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

IN RE: ORTIZ (December 30, 2011)

Aurora Health Care filed proofs of claim in thousands of Wisconsin bankruptcy cases between 2003 and 2008. The filings were public and contained some medical treatment information. Two class actions were filed against Aurora alleging that it violated a Wisconsin statute that requires that all health records be kept confidential. Bankruptcy Judge Kelley (E.D. Wis.) granted summary judgment to Aurora in both cases. The classes appealed directly from the bankruptcy court.

In their opinion, Seventh Circuit Judges Williams and Tinder and District Judge Gottschall dismissed for lack of appellate jurisdiction. When the Court heard oral argument, it believed that it had appellate jurisdiction under Section 158(d)(2). But then the United States Supreme Court decided Stern v. Marshall, in which it held that bankruptcy judges lacked authority to enter final judgments in traditional common law actions. After receiving additional briefing, the Court addressed the jurisdictional issue. First, it looked to what authority Congress gave to the bankruptcy courts. Congress gave the bankruptcy courts authority in cases arising under, arising in, or related to Title 11. But Congress gave the courts authority to issue final orders only in "core" proceedings and core proceedings are those that either arise under Title 11 or arise in a Title 11 case. The Court concluded that the debtors' claims were core proceedings in that they arose in a bankruptcy case. Satisfied that the bankruptcy court had congressional authority to do what it did, the Court turned to whether Congress exceeded its powers under the Constitution. It concluded that it did. Just like the claim in Stern, the debtors' claims are private party claims involving interests of state law. Just because these ordinary state law claims are related to the debtors' bankruptcy cases does not mean that the bankruptcy court has jurisdiction to issue a final order. The Court also concluded that the bankruptcy court's ruling did not fit within any the other types of orders that are directly appealable under Section 158(d)(2)(A).

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DAMASCO v. CLEARWIRE CORPORATION (November 18, 2011)

Jerome Damasco brought a class action suit in state court against Clearwire Corporation. He alleged that Clearwire sent unsolicited text messages in violation of the Telephone Consumer Protection Act. He sought both injunctive relief and damages for the more than 1,000 people he estimated received the text messages. Clearwire offered to settle the case by paying Damasco (and up to 10 additional people) the maximum statutory penalty ($1,500) and agreed to stop sending the unsolicited messages. Damasco never responded. A few days later, Clearwire removed the case to federal court. Damasco moved for class certification almost immediately. Within a day, Clearwire moved to dismiss on the grounds that its settlement offer rendered the case moot. Judge Zagel (N.D. Ill.) agreed with Clearwire and dismissed, concluding that the Seventh Circuit's Holstein decision controlled. A complete settlement offer before a class certification filing moots the named plaintiff’s claim. Damasco appeals.

In their opinion, Seventh Circuit Judges Manion, Rovner, and Tinder affirmed. Article III of the Constitution requires federal courts to hear only live cases and controversies. As such, a party must maintain a personal stake in the litigation. Here, once Clearwire expressed its willingness to give Damasco everything to which he may have been entitled under the law, there is no more controversy. The Court has held in the past that a plaintiff cannot avoid mootness simply by moving to certify the class after the offer. Although the Court recognized that several other circuits have allowed plaintiffs to seek class certification after such a full offer, the Court reiterated its belief that such a rule violated Article III and declined to adopt it. A simple solution exists to any concern that defendants could frustrate class actions by simply offering each named plaintiff a full settlement. That solution is to move for class certification at the time the complaint is filed. The filing of the motion protects the plaintiffs and the class. The Court also noted that a plaintiff, to the extent he believes he is not ready to place the class certification issue to the court, can seek additional time for further investigation or discovery.

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ROCK ENERGY COOPERATIVE v. VILLAGE OF ROCKTON (AUGUST 10, 2010)

Rock Energy Cooperative, a Wisconsin-based utility, and the Village of Rockton, Illinois were both interested when Alliant Energy announced its desire to sell certain power transmission assets. Rock Energy submitted a bid. Rockton voters approved a referendum authorizing the Village’s purchase of the assets. Rock Energy and the Village entered into an agreement that addresses a possible sale of the assets by Rock Energy to the Village. Rock Energy then purchased the assets from Alliant. On several occasions between 2007 and 2009, the Village repeated its desire to obtain the assets and even threatened to use the power of eminent domain. Rock Energy brought suit, seeking a declaratory judgment that Rockton violated state law in its referendum process and was not entitled to purchase the assets. Rockton, for its part, brought suit in state court seeking specific performance of the contract. The state court dismissed the suit with prejudice, concluding that the lack of a price term or formula in the agreement precluded an order of specific performance. Judge Kapala (W.D. Ill.) dismissed the suit, holding that Rock Energy lacked standing to challenge the referendum process. He also concluded that a forum selection clause in the agreement made venue improper for any claim Rock Energy was asserting under the agreement. Rock Energy appeals.

In their opinion, Judges Flaum, Rovner, and Wood affirmed. The Supreme Court has held that Article III of the Constitution, particularly in the declaratory judgment context, requires a substantial controversy "of sufficient immediacy and reality" to warrant declaratory relief. The Court applied that principle to both threats to Rock Energy -- eminent domain and the contract. With respect to eminent domain, the Court concluded that the record contained no evidence that such a proceeding was imminent. In fact, to the contrary, the only actions the Village has taken in years are a few letters indicating their interest in condemnation. The Court also noted that the lack of any hardship to Rock Energy would stand in the way of its pre-enforcement challenge. The Court also concluded that the contract claim could not meet the Supreme Court's test. A state court has found the contract unenforceable, it contains a facially valid choice of forum clause, and Rockton has disclaimed its desire to rely on the contract. The case is not appropriate for declaratory relief under either theory.

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