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

ROBINSON v. MCNEIL CONSUMER HEALTHCARE (August 11, 2010)

In early 2005, Karen Robinson purchased Children's Motrin for her child. Motrin is manufactured by McNeil Consumer Healthcare. The label, which she read before purchase, warned of a possible severe allergic reaction. Several months later, she took a dose of the Motrin for a headache. She neither reread nor recalled the warnings. The next day, Robinson developed a rash and a fever – so she took more Motrin. A doctor’s visit resulted in treatment for an allergic reaction. The doctor did not comment on her disclosure that she had taken Motrin. Her rash and fever worsened and she took a third dose of the Motrin. She was hospitalized the next day and diagnosed with toxic epidermal necrolysis (TEN). She recovered but lost much of her skin, is blind in one eye and expected to lose sight in the other, and has had multiple operations to treat organ damage. She brought a products liability suit against McNeil. The jury awarded damages of $3.5 million but also found Robinson contributorily negligent. Applying Virginia law, where contributory negligence is a complete defense to a negligence claim, Judge Holderman (N.D. Ill.) entered judgment for McNeil. Robinson appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Kanne affirmed. The Court first addressed the district court's application of Virginia law. Illinois' conflict rule is the "most significant relationship" test. In the case of a tort, that test points to the location of the injury. Here, the place of the initial injury was Virginia, although the Robinsons have since moved to Illinois where her condition worsens and her injury continues. The Court rejected a "continuation of the injury" location test. That approach would allow potential plaintiffs to relocate to favorable jurisdictions after an initial injury. Since the law was correctly applied and there was evidence of contributory negligence, the court ruled correctly. The Court then embarked on a lengthy and interesting, albeit unnecessary, analysis applying Illinois law to show that the result would be the same. In Illinois, a plaintiff's contributory negligence is only a complete defense if it exceeds the negligence of the defendant. The Court adopted a test under which the party who could have avoided the accident at a "lower cost" was the least negligent. After a discussion of the benefits of Motrin, the evidence of any causal connection between Motrin and TEN, the effect of requiring a prescription for Motrin, the role of the FDA, the warnings, and the effect of additional warnings, the Court concluded that Robinson had the lower cost of avoidance. The outcome would have therefore been the same. Finally, the Court concluded that a) the defendant's statement in closing argument that it was "not blaming" Robinson for her injuries was not so deliberate and unambiguous so as to amount to a judicial admission that she was not contributorily negligent, and b) the district court did not abuse its discretion in denying Robinson's request to reinstate her breach of warranty claim right before trial.

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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.

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KAMELGARD v. MACURA (October 23, 2009)

Kamelgard and Macura are both bariatric surgeons. Kamelgard practices in New Jersey and Macura practices in New York. After Kamelgard testified against Macura in a malpractice action in New York, Macura allegedly sent similar letters of complaint to the American Society of Bariatric Surgeons in Florida and the American College of Surgeons in Chicago. The American College took no disciplinary action on the complaint. Kamelgard claims not to have known the source of the American College complaint until he learned about Macura's letter to the American Society at a convention in mid-2007. Kamelgard brought a defamation action in Chicago within a year of the convention but two years after the publication of the letter. The district court concluded that the Chicago venue was improper and dismissed the suit without prejudice. Kamelgard appeals -- Macura cross-appeals seeking a dismissal with prejudice.

In their opinion, Judges Posner, Flaum and Rovner modified the judgment of the lower court to a dismissal with prejudice. The Court expressed some confusion over the intent of the lower court's ruling. It concluded, however, that the court dismissed the claim based upon the Illinois (American College) letter for failure to state a claim because of the absence of the letter and Kamelgard’s inability to obtain it. It then dismissed without prejudice the claim based on the Florida (American Society) letter because venue was not proper in Illinois. Nevertheless, given the uncertainty of the lower court's ruling, the Court went on to address the choice of law issue presented in the appeal. Although both Illinois law (favored by the plaintiff) and New Jersey law (favored by the defendant) have a one year statute of limitations for defamation, Illinois has a discovery rule -- New Jersey does not. The Court opined that the general "most significant relation" test that looks to the place of the injury does not always fit defamation cases, particularly were a defamatory statement is communicated in many different locations. In that situation, Court concluded that the application of the law of the plaintiff's domicile makes the most sense. Even though there was no publication of the letter in New Jersey, it is the location where the plaintiff is likely to be harmed and it is the state with a substantial interest in protecting his reputation. New Jersey law should therefore apply and both defamation claims are barred by the statute of limitations. 

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AUTO-OWNERS INSURANCE CO. v. WEBSOLV COMPUTING (September 1, 2009)

Websolv sent an unsolicited fax to the dental office of Guy Bibbs. The fax was an advertisement for a healthcare seminar. Bibbs sued Websolv in state court. Websolv tendered its defense to Auto-Owners Insurance Co. Auto-Owners filed an action in federal court seeking a declaratory judgment that it had no duty to defend. Although the parties stipulated to the application of Iowa law, the court applied Illinois law and granted Websolv’s motion for summary judgment. Auto-Owners appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Sykes reversed and remanded. The Court first addressed the choice-of-law issue. The Court concluded that the district court should have honored the parties' stipulation that Iowa law controls. When the parties agree on which state's law should govern and that choice is reasonable, the court should apply that law. The lower court was incorrect in its belief that it was required to apply the law of the forum. The court is only required to apply the choice-of-law rules of the forum -- in order to determine which forum’s law is the correct substantive law. Here, under Illinois' choice-of-law rules, Iowa law would apply. The Court turned to the merits, applying Iowa law. The claim in the case is that Websolv violated the Telephone Consumer Protection Act (“TCPA”) by sending the unsolicited fax. Websolv claims the suit is covered either under the policy's advertising injury section or its property damage section. The Court rejected both theories. The advertising injury section requires the company to defend its insureds for suits alleging injury from the publication of material that "violates a person's right of privacy." Recognizing that a right of privacy could refer either to matters of secrecy or matters of seclusion, the Court concluded that an Iowa court would apply the policy’s coverage only in the secrecy context. The rights protected by the TCPA, on the other hand, are privacy rights arising in the seclusion context. The Court relied, in part, on the use of the word "publication" in the policy. Publication is more relevant in the secrecy context than the seclusion context. With respect to the property damage theories, the Court noted that the only alleged property damage was the use of ink and paper from the fax machine. The Court held that this damage fell within the exclusion in the policy for "expected or intended" consequences. Websolv certainly expected its fax transmission to result in the use of ink and paper on the recipient’s end.

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JAFARI v. WYNN LAS VEGAS, LLC (June 17, 2009)

Robert Jafari, a Wisconsin resident, liked to gamble. In September, 2005, Wynn Las Vegas and Caesar’s Palace extended him credit in the total amount of $1,250,000. Each of the credit agreements contained a Nevada choice-of-law provision. After Jafari failed to repay the credit advance and his bank denied payment, Wynn and Caesar’s sued Jafari. Jafari later filed an individual bankruptcy proceeding in Wisconsin. Wynn and Caesar’s filed proofs of claim. Jafari and the bankruptcy trustee objected to the claims on the grounds that gambling debts are unenforceable in Wisconsin. The bankruptcy court applied Wisconsin choice-of-law rules, which led it to apply Wisconsin substantive law, which led it to conclude that the gambling claims were unenforceable under Wisconsin law. On appeal to the district court, the court concluded that both federal and Wisconsin choice-of-law rules would require the application of Nevada substantive law. On remand, the bankruptcy court applied Nevada substantive law and upheld the claims. Jafari and the trustee appeal.

In their opinion, Judges Flaum, Evans and Williams affirmed. The Court noted a tension surrounding whether a bankruptcy court should apply the choice-of-law principles from federal law or from the forum state. Since neither the Supreme Court nor the Seventh Circuit has decided the issue, the Court asked itself whether the question mattered. The parties agreed both that federal common law would apply Nevada substantive law and that Nevada would allow the claims. Therefore, the Court undertook an analysis of Wisconsin choice-of-law principles to see if it would end up elsewhere. Wisconsin courts apply a "grouping of contacts" rule in contract cases. Under that rule, the law of the forum state is applied unless contacts with a non-forum state are greater. Here, the Court concluded that the relevant contacts (place of negotiation, place of contracting, place of performance, location of the subject matter, domiciles of the parties) are undoubtedly greater for Nevada than they are for Wisconsin. Therefore, Wisconsin would apply the substantive law of Nevada and also uphold the claims. The Court rejected Jafari’s argument that notwithstanding the "grouping of contacts" rule, a Wisconsin court would apply its own law if applying the law of another state would contravene Wisconsin public policy. Having decided that an application of either federal common law or Wisconsin choice-of-law principles would lead to the same conclusion, the Court declined to resolve the choice-of-law issue.

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LOTT v. LEVITT (February 11, 2009)

Steven Levitt and Stephen Dubner authored the off-beat and best-selling Freakonomics. In it, the authors used economic theory to address many “freakish curiosities,’ such as the similarities between nylon stockings and crack cocaine. In one chapter, they addressed the drop in the crime rate in the 1990s. They rejected several theories before concluding that the legalization of abortion accounted for the drop. In one paragraph in that chapter, they commented on John Lott’s theory that allowing more guns into the hands of law-abiding citizens led to the reduction in crime. In addition to noting a “troubling allegation” that Lott fabricated survey data, the authors stated that other scholars tried to “replicate” his results without success. Lott brought a defamation action against Levitt, alleging that “replicate” has a specific meaning within the academic community. Applying that meaning, the statement really means Lott fabricated his results. Lott amended his complaint to add a count of defamation based on an e-mail sent by Levitt. The district court dismissed the count based on the book, holding that it could reasonably be read as not an accusation of dishonesty. Several months later, the parties settled the count based on the e-mail and Lott moved to reconsider the earlier dismissal, claiming that Virginia instead of Illinois law should have been applied. The district court concluded that Lott waived the choice-of-law argument. Lott appeals.

In their opinion, Judges Ripple, Evans and Sykes affirmed. The Court first addressed the choice-of-law issue and held that Lott waived it. The Court rejected Lott’s argument that he agreed only that Illinois’ choice-of-law principles, not substantive law, applied. Lott relied on Illinois law throughout the proceedings below – he doesn’t get a mulligan. Moving on to the substantive Illinois law of defamation, the Court noted that even statements that amount to per se defamation are not necessarily actionable. A statement is not actionable if, giving the words their natural meaning, it is reasonably capable of an innocent construction. The fact that a court must accept as true the facts alleged in plaintiff’s complaint does not alter the analysis. The determination of the meaning of a statement and whether it is susceptible of an innocent construction is a question of law. Here, although Lott makes out a case for a defamatory meaning by giving “replicate” an academic definition, the Court looked at the context of the statement and a natural definition of replicate in finding that an innocent construction was reasonable. Finally, the Court rejected Lott’s argument that he had a claim for per quod defamation, that is, defamation in which damages must be alleged and proved. Lott failed to allege special damages with enough specificity in either his original or amended complaint.

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