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

MAKOWSKI v. SMITHAMUNDSEN LLC (November 9, 2011)

Lisa Makowski had been the Marketing Director for the SmithAmundsen law firm for over two years when she discovered she was pregnant. She notified firm management and was given FMLA leave beginning in November of 2007. She gave birth on December 2. The next month, the firm’s all-male Executive Committee conducted its yearly meeting. At that meeting the Executive Committee decided to eliminate Makowski's position. The firm's Chief Operating Officer, Michael DeLargy, delegated to Molly O'Gara, the Director of Human Resources, the task of consulting with outside labor counsel before firing Makowski. DeLargy also commented that Makowski "doesn't fit into our culture." When Makowski returned to the office to collect her belongings, O'Gara told her that she was fired because of her pregnancy and leave and that she was not the only one. Makowski brought suit under the Pregnancy Discrimination Act and for both interference and retaliation under the FMLA. Judge Darrah (N.D. Ill.) ruled that O'Gara's statement was inadmissible and granted summary judgment to the defendants. Makowski appeals.

In their opinion, Seventh Circuit Judges Rovner and Williams and District Judge Young reversed and remanded. The Court first considered the evidentiary ruling with respect to the O'Gara statements. The statements are hearsay, unless they fit within an exception, and are not admissible. One exception, under Federal Rules of Evidence 801(d)(2)(D) , applies to the statement of a party’s agent made during the course of her employment, and offered against the party. The O'Gara statements are the statements of a party's agent and are offered against the party. The firm contends that they were not made within the scope of her employment. The district court agreed, because O'Gara was not involved in the termination decision. The Court disagreed with that analysis. The agent need not be personally involved in the employment action at issue if her duties relate to that decision-making process. Here, O'Gara was not involved in the decision to fire Makowski. But her job duties did include ensuring that the firm complies with antidiscrimination laws and she was even involved in the Makowski termination to the extent that she was the one designated to consult with outside labor counsel before her termination. She was acting within the scope of her employment and the statements are admissible. Having ruled on the admissibility of statements, the Court found no difficulty in finding jury questions on the Pregnancy Discrimination Act claim and the FMLA interference and retaliation claims. It reversed the summary judgment rulings.

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MMG FINANCIAL CORP. v. MIDWEST AMUSEMENTS PARK (January 5, 2011)

Cameron Motorsports entered into a joint venture called Team Hurricane with MMG Financial. Go-karts made in Italy are branded by Cameron and sold by Team Hurricane, while MMG provides financing to the purchasers. Midwest Amusements Park operated a go-cart racetrack in Shawano, Wisconsin. Team America represented to Midwest that Cameron would assemble and break-in the go-karts, as well as supply training materials. Midwest ordered 24 go-karts. MMG sent Midwest a document purporting to represent its oral agreement to finance the purchase. The agreement reflected a 24% annual percentage rate. Midwest never signed the documents. The go-karts were nevertheless delivered. Soon thereafter, Midwest began complaining about the go-karts and about the proposed interest rate. Midwest eventually sent MMG a document reflecting a 12% rate -- MMG never signed that document. Meanwhile, Midwest never made a payment. In mid-2006, MMG sued Midwest for breach of contract. Midwest counterclaimed on the grounds that MMG never paid Cameron and that MMG breached warranties because the go-karts did not work properly. Judge Griesbach (E.D. Wis.) granted summary judgment to MMG on the counterclaim. MMG's breach of contract case went to trial. The jury found for MMG, concluding that there was an oral contract with a 24% interest rate. Midwest appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Flaum, and District Judge Hibbler affirmed. The Court first addressed Midwest's challenge to the court’s award of summary judgment on its counterclaim. The Court agreed with the district court that Midwest's evidence -- statements of its employees describing the statements of Cameron employees -- was "classic hearsay" and properly excluded. Since this was the only evidence Midwest relied on, summary judgment for MMG was proper. Next, the Court addressed Midwest’s affirmative defense that it was entitled to a set off because MMG failed to pay Team Hurricane for the go-karts. Midwest’s theory was that MMG’s failure to pay Team Hurricane resulted in Team Hurricane not addressing the many problems Midwest was having with the go-karts. The problem with Midwest's position is that it relied exclusively on an e-mail from CRG to Cameron. The Court never addressed whether the district court properly excluded that evidence. Instead, it concluded that the e-mail was irrelevant because it bore no relation to MMG's payment of its obligations. Finally, the Court summarily rejected Midwest's arguments regarding the jury instructions, the verdict form, and its motion for a new trial.

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CARLISLE v. DEERE & COMPANY (August 7, 2009)

Carlisle and his partner operated an excavating business. In 2002, they purchased a used heavy-duty tree grinder called the Beast. The Beast already had a history. It was originally manufactured and purchased in 1999. The original owner replaced the engine with one manufactured by Deere & Co. From the moment Carlisle purchased the Beast, it was anything but. It lacked power, overheated, and generally underperformed. After many inquiries, Carlisle was eventually told to check the Performance Programming Connector (PPC), a component in the Beast's control mechanism. The PPC is also manufactured by Deere but sold separately from its engines. Carlisle discovered that a wire had been installed that limited the engine's rotations. Carlisle cut the wire with immediate effect -- the Beast was again worthy of its name. Carlisle sued Deere for breach of the warranty it inherited when it purchased the Beast. The district court granted summary judgment to Deere. Carlisle appeals.

In their opinion, Judges Kanne, Evans and Dow affirmed. The issue for the Court on appeal was whether the deficiency noted by Carlisle was covered by the warranty. The warranty covered "defective workmanship" but excluded from its coverage components that were not installed by Deere. Because the PPC is meant to be configured in a number of possible ways depending on the use of the engine it controls, it is manufactured and shipped by Deere in an unconfigured state. The Court concluded, therefore, that the unwanted wire could not be considered defective workmanship. Deere could still be liable if it installed, and configured, the PPC. The only admissible evidence in the record supported Deere's contention that it did not. Carlisle attempted to prove otherwise with his statement that the engine installer had told him that Deere configured the wiring. The Court concluded that the statement was classic hearsay and rejected Carlisle's contention that the installer was either authorized to make the statement or was an agent of Deere's under Rule 801(d).

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MISTER v. NORTHEAST ILLINOIS COMMUTER RAILROAD CORP. (July 9, 2009)

Gary Mister, an employee of Northeast Illinois Commuter Railroad Corp. ("Metra"), was returning to his parked car on a January day in 2005 when he slipped on the ice and fell. Kirk Kroner, Metra's Safety Officer, investigated the accident. At the hospital, he discussed it with two of Mister's supervisors. According to his written report, a similar incident had occurred at the same location a week prior. At trial, the court excluded the report and all related testimony. After a jury found for Metra, Mister appealed.

In their opinion, Judges Bauer, Ripple and Wood affirmed. The Court first addressed the hearsay issue. The Court recognized the party admission exception to the hearsay rule that applies if the statement is made by a party's agent, during the period of agency, and within the subject matter of the agency. The Court found that the report met the party admission exception requirements. Here, the district court excluded the report because she found the statement inherently unreliable. Disagreeing with the district court, the Court noted that reliability was not required for the report to be an admission. Finding a party admission did not end the Court’s inquiry. Under Rule 403, a court may balance the probative value of evidence with its prejudicial effect. Here, although the report was not hearsay, it was based on multiple layers of hearsay and there was no basis to conclude that the accidents did in fact occur in the same place. The Court concluded that the lower court did not abuse its discretion in excluding the report under Rule 403.

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TRUSTEES OF THE CHICAGO PLASTERING INSTITUTE PENSION TRUST v. CORK PLASTERING COMPANY (July 1, 2009)

G&J Plastering Company is a plastering contractor in the Greater Chicago area. Between 1993 and 2002, three different labor unions represented the plastering employees of G&J, including Local 5 of the Journeymen Plasterers' Protective and Benevolent Society of Chicago. The collective bargaining agreements of each union required G&J to make contributions to various union trust funds. Local 5 required the company to contribute based on an employee’s union, regardless of where the work was performed. One of the other unions required the company to make contributions based on work location, not the employee’s union. A union election conducted in 2002 resulted in the termination of Local 5’s representation of the company. In an exit audit, the company disclosed that it had been making contributions based on union membership rather than work location and had no records showing where work was performed. Given this absence of data, Local 5 instructed its auditors to compute the amount owed based on a set of assumptions and a review of the company’s payroll records. The auditors concluded that the company owed in excess of $800,000. Local 5 filed suit. After a three-day bench trial, the court awarded $1.1 million for unpaid contributions plus interest but disallowed the union's request to recover $45,000 in audit costs. Both sides appeal.

In their opinion, Judges Bauer, Rovner and Evans affirmed. The Court considered three issues on appeal: a) the admissibility of the audit report, b) the admissibility of testimony about the report by one of the auditors, and c) the court's refusal to award audit costs. The Court first upheld the admissibility of the audit report. The report itself was not hearsay -- it was merely a summary of the company's payroll data. The assumptions the auditors applied to the data were not secret, were required because of the company's failure to keep records, and were considered by the lower court and accepted in part and rejected in part. The Court also found that the testimony in support of the report proper. The witness, although he was not a field auditor, was in regular contact with them, reviewed their work, and reviewed the final report. His testimony was not an audit opinion and he did not have to be qualified as an expert. Finally, with respect to the audit costs, the Court concluded that the lower court was within its discretion to deny the request when the union failed to provide sufficient supporting documentation (hours spent, individuals performing the work, qualifications of individuals, hourly rates, etc.).

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