for a redetermination of damages.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

LOTT v. LEVITT (February 11, 2009)

Steven Levitt and Stephen Dubner authored the off-beat and best-selling Freakonomics. In it, the authors used economic theory to address many “freakish curiosities,’ such as the similarities between nylon stockings and crack cocaine. In one chapter, they addressed the drop in the crime rate in the 1990s. They rejected several theories before concluding that the legalization of abortion accounted for the drop. In one paragraph in that chapter, they commented on John Lott’s theory that allowing more guns into the hands of law-abiding citizens led to the reduction in crime. In addition to noting a “troubling allegation” that Lott fabricated survey data, the authors stated that other scholars tried to “replicate” his results without success. Lott brought a defamation action against Levitt, alleging that “replicate” has a specific meaning within the academic community. Applying that meaning, the statement really means Lott fabricated his results. Lott amended his complaint to add a count of defamation based on an e-mail sent by Levitt. The district court dismissed the count based on the book, holding that it could reasonably be read as not an accusation of dishonesty. Several months later, the parties settled the count based on the e-mail and Lott moved to reconsider the earlier dismissal, claiming that Virginia instead of Illinois law should have been applied. The district court concluded that Lott waived the choice-of-law argument. Lott appeals.

In their opinion, Judges Ripple, Evans and Sykes affirmed. The Court first addressed the choice-of-law issue and held that Lott waived it. The Court rejected Lott’s argument that he agreed only that Illinois’ choice-of-law principles, not substantive law, applied. Lott relied on Illinois law throughout the proceedings below – he doesn’t get a mulligan. Moving on to the substantive Illinois law of defamation, the Court noted that even statements that amount to per se defamation are not necessarily actionable. A statement is not actionable if, giving the words their natural meaning, it is reasonably capable of an innocent construction. The fact that a court must accept as true the facts alleged in plaintiff’s complaint does not alter the analysis. The determination of the meaning of a statement and whether it is susceptible of an innocent construction is a question of law. Here, although Lott makes out a case for a defamatory meaning by giving “replicate” an academic definition, the Court looked at the context of the statement and a natural definition of replicate in finding that an innocent construction was reasonable. Finally, the Court rejected Lott’s argument that he had a claim for per quod defamation, that is, defamation in which damages must be alleged and proved. Lott failed to allege special damages with enough specificity in either his original or amended complaint.

• Email This
• Print
• Comments
• Trackbacks
• Share Link