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

IN RE: MARCHFIRST (December 21, 2009)

CIT Communications Finance Corp. leased telephone equipment to marchFIRST beginning in 2000. After marchFIRST filed for bankruptcy in 2001, CIT sought the return of its equipment. The Trustee denied that marchFIRST held any CIT property. In 2002, CIT filed an administrative claim, asserting that the Trustee breached his fiduciary duty. In May of 2007, CIT filed a lawsuit against the Trustee for breach of fiduciary duty. The bankruptcy court, and the district court, both agreed that the suit was barred by the statute of limitations. CIT appeals.

In their opinion, Judges Bauer and Sykes and District Judge Simon affirmed. Everyone agreed that the claims were governed by the five-year statute of limitations -- they did not agree on when the claim accrued. The Court cited the general rule that tort claims accrue when a party sustains an injury but added that Illinois recognizes the discovery rule. That principle extends the time of accrual until the time when a party both knows he is injured and that the injury was wrongfully caused. Here, CIT begin demanding its equipment back as early as July of 2001 and the Trustee refused to return it as early as November of 2001. CIT was on notice of its injury and its claim. Even if the Trustee's breach of his fiduciary duty continued into the five-year period before the filing of the complaint, this is not the type of tort where a limitations period begins to run only after the cessation of the tortious conduct. When a tort arises out of a breach of contract, the statute begins to run at the time of the breach or its discovery.

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IN RE: ROSE (October 7, 2009)

Mercantile National Bank of Indiana sued Jasper- Newton Utility in state court for breach of contract and specific performance. Judgment was entered in Mercantile's favor for approximately $160,000. James Rose was a 50% shareholder in Jasper- Newton. A few weeks later, Rose and the other shareholder sold Jasper-Newton to WSCI. The shareholders indemnified WSCI for the liability to Mercantile. In proceedings to collect on the judgment, Mercantile sought leave to amend its complaint to add a claim under the Indiana Crime Victim Compensation Act. The court entered judgment in Mercantile's favor of almost $600,000. The state appellate court affirmed on the merits. The state Supreme Court reversed, holding that Mercantile could not assert a new CVCA claim in supplemental proceedings to collect the judgment. Rose filed a petition for bankruptcy in the meantime. Mercantile filed an adversary proceeding in the bankruptcy court challenging the dischargeability of its CVCA claim. The bankruptcy court granted Rose's motion to dismiss Mercantile's complaint, concluding that the CVCA claim was barred by the statute of limitations. The district court affirmed the bankruptcy court. Mercantile appeals. During the appeal, the state appellate court ruled that the CVCA claim was commenced within the appropriate limitations period.

In their opinion, Judges Flaum and Williams and District Judge Kapala reversed. The Court looked to the various opinions of the state courts to decide whether Mercantile filed within the statutory period. Although the state Supreme Court reversed the trial court's order granting Mercantile leave to amend, it did so because it was improper to file the claim in supplemental proceedings. The court, in its opinion, specifically stated that Mercantile could pursue the claim in some other manner. After remand, the state Court of Appeals concluded that the claim was commenced when Mercantile moved to amend its complaint and was therefore filed within the limitations period. The Court concurred with the reasoning of the state appellate court in concluding that the claim was properly commenced within the limitations period.

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 PRINCE v. STEWART (September 2, 2009)

The Chicago Teachers Union fired Earl Prince from his job. Prince filed an administrative discrimination charge. He then brought an action pro se for employment discrimination under Title VII before he received any response from the Illinois Department of Human Rights or the EEOC. The district court dismissed the complaint because Prince had not yet received a right-to-sue letter. Several months later, after Prince had received the letter, the district court granted his motion to reopen the case. The court vacated the order, however, a few days later at Prince's request. Months later, on the last day to sue, Prince again moved to reopen the case. This time, the judge turned him down -- and it was too late to file a new complaint. Prince appeals.

In their opinion, Judges Posner, Coffey and Manion reversed and remanded. The Court recognized Prince's mistake when he followed up the first order reopening his case with a request to reinstate the dismissal. He was simply going to be out of the jurisdiction for a short time and need not have worried about his temporary unavailability. However, the Court also recognized that no one was prejudiced by his mistake. If the second motion to reopen was filed in a timely fashion, the Court could not see any reason why it should not have been granted. The Court concluded that the district court’s lulling of the pro se litigant into believing that he did not have to refile his complaint amounted to equitable tolling.

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MIDDLETON v. CITY OF CHICAGO (August 24, 2009)

From 1960 until 1989, Charles Middleton served in the Air Force. On two occasions in the early 1990s, he applied for positions with the City of Chicago. He was not hired for either position. In 2007, Middleton sued the City pursuant to the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). He alleged that the City refused to employ him on account of his military service. The district court applied the four year "catch-all" statute of limitations in 28 U.S.C. § 1658 (a) and dismissed his complaint. Middleton appeals.

In their opinion, Judges Kanne, Rovner and Wood affirmed. The Court considered not only the application of § 1658 (a) to the claim but also the provisions of the Veterans' Benefits Improvement Act (VBIA), enacted after the appeal. Section 1658 was enacted in 1990. Its purpose, said the Court, was to minimize the borrowing of state statutes of limitations for federal causes of action. It provided a four-year statute of limitations for any federal claim brought under a later-enacted statute, if the statute had no expressed limitations period. USERRA was enacted four years later and contained no expressed statute of limitations. The Court concluded, based on the plain meaning of the statute, that the four-year limitations applied. In doing so, it rejected the Middleton's arguments that: 1) the section did not apply because USERRA was simply an amendment of an earlier-enacted statute, and 2) the legislative history indicated Congress' intent that no statute of limitations apply. The Court turned its attention to the VBIA. The VBIA eliminates any limitations period for a USERRA cause of action. The Court noted the "well-established" rule that a statute should not be applied retroactively unless Congress' intent is clear. Nothing in the statute addresses retroactivity. The Court concluded that the statute should not be given retroactive effect. Finally, the court rejected Middleton's argument that the VBIA was merely a clarification of existing law.

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BROOKS v. ROSS (August 20, 2009)

Victor Brooks served on the Illinois Prison Review Board ("PRB"). One of the functions of the PRB is to make certain parole decisions. In 2002, the parole request of inmate Harry Aleman came before the PRB. The hearing was unusual both because of Aleman's notoriety for murder and bribery and because a Department of Corrections employee provided a statement in support of his parole. Brooks cast the only vote in support of parole. Because of the high profile of the situation, the department began an investigation. The investigation resulted in several reports, some of which accused Brooks of accepting bribes to vote in favor of parole. Eventually, Brooks and the department employee were indicted for their conduct -- and later acquitted. Brooks filed suit under § 1983 and state law against numerous state officials, alleging claims of deprivation of due process, malicious prosecution, conspiracy and intentional infliction of emotional distress. The district court dismissed for failure to state a claim. Brooks appeals.

In their opinion, Judges Flaum, Wood and Tinder affirmed. The Court chose to address the claims under principles of timeliness, sovereign immunity and pleading requirements. First, a § 1983 claim borrows its statute of limitations from a state personal injury action. Here, that limitation is two years. Brooks' complaint was filed within two years of his acquittal, but more than two years after his indictment. The malicious prosecution and federal due process claims both require an allegation of acquittal and are therefore timely. The federal and state conspiracy claims and the intentional infliction of emotional distress claim complain of his prosecution. An acquittal is not a pleading element of any of them. Under Illinois law, the Court concluded that the indictment was a single overt act that triggered the statute of limitations for those claims. They are therefore time-barred. Second, Illinois law requires tort suits against the state to be brought in the Illinois Court of Claims. Although the Court recognized the exception if a state actor exceeds his authority, it concluded that the malicious prosecution claim did not fall within the exception and was therefore barred. Finally, the Court concluded that Brooks' due process claim did not meet the pleading requirements of the Supreme Court's recent opinions in Twombly, Erickson and Iqbal. Under those cases, a plaintiff is required to provide notice of his claim, a court must accept allegations as true unless they fail to provide sufficient notice, and the court need not accept conclusory or abstract allegations. Here, Brooks does provide many specific allegations, but the allegations describe conduct that is just as consistent with legal behavior as it is with illegal behavior. The only allegations that adequately describe illegal behavior merely recite the elements of the cause of action and do not put the defendants on notice of their specific conduct that is alleged to have violated the Constitution or law.

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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.

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THE CANCER FOUNDATION v. CERBERUS CAPITAL MANAGEMENT (March 19, 2009)

In the late 1990s, Martin Lapides and his corporate empire were suffering. He obtained a $23 million line of credit from the Gordon Brothers Group and others. Soon after, Gordon Brothers, working with Lapides' chief financial officer, began to wrest control of one of the corporations away from Lapides. Once Gordon Brothers and the others obtained control of the corporation, they placed it in bankruptcy. The bankruptcy triggered a whole host of financial troubles for Lapides. One of the victims of these troubles was the Cancer Foundation, when one of Lapides’ companies was unable to fulfill an $80 million pledge. Several individual investors in Lapides’ corporations filed suit and obtained a $7 million judgment against Lapides personally. The Cancer Foundation, Lapides and others who suffered harm from the conduct of Gordon Brothers filed suit in 2007 under the Racketeer Influenced and Corrupt Organization Act (RICO). The district court dismissed the complaint on the grounds that it was barred by the statute of limitations. Plaintiffs appeal.

In their opinion, Judges Ripple, Manion and Evans affirmed. The Court noted the "generous" four year statute of limitations for a RICO cause of action runs from the time when a plaintiff discovers the harm. A plaintiff does not have to know that the harm is actionable to begin the limitations period. The Court agreed with the district court in holding that the complaint was barred. The conduct complained of was complete an entire decade before the suit began. The Court rejected plaintiff’s argument that the statute did not begin to run until an article in Forbes alerted them to the alleged conspiracy. The plaintiffs were clearly aware of their injury, even if they were not aware of all of its particular elements, well outside of the limitations period.

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

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

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

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ANDONISSAMY v. HEWLETT-PACKARD CO. (November 7, 2008)

Sanjay Andonissamy, a French citizen of Indian ancestry, began his employment with Hewlett-Packard (“HP”) in April of 2001. He was in the country on an HP-sponsored H-1B visa. [The following is Andonissamy’s version of the story – HP’s version differs greatly] After the events of September 11, 2001, Ken Smith, Andonissamy’s supervisor, began to make derogatory racial, ethnic, and nationalist remarks to and about Andonissamy. Andonissamy frequently complained to Smith’s supervisor. Smith placed Andonissamy on remedial performance plans, allegedly in retaliation for Andonissamy’s complaints about Smith. Andonissamy began taking medication for anxiety and depression in 2002. He was being treated, but his physician never placed him on any restricted work schedule. Andonissamy’s condition worsened in early 2003 after the deaths of his brother and nephew. In May of 2003, Smith made a false report to the company implicating Andonissamy as a security threat. HP fired Andonissamy on June 23, 2003. On September 16, Andonissamy filed an EEOC complaint alleging national origin discrimination. The EEOC dismissed his complaint and issued a right to sue letter. Andonissamy filed a complaint in federal court in April of 2004. In addition to his complaints of national origin discrimination under Title VII and 42 U.S.C. § 1981, Andonissamy added a Family and Medical Leave Act count. In November of 2005, Andonissamy added Smith as a defendant on an assault count. The district court dismissed Smith and granted summary judgment to HP. Andonissamy appeals.

In their opinion, Judges Flaum, Williams, and Sykes affirmed. The Court first addressed Andonissamy’s Title VII hostile work environment claim. In order to survive summary judgment, Andonissamy had to show that a) he was subjected to unwelcome harassment, b) the harassment was based on his national origin, c) it was severe and pervasive enough to amount to a hostile and abusive environment, and d) there exists a basis for employer liability. The Court did not address the first three elements because it found no basis for employer liability. An employer can be vicariously liable for the conduct of a supervisor but can only be liable for the conduct of a co-worker if the company was negligent in discovering or remedying the harassment. A supervisor for purposes of Title VII is the person with the ability to affect the terms and conditions of the plaintiff’s employment. Smith, although he was Andonissamy’s “supervisor” in the sense that he directed his performance, was not a Title VII supervisor. There was no evidence that Smith was able "to hire, fire, promote, demote, discipline or transfer" Andonissamy. In order to hold HP liable for the acts of Smith as co-worker, Andonissamy had to establish that he complained or that the discrimination was so pervasive that HP’s knowledge could be inferred. Although Andonissamy did complain to Smith’s supervisor, he did not specifically complain about national origin discrimination. The Court agreed with the district court that Andonissamy therefore did not make out a Title VII claim. With respect to his companion § 1981 claim, the Court stated that a plaintiff can proceed under the direct or indirect method. The direct method requires evidence that an adverse employment action was based on the plaintiff's national origin. The Court found no such evidence in the record. Under the indirect method, a plaintiff must establish, among other elements, that he was meeting his employer’s legitimate performance expectations. The Court noted that the record contained numerous references to Andonissamy’s performance problems. The Court concluded that Andonissamy was therefore unable to establish a § 1981 claim under either method.

Andonissamy’s retaliation claim could also be established under the direct or indirect method. The indirect method for retaliation, like discrimination, contains an element that Andonissamy was meeting HP’s performance obligations. The Court rejected Andonissamy’s indirect method for establishing his retaliation claim for the same reason it rejected it for his discrimination claim. Under the direct method, Andonissamy had to establish that: a) he engaged in statutorily protected activity, b) his employer took an adverse employment action, and c) there was a causal connection between the two. The Court held that his complaints to HP did not include complaints of national origin discrimination. He was thus unable to establish the statutorily protected activity element. The Court concluded that he failed to establish a retaliation claim under either method. With respect to the FMLA count, the Court noted that Andonissamy never asked for any leave and did not exhibit any dramatic changes in behavior that would have put HP on notice of a need for leave. The Court agreed with the district court that Andonissamy failed to meet his burden under the FMLA.

Finally, the Court addressed Andonissamy’s assault claim against Smith. The assault claim was added to the case after the statute of limitations on the claim had expired. Andonissamy argued that the claim related back to the original claim and was thus permissible under FRCP 15(c). The Court affirmed the dismissal, stating that a claim against a new defendant relates back only when there is a case of mistaken identity. Since Smith supervised Andonissamy for years, that cannot be the case here.

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DOMINQUEZ v. HENDLEY (September 30, 2008)

Alejandro Dominguez was fifteen when a neighbor accused him of sexual assault. He was convicted of home invasion and sexual assault and spent four years in prison before he was paroled. Dominguez always maintained his innocence. He eventually proved his innocence through DNA testing. Not only did he succeed in getting his conviction vacated, the Governor pardoned him. Dominguez brought this action against an investigating police officer and the City of Waukegan under 42 U.S.C. §1983. He alleged that the officer (a) withheld exculpatory material from the prosecutor and defense, (b) conducted an improper and prejudicial identification, and (c) fabricated evidence. At trial, the jury returned a verdict in favor of Dominguez in excess of $9 million. Hendley and the City appeal.
 

In their opinion, Judges Bauer, Ripple, and Wood affirmed. The appellants raised numerous issues, none of which convinced the panel of reversible error.

• The Court rejected the Statute of Limitations argument as the complaint was filed within two years of the date the conviction was vacated. One who brings a §1983 claim for violation of due process based on denial of a fair trial must first have the conviction vacated. The limitations period runs from that date. The appellants’ argument that it should run from the arraignment would have merit only if the complaint was based on false arrest rather than unfair trial.
• The Court rejected the argument that Hendley was entitled to qualified immunity because Dominguez did not prove that Hendley proximately caused the alleged violations. In the eyes of the Court, the argument was not one of qualified immunity, but simply an attack on the sufficiency of the evidence of the violations. The Court found sufficient evidence to support the verdict.
• The Court found as irrelevant whether Dominguez proved that the arrest was without probable cause. Again, Hendley was misreading the complaint as one simply attacking the arrest.
• Appellants’ next argument was that Dominguez did not properly plead or prove that Hendley failed to provide exculpatory evidence. Any supposed flaw in the pleading was overcome by Hendley’s failure to object and presentation of affirmative evidence on the issue. The panel had no difficulty in finding sufficient evidence in the record to support the verdict.
• Appellants’ argued a number of errors in the instructions. Some were rejected because they were based on the appellants’ erroneous “false arrest” theory. Others were addressed to causation. The Court found that the district court’s instructions on proximate cause were sufficient.
• The appellants’ submitted a litany of supposed trial errors, the cumulative effect of which they claim deprived them of a fair trial. The Court never had to address the cumulative effect of any errors because, in fact, they held that not one of the items raised amounted to error.
   

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ABENA v. METROPOLITAN LIFE INS. CO. (September 16, 2008)

Albert Abena worked as a dentist for American Dental Partners, Inc. (“ADP”). ADP provided long-term disability benefits to eligible employees through a plan administered by Metropolitan Life Insurance Co. (“MetLife”). An employee seeking benefits had to file a “Proof of Disability” within three months of the end of an “Elimination Period” (a ninety day period from the date of disability during which benefits were not paid). The Plan provided that no legal action could be filed before the sixtieth day after the filing of the Proof of Disability or after three years from the date Proof of Disability had to be filed. Abena submitted a Proof of Disability on October 23, 2000. He asserted that his disability commenced on May 16, 2000. MetLife approved the claim in early 2001 and began paying benefits. After learning that Abena was again working as a dentist, MetLife reviewed his claim and notified him on August 8, 2002 that his benefits would be terminated. Abena took advantage of an internal appeals process. MetLife affirmed its decision on April 16, 2003. Abena filed suit on April 17, 2006 under ERISA against ADP and MetLife. The district court granted summary judgment to the defendants on the ground that the suit was not timely filed. Abena appeals.

In their opinion, Judges Manion, Rovner, and Evans affirmed. The Court agreed with the court below that the issue was controlled by the Court’s 1997 decision in Doe v. Blue Cross Blue Shield United of Wisconsin. In Doe, the Court noted that ERISA did not contain a Statute of Limitations and that the normal practice would be to borrow a limitations period from a closely analogous statute. It also held that a shorter contractual limitations period would be enforced if it was reasonable. Doe dealt with an employer-sponsored health plan. Like the ADP plan, the Doe plan provided that a claimant had to file for reimbursement within ninety days of the date of service and that the claimant could not initiate a suit after three years from the last day a claim could be filed. The plan also required a claimant to pursue an internal appeals process. The appeals process in Doe was concluded with seventeen months left in the three year limitations period. Particularly given that the claimant was represented by counsel, the Court held that the seventeen months was reasonable and enforceable. In applying Doe to Abena’s situation, the three year period expired in November of 2003. MetLife notified him of its affirmance of termination of benefits in April of 2003. Abena, therefore, had seven months to file suit. Abena argues that Doe was an initial claim case and his is a denial of previously granted benefits and therefore distinguishable. The Court agreed that the limitations provision may be better suited to an initial claim but did not see that as a reason to depart from Doe’s holding. The Court also agreed with Abena that a situation could arise in which benefits were paid for thirty nine months before termination, leaving no time to bring suit. Unfortunately for Abena, the Court’s view was that the possibility of that result did not invalidate the limitations period or make a seven month period unreasonable – it merely would have made the application of the provision in that case unreasonable. Abena, too, was represented by counsel. In those circumstances, the Court held that a seven month period was reasonable and enforceable. 
  

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