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Arbitrator's Reservation Of "Right to Amend" Does Not Alter The Finality Of His Award

Posted on July 30, 2010 by Michael Rigney

BOARD OF TRUSTEES v. ORGANON TEKNIKA CORP. (July 27, 2010)

The University of Illinois licenses certain intellectual property rights to Organon Teknika for the manufacture of a cancer drug. In return, the University collects a royalty. Because the royalty depends on Organon's revenue and because Organon is allowed to sell to its affiliated companies, the license allows the University to challenge the royalty rate. In the case of a challenge, an arbitrator is asked to determine whether Organon is receiving the equivalent of an arms-length negotiated rate. The University did challenge the rate in 2006. After receiving evidence, the arbitrator concluded that the rate was appropriate and issued a final award closing the proceedings without modifying the rate. He also sent the parties his final bill. In the final two sentences of his award, he explicitly "reserve[d] the right" to amend his findings if new evidence became available. The University neither sought judicial review nor reconsideration under the Federal Arbitration Act. Instead, after six months, it asked the arbitrator to reconsider. When Organon refused to consent to any further proceedings, the University filed suit to compel the resumption of arbitration. Judge Guzmán (N.D. Ill.) dismissed the suit, though on a ground neither party had requested -- that the arbitrator had never issued a final award. Organon appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Hamilton vacated and remanded. At first blush, the Court questioned its appellate jurisdiction. In the court below, the University had requested an order compelling Organon to arbitrate and Organon had objected to such an order. The court dismissed the suit without granting the University its requested relief. Nevertheless, the University did not appeal -- but Organon did. On the face of it, it appears that Organon prevailed. A prevailing party cannot appeal the judgment even if it disagrees with the content or rationale of the opinion. Upon deeper analysis, however, the Court appreciated that Organon was in fact attacking the judgment. What it wanted was finality -- a dismissal with prejudice -- rather than the dismissal without prejudice entered by the court. Satisfied with its jurisdiction, the Court addressed the merits. It had little difficulty in concluding that the district court erred in concluding that the arbitration was still pending. The arbitrator resolved the dispute, referred to the award as his final decision, and sent his final bill. The reservation in the final two sentences, in the Court's opinion, was nothing more than the arbitration equivalent of Rule 60(b)(2). Just as Rule 60(b)(2) does not stand in the way of the finality of a judgment, neither does the arbitrator's reservation. Under the Federal Arbitration Act, the University had 90 days within which to present new evidence. It did not do so. The arbitration is over.

Tags: Opinion by Easterbrook, Appellate Jurisdiction, Arbitration, Federal Statute - Other, Finality, Jurisdiction

District Court Should Have Applied California Securities Laws To Transferred Case

Posted on July 28, 2010 by Michael Rigney

ANDERSON v. AON CORP. (July 26, 2010)

Robert Anderson sold his California insurance brokerage firm to Aon Corporation in 1997. He received approximately 95,000 shares of Aon stock when it was trading around $69 per share. Within five years, its share price had fallen to approximately $14. Anderson brought suit in state court in California, his state of residency, and alleged only violations of California securities law. He alleged that the fall in share price was due to the company’s mismanagement, that the mismanagement was fraudulently concealed until 2002, and that he would have sold the shares earlier absent the concealment. Aon removed on diversity grounds. Anderson shortly thereafter dismissed without prejudice, anticipating that the federal court was going to transfer the case to Illinois under § 1404(a). He refiled, again in California state court, and added two California citizen defendants (to prevent diversity). Curiously, this time he included a federal claim (RICO) in his complaint. Aon removed on federal question grounds and also asserted that the additional defendants were fraudulently joined. Anderson dismissed his federal claim and asked that the case be remanded. Instead, the California district court transferred the case to Illinois. Judge Manning (N.D. Ill.) applied Illinois law and dismissed the complaint for failure to state a claim. Anderson appeals.

In their opinion, Chief Judge Easterbrook and Judges Williams and Tinder reversed and remanded. The Court first addressed its appellate jurisdiction, since one of Anderson's arguments was that the California federal court should have remanded to state court, instead of transferring, once he dismissed his RICO claim. The Court recognized that some circuits have held that appellate review in cases such as this is split between the transferor court's circuit and the transferee court's circuit -- but it concluded otherwise. A § 1404(a) transfer is not separately reviewable. The only review comes after a final decision when all rulings of the Illinois court (even if to apply law of the case) are reviewed. On the merits of the transfer decision, the Court concluded that the lower court acted appropriately. There was jurisdiction when the suit was filed because of the federal claim and there was supplemental jurisdiction over the state law claim under § 1367(a). Once the federal claim was dismissed, the district court had discretion to either remand or to assert its supplemental jurisdiction over the state court claims until resolution. The Court cited Andersen's legal maneuvering as one reason the court prudently kept (and transferred) the case. On the substantive merits of the claim, however, the Court found error. The transfer of the case should not affect the applicable law. Here, the court should have applied the California choice-of-law rules to determine which state's substantive law applied. The California choice-of-law rule has three parts: first, it asks whether the different states' laws are different; second (if they are different), it examines each states' interest to decide whether a true conflict exists; and third (if there is a true conflict), it applies the law of the state whose interests would be most impaired by the adoption of the other state's law. The Court noted that the substantive law at issue here was the viability of a "holder action." A holder action is a private action for damages by an investor who claims that he continued to hold the stock, when he would otherwise have sold, because of the deceit of the defendant. The Supreme Court, in Blue Chip Stamps, concluded that holder actions are not viable under federal securities laws. However, they are viable under California securities laws. The Illinois Supreme Court has not spoken, although Illinois generally follows federal law in this area. The Court therefore concluded that there was a true conflict under the choice of law rules in the California. It also concluded that the third prong of the test favored California in that California has affirmatively accepted the viability of a holder action and Illinois has not spoken on the issue. Anderson should thus be allowed to proceed with the action. The Court concluded by noting a number of significant obstacles in Anderson's path but left them to be addressed, in the first instance, by the district court.

Tags: Opinion by Easterbrook, Blue Chip Stamps, Choice of Law, Civil Procedure, Holder Action, Jurisdiction, RICO, Remand, Removal, Section 1404(a), Securities Law, Transfer

Parties' Stipulation Retaining A Right To Refile Counterclaim Destroys The Finality Required For Appellate Jurisdiction

Posted on July 23, 2010 by Michael Rigney

INDIA BREWERIES v. MILLER BREWING CO. (July 21, 2010)

India Breweries, Inc. (IBI) is a "virtual brewer." On the one hand, it acquires the rights to brew a beer. On the other hand, it partners with other companies to actually brew and distribute the beer. One of those companies was Mohan Meakin, an Indian brewer with whom it entered into a joint venture to brew and distribute beer in India. IBI then entered into an agreement with Miller Brewing Company pursuant to which it hoped to market Miller's brands in India. The agreement required IBI to get written approval from Miller before it began commercial brewing at any brewery. If the brewing was going to take place with a contract brewer, the agreement required IBI to obtain Miller's approval of its contractual relationship as well. IBI proposed two breweries to Miller. A Miller team visited the breweries and advised IBI that they did not meet Miller's requirements. IBI continued to explore other options with limited success. On a few occasions, it sent Miller equipment lists from potential brewing partners. On each occasion, Miller concluded that the facilities did not meet its requirements. It refused to actually visit and inspect any facility until it received assurances of adequate equipment and specifications. IBI filed suit for breach of contract. It claimed that Miller was required to inspect each brewery it proffered. Miller counterclaimed for fraudulent inducement and negligent misrepresentation. Judge Clevert (E.D. Wis.) granted summary judgment to Miller on IBI's claim but denied summary judgment on the counterclaim. The parties then stipulated to a dismissal without prejudice of the counterclaim, under which Miller agreed not to refile it unless IBI was successful in its appeal. IBI appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Tinder affirmed. The Court first addressed its appellate jurisdiction. It noted that the stipulation of the parties that permitted the refiling of the counterclaim in certain circumstances destroyed the finality of the district court's order. Without finality, there is no appellate jurisdiction. However, because Miller agreed to an unconditional dismissal when pressed at oral argument, the finality requirement is satisfied and the Court proceeded to the merits. On the merits, the Court found for Miller. It rejected IBI's argument that the contract was ambiguous and could be read to require Miller to inspect any brewery it proffered. In fact, the Court found that interpretation "patently unreasonable." First, that requirement would not be rational since it would require Miller to go all the way to India to inspect a brewery that it already knew would not meet its requirements. Second, since Miller could reject a nonaffiliated brewer for any or no reason, requiring inspection in those circumstances would also be irrational. The Court also noted that the contract required Miller's approval of the contractual relationship with nonaffiliated brewers. Since Miller had not yet had an opportunity to review those relationships, it could also reject the brewers on that ground. Finally, although the Court conceded that Wisconsin law implies a duty of good faith in any contractual relationship, it found that Miller did not breach that duty.

Tags: Opinion by Tinder, Ambiguity, Appellate Jurisdiction, Contract/Commercial Law, Good Faith, Jurisdiction

Dismissal Of First Amendment Challenge To Ordinance Is Upheld

Posted on July 22, 2010 by Michael Rigney

BRANDT v. VILLAGE OF WINNETKA (July 20, 2010)

William Brandt, Jr. resides in Winnetka, Illinois and is active politically. He has hosted several receptions for candidates and officeholders at his home. In the aftermath of such an event in 1996 for President Clinton, Winnetka passed an ordinance that requires event sponsors to pay for the “special services” required by the events. Special services includes things like additional police presence and traffic control measures. Notwithstanding the ordinance, Winnetka has not asked Brandt to pay for any special services occasioned by the several events he has sponsored since its passage. The village has invoked the ordinance on three occasions -- one for President Bush and two for Laura Bush. Political committees, rather than the individual sponsor, paid for at least two of those events. Brandt filed suit pursuant to § 1983, seeking a declaratory judgment that the ordinance violates the First Amendment. He alleged that it "chilled" his willingness to sponsor events and that it engaged in viewpoint discrimination on the theory that more controversial candidates would require more special services. Judge Dow (N.D. Ill) dismissed the complaint on the grounds that Brandt lacked standing. Brandt appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Tinder affirmed as modified. The Court noted that the district court dismissed for lack of standing because Brandt had not established an injury -- but also mentioned its belief that the issue was not ripe and that it may be an improper case to exercise the court's discretion to issue a declaratory judgment. The Court concluded that the district court was in error when it found an absence of standing. Standing can be found when there is an actual or impending injury, even though that injury may be small and not absolutely certain. Here, the Court found sufficient injury (as well as causation and redressability) to support standing. The Court concurred with the district court, however, in its decision not to exercise its discretion to issue a declaratory judgment. Brandt does not challenge the ordinance on its face -- only as applied. The record does not show that the ordinance will be applied in a discriminatory fashion or that it has had any effect on speech. Such an abstract record does not lend itself to a constitutional adjudication at this time.

Tags: Opinion by Easterbrook, As Applied, Constitutional Law, First Amendment, Jurisdiction, Pre-Enforcement Challenge, Ripeness, Section 1983, Standing

Agency Cannot Divest District Court Of Jurisdiction By Unilaterally Reopening Its Proceedings

Posted on July 21, 2010 by Michael Rigney

DOCTORS NURSING & REHABILITATION CENTER v. SEBELIUS (July 16, 2010)

Doctors Nursing & Rehabilitation Center (“DNRC”) is a nursing home located in Salem, Illinois. The Medicare program reimburses DNRC for certain procedures on a per procedure basis. DNRC has a dispute with the program regarding the proper rate at which it was reimbursed for pulse-oximetry tests. A pulse-oximetry test is a noninvasive procedure for measuring blood oxygen levels, usually by placing a sensor on a patient's fingertip. DNRC presented its claims through the proper administrative channels, first through a fiscal intermediary and then through a “Qualified Independent Contractor.” Both levels of review rejected DNRC's challenge. It brought suit for underpayment of benefits. Health and Human Services, the agency that administers the Medicare program, decided to reopen the administrative proceedings. In the district court, it moved to dismiss for lack of jurisdiction on the ground that there was no longer final agency action. Judge Scott (C.D. Ill.) granted the motion and dismissed the case. DNRC appeals.

In their opinion, Judges Posner, Manion, and Hamilton reversed and remanded. A party may seek judicial review of a "final decision" in any case that arises under the Medicare Act. Here, the dismissal by the Qualified Independent Contractor satisfies that final decision requirement. For several reasons, the Court concluded that an agency is not able to divest a court of its jurisdiction by simply reopening an administrative proceeding. First, it relied on the general rule that jurisdiction is analyzed at the time of filing. Second, it noted that the controlling statute contains a specific provision allowing an agency to request a court, before answering and for good cause, to remand the case to the agency. The provision would make no sense if an agency had that power on its own. Finally, the Court noted that an inferior tribunal generally transfers authority over a matter at the time of an appeal. The Court also rejected the agency's request to remand the case to the district court with instructions to remand the case to the agency. The Court left that decision to the district court in the first instance.

Tags: Opinion by Manion, Administrative Law, Jurisdiction, Medicare

Complaint Arising From State Court Child Custody Orders Is Barred By Rooker-Feldman Doctrine

Posted on July 12, 2010 by Michael Rigney

GOLDEN v. HELEN SIGMAN & ASSOCIATES (July 2, 2010)

Bruce Golden and his wife were involved in a bitter and hostile divorce. The dispute centered principally on the division of their assets and the custody of their only child. Golden added a battlefield when he brought suit in federal court. The defendants included his child’s court appointed representative and his wife’s attorneys, close friend and neighbor, and two business associates. His claims were based on federal copyright law, RICO, and § 1983 as well as several state law theories. He accused the lawyers of defamation, the lawyers and business associates of copyright infringement, the representative of defamation and failing to maintain neutrality, and the neighbor of a false 911 report. Judge Gottschall (N.D. Ill.) stayed the copyright infringement claim pending completion of the state court divorce proceedings and dismissed all other claims -- the RICO claim for failure to plead sufficiently the predicate acts and pattern of racketeering activity, the § 1983 claim because the representative had not acted under color of state law and enjoyed absolute immunity, and the state law claims by choosing not to exercise supplemental jurisdiction. The lawyers, the representative, and the friend all sought sanctions under Rule 11. The district court concluded that some of the claims did violate Rule 11 and ordered Golden to pay the defendants' attorneys' fees for the offending claims. Golden settled with the attorneys and appeals.

In their opinion, Judges Cudahy, Wood, and Sykes affirmed. The Court first noted that the only merits decision challenged on appeal was the § 1983 claim against the representative. It identified a potentially thorny issue with respect to absolute immunity. Although a child representative is entitled to absolute immunity when carrying out its court appointed duties, it may not be when it functions in a role closer to that of the child's attorney. The complaint did allege acts relating to that role. The Court declined to resolve that issue, however, instead identifying the Rooker-Feldman doctrine as a jurisdictional bar. Under that doctrine, a party may not seek redress in a lower federal court for an injury caused by a state court judgment. Here, the Court determined that the only injury Golden complained of arose directly from the state court custody orders. The Court therefore affirmed the dismissal of the § 1983 claim. With respect to sanctions, the Court first rejected Golden's argument that the Rule 11 motions were not timely -- both because he failed to raise it in the district court and because the district court did not abuse its discretion in allowing them. On the fees themselves, the Court concluded that the district court was well within its discretion in identifying counts on which to impose a sanction and in its method of calculating the amount of the sanction. Finally, the Court declined to impose sanctions on Golden for the appeal. Although he raised several frivolous arguments, he did advance some positions that could not be dismissed summarily.

Tags: Opinion by Wood, Rooker-Feldman Doctrine, Absolute Immunity, Attorneys' Fees, Civil Procedure, Jurisdiction, Rule 11, Section 1983

Variable Life Insurance Policy Is Held To Be A "Security" Under CAFA

Posted on June 30, 2010 by Michael Rigney

LINCOLN NATIONAL LIFE INSURANCE CO. V. BEZICH (June 25, 2010)

Peter Bezich is a Lincoln National Life Insurance Company policyholder. He has a variable life policy, under which he can allocate funds to either a General Account or a Separate Account. The General Account accumulates premium payments while the Separate Account is an investment account registered with the SEC. Each month, Lincoln National deducts cost-of-insurance charges from a policyholder's account proportionately to the amounts invested in each of the two accounts. Bezich brought a class action in Indiana state court, alleging that Lincoln National breached the terms of the policy in the way it calculated the cost-of-insurance charges. Lincoln National removed the case to federal court under the Class Action Fairness Act (CAFA). Judge Van Bokkelen (N.D. Ind.) remanded the case to state court, relying on the CAFA exception for cases that solely involve claims relating to rights and obligations created by any “security.” Lincoln National petitioned for leave to appeal.

In their opinion, Judges Bauer, Posner, and Wood dismissed the petition for want of jurisdiction. Although the Court was first obliged to look at its appellate jurisdiction, it noted that the language governing its appellate jurisdiction was identical to the language creating the removal exception relied on by the district court. The core question for both is whether the policy is a "security" as defined by the Securities Act of 1933. Although the Court conceded there was authority in different contexts supporting Lincoln National's desire to look at the two component parts of the policy (and find one a security and one not), the Court rejected the applicability of those cases. It cited its agreement with the Eleventh Circuit's decision in Herndon that treated a variable life policy as a "security" under the Securities Litigation Uniformed Standards Act of 1998. Here, the claims of the class concern a promise made by Lincoln National that applied whether a policyholder's funds were in the General or Separate Account. The policy treated as a whole meets the definition of "security" -- the Court therefore lacks jurisdiction to consider the petition.

Tags: Opinion by Wood, Appellate Procedure, CAFA, Class Action Fairness Act, Jurisdiction, Remand, Removal, Security

Constitutional And Common Law Challenge To Ogle County Windfarm Loses On All Counts

Posted on June 29, 2010 by Michael Rigney

MUSCARELLO v. OGLE COUNTY BOARD OF COMMISSIONERS (June 24, 2010)

Ogle County, Illinois joined the "green" movement in 2003 by amending its zoning ordinances to allow for the construction of windmills. Baileyville Wind Farms received the first special use permit for 40 windmills in 2005. The county also adopted a plan to protect residential, but not non-residential, property owners in the event of any diminution of property value. Patricia Muscarello owns nonresidential property adjacent to the proposed windfarm and has opposed its siting from the beginning. Unsuccessful in her attempts to block the project locally, Muscarello brought suit. She brought constitutional claims (unlawful taking, due process, equal protection), common law claims (trespass, nuisance), and state law claims (declaratory judgment, administrative review, writ of certiorari, unlawful taking, due process, equal protection, injunctive relief). She named over forty defendants, including Ogle County and related entities and individuals, the parties to the administrative proceedings, and Baileyville and its corporate parents. Judge Kapala (N.D. Ill) dismissed all the federal and common law claims as either unripe or for failure to state a claim. He then declined to exercise supplemental jurisdiction over the state law claims. He also denied a request by Baileyville to stay administrative proceedings regarding the expiration of the special use permit. Both parties appeal.

In their opinion, Judges Bauer, Wood, and Williams affirmed. The Court first addressed the three federal constitutional claims. The takings claim alleged no physical taking but relied on the “regulatory taking” concept. Under that concept, the permit must render her land useless for her to prevail. That is not the case here. Alternatively, the Court noted that Muscarello’s takings claim fails also because she failed to exhaust available state remedies. The Court rejected her equal protection claim that addressed the differential treatment afforded to residential and nonresidential landowners. Not only was it also unripe because of her failure to exhaust, the Court concluded that it would meet the deferential "rational basis" test. With respect to the due process claim, the Court concluded that Muscarello had no protectable property interest in the lifting of restrictions on adjacent property. The Court next addressed the state common-law claims, for which Muscarello asserted diversity jurisdiction. The district court never resolved the jurisdictional question, dismissing instead on ripeness grounds. On appeal, the Court considered both issues. The Court applied its citizenship analysis and concluded that Muscarello established diversity jurisdiction. On the merits, however, the Court agreed with the district court that Illinois law requires an invasion for both a trespass and nuisance. Since the windmills have not yet been built, there is no invasion -- and no trespass or nuisance. Finally, the Court considered the several state claims for which Muscarello asserted supplemental jurisdiction. It found no abuse of discretion for the dismissal of those claims. However, since it had just established that diversity jurisdiction did exist, it questioned whether the district court should have kept these claims under diversity jurisdiction. Although a plaintiff has the burden of establishing the court’s jurisdiction, a district court should rarely dismiss when jurisdiction in fact exists but was improperly pleaded. Here, the plaintiff had been given several opportunities to properly plead jurisdiction -- and she failed to do so. The Court decided not to do it for her. Finally, the Court found no abuse of discretion in the district court's denial of Baileyville’s requested stay.

Tags: Opinion by Wood, Appellate Procedure, Constitutional Law, Diversity Jurisdiction, Due Process, Equal Protection, Federal Question Jurisdiction, Injunctive Relief, Jurisdiction, Nuisance, Ripeness, Supplemental Jurisdiction, Trespass, Unlawful Taking

Bankruptcy Court's Order Denying A Plan Objection Is Not Appealable

Posted on June 25, 2010 by Michael Rigney

IN RE: MCKINNEY (June 23, 2010)

When Lonnie McKinney fell behind on the property taxes for his Peoria County duplex, the county sold the tax debt to Salta Group. McKinney had two years within which to pay the debt after the sale. He did not and was notified that the property had been sold. He still had several months to redeem the property before Salta Group would receive a tax deed to the property. One day before the end of the redemption period, McKinney filed for bankruptcy. He proposed a bankruptcy plan that allowed an additional five years to pay off the tax debt. Salta Group filed an objection to the plan. The bankruptcy court denied the objection and Judge McDade (C.D. Ill.) affirmed. Salta Group appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Tinder dismissed for want of jurisdiction. The Court first addressed its -- and the district court's -- jurisdiction. The jurisdictional statute grants jurisdiction over "final" decisions and orders of the bankruptcy court. The Court conceded that the concept of finality is murkier in the bankruptcy arena than it is elsewhere because of the frequent existence of numerous discrete disputes within a single bankruptcy case. The test the Court applied was whether the order resolves a dispute that, but for the bankruptcy, would have been a discrete lawsuit. It concluded that Salta’s claim was not such a dispute. The order did not resolve any part of Salta's claim -- it merely resolved one issue.

Tags: Opinion by Tinder, Bankruptcy, Final Order, Jurisdiction

Claims By 100+ Plaintiffs Is Not A CAFA "Mass Action" When No Single Complaint Names 100 Or More

Posted on June 24, 2010 by Michael Rigney

ANDERSON v. BAYER CORP. (June 22, 2010)

Bayer Corporation manufactured a prescription medication called Trasylol. A lawyer in St. Clair County, Illinois brought suit against Bayer alleging personal injury resulting from the use of the medication. The action was brought in five separate complaints with 171 plaintiffs spread among the complaints. All but one (the one apparently a mistake) of the virtually identical complaints named fewer than 100 plaintiffs. Bayer removed, citing the "mass action" removal mechanism of the Class Action Fairness Act ("CAFA"). Judge Murphy (S.D. Ill) remanded the four complaints that had fewer than 100 plaintiffs. Bayer petitioned to appeal under CAFA.

In their opinion, Judges Flaum, Manion, and Evans denied the petition. CAFA's "mass action" provision allows a defendant to remove an action if it has 100 or more plaintiffs and otherwise meets CAFA’s removal requirements. The provision specifically excludes an action in which claims are consolidated upon the request of a defendant. The Court found this plain language of the statute dispositive of Bayer's request. Apparently, Congress anticipated this very situation and decided to allow plaintiffs to proceed in state court by limiting each complaint to fewer than 100 plaintiffs. Although the Court concluded that CAFA removal was not available, it did note that the claims could be removable in the future if, for example, the claims were consolidated for trial. The Court declined to consider Bayer's alternative argument that diversity jurisdiction existed under a fraudulent misjoinder theory. The exception to the general rule prohibiting review of a remand order that allowed the Court's review of the "mass action" argument applies only to the remand of class actions. Since these cases are not class actions under CAFA, the Court lacks jurisdiction to review the district court's decision regarding fraudulent joinder.

Tags: Opinion by Flaum, CAFA, Civil Procedure, Class Action Fairness Act, Federal Statute - Other, Jurisdiction, Mass Action, Remand, Removal

Malpractice Carrier Is Given An Opportunity To Establish Actual Prejudice From Insured's Lack Of Cooperation

Posted on June 23, 2010 by Michael Rigney

MEDICAL ASSURANCE CO. v. HELLMAN (June 21, 2010)

Dr. Mark Weinberger was a wealthy Indiana physician. It seems, however, that only a portion of his wealth resulted from his legitimate medical practice. The rest of it came from defrauding insurance companies. In 2004, facing the prospect of civil and criminal litigation, Weinberger disappeared during a European vacation (read about his escapades on America's Most Wanted). Hundreds of malpractice claims were filed against him in the months following his disappearance. Those claims are working their way through Indiana's medical malpractice statutory procedures, although only four have proceeded to the actual lawsuit stage. Medical Assurance Company is Weinberger's malpractice insurance provider. It brought a declaratory judgment action, seeking a declaration that Weinberger's disappearance breached his duty of cooperation and thus voided its duty to defend. Judge Sharp (N.D. Ind.) concluded that Medical had shown no actual prejudice and therefore stayed the proceedings. Medical appeals.

In their opinion, Judges Flaum, Manion, and Wood vacated and remanded. The Court quickly resolved two jurisdictional issues. First, the Court upheld diversity jurisdiction notwithstanding Medical's "information and belief" allegation of the citizenship of the 300+ individual defendants (the state malpractice plaintiffs). Although such an allegation is generally insufficient standing alone, the additional factors -- that each defendant was a claimant within the Indiana malpractice system and that no defendant contradicted the allegation --satisfied the Court. With respect to its appellate jurisdiction, the Court concluded that the district court's order was appealable under Quackenbush as an abstention-based stay order. On the merits, the Court noted that the Declaratory Judgment Act is a procedural device that allows a judge to declare the rights of the parties under the applicable state or federal law. One legitimate reason to refrain from such a declaration is the existence of a parallel proceeding. The proper inquiry in such a case includes consideration of the identity of the parties, the similarity of the issues, the relief available to the plaintiff, and whether a declaration will clarify the obligations of the parties. Applying those principles, the Court concluded that the district court abused its discretion by issuing its stay order. Under Indiana law, Medical must show actual prejudice to prevail on its breach of cooperation argument. Although the district court thought that Medical could not show actual prejudice without interfering with the malpractice actions, the Court concluded that Medical should at least be given the chance.

Tags: Opinion by Wood, Abstention, Declaratory Judgment Act, Federal Statute - Other, Jurisdiction, Parallel Proceeding

Hobbs Act Jurisdictional Inquiry Takes Precedence Over Chevron Step-One Analysis

Posted on June 10, 2010 by Michael Rigney

CE DESIGN v. PRISM BUSINESS MEDIA (May 27, 2010)

Prism Business Media publishes trade magazines and sponsors tradeshows. CE Design subscribes to several Prism publications. When Prism sent an unsolicited fax to CE Design in 2004, CE Design filed a putative class action under the Telephone Consumer Protection Act (TCPA). The TCPA prohibits the sending of unsolicited advertisements to fax machines. Prism moved for summary judgment, arguing that an FCC implementing order allowed the sending of unsolicited advertisements to the fax machines of companies with which the sender had an "established business relationship (EBR)." Judge Pallmeyer (N.D. Ill.) granted summary judgment to Prism. CE Design appeals.

In their opinion, Judges Flaum, Kanne, and Evans affirmed. The Court describes the issue before it as the classic “chicken-and-the-egg” dilemma. On the one hand, the Hobbs Act reserves to the courts of appeals the power to determine the validity of an FCC order -- and requires a petition for reconsideration with the FCC before a request for relief from a court of appeals. Here, the district court relied on the Hobbs Act and refused to consider the validity of the FCC order creating the EBR exemption. On the other hand is the familiar Chevron analysis used to review an agency's construction of a statute. In the first step of that analysis, a court determines whether the statute is silent or ambiguous on the issue which is the subject of the agency's order. Only if it is silent or ambiguous does the court examine the reasonableness of the agency action. CE Design asserts that the TCPA is unambiguous on the meaning of "unsolicited advertisement" so the court need not consider the FCC order. The Court rejected CE Design's position. An Article III court's first obligation is to ensure its jurisdiction -- before any consideration of the merits. Thus, if the Hobbs Act and the Chevron analysis were really analogous to the "chicken-and-the-egg," the Court would have to address the jurisdictional question in the Hobbs Act before engaging in the Chevron analysis. Alternatively, the Court concluded that the two approaches were not really in conflict. The result of CE Design's own Chevron argument would have been the invalidation of the FCC order by the district court -- exactly the result that the Hobbs Act prohibits. On the merits of the EBR exemption itself, the Court had no difficulty in agreeing with the district court that the exemption applied on the facts of the case.

Tags: Opinion by Evans, EBR, Established Business Relationship, Federal Statute - Other, Hobbs Act, Jurisdiction, TCPA, Telephone Consumer Protection Act

The District Court Lacks Power To Remand To State Court Based On A Procedural Defect That Has Been Waived

Posted on June 1, 2010 by Michael Rigney

PETTITT v. THE BOEING COMPANY (May 17, 2010)

In the spring of 2007, a Boeing 737 crashed in Cameroon -- all those aboard died. A few years later, six lawsuits were filed relating to the accident in Cook County Circuit Court. All six suits were removed to federal court pursuant to the Multiparty, Multiforum Trial Jurisdiction Act (MMTJA). Three of the six suits have since been dismissed. The other three were assigned to three different district court judges. In one of those cases, Boeing moved for a reassignment and consolidation of the case to the judge with the lowest numbered case, pursuant to local rule. Instead of ruling on the motion, however, the court on its own remanded the case to state court. The basis for his remand was the fact that not all the defendants had consented to the removal. Boeing appeals.

In their opinion, Circuit Judges Cudahy and Kanne and District Judge Darrah vacated and remanded. The Court first addressed its jurisdiction, since a remand order under § 1447 (c), as this is, is generally not appealable. The Court clarified that, although it cannot review the propriety of such an order, it can determine whether a court possessed the actual power to do what it did. Here, in fact, it concluded that the court had no such power. Any defect in the removal was a procedural defect -- and procedural defects are waived if not raised by motion within 30 days of removal. The district court has no power, on its own, to remand after the passage of the 30 days. As an aside, the Court noted the absence of any procedural defect. Acknowledging that removal generally requires the consent of all defendants, the Court stated that removal under the MMTJA does not require all defendants' consent.

Tags: Opinion by Cudahy, Civil Procedure, Consolidation, Jurisdiction, MMTJA, Multiparty, Multiforum Trial Jurisdiction Act, Remand, Removal

Subject Matter Jurisdiction Is Not Subject To Collateral Attack

Posted on May 10, 2010 by Michael Rigney

DEXIA CREDIT LOCAL v. ROGAN (April 26, 2010)

Peter Rogan went to Dexia Credit Local to guarantee the bond repayment for his Edgewater Medical Center. He did not tell Dexia that he was involved in a Medicare and Medicaid fraud scheme. Dexia sued Rogan and obtained a default judgment of over $100 million after Rogan absconded to Canada. Dexia served Rogan's wife Judith with a citation to discover assets and filed an ex parte motion for a Temporary Restraining Order to freeze certain of her assets. Dexia alleged that Judith was helping Rogan conceal his assets. The court granted the TRO and prohibited Judith from transferring certain of Rogan's assets. Judith objected to the TRO on several grounds but the court denied relief, stating that it would consider her arguments at a later hearing on a preliminary injunction. Judith presented evidence at the preliminary injunction hearing -- but later withdrew all of it. The district court granted the preliminary injunction. Judith appealed. During the pendency of the appeal, Judith discovered that complete diversity was absent in the original action brought by Dexia against Rogan. She returned to the district court and moved to dismiss the citation. The district court denied - it instead dismissed the non-diverse defendants, concluding that they were not necessary parties.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Sykes affirmed. The Court upheld the jurisdictional ruling on two alternative grounds: a) once a final decision is entered, Judith cannot collaterally attack the lack of subject matter jurisdiction in the district court, and b) Federal Rule of Civil Procedure 21 allows a district court to dismiss non-diverse, unnecessary parties before or after final judgment. On the merits of the preliminary injunction, the Court rejected each of Judith's objections: the order was sufficiently precise in its prohibitions and the court was sufficiently complete in its reasoning to satisfy Rule 65(d), the court's oral recitation of its findings was sufficient to satisfy Rule 52, the injunction was sufficiently tailored to address Judith’s alleged broad misconduct, and the fact that she was not a party to the underlying lawsuit did not prevent the court from entering the injunction.

Tags: Opinion By Rovner , Citation To Discover Assets, Injunction", Jurisdiction, Preliminary, Rule 21, Rule 52, Rule 65(d), Subject Matter Jurisdiction, TRO, Temporary Restraining Order

State Law Conspiracy And Tortious Interference Claims Were Properly Removed Because They "Arose In" Bankruptcy

Posted on April 28, 2010 by Michael Rigney

IN RE: REPOSITORY TECHNOLOGIES, INC. (April 12, 2010)

Repository Technologies, Inc. ("RTI") was a software supplier. When it needed additional financing, William Nelson, a minority shareholder, offered to help. He eventually loaned almost $2 million to RTI. Once he sent a notice of default, however, RTI filed for Chapter 11 reorganization. In the bankruptcy proceeding, RTI attempted, unsuccessfully, to recharacterize the entire Nelson debt as equity. Although the bankruptcy court refused to dismiss the case on the ground it was filed in bad faith, it did dismiss it on the ground that RTI was unable to reorganize. The district court affirmed the bankruptcy court and denied Nelson's request to strike, as dictum, the finding that the case had not been filed in bad faith. Nelson appeals -- RTI cross appeals. (Meanwhile, Nelson also filed a complaint in federal court seeking damages for the breach of the loan agreement. The district court froze RTI's assets pending resolution of the case, but not before RTI paid $100,000 to its bankruptcy lawyers. The court also appointed a receiver who transferred all of RTI's assets to Nelson as the successful bidder at a UCC sale. The court approved the sale and dismissed the claims without prejudice.)

Nelson also brought suit, in state court, against RTI's lawyers. He alleged that the lawyers conspired with RTI to file the bankruptcy case to enrich themselves, that they tortiously interfered with his loan agreement with RTI, and that they abused the bankruptcy process. The defendants removed. The district court denied remand, even after Nelson withdrew his "abuse of the bankruptcy process" count. The court then, relying on the district court’s finding in the bankruptcy case that the bankruptcy case was not filed in bad faith, dismissed the abuse of process claim with prejudice. The defendants moved to dismiss the rest of the complaint on the grounds that the entirety of the complaint was based on an abuse of the bankruptcy process. The district court, however, concluded that some state claims remained and remanded to state court. The defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Tinder vacated and remanded with instructions to dismiss in the bankruptcy court appeal and reversed and remanded in the district court appeal. First addressing the appeal of the bankruptcy court decision, the Court concluded that the case was moot. The district court, in an order not appealed, approved the sale of all of RTI's assets. An appellate review of the bankruptcy court's decision could therefore not provide any meaningful relief. Although the Court agreed with Nelson that the bankruptcy court's statement about the good faith filing was dictum, it declined to entertain the argument since one cannot appeal dictum. The Court therefore vacated the judgment of the district court and remanded with instructions to dismiss the appeal from the bankruptcy court as moot.

With respect to the appeal of the district court case, the Court also began with a discussion of its jurisdiction. The defendants had removed on three alternate grounds: bankruptcy jurisdiction, diversity jurisdiction, and complete preemption. The district court relied on its bankruptcy jurisdiction to keep the case. The Court noted that district courts have original jurisdiction of proceedings "arising in or related to" cases under title 11. The Court agreed with the district court that the claims in the case were predicated on the lawyers' participation in the bankruptcy case and therefore met the "arising in" jurisdiction. Even the pre-petition conduct alleged in the complaint was related to the claims of abuse of process. Before reaching the merits of the remand, however, the Court concluded that it also had to address the existence of jurisdiction under the alternate grounds argued -- diversity jurisdiction and complete preemption – since the existence of any federal jurisdiction ground would prohibit a remand. As to the former, the defendants earlier conceded that diversity jurisdiction could not be a basis for the original removal because of the "forum defendant rule." The defendants did not preserve the argument that diversity jurisdiction could be used to keep the case in federal court, notwithstanding the “forum defendant rule, since the original removal was on other, proper grounds that have now been eliminated. The court therefore did not reach that "interesting question." With respect to complete preemption, the Court noted that complete preemption requires the existence of a federal cause of action that can substitute for the state action and provide recovery. Here, the lack of a federal claim that could substitute for Nelson's civil conspiracy and tortious interference claims illustrates the absence of complete preemption. The district court therefore did not have an independent ground of federal jurisdiction and had discretion to remand the supplemental state claims. On the merits of the remand, the Court recognized the usual practice to dismiss supplemental state claims if federal claims are dismissed before trial and conceded that it rarely interferes with a district court's discretion in this area. However, the discretion is not absolute. Here, the state claims are based on the defendants' participation in the bankruptcy case and are inseparable from the dismissed federal claims. When state claims are so entangled with the dismissed federal claims, the district court should retain supplemental jurisdiction. The fact that the claims are so interrelated and entangled might suggest that the state law claims should be dismissed as well. Although conceding the logic of that point, the Court added that the district court's reliance on the bankruptcy court's dictum in dismissing the federal claim was flawed. Dictum has no preclusive effect. The state claims should be resolved, said the Court, without reference to that dictum.

Tags: Opinion by Tinder, Bankruptcy, Complete Preemption, Dictum, Diversity Jurisdiction, Jurisdiction, Remand, Res Judicata, Supplemental Jurisdiction

Personal Jurisdiction Over Out-Of-State Defendants Requires Intentional Conduct Aimed At The Forum State And Knowledge That The Injury Will Occur There

Posted on April 26, 2010 by Michael Rigney

TAMBURO v. DWORKIN (April 8, 2010)

John Tamburo designs software for dog lovers. He lives and works in Illinois. One of his products is an online database that provides pedigree information. He created the database by pulling information about pedigrees from other sources on the Internet. The sources of some of the information used by Tamburo were free public websites operated by defendants Henry, Hayes, Mills, and Dworkin. Dworkin is a Canadian resident and citizen -- the others are citizens and residents of the United States. When Henry, Hayes, and Mills discovered what Tamburo had done, they made statements on their own web sites accusing Tamburo of being a thief and of selling stolen goods. They called for a boycott of his products. They even revealed Tamburo's home address and urged their own readers to harass him. Dworkin first demanded that he remove the information from his database. When Tamburo did not do so, Dworkin sent out his own e-mails accusing Tamburo of theft and using the information for an improper purpose. Some of these messages made it to Wild Systems, an Australian company that has its own pedigree software product. Wild Systems forwarded the messages to its own e-mail list. Tamburo sued the four individuals and Wild Systems in Illinois federal court. He sought a declaration that he had violated no federal law and sought damages for antitrust violations, defamation, tortious interference, trade libel, and civil conspiracy. The district court dismissed as to all defendants on the grounds that the court lacked personal jurisdiction. Tamburo appeals.

In their opinion, Judges Bauer, Kanne, and Sykes affirmed in part and reversed in part. As an initial matter, the Court addressed the state and federal antitrust claims and concluded that the district court properly dismissed them, although they should have been dismissed for failure to state a claim. The claims were stated in a completely conclusory fashion and failed to meet the Twombly standard. The Court then turned to personal jurisdiction. Given the Illinois long-arm statute, the question for the Court was whether the defendants had sufficient "minimum contacts" with the forum to support jurisdiction. The Court concluded that none of the defendants had sufficient contacts with Illinois to support a finding of general jurisdiction. In order to establish specific jurisdiction, a) the contacts must relate directly to the challenged conduct, b) the defendant must have "purposefully directed" activities at the forum, and c) the injury must arise out of that activity. The Court looked to the Supreme Court's decision in Calder for guidance on application of the "purposefully directed" test. It found three requirements: a) intentional conduct, b) aimed at the forum state, and c) defendant's knowledge that the injury would be felt in the forum state. The Court found the first element satisfied. With respect to the second and third elements, the Court noted some tension in its decisions applying Calder -- Janmark focused on an injury in the forum state while Wallace required something more than a forum state injury. Here, there is a forum state injury arising from tortious conduct deliberately aimed at a target in the forum state. That satisfies either test and is enough to exercise personal jurisdiction over the individual defendants. With respect to Wild Systems, however, there is no allegation that it acted with knowledge of Tamburo's location or with the purpose of inflicting injury in Illinois. Thus, personal jurisdiction does not exist with respect to Wild Systems. The Court next addressed the "arise out of" requirement. Although it pointed out the conflict among the circuits with respect to the proper test, it found no need to weigh in on the issue since it concluded that the alleged injury "arose out of" the defendants' contacts even under the most rigorous approach. Finally, the Court concluded that the exercise of personal jurisdiction over the individual defendants would not offend the traditional notions of fair play and substantial justice.

Tags: Opinion by Sykes, Constitutional Law, Due Process, Jurisdiction, Long-Arm Statute, Minimum Contacts

Statutory Limitation Is Not Jurisdictional Unless Congress Clearly Says So

Posted on April 5, 2010 by Michael Rigney

MILLER v. HERMAN (March 25, 2010)

John Miller and his wife entered into an oral agreement with James Herman and his company to build the Millers a new home in Lakemoor, Illinois. As part of the construction, Herman purchased and installed windows made by Pella Products. According to Miller, the windows leaked from the time of their installation. Herman provided some additional caulking and Pella inspectors reinstalled one of the windows – but nothing helped. Miller filed an eight-count complaint against Herman and Pella in federal court. The federal claims were breach of warranty claims pursuant to the Magnuson-Moss Warranty -- Federal Trade Commission Improvement Act (the “Act”). In effect, the Act provides a federal forum to consumers for breach of warranty claims. Miller also pleaded state law counts for breach of contract, breach of implied warranty of habitability, common law fraud, and a violation of the Illinois consumer fraud act. Herman moved to dismiss the federal claims for lack of subject matter jurisdiction, contending that the fact that the windows were not "consumer-products" under by the Act deprived the court of jurisdiction. Pella filed a motion for summary judgment, also contending that the windows were not "consumer-products," but casting its argument as Miller’s inability to satisfy the elements of the claim as opposed to a failure of jurisdiction. Miller filed a consolidated response to the motions. The district court concluded that it lacked subject matter jurisdiction and granted the motion to dismiss. Miller appeals.

In their opinion, Judges Bauer, Manion, and Tinder affirmed, as modified, the dismissal of the federal counts and vacated and remanded the dismissal of the state law claims. The Court first addressed the jurisdiction versus merits confusion below -- whether, if the windows are not covered by the Act, the court lacks jurisdiction or the plaintiff simply loses on the merits. The Court recited the Supreme Court's "bright line" test. In Arbaugh, the Supreme Court stated that a statutory limitation should be treated as non-jurisdictional unless Congress clearly states that it is jurisdictional. The "consumer product" language in the Act is not part of the jurisdictional section or otherwise clearly treated as jurisdictional. The Court concluded that it was therefore not facing a jurisdictional limitation. On the merits, the central issue in both the motion to dismiss and motion for summary judgment is whether the windows were "consumer-products" under the Act. Finding the statutory definition both expansive and "somewhat hazy," the Court directed its attention to the FTC interpretations of the Act. It decided to give the interpretations a significant degree of deference since they were issued by the administering agency, they were issued using notice and comment procedures, they have stood the test of time, and they are based on the legislative history of the Act. The parties argued competing interpretations. Miller relied on 16 C.F.R. § 700.1(e), particularly on language that stated that construction products are "consumer products" when they are sold over-the-counter. The defendants, on the other hand, relied on 16 C.F.R. § 700.1(f), and specifically on language stating that construction materials are not "consumer products" when a consumer enters into a contract with a builder to construct a new home. Although the Court conceded that the FTC interpretations cited by the parties drew a fine line between what is and what is not a consumer product, it saw no reason to not respect the line. Following the interpretations, and the application of those interpretations by other courts, the Court concluded that the windows were not "consumer-products" within the meaning of the Act. As modified to reflect the merits rather than jurisdictional dismissal, the Court affirmed the dismissal of the federal counts. The district court dismissed the state law claims because it thought it had to, since it concluded that it lacked subject matter jurisdiction. Although the general rule is that a federal court will not retain wholly state law claims once federal claims are dismissed before trial, it is not required to. Since the district court did not even consider its authority to retain the state law claims, the Court reversed and remanded for that purpose.

Tags: Opinion by Tinder, Breach Of Warranty, Consumer Products, Federal Statute - Other, Jurisdiction, Magnuson-Moss Warranty -- Federal Trade Commission Improvement Act, Warranty

Acceptance of Offer of Judgment From One Defendant Did Not Moot Other Claims

Posted on March 15, 2010 by Michael Rigney

MINIX v. CANARECCI (February 26, 2010)

While on leave from a mental hospital where he was a patient, Gregory Zick was arrested and incarcerated in the St. Joseph County Jail. The jail provided medical and mental health services through contracts with third-party vendors Memorial Home Care and Madison Center. Jail personnel became aware during Zick's booking that he had attempted suicide in the past and was taking medications to treat his suicidal thoughts. Zick was originally put in medical segregation and on suicide watch. He was transferred into the general population, however, a few days later after he denied having suicidal thoughts. About a month later, he was placed back in medical segregation after he refused to take his medication and a jail officer noticed a razor blade missing. Again, after a few days, he was released from medical segregation because he was alert and denied thoughts of suicide. Later that night, he hanged himself with a bed sheet. Cathy Minix, his personal representative, brought an action pursuant to § 1983 against the Sheriff, the medical providers, and several jail employees. She alleged violations of the Eighth and Fourteenth Amendments based on the defendants' display of deliberate indifference. The district court granted summary judgment to all defendants except the Sheriff. Minix then accepted an offer of judgment from the Sheriff. She appeals the summary judgment rulings in favor of Memorial Home Care and its employee Dr. David, Madison Center and its employee Christine Lonz, and the supervisor of the nursing staff, Jeanne James.

In their opinion, Judges Bauer, Kanne, and Tinder affirmed. The Court first addressed its jurisdiction, in light of the offer of judgment and its acceptance. Since the claim against the Sheriff was against him in his official capacity, and therefore could not have included punitive damages under § 1983, the punitive damage claims against the other defendants present a live controversy, even if the acceptance of the offer of judgment limits additional compensatory damages. On the merits, the Court first identified the two elements of an inadequate medical care claim under the Eighth or Fourteenth Amendment: a substantial risk to one's safety because of an objectively serious harm, and deliberate indifference to that risk. A jail suicide case automatically satisfies the first element. The second element requires that each defendant know that there is a substantial risk of suicide -- and intentionally disregard it. The Court addressed each defendant under that standard and found summary judgment proper in each case: a) Lonz was unaware of Zick’s suicidal history or thoughts, b) there was no evidence that Madison Center adopted or condoned any unconstitutional policy and there was no causal link between any Madison Center practice and the suicide, c) Zick's behavior in segregation did not provide Nurse James with actual knowledge of a substantial risk of suicide, d) Dr. David was not directly involved in Zick's treatment, and e) there was a lack of evidence that Memorial Home condoned or adopted an unconstitutional practice.

Tags: Opinion by Tinder, Civil Procedure, Civil Rights, Constitutional Law, Deliberate Indifference, Eighth Amendment, Fourteenth Amendment, Jurisdiction, Mootness, Offer Of Judgment, Section 1983

Defendant's Offer Of Judgment In Excess Of Maximum Recovery Renders Case Moot

Posted on March 11, 2010 by Michael Rigney

THOROGOOD v. SEARS, ROEBUCK & CO. (February 12, 2010)

Stephen Thorogood filed a state court class-action on behalf of the purchasers of stainless steel dryers in multiple states. He alleged that the defendant’s representation that the dryers were made of stainless steel violated the consumer protection acts of those states. The defendant removed the case to federal court under the Class Action Fairness Act (CAFA). Although the district court certified a class, the Seventh Circuit reversed and ordered the class decertified (intheiropinion.com post). The Court thought the case was not only a weak candidate for class certification, but also flimsy on its own merits. On remand, the defendant made an offer of judgment, inclusive of attorneys fees, of $20,000. Finding that that offer exceeded plaintiff's maximum recovery under state law of $3,000 and therefore the amount in controversy, the district court dismissed the case as moot. Thorogood appeals.

In their opinion, Judges Posner, Kanne, and Evans affirmed. The Court first rejected plaintiff's argument that the case should have been remanded upon class decertification, relying upon its decision in Cunningham Charter (intheiropinion.com post) just three weeks earlier. Then, the Court rejected the plaintiff's argument that the case was not moot because of his entitlement to significant attorneys’ fees. First, an award of fees for value conferred beyond the relief obtained must generally be relief ordered by the court. Second, the court was within its discretion in deciding that no fees were warranted. Finally, the Court noted that most of the fees were incurred pursuing the failed class action, not the $3,000 individual action.

Tags: Opinion by Posner, Attorneys' Fees, CAFA, Class Action Fairness Act, Class Actions, Class Certification, Jurisdiction, Mootness

Money Damages Are Available Against The United States For A Fair Credit Reporting Act Violation

Posted on March 5, 2010 by Michael Rigney

TALLEY v. UNITED STATES DEPARTMENT OF AGRICULTURE (February 12, 2010)

Wayne Talley used to have a loan from the United States Department of Agriculture. Although he repaid it, the Department reported to a credit bureau that he was delinquent. Four times he complained to the credit bureau -- four times the credit bureau investigated -- four times the Department reported that the loan was repaid – four times the credit bureau fixed his credit report. Each time, however, the Department followed up with the another report of delinquency. Tally brought an action under the Fair Credit Reporting Act for damages for the Department's inaccurate reporting. The Department did not deny that it violated the Act but contended that sovereign immunity precluded any monetary relief. The district court awarded $10,000 in compensatory damages and $20,000 in attorney's fees. The Department appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Tinder affirmed. The Court first addressed jurisdictional issues, both at the district court and appellate court level. The Tucker Act has provisions allocating jurisdiction both at the lower court level (between the district court and the Court of Federal Claims) and at the appellate level (between regional circuits and the Federal Circuit). In order to determine the impact of the Tucker Act, the Court fleshed out the specific argument of the Department. On appeal, the Department conceded an argument that it had made at the lower court that the Department was not a "person" under the Act. It argued simply that the Fair Credit Reporting Act did not expressly authorize monetary relief against the United States. The Court concluded, however, that the Tucker Act waived sovereign immunity generally and authorized money damages for a statutory claim. Although that resolved the merits, the Court now had to circle back to see if there was jurisdiction. The Tucker Act provides that the case should be brought in the Court of Federal Claims if the plaintiff seeks in excess of $10,000. The Court concluded that the $20,000 in attorney's fees should be classified as costs under the Fair Credit Reporting Act and not counted toward the $10,000 threshold. Therefore, the district court had jurisdiction. With respect to appellate jurisdiction, the Tucker Act sends a case to the Federal Circuit if jurisdiction in the district court depended "in whole or in part" on the Tucker Act. The Court concluded that, although the Tucker Act could be a basis for jurisdiction, Talley did not invoke it as such. Because he relied on section 1331 and on the Fair Credit Reporting Act's jurisdictional provisions, appellate jurisdiction was present.

Tags: Opiniion By Easterbrook, FCRA, Fair Credit Reporting Act, Jurisdiction, Sovereign Immunity, Tucker Act

Court May Not Remand Case If Any Part Remains Within Its Jurisdiction

Posted on February 24, 2010 by Michael Rigney

BERGQUIST v. MANN BRACKEN, LLP (January 26, 2010)

Sandra Bergquist owed money to the bank that issued her a credit card. The bank retained the law firm of Mann Bracken to collect the debt. The firm arbitrated the dispute before the National Arbitration Forum, as provided in the credit card agreement. The bank prevailed at the arbitration and a state court entered judgment enforcing the arbitration award. Bergquist was suspicious of the connection between Mann Bracken and the National Arbitration Forum. She asked the state court to set aside its judgment enforcing the award. It did so and dismissed the case with prejudice. She also filed a class-action on behalf of all persons who were pursued by Mann Bracken and had their claims arbitrated before the National Arbitration Forum. The defendants removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). The district court remanded, concluding that the Rooker-Feldman doctrine precluded federal jurisdiction of the claim. Defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Rovner vacated and remanded. The Court first rejected the argument that CAFA trumps Rooker-Feldman. Although CAFA expands federal jurisdiction with respect to class actions, it does not change the Rooker-Feldman limitation on collateral attacks of state court decisions. The Court concluded, however, that the Rooker-Feldman doctrine had no application in the case. First, although the district court recognized the inapplicability of the doctrine to Bergquist's individual claim (because the state case had been dismissed with prejudice), it nevertheless remanded because Bergquist sought relief on behalf of others who had lost in state court. The Court found this to be error. The district court was not allowed to remand the entire case because some portion of it did not belong in federal court. A federal court must exercise the jurisdiction that does exist. Second, it was not apparent to the Court that any claim need be remanded. The Court identified three possible subclasses: those who won in state court, those who lost in state court, and those who neither won nor lost. The class can be defined to eliminate those who lost in state court, the only persons in the class with a Rooker-Feldman problem. The Court remanded for a determination of whether the jurisdictional requirements were met under that revised class definition.

Tags: Opinion by Easterbrook, Rooker-Feldman, CAFA, Civil Procedure, Class Action Fairness Act, Class Actions, Jurisdiction

Federal Jurisdiction Under The Class Action Fairness Act Does Not Depend On Class Certification

Posted on February 23, 2010 by Michael Rigney

CUNNINGHAM CHARTER CORP. v. LEARJET (January 22, 2010)

Cunningham Charter Corp. brought a breach of warranty and products liability class action against Learjet in state court. Learjet removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). After the district court denied class certification for failure to satisfy the requirements of Rule 23, it remanded the case to state court. The district court concluded that the denial of certification deprived the court of federal jurisdiction under CAFA. Learjet sought leave to appeal.

In their opinion, Judges Posner, Coffey, and Flaum granted leave to appeal and reversed and remanded. CAFA, said the Court, grants federal jurisdiction to certain class actions. A class action is defined as "any civil action filed under rule 23." The statute also specifically provides that it applies before or after a class is certified. Based on these and other provisions of CAFA, as well as the principles that jurisdiction is determined at the time of filing and is generally not affected by later developments, the Court concluded that CAFA jurisdiction does not depend on class certification.

Tags: Opinion by Posner, CAFA, Civil Procedure, Class Action Fairness Act, Class Actions, Class Certification, Jurisdiction

Refiling Complaint Before The Voluntary Dismissal Of Previously Complaint Is Nevertheless Barred By The "Single Refiling" Rule

Posted on February 12, 2010 by Michael Rigney

CARR v. TILLERY (January 12, 2010)

Rex Carr was a lawyer in southern Illinois. He and his partners had several agreements concerning the allocation of fees earned by the firm. The agreements continued in effect after the dissolution of the firm in 2003. Significant disputes arose, and a host of lawsuits were filed, with respect to those fees. A Memorandum of Understanding (MOU) was agreed to in 2004. It was meant to control the distribution of all fees, past and future, among the partners. Notwithstanding an agreement to dismiss all pending cases, Carr actually amended a counterclaim in one of the pending actions to assert that he had been fraudulently induced to enter into the MOU. The claim was eventually dismissed and the dismissal was affirmed. While the appeal was pending, Carr brought four separate suits in state court, then brought this federal case, and then voluntarily dismissed the state cases. He brought the federal case under RICO, repeating many of the allegations of the earlier suits, including the fraudulent inducement claim. The district court dismissed the suit for failure to state a claim. Carr appeals. The defendants cross-appeal from the court's denial of their motion for sanctions.

In their opinion, Judges Posner, Ripple, and Wood affirmed in part and vacated and remanded in part. On the merits, the Court disagreed with the court below that all the claims were barred by the doctrine of res judicata. The complaint contains at least one claim that postdates the earlier dismissal. The Court held that the claims were barred, however, by Illinois' "one refiling" rule. Under that rule, a plaintiff who voluntarily dismisses a complaint may start a new action within one year or the remaining period of limitations. Illinois courts have held the rule to mean that a plaintiff may commence only one new action after a voluntary dismissal. Here, Carr filed four lawsuits in Illinois before he filed the federal lawsuit. He dismissed all of the state court suits soon after he filed a federal suit. Although each of the state court suits was based on a different theory of liability or sought different relief, they all arose from the same events. That is true even for the claim postdating the earlier dismissal, a claim that the defendants violated the MOU. The Court next considered whether the RICO claim, on which federal jurisdiction was based, was so weak so as to not support jurisdiction. Such a conclusion would lead the Court to dismiss for lack of jurisdiction rather than on the merits. Although the Court termed the claimant a "complete nonstarter," since it was so on the basis of an affirmative defense, the Court concluded that a dismissal on the merits with prejudice was more appropriate. On the cross-appeal, the Court found the denial of sanctions erroneous. Although the defendants based their motion on § 1927, which does not apply to misconduct prior to the filing of the federal complaint, the Court saw no reason why the district court could not invoke its inherent, common law power to punish attorney misconduct. The filing of multiple lawsuits, including the present frivolous one, was ground enough for the Court to direct the district court to assess a proper sanction and consider enjoining Carr from conducting further related litigation.

Tags: Opinion by Posner, Civil Procedure, Frivolous, Jurisdiction, One-Filing Rule, RICO, Res Judicata, Sanctions

Rooker-Feldman Doctrine Applies When Relief Requested Would Effectively Reverse State Court

Posted on February 11, 2010 by Michael Rigney

GILBERT v. ILLINOIS STATE BOARD OF EDUCATION (January 11, 2010)

For almost 20 years, Robert Gilbert was a high school social studies teacher -- and a highly regarded one at that. Apparently, he performed better as a teacher than as a colleague or employee. The school district eventually fired for insubordination. Gilbert contested his discharge administratively. After the district presented its evidence at the hearing, the hearing officer granted Gilbert's request to find in his favor. On review, the state appellate court reversed and remanded with instructions to reinstate the termination. Gilbert, concerned that the order would not allow him to reconvene the hearing and present his evidence, sought reconsideration in the appellate court and review in the state Supreme Court. He was unsuccessful. Gilbert then attempted, on remand to the circuit court, to get the state to reconvene the hearing. Again, he was unsuccessful. Instead of appealing that order, Gilbert filed suit in federal court. He asserted a due process claim and sought an injunction to reconvene the hearing and a declaration that his due process rights had been violated. The court dismissed the request for injunctive relief under the Rooker-Feldman doctrine, later (after a replacement of judge) dismissed the claim for declaratory relief for lack of standing, and denied several motions to amend. Gilbert appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Wood affirmed. The Court agreed that the claim for an injunction was barred by the Rooker-Feldman doctrine. That doctrine prevents a lower federal court from reviewing the decisions of a state court. Here, the Court concluded that granting Gilbert his requested relief would reverse the effect of the state court decision. Even Gilbert's argument that the state appellate court's decision did not preclude a reconvening of his hearing was presented to and rejected by the state court. With respect to the declaratory count, Gilbert did not contest the soundness of the ruling. He only argued that the second judge violated law-of-the-case principles when he dismissed the declaratory count after the first judge chose not to. The Court first noted that the law-of-the-case doctrine has no applicability on appeal. At the district court level, it is a deferential principal discouraging a later judge from reconsidering a prior judge’s ruling. On appeal, however, the Court simply decides whether the ultimate result was correct. As an aside, the Court also noted that the law-of-the-case principal has less applicability when a jurisdictional issue is involved and when the first judge never directly addressed the issue, both of which are present here. Because Gilbert did not even challenge the correctness of the dismissal of the declaratory count, the Court did not address the merits.

Tags: Opinion by Wood, Rooker-Feldman, Civil Rights, Constitutional Law, Jurisdiction, Law-Of-The-Case Doctrine

"Insubstantial" Federal Claims Do Not Provide A Basis For Supplemental Jurisdiction

Posted on February 5, 2010 by Michael Rigney

AVILA v. PAPPAS (January 4, 2010)

Maria Avila was already in trouble. Her employer, the Cook County Treasurer's Office, was about to conduct a disciplinary hearing. Avila made it worse when she told one of her coworkers that she might "go postal." Her coworker advised her superiors. They not only added a disciplinary count for the implied threat and fired her but alerted the authorities. Avila was criminally prosecuted. The prosecutor charged a felony, taking the position that one of the targets of Avila's threat was a public official. Avila was acquitted, the court holding that he was not a public official. Avila filed suit against her superiors pursuant to §1983, alleging both constitutional violations and state law malicious prosecution. Although the court dismissed the federal counts, it retained the state law claim under supplemental jurisdiction and resolved it on the merits in favor of the defendants. Avila appeals the judgment on the state law claim.

In their opinion, Chief Judge Easterbrook and Judges Wood and Tinder vacated and remanded with instructions to dismiss for want of jurisdiction. The Court first addressed its jurisdiction. Although Avila asserted four federal law theories, the Court emphasized that a federal claim must have substance to create a basis for federal jurisdiction. The Court concluded that the federal claims -- substantive due process, conspiracy, failure to train, and equal protection -- were frivolous. The Court principally relied on the Supreme Court's decision in Albright and the Court's own decision in Newsome, holding that malicious prosecution does not violate the Constitution if state law recognizes it as a tort (which Illinois does).

Tags: Opinion by Easterbrook, Civil Rights, Constitutional Law, Due Process, Equal Protection, Jurisdiction, Malicious Prosecution, Supplemental Jurisdiction

Replacement Of Lamp With Virtually Identical Product Results In No Damages

Posted on February 3, 2010 by Michael Rigney

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.

Tags: Opinion by Posner, Contract/Commercial Law, Damages, Diversity Jurisdiction, Federal Question Jurisdiction, Fraud, Jurisdiction, Limitation Of Liability, Supplemental Jurisdiction

Anecdotal Evidence Of Judicial Corruption In An EU Country Does Not Establish Inadequacy Of Forum

Posted on February 1, 2010 by Michael Rigney

STROITELSTVO BULGARIA LIMITED v. BULGARIAN-AMERICAN ENTERPRISE FUND (December 14, 2009)

Stroitelstvo Bulgaria Limited ("Limited") is a Bulgarian construction company. In 2005, it borrowed almost €2 million from the Bulgarian-American Credit Bank ("Bank") for a construction project. After a few months, the Bank claimed that Limited breached the loan agreement. It terminated its payments under the borrowing and asserted a right to recover almost €1 million, although less than €400,000 had been disbursed. According to Limited, the allegations of a breach were simply a pretext to put pressure on Limited to pay more for its borrowing. When the bank got a judgment in Bulgaria for almost €1 million and froze Limited’s assets, Limited agreed to compromise the claim for less than the judgment but more than they owed. They then sued Bank and its U.S. parent in U.S. court, alleging violations of RICO and the Bulgarian Obligations and Contracts Act as well as contract and tort claims. The court granted a motion to dismiss on forum non conveniens grounds. Limited appeals.

In their opinion, Judges Manion, Sykes and Tinder affirmed. In order to dismiss on forum non conveniens grounds, a court must find that there is an alternate forum that is both available and adequate. The principal issue on the appeal was whether the available Bulgarian forum was “adequate.” An adequate forum is one that provides some fair avenue for redress – not necessarily as complete or comprehensive as the U.S. forum. The Court noted that there was expert testimony regarding corruption in the Bulgarian court system. However, particularly given Bulgaria’s entry into the European Union with its requirement of a stable legal system, the Court concluded that the anecdotal evidence of corruption did not establish inadequacy. The Court also conceded that Limited would not have available the same claims in Bulgaria – particularly would have no RICO claim. It was undisputed that a breach of contract claim would lie against the Bank, and that was the heart of the complaint. The Court concluded that was enough potential for redress to meet the adequacy standard. Finally, the Court concluded that the higher filing fee in Bulgaria did not rule out the dismissal. Having concluded that the Bulgarian forum was available and adequate, the Court addressed the balancing factors. The Court found no abuse of discretion. In fact, it found the private and public interests strongly favored Bulgaria.

Tags: Opinion by Tinder, Breach of Contract, Forum Non Conveniens, Jurisdiction, RICO

Federal Arbitration Act Does Not Provide Basis For Jurisdiction To Review Denial Of Stay

Posted on January 26, 2010 by Michael Rigney

SHERWOOD v. MARQUETTE TRANSPORTATION CO. (November 23, 2009)

Bluegrass Marine employs Michael Sherwood as a deckhand on one of its Mississippi River vessels. Sherwood alleged that he was injured during his employment. He brought suit under the Jones Act. Bluegrass sought a stay in favor of arbitration, invoking a clause in Sherwood's employment contract that required all disputes to be arbitrated under the Illinois Uniform Arbitration Act. The court denied the stay, concluding that the Federal Arbitration Act (which does not apply to seamen) preempted the Illinois Act. Bluegrass appealed.

In their opinion, Chief Judge Easterbrook and Judges Evans and Williams dismissed for want of jurisdiction. The Court noted that Bluegrass relied on § 16 of the FAA, which authorizes interlocutory review of a refusal to stay an action under § 3 of the FAA. The Court concluded that § 16 could not provide a basis for jurisdiction since the FAA does not apply to seamen and because Bluegrass never sought or was denied a stay under § 3 of the Act. The Court also rejected Bluegrass' reliance on both the collateral order doctrine and § 1292 (as the denial of an injunction) as bases for an appeal. Although the Court denied the appeal, it did express its doubt regarding the correctness of the district court's preemption conclusion.

Tags: Opinion by Easterbrook, Arbitration, Collateral Order Doctrine, Federal Arbitration Act, Illinois Uniform Arbitration Act, Jurisdiction, Jurisdiction, Stay

Defamation Per Quod Requires Proof Of Special Damages

Posted on January 26, 2010 by Michael Rigney

HUKIC v. AURORA LOAN SERVICES (November 20, 2009)

Avdo Hukic took out a mortgage in 1997. The monthly obligation was $1335. The agreement allowed him to pay taxes and insurance directly -- as long as he provided proof of payment to the lender. Through no fault of his own, his April 1998 payment was processed for $200 less than the required amount. Although the lender notified Hukic of the error, he took no steps to rectify it. Instead. Hukic continued to pay the correct amount each month, but the lender always considered him one month in arrears because of the continuing shortage. At about the same time, the lender advised Hukic that it would start to pay the taxes and insurance unless Hukic provided proof of payment. Hukic did not respond. The lender set up an escrow for the payments and advised Hukic of a new monthly payment amount. Hukic continued to pay the original $1335 each month. The lender, now Aurora Loan Services, reported the mortgage to credit agencies as delinquent in November of 1999. In early 2000, Aurora assigned the loan to Ocwen. Ocwen notified Hukic of his default but continued to pay the taxes and insurance. In January of 2001, Hukic's lawyer advised Aurora that he was paying his taxes directly and complained about negative information on credit reports. Hukic filed a multiple-count suit against Aurora and Ocwen. The court dismissed seven counts and granted summary judgment to the defendants on the Fair Credit Reporting Act, breach of contract and tortious interference with prospective economic advantage counts. Hukic appeals.

In their opinion, Judges Bauer, Evans and Williams affirmed. The Court first considered its jurisdiction-and first considered diversity jurisdiction, the basis of the original removal to federal court. The Court pointed out several problems: Aurora was a limited liability company, the citizenship of an L.L.C. is the citizenship of its members, its only member was a federally chartered savings association, the citizenship of a federally chartered savings association was in doubt under the law, a federal statute that clarified an association's citizenship was not enacted until after the date of removal, and the statute clarifying the citizenship question only applied if the association was a party in a lawsuit (instead of, as here, the member of a party). Luckily, the Court was able to bypass those issues because it concluded that the presence of the FCRA claim provided federal question jurisdiction. Since the state law claims arose out of the same nucleus of fact, they were covered by supplemental federal jurisdiction. After rejecting several procedural arguments, the Court addressed the merits. The Court affirmed the summary judgment on the breach of contract, tortious interference and FCRA claims. It concluded that Hukic was in default and that Aurora and Ocwen thus never provided false information to credit agencies. The Court then addressed the dismissal of the defamation claim on statute of limitations grounds. Like the jurisdictional analysis, the Court's analytic path was tortured. It included discussion of the defamation limitations period, the discovery rule, the continuing violation rule and the single publication rule. Concluding that the Illinois Supreme Court would apply neither the single publication rule nor the continuing violation rule to the facts and therefore that Hukic could maintain a claim for defamation for statements made by Aurora within a year of the filing of the suit, the Court nevertheless affirmed the dismissal. Illinois requires that special damages be pled in a defamation per quod case, which this is. Hukic alleged no harm from the reports that are actionable. Finally, the Court affirmed the dismissal of the intentional infliction of emotional distress claim because it did not allege conduct so extreme or outrageous to state a claim under Illinois law.

Tags: Opinion by Williams, Consumer Protection Law, Continuing Violation Rule, Defamation, Defamation Per Quod, Diversity Jurisdiction, FCRA, Fair Credit Reporting Act, Federal Question Jurisdiction, Jurisdiction, Single Publication Rule, Supplemental Jurisdiction, Tort, Tortious Interference With Prospective Economic Advantage

Independent Standing Is Required To Support Permissive Intervention After Case Is Dismissed

Posted on January 20, 2010 by Michael Rigney

BOND v. UTRERAS (November 10, 2009)

Diane Bond filed a § 1983 action against the City of Chicago and several police officers in 2004. The parties settled. The court entered an agreed order of dismissal on March 23, 2007. About a week earlier, however, journalist Jamie Kalven filed a petition to intervene. Kalven sought to modify a protective order in the case and to obtain access to documents produced during discovery. The City opposed access -- Bond did not substantively respond to the petition. The court granted the motion to intervene and rescinded the protective order. The City appeals.

In their opinion, Judges Kanne, Sykes and Tinder (concurring) vacated and remanded. Although the Court recognized its earlier decisions allowing permissive intervention to challenge a protective order, it emphasized that those cases involved ongoing litigation or access to records in the court file. Here, neither of those conditions is present. The case was over and none of the records sought were ever filed with the court. Therefore, stated the Court, the lower court should have addressed Kalven’s standing. Standing requires that an actual controversy exist at all stages of the proceeding. The Court noted that the circuit had never addressed the relationship between Article III standing and the rule for permissive intervention. This is not a typical permissive intervention case -- where the party seeks to come into an ongoing case on the side of one of the parties. Specifically not addressing whether standing is required for permissive intervention in an ongoing case, the Court concluded that independent standing was required to intervene in a case to challenge a protective order after the case was dismissed. The Court then rejected Kalven's standing on both right to discovery and First Amendment grounds. The Court based the former on the fact that none of the discovery sought had been filed with the court. The general right of public access to court documents is not implicated. The latter was based on the fact that the parties in the litigation stipulated to the protective order. No one placed any limitation on another's speech. Finally, the Court rejected any notion that the revocation of the protective order was within the lower court's inherent power.

Judge Tinder concurred in the result. He got there differently, however. Judge Tinder believed that Kalven had standing based on the public's general right of access to judicial proceedings. He concluded, however, given the timing of the request and the lack of a sufficient showing of abuse with respect to the protective order, that the district court erred on the merits.

Tags: Opinion By Sykes, Opinion By Tinder (Concurring), Civil Procedure, First Amendment, Intervention, Jurisdiction, Permissive Intervention, Standing

Lanham Act Claim Should Await FDA Ruling On Proper Labeling

Posted on January 15, 2010 by Michael Rigney

SCHERING-PLOUGH HEALTHCARE PRODUCTS v. SCHWARZ PHARMA (October 29, 2009)

Schering-Plough makes an over-the-counter oral laxative which it sells under the trade name "MiraLAX." Its chemical name is polyethylene glycol 3350. Four other companies sell polyethylene glycol 3350 as a generic, prescription medication. The FDA requires a warning on the over-the-counter version that it should not be used for more than seven days. The FDA also requires that a generic drug be labeled the same as the original drug and be bioequivalent to the original drug. Schering-Plough brought a Lanham Act action against the defendants. It alleges that the defendants' labels stating that the drug is sold by prescription only are false, in violation of the Act. Meanwhile, the FDA is conducting proceedings to determine whether the defendants' products are mislabeled. The district court dismissed Schering-Plough's suit without prejudice, noting that it could be refiled, if appropriate, after the conclusion of the FDA proceedings. Schering-Plough appeals. The defendants cross appeal, seeking a dismissal with prejudice.

In their opinion, Judges Posner, Flaum and Rovner affirmed. The Court first addressed its jurisdiction, given that the suit was dismissed without prejudice below. The Court recognized some decisions in the past that have suggested that a dismissal without prejudice is not appealable unless the plaintiff is unable to bring a later suit. Focusing on the actual holdings in those cases as well as other authority, the Court concluded that a dismissal without prejudice is appealable unless the defect is immediately curable. On the merits, the Court looked to the provisions of the Lanham Act and the Food, Drug, and Cosmetic Act. It noted that the statutes should be read so as not to conflict with each other and to be given as much effect as possible. For example, the FD&C Act should not be read to prohibit a disclaimer that would correct a misinterpretation on which a Lanham Act claim is based. The record in the case did not make it clear, however, what the Lanham Act remedy should be. Schering-Plough was not very helpful in its suggestions. In addition, the Court believed that any change in labeling adopted by the defendants would have to be approved by the FDA. The Court therefore agreed with the district court that the FDA should be allowed to consider the misbranding issue before the Lanham Act suit is allowed to proceed. Although the Court affirmed the lower court's dismissal without prejudice, it also commented briefly on the viability of the Lanham Act claim. It questioned whether Schering-Plough's reliance on the "literal falsity" doctrine was proper in the context of the case.

Tags: Opinion by Posner, FDA, Intellectual Property, Jurisdiction, Lanham Act, Literal Falsity, Misleading

Patient's Refusal To Consent To Psychiatric Examination Does Not Insulate Physician From Malpractice Liability

Posted on January 5, 2010 by Michael Rigney

HUNTER v. AMIN (October 1, 2009)

Stanley Bell was sent to the St. Clair County Jail as a pretrial detainee. At the time, he was taking several medications, including an antidepressant and a sleep aid. The prison psychiatrist, Dr. Amin, met with Bell about a week later. Bell refused to speak with Amin with a jail officer present. Amin refused to meet with Bell without a jail officer present, a practice that was also required by state regulations. Bell became agitated -- Amin told him his medication would be discontinued without the examination -- Bell became more agitated and belligerent. Amin discontinued all of Bell's medications and planned to meet with him the following week. Bell committed suicide two days later. Bell's sister, Elisha Hunter, brought a claim pursuant to § 1983 against Amin, the County, and others. She also bought medical malpractice claims. The district court entered summary judgment in favor of all the defendants. Hunter appeals.

In their opinion, Judges Ripple and Sykes (dissenting) and District Judge Lawrence affirmed in part, reversed in part and remanded. The Court first considered the argument that the policy requiring the presence of a corrections officer was a violation of Dell's right to mental health treatment. In order for a municipality to be liable under these circumstances, its policy must violate constitutional rights. Here, the Court stated that the policy did not violate Bell's rights. Bell had a constitutional right to adequate mental health treatment but nothing in the County's policy affected that right. In fact, the Court noted that the fact that the communications would be privileged from disclosure supported their conclusion. With respect to the medical malpractice claim, however, the Court reversed. Although it is true that no physician duty arises if a patient refuses treatment, Bell did not refuse treatment -- he only refused to be examined. The Court found no evidence in the record supporting Amin's position that the examination was necessary in order for him to continue the prescription medications. The Court medical remanded the malpractice claim for further proceedings. Finally, given the affirmance on the only federal claim in the case, the Court instructed the district court to determine whether it should continue to exercise jurisdiction.

Judge Sykes dissented from the majority's reversal of the medical malpractice claim. Judge Sykes concluded that Bell's refusal to consent to the examination meant that Amin had no right to render any treatment. Amin testified that he needed the examination before any treatment. Judge Sykes noted the lack of support in the record for the majority's conclusion that the examination was required.

Tags: Opinion By Lawrence, Opinion By Sykes (Dissenting Opinion), Civil Rights, Constitutional Law, Duty, Jurisdiction, Medical Malpractice, Section 1983, Tort

Facts And Circumstances Support Conclusion That Taxpayer Had "Reasonable Cause" For Its Position

Posted on January 4, 2010 by Michael Rigney

AMERICAN BOAT COMPANY v. UNITED STATES OF AMERICA (October 1, 2009)

David Jump is a wealthy, St. Louis businessman with a variety of business interests. In 1996, he consulted with a Chicago attorney to develop an estate plan. The attorney created a family trust and reorganized many of Jump's businesses into limited partnerships. He also recommended a tax shelter, and provided the firm's opinion of its validity. A few years later, one of Jump’s towboats caused an accident that almost resulted in damages that could have exceeded his insurance coverage. He again sought advice from his Chicago lawyer, this time on how to limit his liability. The lawyer again designed and executed a restructuring of his companies. He again also recommended a series of tax shelter transactions. Beginning in 1999, Jump claimed substantial tax benefits. Over time, other lawyers and accountants became familiar with these transactions and raised no objections. The IRS eventually caught wind of these shelters and determined them to be illegal. It discovered the involvement of one of Jump's partnerships during its investigation and determined that the shelter was invalid. It issued a Notice of Final Partnership Administrative Adjustment, adjusting the partnership's basis of its towboats, and imposed an accuracy-related penalty of forty percent. On judicial review, the court agreed with the IRS that the transactions were invalid but held that the penalty should not have been imposed. The penalty can only be imposed if the partnership had no reasonable cause for its underpayment. The court found reasonable cause. The United States appeals the latter ruling.

In their opinion, Judges Bauer, Flaum and Kanne affirmed. The Court first addressed the issue of the district court's jurisdiction, because of a recent decision in the Court of Federal Claims holding that the reasonable cause exception relied on by the district court cannot be considered during a partnership-level proceeding, which that was. Although agreeing with the fundamental premise that a partner may not raise a partner-level defense at a partnership-level proceeding, the Court concluded that a partnership can raise reasonable cause on behalf of the partnership. Thus, the Court found that the district court had jurisdiction to consider the partnership's claims that it had reasonable cause for its position. On the merits, the Court stated that reasonable cause depends on all the facts and circumstances, including the taxpayer's efforts to properly assess its liability. The Court first rejected the government's position that it is always unreasonable to rely exclusively on a financial advisor who incorporates a tax shelter into a plan for restructuring. Considering the facts and circumstances, the Court concluded that the district court did not clearly err in finding reasonable cause: Jump sought advice from a reputable (at the time) attorney, he had no reason to believe the advice was wrong, the tax shelters were component parts of larger corporate restructurings, two reputable accounting firms raised no objections, and he had engaged in a similar transaction a few years earlier without IRS objection. Calling it a "close case," the Court found no clear error.

Tags: Opinion by Kanne, Clear Error, Federal Tax, Jurisdiction

A Plaintiff Who Voluntarily Settles Her Individual TILA Claim Lacks A Sufficiently Concrete Interest To Appeal The Denial Of Class Certification

Posted on December 11, 2009 by Michael Rigney

MURO v. TARGET CORP. (August 31, 2009)

Christine Muro held a Target "Guest Card" for a few years. In late 1999, she paid off the balance and requested that her account be closed. In 2004, Target sent her an unsolicited Visa Card. Muro never used, or even activated, the card. She brought an action under §§ 1637 and 1642 of the Truth in Lending Act (“TILA”). With respect to § 1642, which prohibits the unsolicited issuance of a credit card, the court denied class certification. It concluded that Muro's claims were not typical of the claims of most of the proposed class (because most of the class members had an open “Guest Card” account) and that she had failed to establish numerosity with respect to the claims for which her claims were typical. Muro settled her individual § 1642 claim, reserving the right to appeal the denial of class certification. The court granted summary judgment to Target and denied class certification on the § 1637 claims. Muro appeals.

In their opinion, Judges Ripple, Rovner and Evans affirmed. With respect to § 1642, the Court noted that the narrow issue was whether a named plaintiff in a putative class action could settle her individual claim and still appeal an adverse decision on class certification. Referring to the Supreme Court's decisions in Geraghty and Roper, the Court stated that a plaintiff has to have a personal stake in the adjudication of the certification issue to maintain an appeal. The Court recognized a difference of opinion among courts as to whether a mere reservation of a right to appeal is sufficient interest to maintain an appeal. Upon reflection, the Court concluded that a voluntary settlement by a putative class plaintiff strips the plaintiffs of any personal interest in the litigation sufficient to support an appeal. Here, although Muro accepted the settlement with a reservation of her right to appeal, she retains no stake in the litigation and no right to appeal. As an aside, the Court indicated its agreement with the district court on the merits of its denial of class certification. With respect to § 1637, which requires certain disclosures before "opening" an account, the Court also agreed with the lower court. The issue on the § 1637 claim was when an account is "opened." The TILA is silent but the Federal Reserve Board regulations require the disclosures before the first transaction. Concurring with the regulation's approach, the Court noted that Muro had never activated or used her card. She had no § 1637 claim.

Tags: Opinion by Ripple, Appellate Procedure, Class Actions, Class Certification, Consumer Protection Law, Jurisdiction, TILA, Truth in Lending Act

A State Court Complaint Need Not Be Dismissed During The Pendency Of A Shipowner's Limitation Of Liability Act Proceeding -- A Stay Is Sufficient

Posted on December 9, 2009 by Michael Rigney

AMERICAN RIVER TRANSPORTATION CO. v. RYAN (August 27, 2009)

Kerrie Vesolowski was a passenger on a motor boat when it collided with a barge. Vesolowski sued American River Transportation Co. to recover for injuries in state court. American filed an action in federal court pursuant to the Shipowner's Limitation of Liability Act. The Act limits a shipowner's liability to the value of its ship if it can prove that the acts complained of occurred without its privity or knowledge. The Act also requires that any claims brought against the owner “cease” during the pendency of the proceedings. The district court ordered that Vesolowski’s proceedings be stayed. Vesolowski complied. After more than a year, American asked the court to find Vesolowski (and others) in contempt and to impose sanctions. The court granted the motion and required Vesolowski to dismiss her state court action. Vesolowski appeals.

In their opinion, Judges Bauer, Ripple and Wood reversed and remanded. The Court first clarified its jurisdiction, noting that it has jurisdiction over an order modifying an injunction but lacks jurisdiction over an order interpreting an injunction. The Court concluded that the order modified the earlier injunction because it required that the case be dismissed, rather than merely stayed. Addressing the merits, the Court noted that the order had two possible bases: 1) the Act requires a dismissal rather than a stay, or 2) the Act requires only a stay and the dismissal is a sanction for Vesolowski's actions during the stay. The Court rejected the first basis. The use of the word "cease" in the Act and the Act's provision preserving Vesolowski's right to her state court remedy convinced the Court that the Act only requires a stay. The Court rejected the second basis as well, as it found no grounds for a sanction. The state case remained stayed. Vesolowski's only action was to add additional defendants and theories of liability. American never had to respond in state court. The Court expressed its opinion that the district court did not intend the dismissal order to be a sanction. If it did, however, it was an abuse of discretion.

Tags: Opinion by Wood, Contempt, Federal Statute - Other, Jurisdiction, Shipowner's Limitation Of Liability Act, Stay

Class-Of-One Equal Protection Claim Remains Valid For Unequal Police Treatment Notwithstanding The Supreme Court's Decision Rejecting It In The Public Employment Context

Posted on November 25, 2009 by Michael Rigney

HANES v. ZURICK (August 18, 2009)

Apparently, Stephen Hanes and his neighbors in Grayslake, Illinois have been unable to get along for quite some time. The feud has resulted in numerous complaints to the local police. According to Hanes' complaint that the Grayslake police officers denied him equal protection of the law, the police always blame Hanes and arrest him. He has been arrested at least eight times – and every charge was dropped. The officers moved to dismiss the complaint both for failure to state a claim and on qualified immunity grounds. The district court denied the officers' motion to dismiss for failure to state a claim, although it did not specifically mention qualified immunity. The officers appeal.

In their opinion, Judges Rovner, Wood and Williams affirmed. Because a ruling on the qualified immunity defense was a necessary basis for the Court's jurisdiction of the interlocutory appeal and because the district court did not specifically mention qualified immunity, the Court first addressed its jurisdiction. The qualified immunity issue was fully briefed below, the district court addressed both prongs of the qualified immunity inquiry, and the district court gave no indication that it intended not to rule on any issue presented. The Court was therefore satisfied that it had jurisdiction to consider the order rejecting a qualified immunity defense. On the merits, the Court first considered the constitutional violation prong. The Court started with its opinion in Hilton, which recognized a class-of-one equal protection claim for unequal police treatment. The Hilton plaintiffs did not survive summary judgment because they failed to show that the unequal treatment was the result of personal animus. Personal animus is alleged here. Although the Court concluded that a constitutional violation existed under Hilton, it did consider the officers' argument that the Supreme Court's decision in Engquist should prompt it to reconsider Hilton. In Engquist, the Supreme Court held that the class-of-one theory is not well-suited to the public employment context where government actors exercise "discretionary authority based on subjective, individualized determinations." The Court rejected the invitation to reconsider Hilton. It noted that although police officers enjoy broad discretion in their actions, their discretion is much more limited than that of a public employer. On the issue of whether the constitutional right was clearly established, the Court concluded that the officers were on notice as a result of Hilton.

Tags: Opinion by Wood, Civil Rights, Class-of-One", Constitutional Law, Equal Protection, Jurisdiction, Qualified Immunity

Employer's Vicarious Liability For Employee's Acts Committed Within The Scope Of Employment Does Not Affect An Employee's Direct Liability

Posted on November 19, 2009 by Michael Rigney

SCHUR v. L.A. WEIGHT LOSS CENTERS, INC. (August 14, 2009)

Pamela Hoppe, an Illinois citizen, joined a weight loss program at her local L.A. Weight Loss Center ("Center"). After just several months of diet and nutritional supplements, Hoppe died of acute liver hepatitis. Her estate filed suit in state court against the Center alleging a variety of state law claims. The Center removed the case to federal court on diversity grounds, where the parties conducted discovery for just over one year. The estate then amended its complaint, adding claims against two Center employees, both Illinois residents. The estate then moved to remand the case to state court because of the new lack of diversity. On the Center's motion, the court struck the amended complaint on the grounds that the new defendants were fraudulently joined. Later, the court granted summary judgment to the Center. The estate appeals.

In their opinion, Judges Bauer, Kanne and Sykes vacated and remanded. The Court addressed the jurisdictional issue first. It noted that 28 U.S.C § 1447(e) applies when a plaintiff seeks to join a non-diverse party that would eliminate subject matter jurisdiction. A district court has two options -- it can deny the joinder and keep the case or it can allow the joinder and remand the case. It should not do what the court did here – allow the joinder and keep the case. The Court then adopted a framework of factors a lower court should consider in exercising its discretion on joinder: the plaintiff's motive, the timeliness of the request, the harm to the plaintiff if denied, and other equitable considerations. Before addressing these factors, the Court “detoured” to address whether the district court had the authority to reverse the joinder decision, further complicated by the fact that a magistrate judge had granted the motion to amend. In the particular posture of this case, the Court concluded that the district court was permitted to reconsider the magistrate's order. Because the motion was granted as a routine matter without any indication of its jurisdictional significance, the Court joined several other courts in concluding that a district court may reconsider a prior joinder decision when it was unaware that joinder would defeat diversity. Finally, the Court proceeded to examine the lower court's exercise of its discretion. The lower court had relied on the doctrine of fraudulent joinder in striking the amended complaint. It found that it was unlikely that the estate could prevail against the individual defendants. The Court concluded that the district court misapplied Illinois law in reaching that conclusion. Although vicarious liability can result in employer liability for employees' misconduct when the acts were committed within the scope of employment, it does not affect the employees' direct liability. The Court found that it was error to conclude that it was unlikely for the state to succeed against the individual employees. With respect to the plaintiff’s delay in adding the individual employees, the Court acknowledged that the amendment followed a year of discovery but emphasized that the amendment came within a few months of the estate learning of each employee's role in the events prior to Hoppe's death. Thus, the Court concluded that the lower court abused its discretion in denying the remand. Since it had no jurisdiction, it should not have reached the merits and neither did the Court.

Tags: Opinion by Kanne, Civil Procedure, Fraudulent Joinder, Jurisdiction, Remand, Removal, Tort

Citizen Lacks Standing To Bring Environmental Suit Against Gun Range When He Fails To Establish An Actual Impact On His Drinking Water

Posted on November 18, 2009 by Michael Rigney

POLLOCK v. UNITED STATES DEPARTMENT OF JUSTICE (August 13, 2009)

For almost 100 years, the United States government has operated a gun range on the shores of Lake Michigan just north of Chicago. Bullets and shotgun pellets ended up in the lake. These bullets and pellets contain lead, a toxic substance potentially harmful to human health. Steven Pollock is an attorney who lives approximately 13 miles from the range. He is also the executive director of an environmental group interested in the protection of Lake Michigan. Pollock and the environmental group brought a suit against the United States, alleging that the release of lead into the lake violated several federal environmental laws. The plaintiffs supported their standing by submitting the affidavits of Pollock and another group member. They stated that they enjoyed watching birds and visiting parks in the general vicinity of the range, they drank water from the lake and they ate fresh and saltwater fish. The district court dismissed the complaint for lack of standing. Plaintiffs appeal.

In their opinion, Judges Cudahy, Manion and Tinder affirmed. The only issue before the Court was standing. The Court recited the general standing requirements -- a concrete threat of injury, an injury that is actual and not hypothetical, an injury traceable to the defendant's conduct, and an injury likely to be redressed through a favorable decision of a court. After reviewing some of the Supreme Court jurisprudence on standing, the Court addressed each of the injuries listed in the affidavits. First, the fact that Pollock drinks water from the lake does not support standing. He failed to carry his burden of showing that any alleged pollution affected his particular water supply. Second, Pollack’s statement that he eats "fresh water and ocean" fish does not even implicate Lake Michigan and does not support standing. Third, his general allegations that he enjoys "watching wildlife" and enjoys the "public areas" in and near Lake Michigan are not specific enough geographically to support standing. Since Pollock cannot establish his own standing, the environmental group cannot either.

Judge Cudahy concurred in a separate opinion. He criticized the Supreme Court for developing an "injury in fact" test that was "hopelessly confusing" to apply. Although he concurred, he found the alleged injury relating to drinking water to be a much closer question than the majority. Instead of relying on the failure of the allegations to create standing, Judge Cudahy looked at the evidence presented. Instead of a mere facial challenge to standing, the defendants here challenged the factual basis for Pollock's alleged injury. Judge Cudahy cited the government’s evidence that Pollock's community draws its drinking water from outside the area of the lake affected by the range and that the community has attributed the small amount of lead in its drinking water to pipes, not bullets. Relying on that evidence, Judge Cudahy concurred.

Tags: Opinion by Manion, Concurring Opinion, Injury-In-Fact, Jurisdiction, Opinion By Cudahy (Concurring), Standing

U.S. Citizen With Dual Citizenship Is Not Considered A "Citizen . . . Of A Foriegn State" For Purposes Of Jurisdiction Under § 1332(a)(2)

Posted on November 12, 2009 by Michael Rigney

VRENI BUCHEL-RUEGSEGGER v. BUCHEL (August 6, 2009)

Vreni Buchel-Ruegsegger and Georg Buchel were married in Wisconsin in 1951, where they lived until they moved to Switzerland in approximately 1990. Vreni Buchel-Ruegsegger is a dual citizen of the United States and Switzerland -- Georg Buchel is a dual citizen of the United States and Lichtenstein. In April of 2000, Buchel executed his final will and directed that his estate be divided according to Swiss law. Two months later, however, he ordered his bank to transfer 200,000 Swiss francs to his son John. John lived in Wisconsin with his family. Buchel died two days later. A Swiss court appointed Buchel-Ruegsegger as Buchel's personal representative, pursuant to which she sought to rescind the gift. The Swiss court ruled that she was entitled to 100,000 of the francs and that their daughter was entitled to 50,000 of the francs. When Buchel-Ruegsegger attempted to collect the money from her son, he refused. She filed suit in Wisconsin, alleging a conversion under state law. The district court concluded that John had converted the funds, since a Swiss court had determined that the gift was unlawful. John appeals.

In their opinion, Judges Manion, Rovner and Tinder vacated and remanded. The Court never reached the merits. It never got beyond jurisdiction. The statute under which Buchel-Ruegsegger brought the suit grants jurisdiction to claims between "citizens of a State and citizens or subjects of a foreign state." Here, a dual citizen of the United States and Switzerland has brought suit against a United States citizen. The Court cited its previous decision in Sadat, which held that a court should consider only the American nationality of a citizen of both the United States and a foreign country. Applying that rule, the court concluded that Buchel-Ruegsegger and John Buchel are both United States citizens and jurisdiction does not arise under § 1332(a)(2). The Court also considered whether it could have jurisdiction from another source. The only possible source here is diversity jurisdiction. Since an American citizen living abroad is not a citizen of any particular state for diversity purposes, that statute fails to provide jurisdiction as well. The court vacated with instructions to dismiss without prejudice.

Tags: Opinion by Manion, Dual Citizenship, Jurisdiction

Denial Of Renewed Motion To Compel Arbitration Is Appealable When The Record Is Ambiguous With Respect To The Arbitrable Claim

Posted on November 5, 2009 by Michael Rigney

FRENCH v. WACHOVIA BANK (July 31, 2009)

Brian French and his siblings (“French”) are the beneficiaries of the trust set up by their father. Wachovia Bank (the “Bank”) is the trustee of the French Trust. French sued the bank, alleging in Count I that the Bank breached its duties and in Count II that the bank provided false information with respect to life insurance policies. On the Bank's motion to compel arbitration, the court determined that only Count II was subject to arbitration. The court ordered the parties to arbitrate Count II and stayed proceedings with respect to Count I. French moved to amend the complaint to dismiss Count II and to lift the stay with respect to Count I. The court granted the motion on October 23. However, in response to an inquiry from the Bank, French denied that they had abandoned the Count II claims. On December 21, the Bank reasserted its request to compel arbitration on Count II and to stay Count I. The court denied the motion. The Bank appeals.

In their opinion, Judges Ripple, Manion and Tinder affirmed. The Court first addressed its jurisdiction. It noted that, under the Federal Arbitration Act, an interlocutory appeal may be taken from an order refusing to stay an action or refusing to order arbitration. The Court noted the existence of the October 23 order, which was not timely appealed, and noted the rule that a party cannot simply file a second motion and appeal from its denial when it failed to appeal from the denial of the first motion. Here, however, the Court relied on the ambiguity of the status of Count II after the October 23 order to conclude that an interlocutory appeal of the definitive denial of arbitration in the April 23 order was proper. On the merits, the Court agreed with the district court. Once French amended the complaint to eliminate Count II, the complaint at issue contained only Count I. Count I was not subject to arbitration. The Court concluded that the district court therefore correctly denied the request to compel arbitration.

Tags: Opinion by Ripple, Arbitration, Civil Procedure, Jurisdiction

Lanham Act Allows Statutory Damages Only For Violations On Which Compensatory Damages Are Not Awarded

Posted on November 5, 2009 by Michael Rigney

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.

Tags: Opinion by Posner, Civil Procedure, Damages, Discovery, Intellectual Property, Jurisdiction, Lanham Act, Trademark Infringement

The Defense Base Closure And Realignment Act Of 1990 Supersedes The Provisions Of An Earlier Statute Granting A State's Governor Veto Power Over Redeployment Of A National Guard Unit

Posted on November 3, 2009 by Michael Rigney

QUINN v. GATES (July 29, 2009)

Congress passed the Defense Base Closure and Realignment Act of 1990 in order to prevent local interests from outweighing national needs with respect to base closures. The Act creates a Commission that recommends changes and disbands once it delivers its report to the President. The President can accept or reject the recommendations, but only in their entirety. If the President accepts the recommendations, they are forwarded to Congress. Congress can allow the recommendations to proceed, in their entirety, or they can reject the recommendations, also in their entirety. The all-or-none approach was a key component of the legislation. In 2005, a Commission made recommendations that were accepted by the President and Congress. One recommendation was to move fifteen F-16 jets assigned to the Illinois Air National Guard to a base in Indiana. The Governor of Illinois brought suit to enjoin the recommendations, contending that federal law granted veto power to a state's governor before any changes could be made to a unit of the National Guard. The district court dismissed the suit for a third time (the first two were reversed by the Seventh Circuit). The Governor appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Sykes affirmed. The question on appeal was whether the Act trumped other limitations on the President's power to change National Guard assignments. The Court, citing Justice Souter's concurrence in Dalton, concluded that the Act gave the President unfettered discretion to accept or reject a Commission’s recommendations. The end result, however, had to be a wholesale acceptance or rejection. Any attempt to cherry pick is forbidden by the Act. The Court concluded that the Act provided an independent means for the President to realign national resources and supersedes any prior statute that is incompatible with its premise. The Court emphasized that it was not holding that it lacked subject-matter jurisdiction -- only that the Governor loses on the merits.

Tags: Federal Statute - Other, Jurisdiction

State System Established Under The Developmental Disabilities Assistance And Bill Of Rights Act Is Not A "Person" For Section 1983 Purposes And Cannot Sue A State Agency In Federal Court

Posted on November 3, 2009 by Michael Rigney

INDIANA PROTECTION AND ADVOCACY SERVICES v. INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION (July 28, 2009)

The State of Indiana receives federal funds under programs designed to assist those with disabilities and mental illnesses. In return, it must have a system to protect and advocate for their rights. The Indiana Protection and Advocacy Services ("Services") is the system the state created for that purpose. As such, it is entitled to investigate incidents of abuse and neglect and to see patient records, unless the patient has a legal guardian in charge of his or her interests. When a mentally disabled patient died at a state hospital, Services investigated. The hospital refused to turn over the patient's medical records. Services filed suit in federal court, naming the hospital and the state agency in charge of its operation, Indiana Family and Social Services Administration. The district court found that the hospital was required to turn over the records. The defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Kendall vacated and remanded. The Court never reached the merits. It noted that neither statute in question created an express right of action for a state system such as Services. If there is a private right of action to enforce the provisions of the statutes, it comes from § 1983. The Court added, however, that Services is a state actor. It is therefore not a "person" under § 1983 and cannot sue a state agency. The Court remanded with instructions to dismiss for lack of jurisdiction.

Tags: Opinion by Easterbrook, Federal Statute - Other, Jurisdiction

The District Court May Consider Evidence Outside The Complaint In Resolving A Factual Challenge To Standing

Posted on October 23, 2009 by Michael Rigney

APEX DIGITAL, INC. V. SEARS, ROEBUCK & COMPANY (July 16, 2009)

Apex brought a breach of contract claim against Sears, alleging Sears owed it in excess of $80 million. Sears moved to dismiss for a lack of subject matter jurisdiction. It asserted that Apex lacked standing because it had assigned away its rights in the Sears receivables. Sears attached to its motion a letter from Apex attesting to that fact. When Apex offered no response, the district court granted Sears' motion. Apex appeals.

In their opinion, Judges Posner, Ripple and Kanne affirmed. The plaintiff, said the Court, bears the burden of establishing standing, an essential component of any case. The Court agreed with Apex that a sufficient standing allegation is enough to overcome a facial challenge. With respect to a factual challenge, however, where the challenger accepts the sufficiency but challenges the truth of the allegation, the district court is permitted to look beyond the complaint and view any evidence submitted. Because Apex failed to proffer any evidence to rebut its own statement in the letter offered by Sears, the district court did not err in dismissing the complaint.

Tags: Opinion by Kanne, Evidence, Jurisdiction, Standing

Order Was Not Final And Appealable When Court Was Willing To Consider Reducing The Amount Of Judgment

Posted on October 8, 2009 by Michael Rigney

KERR - MCGEE CHEMICAL CORPORATION v. LEFTON IRON & METAL COMPANY (June 30, 2009)

Kerr-McGee received a $4.8 million judgment in 1996 against Lefton Iron & Metal Company for its costs in cleaning up contaminated property. Kerr-McGee continued to expend funds on the cleanup post-judgment. The district court increased the judgment to $9.5 million in 2003. In response to Lefton’s argument that it should receive credit for Kerr-McGee's receipt of insurance proceeds, the court invited Lefton to address the issue in a separate motion Instead, Lefton appealed.

In their opinion, Chief Judge Easterbrook and Judges Evans and Sykes dismissed for want of jurisdiction. The Court noted that the lower court entered a money judgment but was prepared to consider a reduction. If the lower court simply neglected to consider the issue, the Court stated that the order would have been final. Of course, it would then have remanded the case for consideration of the issue. Here, however, the court did not neglect to consider the issue -- it invited a motion. Therefore, the decision is not final and the Court lacks jurisdiction.

Tags: Opinion per curiam, Jurisdiction

Declaratory Judgment Act Claim Should Be Dismissed When Plaintiff Does Not Establish That Defendants Could Have Filed A Federal Claim

Posted on September 23, 2009 by Michael Rigney

DEBARTOLO v. HEALTHSOUTH CORPORATION (June 26, 2009)

Hansel DeBartolo was a surgeon and a limited partner in a surgical center in Joliet. The partnership agreement required DeBartolo to certify each year that he earned at least one third of his medical income from Medicare-approved procedures and he performed at least one third of those procedures at the surgical center in Joliet. The purpose of the certification was to qualify for a "safe harbor" in the Anti-Kickback Act, an act that makes criminal certain referral payments to physicians. When DeBartolo was unable to meet his certification obligations, the general partner exercised the contractual right to buy his interest. DeBartolo initiated an action for declaratory relief, claiming that the certification requirements of the partnership agreement violated the Anti-Kickback Act and, thus, were unenforceable. The district court dismissed for failure to state a claim. DeBartolo appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Rovner vacated and remanded. Although both parties agreed that the district court had jurisdiction, the Court engaged in its own jurisdiction analysis. Section 1331 grants the power to hear matters "arising" under federal law. Here, DeBartolo cites the Anti-Kickback Act as a defense to an anticipated contract claim of the defendant. But, the Court said, a federal defense does not satisfy the "arising under" requirement of section 1331. When a party brings an action under the Declaratory Judgment Act, he must establish that the defendants have a claim "arising under" federal law. The Court vacated the dismissal order of the district court and remanded with instructions to dismiss for lack of jurisdiction.

Tags: Opinion by Rovner, Contract/Commercial Law, Declaratory Judgment Act, Jurisdiction

Pleadings Filed By The United States Forest Service Put Company On Notice That Its Claim Of Easement Was In Dispute, Thus Triggering The Twelve-Year Statute Of Limitations Under The Quiet Title Act

Posted on September 18, 2009 by Michael Rigney

WISCONSIN VALLEY IMPROVEMENT COMPANY v. UNITED STATES OF AMERICA (June 22, 2009)

Wisconsin Valley Improvement Company (“WVIC”) operates dams on the Wisconsin River, some of which are licensed by the Federal Energy Regulatory Commission. Years ago, during a license renewal process, the U. S. Forest Service asked the Commission to impose conditions on the WVIC license that would curtail certain flooding on federal land. WVIC claimed that it had prescriptive easements over the federal lands that made the requested conditions inappropriate. In a brief filed with the Commission in February of 1996, the Forest Service explicitly did not concede the easement claim but argued that it had a right to the conditions regardless of the existence of a valid easement. The matter was resolved on the grounds that the existence of an easement was irrelevant. Thus, the issue of the easement’s existence was not resolved. In June of 2008, WVIC filed suit under the Quiet Title Act to establish their flowage easement. The district court concluded that the suit was not filed within the twelve-year statute of limitations of the Quiet Title Act because the claim accrued no later than the filing of the February 1996 brief. It dismissed for lack of subject matter jurisdiction. WVIC appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Van Bokkelen affirmed, as modified. The Court noted that a claim accrues, for purposes of the Quiet Title Act, when a person knows or reasonably should know that the United States maintains an adverse claim to property. Although the Court recognized that there was no evidence that the Forest Service ever flatly forbade the flooding of its lands, it agreed that its refusal to concede the issue in the Commission briefing was enough to lead a reasonable person to conclude there was a potential dispute. That knowledge is enough to trigger the period of limitations. The Court did take issue with the district court's characterization of the issue as jurisdictional. Subject matter jurisdiction is granted by federal law -- statutes of limitations do not detract from a federal court’s authority to decide the issues. The Court affirmed the judgment as modified to a dismissal with prejudice.

Tags: Opinion by Easterbrook, Jurisdiction, Quiet Title Act, Statute of Limitations

Federal Court Has No Jurisdiction Of Suit Against State College Officials For Wrongfully Withholding Degree

Posted on September 15, 2009 by Michael Rigney

TURPIN v. KOROPCHAK (June 5, 2009)

Christi Turpin thought she obtained a Ph.D. from Southern Illinois University. She completed all her coursework and she wrote and defended her thesis. She alleges that each member of her dissertation committee approved the defense of her thesis. Years later, she learned that the school had not recorded her degree. When she made inquiry, several members of the committee allegedly denied that they approved the thesis. Turpin brought suit against the thesis committee members for specific performance to confer her degree and damages. The district court dismissed the case for lack of subject matter jurisdiction. It held that the suit was actually against the State of Illinois and belonged in the Court of Claims. Turpin appeals.

In their opinion, Judges Kanne, Evans and Dow affirmed. Sovereign immunity, stated the Court, precludes federal jurisdiction of the action if the allegations of misconduct arise out of a breach of a duty imposed on the defendant solely because of his or her state employment. Here, the only duties of the defendants with respect to Turpin's degree arise out of their employment by the state university. The case belongs in a Court of Claims.

Tags: Opinion by Evans, Court Of Claims, Jurisdiction, Sovereign Immunity

Plaintiff Must Support Contested Jurisdictional Amount With More Than Mere Allegations Of Injury

Posted on September 11, 2009 by Michael Rigney

MCMILLIAN V. SHERATON CHICAGO HOTEL & TOWERS (May 29, 2009)

Several guests at the Chicago Sheraton Hotel were injured while on escalators in September 2003. The injuries they suffered included a separated shoulder, a scalp laceration, a leg laceration, a sprained knee and a torn ligament. They brought a personal injury suit against the hotel owners. During discovery, they learned of two other escalator malfunction incidents at the hotel in the days before their incidents. Each of the other incidents, however, took place on different escalators. The district court excluded all evidence of accidents on escalators other than the ones on which the plaintiffs were injured. Because of the exclusion of the evidence of other injuries, the plaintiffs consented to a dismissal of the case with prejudice, expressly reserving the right to appeal the judge's order excluding evidence. The court entered final judgment. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Tinder vacated and remanded. Before it addressed the issue of the exclusion of the evidence, the Court considered three jurisdictional issues: the existence of a final judgment, the affect of the consensual disposition, and the satisfaction of the jurisdictional amount. The Court satisfied itself that the order of the district court was final, notwithstanding the absence of the term "with prejudice." It also satisfied itself that the plaintiffs’ consent to the entry of the judgment was not a waiver of a right to appeal, given their clear reservation of that right. The plaintiffs were not as successful, however, with respect to the Court's consideration of the jurisdictional amount. The Court stated that each plaintiff must present competent evidence that his or her claim meets the $75,000 jurisdictional threshold. Here, each of the four plaintiffs alleges medical expenses between zero and $10,000. Although each also alleges future medical expenses and pain and suffering, none of them submitted any competent evidence of the value of his or her claim. The Court vacated and remanded with instructions to dismiss for want of jurisdiction.

Tags: Opinion by Ripple, Appellate Procedure, Jurisdiction

Foreign Corporation's Substantial Contacts In The United States Did Not Support Specific Jurisdiction Because They Ceased Before And Were Not Related To The Sale Of The Debtor, Which Was The Basis Of The Cause Of Action

Posted on September 4, 2009 by Michael Rigney

GCIU -- Employer Retirement Fund v. The Goldfarb Corporation (May 11, 2009)

The Goldfarb Corporation, a Canadian company, does not maintain a place of business or employees inside the United States. In 1995, Goldfarb purchased 60% of Fleming Packaging Corporation, a Delaware corporation. Between 1995 and 2003, Goldfarb was actively involved in the financial affairs of Fleming but did not directly control its activities. Members of the Goldfarb family were on the Fleming board and were corporate officers. In February of 2003, the Goldfarbs and Bank One negotiated an amendment to a loan agreement, pursuant to which the lenders agreed to a delay in exercising their rights of default and the Goldfarb agreed to relinquish control of the company (which they did). One of the reasons for the amendment was to allow Fleming to complete a sale of its operations as a going concern. Fleming filed for bankruptcy in May of 2003. Plaintiff, a multi-employer pension plan, filed an action in 2007 to collect Fleming’s withdrawal liability payments from Goldfarb. The district court dismissed the action, concluding that Goldfarb had insufficient contacts with the United States to sustain jurisdiction. The court also denied a request for further discovery. Plaintiff appeals.

In their opinion, Judges Bauer, Flaum and Kapala affirmed. The Court addressed the requirements for specific jurisdiction (plaintiff did not challenge the absence of general jurisdiction). The specific jurisdiction analysis consists of three steps: a) identify the contacts, b) determine whether the minimum constitutional threshold is met, and c) determine whether the contacts are related to the cause of action. The sole issue before the Court was whether Goldfarb's contacts in the United States were related to the plaintiff's cause of action. The Court examined Goldfarb's involvement with Fleming's lenders as they compared to the elements of plaintiff's cause of action. Fleming's withdrawal liability arose out of its withdrawal from the fund. The liability exists because of the nature of the sale of the business and its failure to comply with ERISA’s “safe harbor” provisions. All of Goldfarb's contacts occurred prior to February of 2003, when it surrendered all of its interest in Fleming. The Court found that these contacts were too attenuated to support specific jurisdiction. Finally, the Court concluded that the district court did not abuse its discretion in refusing to allow further discovery.

Tags: Opinion By Kapala, Constitutional Law, Jurisdiction, Minimum Contacts, Specific Jurisdiction

The Fact That Tort Cases Would Be Governed By Argentinian Law Tips Scale In Favor Of Dismissal Of Cases Under Forum Non Conveniens

Posted on September 2, 2009 by Michael Rigney

ABAD v. BAYER CORPORATION (May 1, 2009)

In one case, several hundred Argentine hemophiliacs brought a class action against Bayer Corporation and others, alleging that they were infected with AIDS as a result of the defendants’ negligence. In another case, Argentina plaintiffs brought suit against U.S. companies arising out of an automobile accident. Plaintiffs allege that defendants were negligent in the design and manufacture of the vehicle and its tires. Both cases were filed in federal district courts against American defendants by foreign plaintiffs for injuries sustained in Argentina. After significant discovery, the judge in each case dismissed the case based on the doctrine of forum non conveniens. The plaintiffs appealed.

In their opinion, Judges Posner, Evans and Tinder affirmed. The parties agree that the standard of review is an abuse of discretion. The Court first addressed whether the plaintiffs are entitled to a choice of forum presumption. Although the Court conceded that such a presumption is typical, it concluded that the presumption has little influence on the outcome when plaintiffs seek to maintain the litigation on the defendants’ turf while the defendants would rather engage on the plaintiffs’ turf. In those cases, district courts should simply weigh the advantages and disadvantages of the respective fora. In Gulf Oil Corp., the Supreme Court provided a long list of factors that a lower court should consider in applying forum non conveniens. The Court reviewed the circumstances of the two cases to determine whether either district judge abused his/her discretion. In the AIDS case, the Court looked at a number of factors, including the burden of translation and the cost of discovery. In the end, however, the determining factor was that Argentine law would govern, whether the cases were tried in the United States or Argentina. The Court found further support for dismissal in the fact that the case involved the application of market share liability, an uncertain area of Argentine law. The Court reached the same conclusion with respect to the automobile accident case. Again, although the legal issues were not as complex or uncertain, Argentine law would apply. An Argentine court is more competent than an American court to apply its law. The Court found no abuse of discretion.

Tags: Opinion by Posner, Civil Procedure, Jurisdiction, Tort

The Principle Of Tort Indemnity Does Not Apply To United States' Liability Under The Federal Tort Claims Act

Posted on September 1, 2009 by Michael Rigney

COLLINS v. UNITED STATES OF AMERICA (May 1, 2009)

Two private planes collided while approaching a small airport. The three people aboard all died. Air traffic control at the small airport was under the control of Midwest Air Traffic Control Services, a company hired by the Federal Aviation Administration. The representatives of the deceased brought an action against the United States under the Federal Tort Claims Act. They allege both that the air traffic controller was negligent in clearing both planes to land and that the FAA was negligent because it had not installed a radar system at the small airport. The district court entered judgment for the United States after a bench trial. The representatives appeal.

In their opinion, Judges Posner, Ripple and Evans affirmed. Before addressing the merits, the Court addressed the United States’ argument that the district court lost jurisdiction when Midwest settled the representatives’ claims. The Court recited the general Illinois rule that a principal whose liability is based on the negligence of its agent cannot be sued if the agent settles with the plaintiff. The Court concluded, however, that the rule has no application when the principal is the United States and liability is based on the Federal Tort Claims Act. Under the Act, the United States does not have a right of indemnity from the agent -- in fact, the government is exclusively liable. Under those circumstances, the rationale for the rule does not apply. On the merits, the Court quickly disposed of the controller negligence claim. The Court has held, and continues to hold, that independent contractor air traffic controllers are not employees of the United States, notwithstanding extensive FAA control. The Act therefore does not create U.S. liability. With respect to the FAA negligence issue, the Court stated that the Act does not apply to a claim related to a discretionary function of a federal agency. The Court concluded that the FAA’s consideration of a whole host of factors in determining where to install radar equipment was a quintessential discretionary function. Negligent or not, the government was shielded from liability for the FAA's failure to install radar at the airport.

Tags: Opinion by Posner, Discretionary Function Defense, Federal Tort Claims Act, Jurisdiction, Tort, Tort Indemnity

Labor Union Has An Implied Cause Of Action Under § 501 Of The Labor-Management And Reporting Disclosure Act Of 1959

Posted on August 13, 2009 by Michael Rigney

INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL 150 v. WARD (April 16, 2009)

Local 150 represents over 22,000 union members in Illinois, Indiana and Iowa. Joseph Ward was its treasurer 1986 until 2007. In 1994, the president of the local asked Ward to purchase property adjacent to the local’s headquarters. Instead of purchasing the property for the union, however, Ward participated in the purchase of the property by an investment group. The group sold the parcel several years later at a substantial profit. Local 150 filed a complaint against Ward, alleging violations of § 501 of the Labor-Management and Reporting Disclosure Act of 1959 (the “Act”) and breaches of fiduciary duty. The district court dismissed the complaint, concluding that § 501 does not allow a labor union to bring a private cause of action. Local 150 appeals.

In their opinion, Judges Kanne, Williams and Sykes reversed and remanded. The Court started with the language of the Act. Section 501(a) imposes fiduciary duties, including a duty of loyalty, on a union’s officers and agents. Section 501(b) creates a federal cause of action for individual union members. Damages recovered under § 501 (b) inure to the benefit of the union itself. Before a union member may sue, she must make a demand that the union take appropriate action and then must receive the court’s permission, on a showing of good cause, to proceed. The Act is silent on a union’s ability to bring an action. On that threshold question, the Court first found no express cause of action under a plain reading of the Act. With respect to whether the Act contains an implied cause of action, the Court noted a split of authority between the Ninth in Eleventh Circuits. Relying on the Supreme Court’s holding in Alexander, the Court concluded that its task was to determine whether Congress intended to create both a private Right and a private remedy. The Court's analysis of the text and structure of § 501 led it to conclude that Congress did intend to create both a federal right and a federal remedy for a union.

Tags: Opinion by Kanne, Federal Statute - Other, Fiduciary Duty, Implied Cause Of Action, Jurisdiction, LMRDA, Labor & Employment

The NLRA Completely Preempts A State Law Antitrust Claim Relating To A Secondary Boycott And Converts The Claim Into A Federal One

Posted on August 5, 2009 by Michael Rigney

SMART v. LOCAL 702 INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (April 7, 2009)

Ronald Smart’s non-union electrical company was awarded a contract to perform electrical work at a sports complex. He claims that Local 702 threatened the owner of the sports complex and coerced him to replace Smart’s company with union electricians. Smart brought an action against the local under the Illinois Antitrust Act. He also brought state law unwarranted prosecution and malpractice claims against the union’s lawyers (claims arising from earlier legal actions against Smart by the union). The district court dismissed the antitrust claim, concluding that it was preempted by the National Labor Relations Act. It also dismissed the state law claims, holding that the malpractice claim could not be brought against a lawyer who had never represented Smart and that the unwarranted prosecution claim required that he prevailed in the underlying litigation (he did not). Smart appeals

In their opinion, Judges Ripple, Kanne and Tinder affirmed in part, reversed in part and remanded. The Court first addressed its jurisdiction. The Court observed that there was an apparent lack of diversity and lack of a federal question in the complaint. Although the union raised a federal preemption defense, federal preemption does not normally provide a basis for asserting jurisdiction. One exception to that rule is the "complete preemption" doctrine. When an area is completely preempted by federal law and Congress substitutes a federal cause of action, a claim purportedly based on state law is considered a federal claim. Here, the Court first concluded that Smart's state antitrust claim was preempted by federal law. Next, it noted that Congress provided a cause of action in 29 U.S.C. § 187 with respect to injuries resulting from a secondary boycott. The Court found "ample evidence" that Congress intended to convert state common-law antitrust complaints into federal claims. The Court therefore concluded that § 187 completely preempted Smart’s state law antitrust claim and provided an exclusive federal remedy. The Court remanded that part of the case to the district court for further proceedings. The Court agreed with the lower court's analysis of the state law unwarranted prosecution and malpractice claims.

Tags: Opinion by Ripple, Civil Procedure, Jurisdiction, Labor & Employment, NLRB, Preemption, Secondary Boycott

Order Denying Consolidation Is Not Reviewable Until Final Judgment, Even If Other Aspects Of The Order Are Immediately Appealable

Posted on July 31, 2009 by Michael Rigney

STAR INSURANCE CO. v. RISK MARKETING GROUP (March 31, 2009)

Star Insurance Company ("Star") and its co-plaintiffs registered a $2.4 million judgment in the Northern District of Illinois and began proceedings to collect it. Star also brought a separate action to pierce the corporate veil of defendants Risk Marketing and Cebcor Service Corp. In the collection proceedings, Star sought to set aside fraudulent transfers, to enjoin the disposition of assets, to appoint a receiver and to dissolve the corporate defendants. Instead of responding to Star’s requests, the defendants moved to consolidate the enforcement proceedings with the action to pierce the corporate veil. On August 31, 2007, the court enjoined the disposition of transferred assets and ordered the individual defendants to turn over certain assets in their possession. It also denied their motion to consolidate. On October 19, the court granted Star’s motion for judicial dissolution and the appointment of a receiver. On January 23, 2008 the court entered judgment for $2.4 million against the individual defendants. The defendants appeal the lower court's orders of August 31 and January 23.

In their opinion, Judges Bauer, Rovner and Evans affirmed. The Court first addressed its jurisdiction to review the August 31 order. The Court cited the general rule that an order is final and appealable if the decision ends the litigation on the merits and does not contemplate further activity. With respect to the August 31 order, the Court noted that the entire order was not immediately appealable. The decision contained separate orders arising from separate motions contained in the same document. Although the preliminary injunction order and turn-over order were immediately reviewable, the denial of the motion to consolidate was not appealable until the final judgment. The Court determined that it therefore had jurisdiction to review the earlier denial of consolidation.

On the merits, the Court found that the district court did not abuse its discretion in declining to consolidate. The Court recognized that there were similarities between the collection case and the piercing the veil case but noted that the two proceedings sought completely different results. The Court also held that the district court properly entered judgment against the individual defendants for failing to return the object of the fraudulent transfers. The lower court properly applied Illinois law to the collection proceedings, found that fraudulent transfers had been made, ordered the property returned, and entered judgment as a sanction against the individual defendants for violating the order.

Tags: Opinion by Bauer, Civil Procedure, Collection, Consolidation, Jurisdiction

Nonparty Whose Rights Are Conclusively Decided And Who Cannot Litigate In Another Forum Can Appeal A Decision Of The District Court

Posted on July 1, 2009 by Michael Rigney

SEC v. ENTERPRISE TRUST CO. (March 18, 2009)

Although only in existence for two years, Enterprise Trust managed more than $100 million in hundreds of accounts. Some of the accounts were custodial only, and others authorized Enterprise to choose securities. Enterprise did not honor its customers instructions and traded very aggressively in both the noncustodial and custodial accounts. It lost more than half of the money in its care before the SEC stepped in. The lower court appointed a receiver to propose a distribution plan for Enterprise’s assets. The receiver proposed a plan under which holders of custodial accounts recovered approximately 60% of their investment while holders of noncustodial accounts recovered between 25 and 50% of their investment. The receiver also proposed the use of illiquid assets to repay the noncustodial accounts, further compromising their value. The district court approved the plan. Several owners of noncustodial accounts, who were not parties to the case, appeal.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Manion affirmed. The Court first addressed the difficult question of appellate jurisdiction. In 1994, the Court held, in SEC v. Wozniak, that investors who were affected by a plan of distribution could not appeal without becoming formal parties through intervention. The Court believed that Supreme Court precedent supported the proposition that only a party could appeal. In 2002, however, the Supreme Court held, in Devlin v. Scardelletti, that nonparty class members could appeal. Devlin called into question the Court’s understanding of the Supreme Court’s holdings. After a review of applicable precedent, the Court concluded that a nonparty whose rights are decided and who cannot litigate the issue in some other forum does have the right to appeal. Thus, the Court overruled Wozniak. The Court found the resolution of the merits much easier. Applying an abuse of discretion standard, the Court found that the reasons the plan favored the custodial account holders over the noncustodial account holders – that the custodial account holders did not authorize Enterprise to take any action with their assets, they were unaware that Enterprise had used their assets, and they would not have benefited had Enterprise’s strategy succeeded -- made sense. In fact, the Court opined that the custodial account holders had the stronger objection -- that the noncustodial account holders received anything before the custodial account holders were fully repaid. Having found no abuse of discretion, the Court affirmed.

Tags: Opinion by Easterbrook, Jurisdiction, Nonparty Appeal, Receiver, SEC

Federal Law Does Not "Completely Occupy" The Field Of Health Insurance Coverage For Federal Workers For Purposes Of Section 1441 Removal

Posted on June 16, 2009 by Michael Rigney

POLLITT v. HEALTH CARE SERVICE CORPORATION (March 10, 2009)

Juli Pollitt was a federal employee with health care insurance administered by Health Care Service Corporation ("HCSC"). In 2007, HCSC stopped paying all claims submitted by Pollitt on behalf of her son and began trying to recoup payments it had already made to service providers on his behalf. Pollitt filed suit in state court, alleging that HCSC took the action it did when the Department of Labor failed to pay the proper premium. HCSC removed the case to federal court, where it was dismissed as preempted by the Federal Employees Health Benefits Act. Pollitt appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Evans vacated and remanded. The Court first concluded that the lower court erred in allowing §1441 removal. Preemption is a defense to a state law claim but a federal defense does not support removal. "Complete preemption" would support removal but not as a defense -- rather, as a conclusion that any claim in the area arises under federal law. The Court noted, however, that the Supreme Court held that federal law does not completely occupy the health-insurance coverage field for federal workers. Section 1441 is not the only basis for removal, however. The Court referred to §1442(a)(1), which provides that a person "acting under" a federal officer can remove a suit that depends on the fact that the defendant followed the directions of that officer. The Court noted the parties’ disagreement over whether HCSC was simply following instructions from the Department of Labor. The Court remanded to the district court with instructions to resolve these jurisdictional facts. If HCSC was merely following the direction of the Department of Labor, the case belongs in district court but must then be dismissed. HCSC is the improper defendant in the suit related to the agency’s coverage decisions. On the other hand, if HCSC was acting on its own, there is no basis for removal and the case should be remanded to state court.

Tags: Opinion per curiam, Jurisdiction, Removal

The Resolution of a Jurisdictional Issue By a Court of Competent Jurisdiction is Entitled to Collateral Estoppel Effect

Posted on March 31, 2009 by Michael Rigney

ORLANDO RESIDENCE v. GP CREDIT (January 22, 2009)

Twenty-two years and $3 million in legal fees and this dispute continues. Samuel Hardige and Kenneth Nelson settled a dispute in the early 1980s. Hardige gave some property to Nashville Residence Corporation (“NRC”), a company belonging to Nelson, in exchange for a promissory note secured by the property and payable to Orlando Residence, Ltd. (“OR”). NRC failed to pay the note when due. OR sued NRC on the note and obtained a judgment. But NRC had already conveyed the property to Nashville Lodging Company (“NLC”), which in turn conveyed it to Metric Partners. In 1992, OR sued Nelson and several companies controlled by him, including NRC, in Tennessee state court. Fourteen years, three trials, three appeals, and two remands later, OR had final judgments against Nelson and his companies. Meanwhile, OR purchased the subject property at a judicial sale for $100,000 – which amount was deducted from his judgment. On another track, GP Credit bought NLC’s personal property at a foreclosure sale. The personal property included a lawsuit against Metric Partners. Although OR tried to reach the proceeds of that lawsuit, GP Credit prevailed in an action to clear its title (which was affirmed by the Seventh Circuit). After GP Credit cleared its title, OR obtained a default judgment against GP Credit on the theory that it was the alter ego of Nelson.

OR brought a suit in Tennessee state court to collect on its judgment. It named Nelson and his wife, a pension plan, NLC, and GP Credit. GP Credit counterclaimed for restitution, intentional interference, slander of title, and unjust enrichment. The case was removed and transferred to Wisconsin federal court. Susan Nelson brought a separate suit in the same court to quiet title to her property. The district court rejected all claims in both suits. Susan Nelson and all parties to the transferred suit appeal.

In their opinion, Judges Posner, Kanne and Rovner affirmed in part, reversed in part and remanded. The Court first addressed OR’s appeal. The district court had dismissed OR’s claim against GP Credit because it thought it conflicted with the Court’s earlier ruling on GP Credit’s appeal. The Court disagreed. The basis of OR’s earlier attempts to get the proceeds of the lawsuit was its claim against NLC. The current claim is a direct claim against GP Credit, as alter ego, to collect the judgment against Nelson. The Court saw no conflict with the earlier ruling. The Court next addressed GP Credit’s counterclaims. Its first is for the value of the property sold at the judicial sale. GP Credit claims it is worth more than the $100,000 it brought. The Court held that the Tennessee appellate court’s approval of the sale is res judicata. It specifically rejected GP Credit’s claim that the decision could be attacked collaterally because the lower court in Tennessee never had subject-matter jurisdiction. If a court authorized to decide the kind of case in which the issue arises decides a jurisdictional issue in a full and fair hearing, it is entitled to collateral estoppel effect. GP Credit’s second counterclaim arises out of Metric Partners’ offer to settle the very lawsuit to which GP Credit successfully cleared its title. Metric Partners conditioned an offer to settle on OR dissolving its receivership. When OR refused, the case settled for much less. The Court found GP Credit’s claim for the difference frivolous. OR had no obligation to dissolve the receivership solely for the benefit of GP Credit. The Court also rejected GP Credit’s slander of title and restitution claims for the same reasons it rejected the first two counterclaims. Finally, on Susan Nelson’s appeal of her action to quiet title, the Court noted that OR had filed an earlier suit in state court in an effort to reach Mrs. Nelson’s property. When two in rem suits regarding the same res are pending in different courts, the court of the later-filed suit should dismiss.

Tags: Opinion by Posner, Collateral Estoppel, Jurisdiction, Res Judicata

Federal Jurisdiction Lies For a Suit to Enforce a Settlement Agreement Under the Rehabilitation Act

Posted on February 23, 2009 by Michael Rigney

HOLMES v. POTTER (December 31, 2008)

Robert Holmes was an employee of the United States Postal Service (“USPS”) in Minnesota from 1970 until 1992. He sued the USPS under Title VII of the Civil Rights Act of 1964 (“Title VII”). The case settled in 1994. Shortly thereafter, he returned to the employ of USPS in Indiana. In 2003, Holmes filed a complaint with the EEOC that the USPS failed to accommodate a disability, in violation of the Rehabilitation Act. In mid-2004, Holmes and USPS resolved their dispute at an EEOC mediation. The settlement agreement a) placed Holmes on twenty hours per week administrative leave/twenty hours per week leave-without-pay status through October 2004 and retroactive to January 2003, b) specified his salary, and c) required him to retire or resign in October 2004. Holmes filed this suit to enforce the settlement agreement, complaining that several actions taken by USPS after the settlement violated its terms. The district court granted summary judgment to USPS. Holmes appeals.

In their opinion, Judges Bauer, Williams and Sykes affirmed. Addressing their jurisdiction, the Court noted that a suit to enforce a settlement agreement requires an independent basis for federal jurisdiction. Because this is a suit to enforce a pre-determination settlement enforceable under Title VII, jurisdiction lies. The Court also stated that it would apply Indiana law, not federal law. The settlement of a federal claim is enforced like any other contract under state law. The Court recited some of the Indiana rules of contract construction: a) the goal is to give effect to the parties’ intent, b) extrinsic evidence is not allowed to create an ambiguity, and c) extrinsic evidence is not admissible to vary or add to the terms of an unambiguous contract. Holmes complains that USPS breached the settlement agreement by recalculating his retirement benefit, by improperly calculating the amount of his leave, and by deducting health insurance premiums. In large part, Holmes relied on statements allegedly made to him by the mediator before settlement. The Court concluded that the agreement was unambiguous, that USPS had complied with its requirements, and that none of the conduct Holmes complained of was even addressed in the agreement. There was, therefore, no breach. If Holmes was correct in any of his complaints, the Court advised, his remedy was not in a breach of contract suit.

Tags: Opinion by Williams, Contract Interpretation, Contract/Commercial Law, Enforcement of Settlement, Jurisdiction, Parol Evidence, Unambiguous

Truth In Lending Act Period of Repose is Not Jurisdictional; Error For District Court to Take Judicial Notice of Deed When its Very Validity is Challenged

Posted on February 20, 2009 by Michael Rigney

DOSS v. CLEARWATER TITLE (December 24, 2008)

Doss refinanced his home. First Franklin Financial Corporation (“Franklin”) loaned him $135,000 on the condition that he obtain title insurance. He did so. At closing, the itemization of costs indicated that he paid $500 for the title insurance. In fact, he paid almost $1500. Doss filed suit against Franklin and others, alleging violations of the Truth in Lending Act (“TILA”) and the Illinois Consumer Fraud and Deceptive Practices Act. The court entered a default judgment against Franklin, which Franklin moved to set aside. Other defendants moved to dismiss for failure to state a claim, alleging that Doss sold his home before filing suit. Although Doss disputed this fact in the district court, the court nevertheless granted the motion and dismissed the TILA count. The court then exercised its discretion to dismiss the state law claims as well. It also struck “as moot” all pending motions, including Franklin’s motion to set aside the default. Doss appeals.

In their opinion, Judges Manion, Wood and Tinder reversed and remanded. The Court first rejected defendants’ argument that the district court lacked jurisdiction because of Doss’ sale of the property. TILA does provide that the right of rescission expires upon the sale of the property. That provision is not jurisdictional, however. It is simply a precondition to substantive relief. The Court also addressed its own jurisdiction, given that the district court dismissed without prejudice. Although a dismissal without prejudice is usually not appealable, the Court held that the case fit within an exception. The Court will entertain an appeal where it is clear that the court below was finished with the case and where TILA’s three year period of repose would have prevented Doss from refiling the case.

On the merits, the Court held that the district court erred in relying on the deed, a matter outside the pleading, in granting a Rule 12(b)(6) motion. Instead, the court should have converted the motion to a Rule 56 motion for summary judgment and given Doss a chance to respond. Furthermore, the deed was not a subject for judicial notice since its very validity was in dispute. The Court added that a) Franklin’s motion was not moot but since it did not cross-appeal, the default judgment is final, and b) the state law claims should be reinstated.

Tags: Opinion by Wood, Civil Procedure, Judicial Notice, Jurisdiction, Rule 12(b)(6), Rule 56, Truth in Lending Act

Admission That Corporation Has No Assets is Enough to Bring Parent Into Personal Jurisdiction of Court For a Determination of Veil Piercing on the Merits

Posted on February 18, 2009 by Michael Rigney

ILLINOIS BELL v. GLOBAL NAPS ILLINOIS (December 22, 2008)

Illinois Bell (“Bell”) alleged that Global NAPs Illinois (“GNI”) violated Bell’s federal tariffs, its state tariffs, and the interconnection agreement between them. Bell named as defendants GNI, its parent Ferrous Miner Holdings (“FMH”), and four other affiliated companies. The district court found it did not have personal jurisdiction over FMH and that Bell’s evidence of a “piercing the corporate veil” theory was not sufficient to confer that jurisdiction. The court dismissed FMH and entered a Rule 54(b) final judgment. Bell appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans reversed and remanded. The Court first addressed a threshold jurisdictional issue. Bell asserted that federal jurisdiction existed under federal question jurisdiction – as a suit to enforce a federal tariff – and under diversity jurisdiction – as a suit between an Illinois corporation and non-Illinois parties. Although either would be sufficient to maintain the action, the Court addressed both. It noted that jurisdiction of the state law claims would be mandatory under diversity jurisdiction but merely discretionary under federal question jurisdiction. The Court quickly resolved the issue of diversity. GNI claimed that its principal place of business was Illinois because it was the only state where it was licensed to do business and had interconnection facilities. It is the location of the “nerve center” that constitutes a company’s principal place of business, said the Court. GNI admitted it had no office or employees in Illinois. Its principal place of business was Massachusetts – complete diversity existed. The Court then rejected GNI’s argument that the integration clause of the interconnection agreement foreclosed federal question jurisdiction. Although supposing that a broader integration clause could convert a federal tariff claim into a state contract claim, the Court found the integration clause between Bell and GNI too narrow to do so. In any event, its conversion into a contract claim would not affect jurisdiction. Under the well-pleaded complaint rule, the suit to enforce a federal tariff would arise under federal law.

The Court engaged in a lengthy discussion regarding the merits of a “primary jurisdiction” referral to the Illinois Commerce Commission. The Court believed that the interpretation of the interconnection agreement should be conducted there, while the federal court stayed its proceedings. However, the Court determined that referral to be premature. The Court felt obligated to first address the piercing the corporate veil issue. The Court determined that the district court misunderstood the parties’ positions. The district court addressed whether FMH’s “veil” could be pierced – but Bell wanted to pierce the veil of GNI to get to FMH. FMH argued that Bell had to prove fraud. The Court held otherwise. Delaware law permits piercing the veil upon proof of fraud or that the corporation was a mere facade. FMH did not deny that GNI had no assets. The Court concluded that Bell had produced enough evidence to bring FMH within the personal jurisdiction of the court – so that the court could determine whether to pierce its veil.

Tags: Opinion by Posner, Interconnection Agreement, Jurisdiction, Personal Jurisdiction, Piercing the Corporate Veil, Principal Place of Business

Mandamus is the Proper Vehicle to Challenge a § 1404(a) Transfer; District Court Acted Within Its Discretion in Transferring Venue Before Deciding Subject-Matter Jurisdiction

Posted on February 17, 2009 by Michael Rigney

IN RE LIMITNONE (December 19, 2008)

LimitNone, a software development company, was pitching an e-mail application to Google. Before a March 2007 meeting, the parties signed confidentiality agreements that included a forum-selection clause naming a California county as the exclusive venue for disputes. Both agreements limited modifications to writings signed by both parties. LimitNone claims that a Google employee later “accepted” an agreement that provided for exclusive jurisdiction in Illinois by clicking on the “Accept” button for the LimitNone License Agreement. After Google developed its own application, LimitNone brought an action in Illinois state court. It alleged violations of the Illinois Trade Secrets Act (“ITSA”) and the Illinois Consumer Fraud and Deceptive Practices Act. Google removed to federal court, asserting that the ITSA was preempted by the federal Copyright Act. LimitNone sought a remand. On Google’s motion, the district court transferred the case to the Northern District of California under § 1406(a), holding that the California forum-selection clause applied and venue was improper in Illinois. LimitNone petitions for a writ of mandamus.

In their opinion, Judges Bauer, Coffey and Sykes denied the petition. The Court first addressed whether mandamus was the proper vehicle for relief. The Court noted that the Supreme Court has approved mandamus for challenging transfers under § 1404 but has suggested that it is inappropriate for transfers under § 1406. But the Court concluded that the district court erroneously applied § 1406. Section 1406 applies only when venue is improper. Here, notwithstanding the forum-selection clause, venue was proper in the district court. The Court treated the transfer as based on § 1404 and found mandamus to be the proper vehicle for review.

On the merits, however, the Court rejected LimitNone’s arguments that the lower court erred in a) transferring the case before ruling on subject matter jurisdiction, and b) making factual determinations regarding the transfer argument before ruling on subject matter jurisdiction. The Court conceded that the Supreme Court requires a determination of subject-matter jurisdiction before a ruling on the merits. The Supreme Court does not, however, mandate a particular sequence in determining jurisdictional issues. The transfer was not a decision on the merits. The district court was within its discretion in ruling on the venue issue before the subject-matter jurisdiction issue. Furthermore, the court was well within its power to resolve factual disputes that were necessary to the adjudication of the venue issue. The Court noted that district courts are frequently required to resolve disputed factual issues before ruling on preliminary issues such as personal jurisdiction, diversity of citizenship or amount in controversy, for example. The fact that LimitNone may be barred from relitigating that issue does not change the result.

Tags: Opinion per curiam, Civil Procedure, Forum Non Conveniens, Jurisdiction, Mandamus

Class-of-One Equal Protection Plaintiff's Failure to Allege Facts Negating Any Rational Basis For Government Classification Results in Dismissal of Complaint

Posted on January 28, 2009 by Michael Rigney

FLYING J INC. v. CITY OF NEW HAVEN (December 5, 2008)

Flying J develops and operates travel plazas for truck drivers and other travelers. It purchased 50+ acres in New Haven, Indiana (the “City”) to develop a new travel plaza. The City opposed the development and took the position that it was not allowed under the then-current zoning. Flying J ultimately prevailed in the Indiana state courts on its challenge to the City’s position. Undaunted, the City amended its zoning ordinance to limit developments of this type to two acres. The Flying J development was the only parcel affected by this limitation. The City held several public meetings on the amendment but never gave Flying J specific notice of them. In August of 2007, the City advised Flying J that its development must comply with the two acre rule. Flying J filed suit in September, alleging violations of its rights under the U.S. and Indiana Constitutions. The district court dismissed for failure to state a claim. Flying J appeals.

In their opinion, Judges Bauer, Flaum and Williams affirmed. The Court first addressed the City’s position that the Court lacked jurisdiction under the principles of Williamson County. The Supreme Court in Williamson County held that takings claims in land use cases are not ripe until the local authority has reached a final decision, including a decision on a variance application and compensation. Courts have applied the doctrine to takings claims even when they are labeled as due process or equal protection claims. The Court noted that it has created an exception for claims alleging the malicious conduct of a government agent unrelated to a legitimate state objective. Flying J’s allegations of the City’s protracted litigation, its covert amendment to the ordinance, the ordinance’s application only to Flying J, and the potential conflicts of interest of several commission members fit its claim within that exception.

The Court next addressed whether Flying J stated a claim. Relying on its precedent in Wroblewski and Lauth, the Court identified the pleading standard for a class-of-one equal protection claim. In those cases, the plaintiff must negate any set of facts that provides a rational basis for the classification challenged. Animus of the defendant comes into play only after the plaintiff has pled facts that show the irrationality of the government’s conduct. Flying J does allege facts that would show that the City took its actions in response solely to Flying J’s development but it does not allege facts to establish that the zoning amendment was irrational. Flying J’s allegations therefore do not overcome the presumption of rationality the government enjoys in cases of this nature.

Tags: Opinion by Flaum, Civil Procedure, Class-of-One, Constitutional Law, Constitutional Law, Equal Protection, Jurisdiction, Property, Zoning

Rooker-Feldman Doctrine Deprives Federal Court of Jurisdiction When the Gravamen of the Complaint is That a State Court Order Was Erroneous

Posted on January 27, 2009 by Michael Rigney

JOHNSON v. ORR (December 04, 2008)

David Johnson obtained a certificate of purchase for a tax-delinquent piece of land in Cook County (the “County”). The certificate allowed him to acquire the property by following certain notice requirements and by then petitioning the court. He complied with the notice requirements. Before he petitioned the court, the County realized that its determination of delinquency was in error. The County and Johnson agreed to an order, entered by the court, declaring the tax sale in error and directing the cancellation of the certificate and return of the purchase price. Notwithstanding the order, Johnson petitioned the state court for a deed. Johnson later filed suit in federal court. He alleged that the County’s failure to issue the deed violated his constitutional rights and the Interstate Land Sales Full Disclosure Act, as well as various other state statutory and common laws. The court granted defendant’s motion to dismiss, ruling that the complaint sought review of a state court decision in violation of the Rooker-Feldman doctrine and that jurisdiction was barred by the Tax Injunction Act (“TIA”). Johnson appeals.

In their opinion, Judges Ripple, Evans and Tinder affirmed. The Court first addressed the Rooker-Feldman doctrine. That doctrine deprives federal courts (except the Supreme Court) of jurisdiction to hear a party complain about the effects of a state court judgment. Although Johnson attempted to style his request for relief as something other than an attack on the state court judgment, the Court looked beyond the complaint to identify the actual injury. Johnson’s injury, the state court’s failure to grant him a tax deed, comes directly from the order entered by the court canceling the certificate. The gravamen of his complaint is that the court’s order was erroneous. The district court therefore lacked subject matter jurisdiction of Johnson’s constitutional claims. Johnson also alleged a violation of the Interstate Land Sales Full Disclosure Act (the “Act”), a federal statute. Although a claim pursuant to a federal statute would normally provide subject matter jurisdiction, the Court stated that such a claim should be dismissed if it is “wholly insubstantial and frivolous.” The Court concluded that Johnson’s claim was just that. The Act applies only to sales of real estate. Here, the County did not sell the property and Johnson did not buy the property. Even if there was a sale, the Court observed that the Act would not apply because it contains an exemption for a sale by a government body. Although it did not have to, the Court did briefly address the TIA issue. It disagreed with the district court’s conclusion that the TIA applied. The TIA only applies where the relief requested would reduce the State’s tax benefit or impede the collection of taxes. The Court found neither present in the case.

Tags: Opinion by Ripple, Rooker-Feldman, Constitutional Law, Jurisdiction, Property, State Tax, Tax Injunction Act, Taxation

Taxpayer's Failure to Perfect Administrative Claim For Tax Refund Deprives District Court of Subject-Matter Jurisdiction

Posted on January 15, 2009 by Michael Rigney

GREENE-THAPEDI v. UNITED STATES December 3, 2008

In 1996, Llwellyn Greene-Thapedi filed a tax return for tax year (“TY”) 1992. The government challenged her reported tax liability. Ultimately, the U.S. Tax Court determined that she owed an additional ≈$10,000. In December 1997, the IRS assessed a deficiency for the amounts owed plus interest and asserts that it sent Green-Thapedi a notice of deficiency. Green-Thapedi claims that she never received the notice. When the U.S. threatened to levy assets, Green-Thapedi paid the ≈$10,000 and interest through December 1997 but refused to pay the additional interest on the ground that she did not receive the notice. She also brought suit in tax court to recover a ≈$10,000 overpayment on her tax for TY1999. While her suit was pending, the government applied the TY1999 overpayment to the claimed TY1992 deficiency. Green-Thapedi brought an action in federal district court to recover the TY1999 overpayment. The district court stayed the action pending the outcome in the tax court. The tax court held that her TY1999 claim was moot because the government had credited her claimed overpayment to TY1992. The government moved to dismiss in the district court for Green-Thapedi’s failure to exhaust administrative remedies in that she never made a refund claim with the IRS. The district court denied the motion. It held that Green-Thapedi’s petition in the tax court constituted an informal claim for refund. Green-Thapedi then amended her complaint to add a claim for a refund of ≈$10,000 for TY1992. The court below found that the government properly calculated Green-Thapedi’s taxes and penalties and found that Green-Thapedi did not present sufficient evidence to rebut the government’s position on the notice. Green-Thapedi appeals.

In their opinion, Judges Ripple, Wood and Tinder vacated and remanded. The Court did not address the tax computation and notice issues decided below. Instead, it found that the district court lacked subject matter jurisdiction. Once the government applied Green-Thapedi’s TY1999 overpayment to TY1992, the case became about TY1992. `The Court disagreed with the district court that the informal claim doctrine conferred subject matter jurisdiction. It held that the informal claim doctrine excuses non-compliance with certain formal administrative requirements only when those deficiencies are later corrected. Here, Green-Thapedi never filed an administrative claim for TY1992. The Court vacated and remanded with instructions to the district court to dismiss the complaint.

Tags: Opinion by Ripple, Exhaustion of Administrative Remedies, Federal Tax, Informal Claim Doctrine, Jurisdiction

Defendant's Appearance Seeking Affirmative Relief After Dismissal For Failure To Serve Complaint Does Not Waive Objection To Jurisdiction

Posted on January 9, 2009 by Michael Rigney

UNITED STATES v. LIGAS December 1, 2008

Lawrence Ligas owed the government over $300,000 in taxes, penalties, and interest. Federal tax liens attached to his property. The United States brought an action in February 2004, just prior to the expiration of the statute of limitations. Ligas received a copy of the summons and complaint by mail but did not waive personal service. Between February of 2004 and February of 2005, the government failed to serve Ligas properly. In March, the court granted the government’s fourth request for an extension and permitted service by posting the summons and complaint on the door of Ligas’ home, by mailing copies to his home by certified mail, and by faxing copies to a fax number listed on Ligas’ pro se appearance form. On Ligas’ motion, the district court vacated its March order and dismissed the complaint for failure to serve Ligas. The court determined that the government had not been diligent in its service attempts and was not entitled to the fourth extension. The court relied on two facts – that Ligas’ co-defendant (the bank holding a mortgage on his property) had successfully served Ligas and that the government could not provide evidence of its pre-2005 attempts to serve Ligas. On the same day, Ligas sought to have the tax liens quashed. The government responded by asking for reconsideration of the court’s dismissal, arguing that Ligas had submitted to personal jurisdiction and waived objection to service by appearing to quash the liens. The court agreed. It reinstated the complaint and eventually granted summary judgment to the government. Ligas appeals.

In their opinion, Judges Bauer, Evans and Sykes reversed and remanded. The Court recited the general rules that a defendant must be served through one of the methods listed in FRCP 4, that a person must normally be served within 120 days but an extension may be granted, and that a complaint must be dismissed if it is not served within the allowed time. The Court concluded that the district court had correctly dismissed the complaint for the government’s failure to serve Ligas. The Court disagreed with the district court’s assessment of the impact of Ligas’ request to quash the tax liens. The Court stated that a defendant’s assertion of a right to affirmative relief does not generally waive an objection to jurisdiction. The affirmative relief can be unrelated to the jurisdiction issue (such as a counterclaim) or related to the jurisdictional issue (such as here, where the enforceability of the tax lien depended on the success of the jurisdiction argument). The fact that Ligas had other methods available to attack the liens did not change the Court’s view of the impact of his appearance. The Court also concluded that Ligas’ participation in the proceedings after the court’s reinstatement did not act as a waiver of his jurisdiction objection.

Judge Evans dissented from the panel’s opinion. Judge Evans emphasized that the court’s dismissal had been without prejudice. The government could refile and attempt service anew. He recognized that even the government itself thought there were serious statute of limitations barriers to a new complaint. But the barriers were not established as fact. The government could refile and put Ligas to the burden of establishing the defense. Since extinguishing the liens did not necessarily follow from the dismissal, Judge Evans believed that the district court did not abuse its discretion in reinstating the complaint.

Tags: Opinion by Sykes, Civil Procedure, Dissent by Evans, Dissenting Opinion, Jurisdiction, Service of Process

Tax Injunction Act Bars Federal Jurisdiction of Federal Constitutional Challenge of State Tax

Posted on December 8, 2008 by Michael Rigney

SCOTT AIR FORCE BASE PROPERTIES, LLC v. COUNTY OF ST. CLAIR (November 14, 2008)

Scott Air Force Base Properties, LLC (“Scott”) entered into a 50-year lease with the United States for property located on Scott Air Force Base. The lease was entered into pursuant to the Military Housing Privatization Initiative (“MHPI”), under which private companies can lease military land for the purposes of constructing, maintaining, and operating rental housing for military personnel. The County of St. Clair, in which the property is located, added the leaseholds to its tax rolls and assessed an ad valorem tax on each parcel. Scott filed a suit for a declaratory judgment that the leasehold interest and all transactions under the MHPI were exempt from state taxation. Scott asserted that the assessment violated the U.S. Constitution, federal law, and state law. The district court dismissed for lack of subject matter jurisdiction because of the Tax Injunction Act (“TIA”). Scott appeals.

In their opinion, Judges Ripple, Manion, and Sykes affirmed. The Court stated that the TIA bars federal jurisdiction of any suit in which the relief sought would reduce state tax revenue. It prevents both injunctive and declaratory relief. It applies even where the basis of the relief sought is a constitutional claim. The bar is expressly conditioned, added the Court, on the availability of a “plain, speedy, and efficient remedy” in state court. Scott has the burden of demonstrating the failure of the state remedy under the TIA test. Here, the Court found that Scott was clearly seeking to avoid paying state taxes. The TIA applied unless an adequate remedy was not available to Scott in the Illinois courts. Scott only challenged the “efficiency” of the Illinois remedy. Scott asserts that the Illinois remedy does not meet the TIA test because it requires that Scott pursue both an exemption application and a valuation protest. The Court rejected the argument, while conceding that a more efficient procedure might exist than the one provided by Illinois. The TIA does not require the most efficient remedy. The Court also noted that Scott will be able to raise its constitutional and federal statutory challenges to the tax in state court. Given a remedy in state court that meets the TIA test, the Court agreed that it lacked subject matter jurisdiction.

Tags: Opinion by Manion, Jurisdiction, State Tax, Tax Injunction Act

Failure to Comply With Settlement in Federal Civil Rights Case Does Not Amount to Retaliation

Posted on November 10, 2008 by Michael Rigney

KAY V. BOARD OF EDUCATION (October 27, 2008)

Gail Kay taught in the Chicago public school system. After she retired in 1994, she brought a § 1983 action against the Board of Education (“Board”). She alleged that the Board penalized her on account of her speech. The parties settled the litigation in 1996 and her case was dismissed. In the settlement, the Board offered to rehire Kay into an available future position. In 1997, she was offered an opportunity to return to her former school. She taught for seven more years – yet she never received another paycheck. After retiring again in 2004, she brought suit against the Board in federal court to enforce the 1996 settlement, alleging that her seven years of teaching without pay was a breach of the settlement. The district court dismissed the case on its own accord for “lack of venue” because Kay was governed by a collective bargaining agreement that required arbitration. Kay appeals.

In their opinion, Chief Judge Easterbrook and Judges Sykes and Tinder vacated the judgment of the court and remanded with instructions to dismiss for lack of subject matter jurisdiction. First, the Court listed several reasons why the court erred in dismissing the suit because of the collective bargaining agreement’s arbitration clause: a) only the union and employer can invoke the clause, b) a settlement of a dispute is not arbitrable as a claim arising under the agreement, c) a collective bargaining agreement cannot require the arbitration of civil rights claims, and d) the Board cannot compel arbitration with a volunteer, which they claim is Kay’s status. The panel also criticized the court below for acting independently, without benefit of the views of the parties.

Although the Court held that the lower court erred in dismissing the complaint, it identified (and asked for supplemental briefing on) a different problem. The Supreme Court’s decision in Kokkonen v. Guardian Life Ins. Co. makes clear that the vehicle for enforcement of a settlement of a federal case is a contract claim, which cannot be brought in federal court unless it qualifies independently under diversity principles. Apart from a settlement, a state’s wage-payment statute is the proper vehicle for a claim for unpaid wages. Kay conceded that she has no federal claim to enforce the settlement or for unpaid wages. She asserted, however, a claim that the Board’s failure to abide by the settlement is further retaliation for her assertion of constitutional rights. The only assertion of rights she maintains, however, are those that pre-dated the settlement. The Court noted that the Board’s failure to pay cannot be deemed a revived retaliation claim under Kokkonen. Finally, the panel did consider whether the Kokkonen rule applied in the context of a state actor defendant. It held that the Constitution does not require a state actor to keep its promise; it only requires some process before depriving a person of property. Kay’s opportunity to litigate her case in state court is process enough.

Tags: Opinion by Easterbrook, Civil Procedure, Civil Rights, Constitutional Law, Jurisdiction, Labor & Employment, § 1983

Suit by Heir on Behalf of Estate is a Suit by a Legal Representative and Subject to Citizenship Treatment of 28 U.S.C. §1332(c)(2)

Posted on October 2, 2008 by Michael Rigney

GUSTAFSON v. ZUMBRUNNEN (October 1, 2008)

George Skille, a citizen of Wisconsin, left most of his estate to his grandchildren and appointed one of them, Georgia Gustafson, his personal representative. After his death, Gustafson sued Skille’s widow (his second wife) in state court to recover money from a joint bank account for the estate. That suit was settled. Gustafson then brought suit in federal court seeking the balance of the account, attorneys’ fees from the first suit, and punitive damages. The suit named Skille’s lawyer (and the lawyer’s firm) and the bank where Skille and his wife had a joint account. The suit alleged that the lawyer had “tortiously interfered” with the grandchildren’s expectation of inheritance and that the bank had been negligent. The defendants were all citizens of Wisconsin, but none of the grandchildren were. The defendants moved to dismiss for lack of diversity on the ground that a legal representative of an estate is treated as a citizen of the state in which the decedent was a citizen under 28 U.S.C. §1332(c)(2). Gustafson responded by seeking leave to amend her complaint to name each of the eight grandchildren as plaintiffs, but none in a representative capacity. Once she realized that that would result in the individual demands falling below the jurisdictional threshold, she instead filed an amended complaint in which only one grandchild (Susan Gustafson) was named as a plaintiff, suing on behalf of the estate but not as a legal representative. The district court dismissed for lack of federal jurisdiction. Susan Gustafson appeals.

In their opinion, Judges Bauer, Posner, and Wood affirmed. The Court noted that Wisconsin law allows suits for tortious interference in these circumstances. It also allows a person with an interest in an estate to sue on behalf of the estate to recover assets for the estate - but only in the situation in which the personal representative has failed to do so. In that case, the suit would not be a suit by a legal representative and §1332(c)(2) would not apply. Here, although Georgia removed herself from the suit and is “failing” to recover assets that allegedly belong to the estate, she is doing so in collusion with Susan and Susan’s suit is on behalf of the estate. The Court also held that 28 U.S.C. §1332(c)(2) is not limited in its application to one person. Instead, it treats any legal representative of an estate as having the citizenship of the deceased. If it were otherwise, the Court warned, any estate could artificially manufacture or destroy diversity by naming a representative with the correct citizenship – a result counter to the purpose of the statute.

Tags: Opinion by Posner, Estates and Trusts, Jurisdiction

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Seventh Circuit Court of Appeals commentary from Chicago lawyer & attorney Michael E. Rigney of Kelley Drye & Warren Law Firm, offering insights and analysis related to 7th Circuit Court opinions and Illinois federal courts.