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

E360 INSIGHT, INC. v. THE SPAMHAUS PROJECT (September 2, 2011)

The Spamhaus Project is a U.K. company that wants to rid the world of unwanted e-mail. To further this end, it provides lists of spam distributors to Internet service providers. The Internet service providers can, in turn, prevent spam from reaching its addressees. After the Project added Illinois company e360 to its list, however, it got sued. E360 brought suit in state court for tortious interference with contract, tortious interference with prospective economic advantage, and defamation. Although the Project removed the case and initially participated in the litigation, it later informed the district court that it would no longer defend the case. The district court entered a default judgment and awarded over $11 million in damages, based on the affidavit of e360's operator David Linhardt. The Project changed its mind and moved to set aside the judgment under Rule 60(b)(4). The district court denied the motion and the Seventh Circuit affirmed. But the appellate court also vacated the damages award, concluding that the Linhardt affidavit was an insufficient basis on which to calculate damages. On remand, Judge Kocoras (N.D. Ill.) awarded $27,000 on the tortious interference with contract claim and one dollar nominal damages on each of the other two claims. The Project appeals -- e360 cross-appeals.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Hamilton vacated and remanded with instructions. Before addressing the merits, the court resolved some evidentiary and sanctions issues. It: a) affirmed the district court's sanctions for e360’s gross discovery abuses, b) affirmed the district court's denial of e360's motion to compel discovery that the Court found irrelevant or, at least, the absence of which created no prejudice, c) affirmed the district court's striking of e360's damages spreadsheet that was submitted well after the discovery cutoff, and d) affirmed the district court's exclusion of most of e360's primary damages witness on lack of credibility grounds. The Court turned to the principal issue on appeal -- the amount of damages. Since it had affirmed the district court's exclusion of much of e360’s evidence, the Court affirmed the two nominal damage awards. The $27,000 tortious interference with contract damages award rested on evidence that e360 lost three customers that accounted for $27,000 a month in revenue. The district court concluded that the company would have continued to do business with these three customers for one month in the absence of the Project's conduct. But the Court noted that gross revenue is not a proper measure of damages. Since there was no evidence in the record regarding what portion of that revenue was actually profit, the Court reduced the award on that count to nominal damages of one dollar as well. The Court remanded with instructions to enter judgment for three dollars.

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HICKS v. AVERY DREI, LLC (August 17, 2011)

Chance Felling owned and operated Avery Drei, LLC, a hotel management company. In 2006, Avery Drei was constructing a hotel near Indianapolis, Indiana. Lisa Hicks began working as a security guard at the hotel construction site in July of 2006. The hotel opened in October and she became a front desk clerk. During her stint as a security guard, Felling paid her in cash. Once she became a desk clerk, she received her regular wages by check. After Hicks' employment was terminated, she brought suit against Avery and Felling. She sought overtime wages and accrued vacation pay. The case languished for several years until February of 2010, when the district court set a June 2010 trial date. In February, Hicks asked Felling and Avery to supplement certain discovery responses. The defendants failed to respond until ordered to do so by the court in May. Then, they supplemented their answers to the requests identified by Hicks and also supplemented their response to an interrogatory that asked them to identify all cash payments to Hicks. Their original response identified seven cash payments, all while Hicks was working as a security guard. Their supplemental response added six additional payments, all while Hicks was working as a desk clerk. Hicks moved to bar any evidence of the additional payments, claiming the late notice was “trial by ambush.” The district court denied the request. At trial, Judge Magnus-Stinson (S.D. Ind.) granted a directed verdict on the vacation pay claims and on the security guard part of her overtime claim. The jury returned a verdict against Hicks on the desk clerk part of her overtime claim. At Hicks' request, the court waived transcription fees relating to the overtime claim but refused to waive with respect to that portion of the record relating to the vacation pay claim. Hicks appeals.

In their opinion, Seventh Circuit Judges Cudahy (concurring in part and concurring in the judgment), Flaum, and Kanne affirmed. On appeal, Hicks challenges the directed verdict on the vacation pay claim, challenges the partial directed verdict on the security guard overtime claim, and challenges the district court's refusal to exclude the evidence of additional cash payments. The Court concluded that the vacation pay claim was frivolous. Hicks admitted that she and Felling had an agreement that she would earn vacation time only after she had worked for a year. Her contention that Indiana law requires pro-rata vacation pay from day one in the absence of a written company policy to the contrary is simply wrong. Any agreement to the contrary, which is admittedly present here, is sufficient. The Court turned to the cash payment evidence. It noted that it would normally review such a ruling for abuse of discretion. Here, however, Hicks did not provide transcripts of the argument or ruling on the motion in limine. Without a meaningful basis on which to review the ruling, the Court concluded that Hicks forfeited her challenge. It also chose not to conduct a full plain error review, since it could identify no prejudice -- no extraordinary circumstances -- no miscarriage of justice. The Court turned to the security guard overtime claim. In order to prevail, Hicks had to prove that her employer was covered by the Fair Labor Standards Act. The district court concluded that she was "engaged in commerce" while a desk clerk, and therefore covered by the Act, but was not while working as a security guard. Hicks argued that she was covered because Felling's operation of several businesses made him an "enterprise engaged in commerce" under the Act. The test for enterprise coverage is that the businesses must be engaged in related activities, under a unified operation, have a common business purpose, and engage in $500,000 of business annually. The district court found that Hicks’ proffered common business purpose -- a profit motive -- did not satisfy the Act's requirements. The Court noted that Hicks advanced a different theory on appeal. It found that argument forfeited. With respect to the profit motive argument, the Court agreed with the district court that it was not enough to amount to enterprise coverage. Finally, the Court rejected the argument that the jury should have been allowed to decide whether Felling Hotels had earnings above the $500,000 threshold because Felling testified that it was possible. Felling Hotels was not a defendant, Felling Hotels was not her employer, and Hicks presented no affirmative evidence of its gross revenue.

Judge Cudahy thought that Felling’s admission against interest that Felling Hotel could have had revenue exceeding $500,000 should have been enough to avoid the directed verdict. But since Hicks never explained how Felling Hotels being subject to the FLSA related to the defendants’ liability, he concurred in the result.

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COLLINS v. ILLINOIS (February 2, 2009)

Margaret Collins has had a long-running dispute with the State of Illinois over her employment with the Illinois State Library. This is her third lawsuit, which the Seventh Circuit remanded to the district court for consideration of some of her claims. The road got a little bumpy after remand. The court ordered her to amend her complaint on four different occasions and forced her to respond to discovery. The parties finally arrived at an agreeable date for her deposition. Although she did appear, she refused to submit to interrogation with parties present. She was told they had a right to be there. One of the lawyers offered to call the magistrate to resolve the issue. Collins left. The defendants moved for dismissal of her complaint for discovery abuse and for their fees for preparing for the deposition. The court dismissed the complaint, stating that her refusal was “willful and egregious.” He also concluded that complaints she had about the court reporter and police officers in the vicinity were baseless. He also ordered Collins to pay the defendants’ fees and costs. Collins appeals.

In their opinion, Judges Bauer, Ripple and Rovner affirmed. The Court appreciated the severity of dismissal as a discovery abuse sanction. The sanction is appropriate, however, when there is willfulness or bad faith and the sanction is proportionate to the conduct. The Court found the district court’s decision reasonable. It made a finding of willfulness. And the record established a pattern of Collins’ efforts to hinder the progress of the case. The Court also rejected, in short shrift, Collins’ complaints about the award of fees and the bias of the district court judge.  

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NEGRETE v. NATIONAL RAILROAD PASSENGER CORP. (AMTRAK) (October 27, 2008)

Jorge Negrete was a track repair worker for Amtrak.  He injured his back on the job. He sued Amtrak, alleging a permanent disability. During discovery, Negrete: a) withheld the names of doctors who did not support his claim, b) provided false information during his deposition regarding his income, c) was “less than forthcoming” at his deposition regarding who performed maintenance at his apartments, and d) missed twenty-one discovery deadlines (in one case by over a year). The district court dismissed the case for these abuses. Negrete appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Sykes affirmed. The Court observed that dismissal is a drastic penalty for discovery abuses. In the case, however, the “appalling” conduct of Negrete supported the dismissal. He lied about the principal issues in the case – how severe were his injuries and whether he could work. The Court not only affirmed the dismissal, it referred its opinion to the United States Attorney’s Office.

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