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

WALSH v. CHEZ (October 21, 2009)

Jason Walsh was diagnosed with autism early in his life. His parents took him to Dr. Michael Chez for treatment. Chez prescribed a daily dosage of 50 mg of prednisone. One side-effect of prednisone is its negative impact on the body's ability to fight infection. A short time after the beginning of his prednisone treatment, Jason developed pneumonia. Dr. Chez reduced the prednisone treatment from 50 mg per day to 50 mg twice a week. A few months later, Jason died. Jason's parents brought a medical malpractice case against Dr. Chez. The Walshes submitted expert reports supporting their theory that the abrupt dosage reduction was the cause of their son's death. The district court excluded the reports on the ground that they failed to articulate a standard of care. The court dismissed the case. The Walshes appeal.

In their opinion, Judges Cudahy, Flaum and Wood reversed and remanded. The Court focused on the Rule 26 duty to disclose information regarding an expert's testimony. The purpose of the rule is to allow an opposing party a reasonable opportunity to address the expert's opinion. Examining the reports of the two experts, the Court concluded that each expressed an opinion that the conduct of Dr. Chez was not consistent with the standard of care. Dr. Chez was on notice of the Walshes' theory of malpractice. The fact that there may have been numerous ways of properly weaning Jason from the prednisone does not affect the experts' opinions that Dr. Chez' approach fell below the standard of care.

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GOTHAM HOLDINGS v. HEALTH GRADES (September 3, 2009)

Gotham Holdings and Health Grades are parties to litigation pending in New York. In that proceeding, Health Grades maintained that an award in its earlier arbitration with Hewitt Associates supported its litigation position. Although it tendered the award and related documents in the litigation, Gotham asked for more. Health Grades refused. Gotham subpoenaed the documents directly from Hewitt in Illinois. The court ordered Hewitt to turn over the documents, which it is willing to do. Health Grades appeals.

In their opinion, Chief Judge Easterbrook and Judges Williams and Sykes affirmed. The Court noted that Health Grade's refusal was based on a confidentiality provision in the arbitration. The first ground on which it affirmed was a specific section of the confidentiality agreement that allowed documents to be produced in response to a subpoena. Additionally, even if the agreement did not so provide, the Court held that the parties to the arbitration could only bind themselves. They cannot, by agreement, limit a third party's access to the documents.

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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.

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SECURITIES AND EXCHANGE COMM. v. KOENIG (February 26, 2009)

James Koenig was the Chief Financial Officer of Waste Management, Inc. In the early 1990s, after years of acceptable growth, the company’s financial performance began to suffer. Koenig devised several accounting strategies that made the company appear more profitable than it was. Koenig resigned in January of 1997. In October of 1997, the company disclosed in a press release that its financial statements were inaccurate and unreliable. The SEC filed a complaint against Koenig in March of 2002. At trial, the jury found that his accounting strategies were fraudulent. The court imposed a $2.1 million civil penalty, ordered the disgorgement of almost $1 million in bonuses, imposed $1.2 million in pretax interest, and enjoined Koenig from serving as a director of a public company. Koenig appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Wood affirmed in part, reversed in part and remanded. The Court first addressed Koenig's statute of limitations argument. Although recognizing that the statute is five years and that more than five years passed between Koenig's resignation and the filing of the complaint, the Court rejected Koenig's argument. Instead, the Court noted that there has long been a special rule for statutes of limitations in fraud cases. A victim of fraud has the full statutory time to file, beginning from the date the wrong came to light or would have with due diligence. Since Koenig's accounting misdeeds were not public until the company issued its press release and Koenig never claimed that the SEC could have known earlier, the complaint was timely. The Court then addressed several trial management objections. It concluded that the lower court did not err in allowing the SEC to put on evidence of the motives of the company's new management. Although originally denying the SEC's motion in limine, the lower court admitted motive evidence after Koenig "opened the door." The court had warned Koenig that it would allow the evidence if Koenig made motive at issue. Second, the Court approved of the trial court’s practice of allowing the jurors to submit questions for witnesses and found no abuse of discretion. Third, the Court found no violation of the discovery or notice rules in the SEC's calling as its witness Koenig’s own expert, whom he did not call. Koenig also complains that the $2.1 million penalty was greater than allowed by the statute. The statute limits a penalty to no greater than the greater of $100,000 or the defendant’s pecuniary gain. The court included pre-judgment interest in its calculation of pecuniary gain. The Court approved of this formula. It held that pecuniary gain is the amount the defendant obtained as a result of his fraudulent accounting practices plus any return he could have made by investing that sum, until its disgorgement. The Court did disagree with the district court's computation of Koenig's bonuses. The company awards bonuses based on increases in the company's earnings over the prior year. Based upon the testimony of the SEC's expert, the Court concluded that the company’s corrected earnings increased from 1991 - 1992. The Court remanded for a recalculation of Koenig’s bonuses and, if necessary, a recalculation of the penalties.

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COLLINS v. ILLINOIS (February 2, 2009)

Margaret Collins has had a long-running dispute with the State of Illinois over her employment with the Illinois State Library. This is her third lawsuit, which the Seventh Circuit remanded to the district court for consideration of some of her claims. The road got a little bumpy after remand. The court ordered her to amend her complaint on four different occasions and forced her to respond to discovery. The parties finally arrived at an agreeable date for her deposition. Although she did appear, she refused to submit to interrogation with parties present. She was told they had a right to be there. One of the lawyers offered to call the magistrate to resolve the issue. Collins left. The defendants moved for dismissal of her complaint for discovery abuse and for their fees for preparing for the deposition. The court dismissed the complaint, stating that her refusal was “willful and egregious.” He also concluded that complaints she had about the court reporter and police officers in the vicinity were baseless. He also ordered Collins to pay the defendants’ fees and costs. Collins appeals.

In their opinion, Judges Bauer, Ripple and Rovner affirmed. The Court appreciated the severity of dismissal as a discovery abuse sanction. The sanction is appropriate, however, when there is willfulness or bad faith and the sanction is proportionate to the conduct. The Court found the district court’s decision reasonable. It made a finding of willfulness. And the record established a pattern of Collins’ efforts to hinder the progress of the case. The Court also rejected, in short shrift, Collins’ complaints about the award of fees and the bias of the district court judge.  

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NEGRETE v. NATIONAL RAILROAD PASSENGER CORP. (AMTRAK) (October 27, 2008)

Jorge Negrete was a track repair worker for Amtrak.  He injured his back on the job. He sued Amtrak, alleging a permanent disability. During discovery, Negrete: a) withheld the names of doctors who did not support his claim, b) provided false information during his deposition regarding his income, c) was “less than forthcoming” at his deposition regarding who performed maintenance at his apartments, and d) missed twenty-one discovery deadlines (in one case by over a year). The district court dismissed the case for these abuses. Negrete appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Sykes affirmed. The Court observed that dismissal is a drastic penalty for discovery abuses. In the case, however, the “appalling” conduct of Negrete supported the dismissal. He lied about the principal issues in the case – how severe were his injuries and whether he could work. The Court not only affirmed the dismissal, it referred its opinion to the United States Attorney’s Office.

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