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

FRYE v. THOMPSON STEEL COMPANY (September 2, 2011)

During Basil Frye's long employment with Thompson Steel Company in Franklin Park Illinois, he suffered two work-related injuries. He received over $80,000 in workers’ compensation settlements for permanent partial disabilities. In 2007, Thompson decided to close its Franklin Park facility and Frye chose to take early retirement. The company's Retirement Committee, which administered Frye's pension, advised Frye that his pension benefits would first go to repay the workers’ compensation settlement amounts. The Plan provided that amounts paid to an employee for an injury causing "disability in the nature of a permanent disability" would be deducted from the employee's pension benefits. Frye challenged the Committee's determination unsuccessfully. He then filed suit under ERISA’s § 502 to recover benefits. Magistrate Judge Cole (N.D. Ill.) granted summary judgment to Frye, concluding that the Committee's decision was arbitrary and capricious. The court based its ruling on the Plan's definition of disability. Thompson appeals.

In their opinion, Seventh Circuit Judges Ripple, Evans (who, as a result of his death, took no part in the decision), and Sykes reversed and remanded. The Court first noted that the Committee had substantial leeway in interpreting the Plan under the arbitrary and capricious standard of review. Although it is not free to disregard unambiguous language, its construction and interpretation of ambiguities is entitled to substantial deference. Here, the Plan defined disability as when an employee "has been totally disabled by bodily injury or disease so as to be prevented thereby from engaging in any occupation or employment." The Court conceded that there were two reasonable interpretations of the Plan’s settlement offset section. Under one, a permanent partial disability like Frye's could be an offset disability because it is in the nature of a permanent disability. Under another, an offset disability must be one that prevents the employee from engaging in any occupation or employment, which Frye’s is not. The Court found nothing in the Plan’s structure or the application of common sense to resolve the ambiguity. The Committee was entitled to interpret the plan to the best of its ability and its interpretation was reasonable. The Court remanded with instructions to enter summary judgment for Thompson.

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HUSS v. IBM MEDICAL AND DENTAL PLAN (April 13, 2011)

Eileen Huss was an IBM employee and participated in the IBM Medical and Dental Plan. Huss’ son Joseph had a mental disability and was entirely dependent on Huss and her husband for his support. In 2005, Joseph was 24 years old and enrolled in his father's medical plan. But Huss wanted him enrolled in her plan at the time of her anticipated retirement at the end of 2006. Plan representatives told her that her son would be eligible to enroll at that time and that she need not take any additional steps until her retirement. In January of 2007, a month after her retirement, a Plan representative told her that Joseph was ineligible because she had not submitted a written application years earlier (60 days before he turned 23). Huss requested a summary of the plan and any relevant material. A plan representative responded that the 2006 Summary Plan Description (SPD), which Huss already had, was the only relevant document. Huss specifically requested plan language that was in effect in 2004, the year Joseph turned 23. Huss retained a lawyer who asked for reconsideration and again requested plan language and documents from the earlier years. Plan administrator R. A. Barnes denied relief based on language from the 2006 SPD. Barnes did provide some of the earlier language. Huss made her final appeal based on the 2004 SPD language, which did not require a written request. Barnes again denied eligibility. Huss brought suit pursuant to ERISA against both the Plan and Barnes. She sought benefits and statutory damages for failure to provide documents. Judge Zagel (N.D. Ill.) granted summary judgment to Huss on both counts, assessed statutory penalties of over $15,000, and awarded fees and expenses of over $86,000. Defendants appeal.

In their opinion, Judges Kanne, Williams and Tinder vacated and remanded on the claim for benefits, affirmed in part and reversed in part on the statutory penalties, and vacated and remanded the award of fees and expenses. The Court began with the eligibility issue. Since the administrator has discretion under the Plan’s language, Barnes' decision is reviewed under an arbitrary and capricious standard. The Court recognized Hackett's "sweeping language" to the effect that the plan in effect at the time a claim is denied is the plan that controls. But the Court noted that the type of dispute in Hackett was quite different and concluded that the nature of the dispute dictates whether earlier language might control. Here, where the Plan's denial is based on failure to satisfy a condition precedent, the controlling plan language must be that which was in effect when the claimant's ability to satisfy the condition precedent expired. In this case, that is the language in effect in 2004. Barnes' exclusive reliance on the 2006 SPD makes her actions arbitrary and capricious. With respect to eligibility under the earlier language, the Court found the earlier language ambiguous regarding the need for a parent's request for coverage continuation. Because of the ambiguity and the a plan administrator’s broad discretion, the Court concluded that Barnes’ interpretation -- that an employee had to make a request within 60 days of the dependent’s 23rd birthday -- was not unreasonable. A genuine issue of fact existed, however, with respect to whether Huss actually made that request. The Court remanded to the administrator for further development of the record and other proceedings. The Court next addressed the statutory penalty award. It affirmed the penalties associated with the Plan's original failure to send Huss the 2003 plan documents. The Court had already determined that this was the controlling document and the Plan did not produce it within the statutory time period. The district court’s second statutory penalty, however, related to defendant’s failure to produce a number of SPDs published between 2004 and 2007. Although the Court conceded that these documents would show the evolution of the condition precedent language and may have been helpful to Huss, it concluded that they did not fall within the category of documents that ERISA required defendants to produce. The district court therefore abused its discretion in awarding those penalties. Finally, the Court turned to the fee award. It noted that the Supreme Court had recently concluded, contrary to prior Seventh Circuit jurisprudence, that an ERISA plaintiff may still be awarded fees if her case is remanded to the administrator if she shows "some degree of success." The Court expressed its disagreement with some of the district court's findings but ultimately decided simply to vacate the award, given its treatment of the merits. The district court will have another opportunity to consider a fee award after remand.

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ENBRIDGE PIPELINES (ILLINOIS) L.L.C. v. MOORE (January 24, 2011)

Over 70 years ago, a predecessor to Enbridge Pipelines ("Pipeline") built 120 miles of 10-inch pipeline through central Illinois. The owners of the properties under the surface of which the pipeline ran granted easements for the pipeline "so long as such pipe lines . . . are maintained." When Pipeline acquired it, the line had been inactive for almost 25 years. Pipeline wanted to replace the line with a larger one and extend it by 50 miles. Several landowners objected, claiming that the pipelines were not "maintained," under the easement, and that the easement rights were no longer valid. Pipeline brought 25 different lawsuits in two different district courts in Illinois seeking a declaration that the easements were still in effect. Judge Baker (C.D. Ill.) and Chief Judge Herndon (S.D. Ill.) granted summary judgment to Pipeline in each case that was not settled. A number of the defendants appeal. The Court consolidated the appeals.

In their opinion, Circuit Judges Bauer and Posner and District Judge Pallmeyer affirmed. The Court first addressed the jurisdictional amount requirement, which several of the defendants denied, though without any evidence or argument in support. Pipeline introduced evidence that it would cost far in excess of $75,000 per property to reroute the pipeline. The Court rejected the defendants' theory that Pipeline would not have to reroute but could acquire new easements for less than $75,000 per property. If rerouting the pipeline would cost in excess of $75,000 per property and would also result in significant delays, a rational property owner would demand at least that much. The amount in controversy requirement is satisfied. On the merits, the Court concluded that the easement's use of the word "maintain" is ambiguous. Relying on the economic value of property rights and the undesirability of demanding significant investment simply to preserve those rights, the Court concluded that the more plausible meaning of "maintain" is simply to retain or occupy. Here, the pipeline owners never deliberately abandoned their property rights. They simply chose, as the owner of a property right can, not to use that property right for a period of time. That intention, in conjunction with the considerable maintenance that was performed during that period, is enough to satisfy any reasonable interpretation of "maintain."

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TRINITY HOMES LLC v. OHIO CASUALTY INSURANCE CO. (December 22, 2010)

Literally thousands of hopeful Indiana homeowners entered into contracts with Trinity Homes, an Indiana general contractor, to construct residential housing. Trinity, in turn, delegated the actual construction of the homes to a number of subcontractors. A significant number of the homes had structural damage. Many of the homeowners sued Trinity. Trinity turned to its insurance carriers. It had multiple CGL policies as well as an umbrella policy with Cincinnati Insurance Co. When none of the insurers recognized an obligation to defend, Trinity brought suit for a declaration of coverage. Most of the CGL carriers then settled. Under the terms of the settlements, each carrier paid at least 75% of its policy limit and Trinity agreed to cover the balances. Two carriers held out. Ohio Casualty Insurance Co., a CGL carrier, argued that the damage to the homes was not "property damage" caused by an "occurrence." Cincinnati Insurance Co., the umbrella insurer, argued that the umbrella coverage was not triggered because a number of the underlying policies were not exhausted. Judge Barker (S.D. Ind.) granted both insurers' motions for summary judgment. Trinity appeals.

In their opinion, Seventh Circuit Judges Cudahy and Kanne and District Judge Darrah reversed and remanded. The Court first addressed the ruling in Ohio Casualty’s favor. In that ruling, the district court distinguished between damage to a home being built and damage to property other than the home. Relying on the Indiana Appellate Court opinion in Sheehan, it stated that the former was not covered by a standard CGL policy, while the latter was. The district court also ruled that the faulty workmanship did not constitute an "occurrence." Subsequent to the district court's ruling, the Indiana Supreme Court issued its opinion in Sheehan and reversed, holding that a standard CGL policy does cover damage to a home caused by faulty workmanship. The Court therefore reversed for reconsideration in light of Sheehan. The Court then turned its attention to the Cincinnati Insurance umbrella policy. The district court had granted summary judgment on two grounds -- first, that the settlements under the policy limits did not exhaust the underlying policies and therefore did not trigger the umbrella coverage and second, that Trinity failed to show that certain other underlying policies were unavailable. The Court disagreed on both points. With respect to the settlements, the Court concluded that the Cincinnati policy was ambiguous. As such, it must be construed in Trinity's favor. Cincinnati could have used language that made it clear that an underlying policy was not exhausted until the full policy limit was paid by the insurer. The Court found that the actual language used was susceptible to an interpretation that the policy was exhausted when the carrier paid a significant percentage of the policy limit and the insured took responsibility for the rest. Although the Court found no Indiana precedent on point, it relied on cases from the Second and Third Circuits as well as Indiana public policy encouraging settlements. With respect to the unavailability of two other CGL policies, the Court noted that Trinity offered a declaration that referred to those policies and explained the circumstances giving rise to their unavailability. The declaration was based on the declarant's personal knowledge and provided significant detail. The Court concluded that the declaration was sufficient to establish a genuine issue of fact, notwithstanding its self-serving nature.

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

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

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

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TEMME v. BEMIS CO. (September 13, 2010)

Hayssen Manufacturing Company operated a facility in Sheboygan, Wisconsin until 1985. A strike during the summer of that year led to the company's decision to close the plant. The company and the union representing its workers entered into a Plant Closing Agreement (the “Agreement”). The agreement terminated the strike, all employment relationships, and the union bargaining relationship. It also addressed employee benefits. With respect to health benefits, it provided that terminated employees who were not eligible for or who did not apply for retirement benefits could continue their medical coverage for 12 months, or until they were covered by another plan, by paying the full monthly premiums. It further provided that individuals who qualified and elected to retire were eligible for retired employee medical benefits. Although the agreement did not define the scope of "retired employee medical benefits," the final Collective Bargaining Agreement (CBA) did. Among other terms, it provided for: a) two $50 deductibles per year, b) 100% prescription drug coverage, and c) dependent spouse coverage after the death of a retiree. The company provided those benefits, even after being acquired by Bemis Company, until 2004. In 2005, the deductible was increased to $250. In 2007, prescription drug coverage was eliminated. A class action was filed on behalf of the retirees. Judge Stadtmueller (E.D. Wis.) certified the class and granted summary judgment to Bemis. The class appeals.

In their opinion, Circuit Judges Kanne and Williams and District Judge Springmann reversed and remanded. The Court laid out several principles of contract interpretation: a) if a contract is not ambiguous, there is no need for external evidence, b) contract terms are given their ordinary meaning, c) a contract is read as a whole and in conjunction with related documents, and d) welfare benefits contracts are presumed not to create a lifetime vested benefit unless specifically provided. Applying those principles, the Court looked to both the Agreement and the CBA. It rejected Bemis’ argument that the CBA was extrinsic evidence, citing language in the Agreement expressly permitting reference to the CBA "to effectuate the provisions" of the Agreement. Reading the agreements together, the Court concluded that they unambiguously provided retired employees with health benefits. Bemis further argued, however, that any benefits were not vested for life. The Court disagreed, noting that the presumption against vesting is not as strong in a plant closing agreement as it is in, for example, a short-term collective bargaining agreement. It found several indicia of an intent to vest. It identified the "stark contrast" between the terminated employee and retired employee benefits. The retired employee benefits do not have an end date, as do those for the terminated employees. In addition, the provision granting coverage to spouses after the death of a retiree strongly implied an intent to vest lifetime coverage. Although the Court concluded that the Agreement provided for lifetime medical benefits (and it reversed summary judgment in Bemis' favor), it did not conclude that Bemis breached the agreement. The Court found questions of fact regarding whether any changes could be made to the lifetime coverage and the impact, if any, of a reservation of rights clause in the underlying insurance contract. The Court remanded for further determinations. 

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UNIVERSITY OF CHICAGO MEDICAL CENTER v. SEBELIUS (August 25, 2010)

Prior to 1980, the federal Medicare program treated teaching hospitals and non-teaching hospitals the same for reimbursement purposes. Teaching hospitals, however, had higher service costs. The Secretary established an adjustment for teaching hospitals in 1980. The adjustment was based on the number of full-time equivalent (FTE) residents employed on a particular date. When Congress further amended the Medicare reimbursement program in 1983, it included an indirect medical education (IME) adjustment to replace the Secretary's 1980 directive that also was based on the number of FTEs. The regulations in effect in 1996 required a resident to be assigned to the outpatient department of a hospital or the "portion" of the hospital subject to the 1983 program. Further amendments in 2001 excluded time spent in research not associated with treatment or diagnosis even if the resident was assigned to one of those two departments. The University of Chicago Medical Center included pure research time in calculating its residents' FTE count for fiscal year 1996. The Medicare program Administrators excluded that time. The district court disagreed. Judge Andersen (N.D. Ill.) concluded that "outpatient department" and "portion" are geographic areas, not spheres of operation as argued by the Administrator. The Secretary appeals.

In their opinion, Judges Cudahy, Evans, and Sykes affirmed. Although the Court agreed that the plain language of the regulation referred to a resident's geographic location, it also conceded that the answer to the ultimate question was not clear. If the regulation was ambiguous, the Court would have to address the degree of deference owed to the Secretary. In any event, the Court concluded that legislation enacted after oral argument provided the answer. The Patient Protection and Affordable Care Act, enacted in March of 2010, allowed the inclusion of non-patient care activities in the IME FTE count retroactively to 1983. It also provided that pure research activities should not be counted after 2001. Although the 2001 provision specifically stated that no inference should be drawn regarding pre-2001 calculations, the Court concluded that pure research was a subcategory of "non-patient care activities" and therefore specifically included in the Act's retroactive language.

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REXAM BEVERAGE CAN CO. v. BOLGER (August 24, 2010)

Almost 50 years ago, David Bolger constructed a warehouse near Rockford, Illinois and leased it to Rexam Beverage Can Company. In 2005, Rexam attempted to renew the lease for another five-year term, but failed to give the requisite notice. Bolger advised Rexam that it would have to vacate the premises at the expiration of the lease in March of 2006. Bolger also requested that certain repairs be made. Rexam did not vacate the premises. Instead, it filed a declaratory judgment action. It also continued to pay all utilities and rent, although Bolger returned the rent checks. Eventually, Rexam found a new home, made some repairs to the Rockford warehouse, and returned possession to Bolger at the end of August, 2007. Although Rexam made significant repairs to the warehouse, it did not replace the roof as Bolger had requested. The roof repair estimate was approximately $400,000. Bolger sold the property within several months without replacing the roof. Shortly before Rexam vacated the warehouse, Judge Ashman (N.D. Ill.) ruled on the declaratory judgment action. He concluded that Rexam did not meet the lease's renewal notice requirements and that its continued occupation of the warehouse was "willful" under Illinois' Holdover Statute. After a bench trial, the court found for Bolger and awarded $1.1 million for the holdover, $400,000 for the roof replacement, $20,000 for other repairs, and over $800,000 in attorneys' fees. Rexam appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Tinder affirmed in part and vacated and remanded in part. The Court first addressed Rexam's liability for roof repairs under the lease. Under Illinois law, the lease is like any other contract and, if unambiguous, will be applied according to its terms. Using that analysis, the Court concluded that the lease language ("Lessor shall have no obligation with respect to the maintenance and repair . . .” and "Lessee shall be solely responsible . . . for keeping all of the [buildings] in good condition, order and repair, including all structural and extraordinary changes . . .") was unambiguous and placed the contractual burden of roof repairs on Rexam. With respect to damages for the roof, which the district court fixed at the estimated repair costs, the Court noted that Illinois law limits damages in such a situation to the diminution in property value. If the repair cost exceeds diminution in value, only the latter is awarded. The district court was presented with conflicting evidence on this issue and determined that the two measurements of damages were equal. The Court found no clear error. The Court turned to the award of damages under the Holdover Statute. It first concluded that there was no clear error in the district court's factual finding that the holdover was willful. Although the statute does not define willful, the Court relied on an intermediate Illinois case that rejected a "bad faith" test and instead adopted a test that excuses a tenant who remains in possession for a "colorably justifiable" reason. The Court agreed with the district court's conclusion that Rexam's holdover was not justifiable. With respect to damages, the statute assesses a penalty of "double the yearly value of the lands." The district court based its award on expert testimony establishing the monthly gross rental rate of the warehouse. The Court concluded that the use of the gross rental rate to measure damages was incorrect. Relying on the plain language of the statute, the intent of the legislation, and the dictionary definitions of "annual value" and "land," the Court concluded that holdover damages should be based on net rental value instead of gross rental value. The Court remanded for a determination of net rental value. Finally, the Court turned to the award of attorneys’ fees. Litigants in Illinois are generally responsible for their own attorneys' fees unless a statute or contract provides otherwise. The Court agreed with the district court's conclusion that the lease in question provided a basis for Bolger to recover fees associated with the repair issues but not the holdover issue. Fees for the holdover issue were not covered because the fee provision was limited to claims arising during the lease term. By its very nature, the holdover claim did not arise during of the lease term. The Court next rejected Rexam's argument that Bolger should be limited to recovering fees on those repair claims on which he was successful. The language of the lease's fee provision did not require success. With respect to the district court's efforts to disentangle fees associated with the repair issues and the holdover issues, the Court found no abuse of discretion although it did not endorse the district court's rather superficial approach.

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ALLIANCE 3PL CORP. v. NEW PRIME, INC. (August 2, 2010)

Loders Croklaan USA produces fats and oils used in the food industry. Until 2003, the company dealt directly with trucking companies to transport its product to its customers. One of the companies with whom it had such a relationship was New Prime, Inc. In 2003, Loders retained Alliance 3PL Corp., a transportation management services company, to manage its transportation needs. In turn, Alliance entered into a contract with New Prime to continue transporting Loder's products. The contract contained a back-solicitation clause which prohibited New Prime from soliciting any “traffic” from a company which it first learned about through Alliance. When Loders' contract with Alliance ended, New Prime submitted a successful bid directly to Loders. Alliance brought suit against New Prime for breach of the back-solicitation clause. A jury awarded Alliance $2.2 million in damages. Judge Bucklo (N.D. Ill.) denied New Prime's Rule 50 and 59 motions. New Prime appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Rovner reversed. The basic facts were not in dispute. The parties agreed that New Prime had a relationship with Loders before being retained by Alliance and that the amount of business available to New Prime increased during the Alliance era. The Court noted that the dispute arose regarding the meaning of the word "traffic" in the back-solicitation clause. The district court judge concluded that the word was ambiguous and allowed the jury to decide which meeting to apply. New Prime relied on the ordinary definition of the word in conjunction with the purpose behind the back-solicitation clause to conclude that, since it knew of the company and its general transportation needs before its contract with Alliance, it did not breach the clause. The Court found this position supported by Illinois restrictive covenant law. The Court added that a party that wants to divert from the normal definition of the term can do so with either parol or trade usage evidence -- and Alliance did neither. There is therefore no record support for Alliance's position that "traffic" should be defined as "amount of traffic" in order to hold New Prime liable.

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LOUIS AND KAREN METRO FAMILY, LLC v. LAWRENCEBURG CONSERVANCY DISTRICT (July 29, 2010)

Louis and Karen Metro Family, LLC is a limited liability company owned by Louis and Karen Metro. The company owns a number of parcels of property in Ohio and Indiana. One such parcel sat on a bank of Tanners Creek and was home to a pizza parlor. Because Tanners Creek had a long history of flooding, the City of Lawrenceburg and the Lawrenceburg Conservancy District agreed to jointly build a floodwall along the creek. The District notified Metro Family of its intent to acquire the Tanner Creek property through eminent domain. It offered $417,000 -- the appraised fair market value. Metro Family refused the offer but eventually agreed on the sale of the property for $417,000 plus an irrevocable option to purchase 1.4 acres back for $269,490. The option was exercisable for 18 months after completion of the floodwall. Unfortunately, the floodwall was never built. The City withdrew from the project and the District could not complete it on its own. The District conveyed the Metro Family parcel to the City. The property was converted to highway use. Metro Family brought suit against the City and the District for breach of contract. Magistrate Judge Hussman (S.D. Ind.) concluded that there was a breach but that Metro Family was entitled to no monetary recovery. Instead, he ordered reformation of the contract and gave Metro Family 18 additional months within which to exercise the option. The City and the District appeal. Metro Family cross-appeals.

In their opinion, Judges Cudahy, Wood, and Evans vacated and remanded. The only issue on appeal was the remedy for the breach. In Indiana, reformation of the contract is available when there is a mutual mistake. The Court noted that the problem was not really a mutual mistake but a failure to allocate risk in the event the underlying project was canceled. Nevertheless, the Court believed that an Indiana court would use the mutual mistake concept -- that the parties shared a common assumption regarding a fact that was the essence of the agreement -- to find for Metro Family. Therefore, the Metro Family is entitled to the value of the option. The Court opined that the magistrate judge's reformation approach would have been appropriate if the option parcel was still undeveloped. Since exercising the option is no longer a viable alternative, however, the Court concluded that the next best approach was to compare the option price ($269,490) with the appraised value of the option parcel prior to the construction of the highway. Metro Family is entitled to the excess (if any) of the appraised value over the option price.

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AUTO-OWNERS INSURANCE CO. v. MUNROE (July 22, 2010)

Joshua Munroe was driving his tractor-trailer northbound on an Illinois highway when he approached three southbound tractor-trailers, all owned by Wayne Wilkins Trucking. The middle truck attempted to pass but was unable to do so successfully. Munroe's truck first struck the middle truck and then collided head on with the trailing truck. Munroe suffered very serious burns and injuries. The southbound trucks were all insured under a single policy issued by Auto-Owners Insurance Company. The policy had a $1 million per occurrence limit and included a combined limit provision which limited its liability to $1 million per occurrence regardless of the number of vehicles involved in the accident. Munroe settled with the insurers for the million dollar limit, less the amount paid in property damage. The insurance company agreed to file a declaratory judgment action -- Munroe reserved the right to seek additional damages if they court ruled that coverage exceeded the million dollars. Judge Baker (C.D. Ill.) granted summary judgment to Auto-Owners. Munroe appeals.

In their opinion, Judges Ripple, Manion, and Sykes affirmed. The Court had no difficulty in first concluding that the insurance policy was not ambiguous and limited coverage to $1 million per occurrence. Only if there were multiple occurrences would the coverage exceed $1 million. Illinois uses the "cause theory" in analyzing the number of occurrences. Under that theory, there must be multiple "separate and intervening human acts" to create multiple occurrences. Here, although Munroe alleged that each of the three drivers was individually and separately negligent, the accident was a single, uninterrupted event without intervening causes. It was thus a single occurrence. The Court also rejected Munroe's argument that the Motor Carriers Act and the MCS-90 endorsement required combined coverage of $2.25 million. The Court was "skeptical" of the argument that the endorsement applied on a per vehicle basis but found it unnecessary to decide that question. By its own terms, the endorsement is triggered only by a final judgment. With no final judgment, the endorsement does not apply.

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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.

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AMERICAN LAND HOLDINGS v. JOBE (May 6, 2010)

Peabody Energy Corporation is engaged in the strip mining of coal in Sullivan County in southwestern Indiana. Unfortunately for them, the owners of 62 acres of farmland right in the middle of the mining area are getting in the way. Peabody owns the coal beneath those 62 acres pursuant to a 1903 deed. Under that deed, the owners of the property transferred ownership of the coal and the right to mine it to Peabody. The deed also granted the use of the surface "as may be necessary" for certain mining operations and granted an option to purchase such surface area "as may be necessary" for the location of railroad tracks and buildings and other operations necessary for carrying on the mining business. Other parts of the deed limit Peabody's use of the surface to mining operations. Peabody brought an action for a declaration that it has a right to strip mine the land and for specific performance of its option to purchase. After a bench trial, the court entered judgment for the defendants. Peabody appeals.

In their opinion, Judges Posner, Rovner, and Tinder affirmed. The Court agreed with the district court that the deed was ambiguous in that it both granted the right to mine all the coal but put significant limits on Peabody's use of the surface. Because the deed is ambiguous, a court is allowed to look to extrinsic evidence to determine its intended meaning. Here, the district court heard evidence that, at the time of the deed, strip mining did not exist in Sullivan County and probably not in the United States. The Court concluded that the district court did not err in relying on that testimony in holding that the deed did not grant a right to strip mine – it only granted the right to mine the coal by underground mining and the right to use the surface for structures and activities related to the underground mining.

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GREEN v. THE UPS HEALTH AND WELFARE PACKAGE (February 10, 2010)

UPS negotiates collective bargaining agreements (CBAs) covering its employees who are members of the International Brotherhood of Teamsters (“IBT”). It actually negotiates with the international union and also directly and separately negotiates with some large locals, including Local 705. Under the 2002-2008 CBA with Local 705, UPS agreed to provide health care to Local 705 retirees. The benefit was outlined in the Summary Plan Description (SPD), which applied to all IBT retirees. The SPD set a monthly contribution for each retiree and provided that, if the cost of coverage exceeded a certain threshold, each retiree would share in the excess cost “by making an additional contribution.” It also stated that additional contributions would not be implemented until after the “current” CBA expired. The cost threshold was exceeded in 2006. In October 2007, UPS issued a Summary of Material Modification (SMM) advising all IBT retirees of that fact and imposing an additional contribution for each retiree effective January 1, 2008. Before implementing the additional contribution, however, UPS agreed with both the international and local unions to delay implementation until their respective CBAs expired. UPS sent a revised SMM to Local 705 retirees in December 2007 advising that increased contributions “well be effective” after the expiration of the “current” CBA. After the Local 705 CBA expired in mid-2008, UPS notified Local 705 retirees that it would implement an additional contribution effective February 2009. Local 705 retirees brought a class action, alleging that the collection of additional contributions violated the Plan and ERISA because a) the retirees were not sharing equally since the international retirees were not yet contributing, and b) the SPD stated that contributions would not be implemented until the expiration of the “current” plan and the Local 705 current plan now expired in 2013. The district court agreed with Local 705 on the first argument but agreed with the Plan on the second – and enjoined further collection of contributions until further order of the court. The retirees and the Plan appeal.

In their opinion, Judges Cudahy, Wood, and Evans affirmed. The Court agreed with the district court that the collection of contributions from Local 705 retirees only controverted the plain language of the Plan and was, therefore, arbitrary and capricious. The Court rejected UPS’ contrary interpretation of the “share equally” language and rejected its plea to consider extrinsic evidence under the doctrine of extrinsic ambiguity. Although the Court was more receptive to the use of the extrinsic ambiguity doctrine with respect to the meaning of “current” in the SPD, it concluded that it need not. Instead, it held that the December 2007 revised SMM modified the SPD and made it clear that the “current” CBA referred to was the 2002 CBA.

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CURIA v. NELSON (November 20, 2009)

Kenneth Nelson owned two car dealerships -- Auto Plaza and Auto Mall. In 1989, he and Richard Curia entered into an agreement whereby Curia agreed to pay $100,000 for 1000 (of 8180) shares in Auto Plaza and 144 (of 1200) shares in Auto Mall. The agreement also gave Curia three separate options to buy additional stock in both dealerships, up to 100% of each. Curia exercised the first of the options in 1990. A few years later, in 1993, Nelson and Curia modified the agreement, apparently because the total number of shares in the two companies had increased. The 1993 agreement also provided that Curia could purchase additional shares "upon those terms and conditions subsequently agreed upon." A later agreement terminated Curia's rights to acquire any additional Auto Mall stock. In 2005, however, Curia attempted to exercise his options to acquire all of the stock in Auto Plaza. Nelson filed a declaratory judgment action contesting Curia's right. Curia counterclaimed for breach of contract. The court granted summary judgment to Curia. Nelson appeals.

In their opinion, Judges Kanne, Williams and Sykes reversed and remanded. The issue identified by the Court was whether Curia's 1989 options survived the 1993 modification. The Court noted that both Nelson and Curia argued that the 1993 agreement was unambiguous and supported his own interpretation. The parties, however, do not control whether a contract term is ambiguous. It is a question of law for the court. Here, the Court found the 1993 language reasonably susceptible to more than one meaning -- and therefore ambiguous. Both of the interpretations are reasonable readings of the contract language. The ambiguity must be resolved with reference to extrinsic evidence -- not on summary judgment.

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TWENHAFEL v. STATE AUTO PROPERTY AND CASUALTY INSURANCE CO. (September 14, 2009)

Roger Twenhafel owns a business that manufactures wood cabinets. He stores some of his wood inventory outdoors. Just before a violent storm hit in late 2006, he covered the inventory with a tarp and secured it with heavy blocks and beams. In spite of this effort, the storm lifted and carried the tarp away. The inventory was damaged. Twenhafel made a claim against State Auto Property and Casualty Insurance Company. The policy covered all losses except those specifically excluded. State Auto denied the claim, relying on an exclusion for rain damage to property "in the open." Twenhafel brought suit for breach of the insurance policy. The district court found that "in the open" was not ambiguous and it meant property that was exposed to the elements with no protection. The court granted summary judgment to Twenhafel and awarded prejudgment interest at 6.98% and postjudgment interest at .96%. State Auto appeals.

In their opinion, Judges Rovner and Evans and District Judge Van Bokkelen affirmed in part, vacated in part and remanded. The interpretation of the insurance contract, started the Court, is a question of law. A court's objective is to give effect to the intention of the parties. Ambiguity exists only if there are multiple reasonable interpretations. Here, the contract covered all losses except those specifically excluded. The relevant exclusion, for property "in the open," is not defined. The Court concluded that the common, unambiguous meaning of that phrase is "exposed to the elements." Since the property was not exposed, the district court correctly granted summary judgment against State Auto on the merits. The Court also affirmed the damage award. Twenhafel was unable to quantify the loss at his deposition, but did so later in an affidavit. State Auto did not object to the affidavit. Finally, the Court vacated the award of prejudgment interest. Although it agreed that prejudgment interest was appropriate, the award exceeded the statutory rate of 5% and was not supportable by any exception.

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BKCAP, LLC v. CAPTEC FINANCIAL TRUST 2000-1 (July 13, 2009)

Quality Dining, Inc. has several subsidiaries (the "Borrowers") that own franchise restaurants, including Burger Kings, in several states. In 1999, as part of a significant refinancing initiative, the Borrowers obtain $49 million in financing in a total of 34 separate loans. One lender’s form agreement included a penalty for prepayment. At Borrowers’ insistence, the lenders modified the notes to allow a prepayment without penalty after 10 years. The notes included a formula for computing the new penalty. Eight years later, Borrowers prepaid 21 of the notes held by two of the lenders. The parties calculated the prepayment penalty as the difference between a stream of monthly payments through year 10 at the U.S. treasury rate versus at the actual rate. The Borrowers provided notice of prepayment with respect to the remaining notes, which were held by a third lender. Their notice was contingent on the lender accepting the same prepayment penalty formula. When the lender refused to so, the Borrowers filed suit seeking a declaratory judgment that their interpretation of the penalty provision was correct. The district court granted the lender's motion for summary judgment, concluding that the contract language was unambiguous and supported the lender's interpretation. The Borrowers appeal.

In their opinion, Judges Bauer, Sykes and Tinder reversed and remanded. The Court looked to state law to provide the substantive rules for resolving the contract dispute. Here, the contracts were governed by the laws of Michigan, Indiana and Pennsylvania. The Court first applied general rules of contract interpretation consistent in all the jurisdictions. The Court first looked at the plain meaning of the contract language with the goal of determining the intent of the parties. If the language is unambiguous, it would not consider extrinsic evidence. On the other hand, if the language is ambiguous, a trier of fact must examine extrinsic evidence to determine intent. Here. although the Court found the contract language clear, it also found that applying the clear language would produce absurd results. It concluded that the prepayment premium would always be negative, a result obviously not contemplated by these rational business entities. Even clear language can be ambiguous, said the Court, if it does not make economic sense. Both the lender and the Borrowers proposed interpretations that made economic sense. The Court rejected each, however, concluding that neither found support in the actual contract language. The Court concluded that the meaning of the formula is a question of fact to be determined after consideration of extrinsic evidence.

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SMS DEMAG AKTIENGESELLSCHAFT v. MATERIAL SCIENCES CORPORATION (May 8, 2009)

Material Sciences Corp. ("MSC") is a large liquid-coating company. It pre-paints raw material used in commercial and industrial applications. During the 1990s, MSC began working with Terronics Development Corporation ("TDC"), a small research and engineering company that had developed a process for coating materials with a powder-based paint. In 1998, the parties entered into a technology agreement. Under the agreement, TDC assigned certain patents to MSC and MSC promised to purchase equipment and consulting services from TDC. By its terms, the agreement would expire in 2002 but could be renewed. After some initial successes, the technology did not pan out as expected. TDC covered some of its cost overruns by borrowing from MSC against its future profit expectations. The relationship of the parties came to an end in 2002. TDC sought millions in damages and a reassignment of its patents. The district court granted MSC's motion for summary judgment. TDC appeals.

In their opinion, Judges Cudahy, Flaum and Wood affirmed in part, reversed in part and remanded. The court first addressed TDC's damages claims: a) a $250,000 assignment fee, b) $143,000 in consulting services, and c) $1.7 million in fees for the years 2003 – 2006. The Court rejected each: a) the Court found no evidence in the record that MSC had renewed the agreement past 2002 and was liable for the $1.7 in annual fees for those years, b) the Court concluded that TDC had repudiated its obligation to provide consulting services and was therefore not entitled any payment, and c) the Court determined that MSC had credited the amount of the $250,000 assignment against a balance owed on TDC's note. The Court found that the lower court erred, however, in denying TDC the return of its patents. The contract on its face required MSC to return all patents to TDC upon termination of the agreement. Although another section of the contract required MSC to return the patents if MSC terminated the agreement (which it did not), the Court concluded that that provision was not enough to render the contract ambiguous and allow extrinsic evidence of the parties’ intent. The Court remanded because of confusion in the record regarding which patents TDC actually transferred and which patents MSC continued to possess.

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