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

TUREK v. GENERAL MILLS (October 17, 2011)

Carolyn Turek brought suit against General Mills and Kellogg, alleging that the defendants' marketing of chewy bars violated the Illinois Consumer Fraud and Deceptive Business Practices Act. Specifically, she alleged that the defendants label the product as containing dietary fiber without disclosing that the principal fiber used in the product is processed and does not provide the normal benefits associated with fiber consumption. Judge Gettleman (N.D. Ill.) dismissed the suit for want of jurisdiction on the grounds that the action was preempted by federal law. Turek appeals.

In their opinion, Seventh Circuit Judges Cudahy, Posner, and Williams affirmed (but on different grounds). First of all, the Court noted that the case was not one of complete preemption, where federal law pervades a field such that no state law claim could exist. The statute at issue here, the Nutrition Labeling and Education Act of 1990, provides specifically that it preempts no state law unless it is expressly preempted by the Federal Food, Drug, and Cosmetic Act. Therefore, the Court stated, the district court had jurisdiction to hear the case on the merits. The FFDCA does prohibit states from imposing labeling requirements that are not identical to the federal requirements. Federal law does impose a labeling requirements on dietary fiber. The principal requirement is that a manufacturer state the amount of fiber in each serving. The chewy bars at issue meet all the federal labeling requirements. The labeling that plaintiff suggests is missing is not identical to the federal labeling requirements and thus barred by federal law. Plaintiff's claim should have been dismissed for failure to state a claim, rather than for want of jurisdiction.

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HUGHES v. UNITED AIR LINES (February 8, 2011)

United Airlines and its flight attendant union agreed that flight attendants retain seniority for only three years while on medical leave. When Constance Hughes' three-year deadline was near, United asked her to return to work. She received medical clearance and completed her requalification training. Unfortunately, a few days before her first assigned flight, she fell and injured herself so severely that she could not perform her duties. United terminated her employment. Hughes brought suit in Illinois state court, alleging that her discharge was in retaliation for filing a workers' compensation claim. Notwithstanding the complaint’s state law basis, United removed to federal court on federal question grounds. It contended that the Railway Labor Act completely preempts the field. Judge Bucklo (N.D. Ill.) agreed, based on the Seventh Circuit’s Graf decision, denied the motion to remand, and dismissed the complaint. Hughes appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Posner vacated and remanded with instructions to remand to Illinois state court. The Court first distinguished between the "misleadingly named" doctrine of complete preemption and ordinary preemption. Ordinary preemption is an affirmative defense that must be raised in the court where the litigation was filed. Complete preemption, on the other hand, is not a defense. It is a theory under which federal law so controls a field that a state law claim is not possible. The Court turned to its own and the Supreme Court's jurisprudence on the issue. In Graf, the Court held that a retaliatory discharge case like Hughes' against an employer covered by the Railway Labor Act was completely preempted. It extended that principle to other employers the following year in Lingle. The Supreme Court reversed the Lingle decision, however, holding that a retaliatory discharge claim is preempted only if it requires construction of a collective bargaining agreement. The Supreme Court then extended that principle to a Railway Labor Act employer in Hawaiian Airlines. The Court concluded that Lingle and Hawaiian Airlines controlled and that Graf had to be overruled. Without diversity of citizenship, the case must be remanded to the state court. That is the appropriate forum for United to raise its claim of ordinary preemption on the ground that Hughes' claim requires interpretation and construction of the collective bargaining agreement.

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

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

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

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

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

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